Clayton Byrd, in his official capacity as Executive Director of the Tennessee Alcoholic Beverage Commission; Tennessee Fine Wines and Spirits, LLC, dba Total Wine Spirits Beer & More; Affluere Investments, Inc., dba Kimbrough Fine Wine & Spirits, Plaintiffs-Appellees,
Tennessee Wine and Spirits Retailers Association, Defendant-Appellant.
Argued: November 30, 2017
from the United States District Court for the Middle District
of Tennessee at Nashville. No. 3:16-cv-02738-Kevin H. Sharp,
Richard L. Colbert, KAY GRIFFIN, PLLC, Nashville, Tennessee,
William J. Murphy, ZUCKERMAN SPAEDER LLP, Baltimore,
Maryland, for Appellee Tennessee Fine Wines and Spirits.
Keith C. Dennen, FARRIS BOBANGO, PLC, Nashville, Tennessee,
for Appellee Affluere Investments.
Richard L. Colbert, John J. Griffin, Jr., Nina M. Eiler, KAY
GRIFFIN, PLLC, Nashville, Tennessee, for Appellant.
William J. Murphy, ZUCKERMAN SPAEDER LLP, Baltimore,
Maryland, Edward M. Yarbrough, W. Justin Adams, BONE
MCALLESTER NORTON PLLC, Nashville, Tennessee, for Appellee
Tennessee Fine Wines and Spirits. Keith C. Dennen, FARRIS
BOBANGO, PLC, Nashville,
Tennessee, for Appellee Affluere Investments. Sarah K.
Campbell, OFFICE OF THE TENNESSEE ATTORNEY GENERAL,
Nashville, Tennessee, for Appellee Clayton Byrd.
Before: DAUGHTREY, MOORE, and SUTTON, Circuit Judges.
NELSON MOORE, Circuit Judge.
Defendant-Appellant Tennessee Wine and Spirits Retailers
Association ("Association") appeals the district
court's order granting summary judgment regarding §
57-3-204(b) of Tennessee Code Annotated. Under §
57-3-204(b), to receive a retailer-alcoholic-beverages
license, a person, corporation, or firm needs to be a
Tennessee resident for at least two years, and to renew a
license, there is a ten-year requirement. After examination,
the district court determined that these durational-residency
requirements violate the dormant Commerce Clause.
reasons discussed below, we AFFIRM the
district court's judgment declaring §
57-3-204(b)(2)(A), (3)(A)-(B), and (3)(D) in violation of the
dormant Commerce Clause and SEVER those
provisions from the Tennessee statute.
Tennessee, the distribution of alcoholic beverages occurs
through a "three-tier system." Jelovsek v.
Bredesen, 545 F.3d 431, 433 (6th Cir. 2008). "The
Tennessee Alcoholic Beverage Commission ('TABC')
issues separate classes of licenses to manufacturers and
distillers, wholesalers, and liquor retailers."
Id. at 433-34 (citing Tenn. Code Ann. §
57-3-201). "Manufacturers are limited to selling to
wholesalers; wholesalers may sell to retailers, or in some
cases other wholesalers; consumers are required to buy only
from retailers." Id. at 434 (citing Tenn. Code
Ann. § 404(b)-(d)).
license from the TABC is required to sell "alcoholic
spirituous beverages, including beer and malt
beverages." Tenn. Code Ann. § 57-3-204(a). However,
to obtain a license, an individual must have "been a
bona fide resident of [Tennessee] during the two-year period
immediately preceding the date upon which application is made
to the commission." Id. §
57-3-204(b)(2)(A). Additionally, the statute imposes a
ten-year residency requirement to renew the license.
corporation faces similar barriers, and it cannot receive a
license "if any officer, director or stockholder owning
any capital stock in the corporation, would be ineligible to
receive a retailer's license for any reason specified in
subdivision (b)(2)." Id. §
57-3-204(b)(3)(A). Moreover, "[a]ll of [a
corporation's] capital stock must be owned by individuals
who are residents of [Tennessee] and either have been
residents of the state for the two (2) years immediately
preceding the date application is made to the commission or,
" for renewal, "has at any time been a resident of
[Tennessee] for at least ten (10) consecutive years."
Id. § 57-3-204(b)(3)(B).
entities-Plaintiff-Appellee Tennessee Fine Wines and Spirits,
LLC, d/b/a Total Wine Spirits Beer & More, and
Plaintiff-Appellee Affluere Investments, Inc., d/b/a/
Kimbrough Fine Wine & Spirits-did not satisfy these
barriers prior to applying for retail licenses. As of
November 2016, Fine Wines's principal address and
Affluere's principal address were outside of Tennessee.
R. 23-2 (Resp. Ex. 2) (Page ID #133); R. 23-3 (Resp. Ex. 3)
(Page ID #134). And Fine Wines's members are not
Tennessee residents. R. 55-1 (Mot. Summ. J. Ex. 1 ¶ 5)
(Page ID #298). Therefore, the TABC deferred voting on these
applications. Id. ¶¶ 13, 15 (Page ID
#299); R. 1-1 (Compl. ¶ 15) (Page ID #7); R. 1-2
(Affluere Answer ¶ 15) (Page ID #38).
the Association, which represents Tennessee's business
owners, discovered that Fine Wines and Affluere had pending
applications, it informed the TABC that litigation was
likely. R. 1-1 (Compl. ¶¶ 2, 16, 17) (Page ID #5,
8); R. 80 (Ass'n Am. Answer ¶¶ 2, 16, 17) (Page
ID #495, 498). Because of these conflicts, Tennessee's
Attorney General filed this action in the Chancery Court for
Davidson County, on behalf of Plaintiff-Appellee Clayton
Byrd, the Executive Director of the TABC, to obtain a
declaratory judgment construing the constitutionality of the
durational-residency requirements. R. 1-1 (Compl. at 1) (Page
ID #4). The Defendant Association removed the case to the
United States District Court for the Middle District of
district court determined that the durational-residency
requirements are unconstitutional. See Byrd v. Tenn. Wine
& Spirits Retailers Ass'n, 259 F.Supp.3d 785,
797-98 (M.D. Tenn. 2017). Based on the statutory language,
the district court found that the durational-residency
requirements are facially discriminatory. See id. at
790. And although the Twenty-first Amendment does give
Tennessee power to regulate alcoholic beverages, the district
court "agree[d] with the Fifth Circuit that 'state
regulations of the retailer and wholesaler tiers are not
immune from Commerce Clause scrutiny just because they do not
discriminate against out-of-state liquor.'"
Id. at 790, 793 (quoting Cooper v. Tex.
Alcoholic Beverage Comm'n (Cooper II), 820 F.3d 730,
743 (5th Cir.), cert. denied sub nom. Tex. Package Stores
Ass'n, Inc. v. Fine Wine & Spirits of N. Tex.,
LLC, --- U.S. ---, 137 S.Ct. 494 (2016)). Additionally,
nondiscriminatory alternatives could achieve the
durational-residency requirements' purposes-citizen
health and alcohol regulation. Id. at 796-97. The
district court therefore determined that Tennessee's
durational-residency requirements violate the dormant
Commerce Clause and granted Fine Wines's motion for
summary judgment. Id. at 797-98.
review de novo a district court's decision to grant
summary judgment, Lenscrafters, Inc. v. Robinson,
403 F.3d 798, 802 (6th Cir. 2005), and we also review de novo
a district court's determination of the constitutionality
of a state statute, Cmtys. for Equity v. Mich. High Sch.
Athletic Ass'n, 459 F.3d 676, 680 (6th Cir. 2006).
Granting summary judgment is appropriate when "there is
no genuine dispute as to any material fact and the movant is
entitled to judgment as a matter of law." Fed.R.Civ.P.
56(a). For this determination, we review all facts in a light
that is most favorable to, and draw all reasonable inferences
in favor of, the nonmoving party. Matsushita Elec. Indus.
Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).
The Twenty-first Amendment Does Not Immunize Tennessee's
the Supreme Court's governing standard, Tennessee's
interests in the durational-residency requirements are not
closely related to its power under the Twenty-first
Amendment. Therefore, the Twenty-first Amendment does not
immunize Tennessee's durational-residency requirements
from scrutiny under the dormant Commerce Clause.
Tennessee's Durational-Residency Requirements in Light of
Granholm and Bacchus
2 of the U.S. Constitution's Twenty-first Amendment
states that "[t]he transportation or importation into
any State, Territory, or possession of the United States for
delivery or use therein of intoxicating liquors, in violation
of the laws thereof, is hereby prohibited." U.S. Const.
amend XXI, § 2. Pursuant to the Twenty-first Amendment,
a state has the power to regulate the distribution of
alcoholic beverages into the state or within its borders.
the Supreme Court afforded the states nearly limitless power
to regulate alcohol under the [Twenty-first Amendment]."
Heald v. Engler, 342 F.3d 517, 522 (6th Cir. 2003),
aff'd sub nom. Granholm v. Heald, 544 U.S. 460
(2005). However, "as early as the 1960s, the Supreme
Court signaled a break with this line of
reasoning." Id. And in 1984, the Supreme
Court reiterated in Bacchus Imports, Ltd. v. Dias,
468 U.S. 263 (1984), that the Commerce Clause limits a
state's power under the Twenty-first Amendment.
Heald, 342 F.3d at 523.
Bacchus, the Supreme Court noted that "[i]t is
by now clear that the [Twenty-first] Amendment did not
entirely remove state regulation of alcoholic beverages from
the ambit of the Commerce Clause." 468 U.S. at 275.
"To draw a conclusion that the Twenty-first Amendment
has somehow operated to 'repeal' the Commerce Clause
wherever regulation of intoxicating liquors is concerned
would . . . be an absurd oversimplification."
Id. (quoting Hostetter v. Idlewild Bon Voyage
Liquor Corp., 377 U.S. 324, 331-32 (1964)). The Supreme
Court stated that "both the Twenty-first Amendment and
the Commerce Clause are parts of the same Constitution and
each must be considered in light of the other and in the
context of the issues and interests at stake in any concrete
case." Id. (quoting Hostetter, 377
U.S. at 332). Additionally, the Supreme Court emphasized that
"[s]tate laws that constitute mere economic
protectionism are therefore not entitled to the same
deference as laws enacted to combat the perceived evils of an
unrestricted traffic in liquor." Id. at 276.
Because of these issues, the Supreme Court stated that a
court needs to consider "whether the interests
implicated by a state regulation are so closely related to
the powers reserved by the Twenty-first Amendment that the
regulation may prevail, notwithstanding that its requirements
directly conflict with express federal policies."
Id. at 275-76 (quoting Capital Cities Cable,
Inc. v. Crisp, 467 U.S. 691, 714 (1984)).
Supreme Court examined Hawaii's tax exemption at the
wholesale tier for okolehao, which is a root from an
indigenous shrub, and pineapple wine in Bacchus.
Id. at 265. The question before the Supreme Court
was "whether the principles underlying the Twenty-first
Amendment are sufficiently implicated by the exemption for
okolehao and pineapple wine to outweigh the Commerce Clause
principles that would otherwise be offended."
Id. at 275. The Supreme Court noted that Hawaii did
"not seek to justify its tax on the ground that it was
designed to promote temperance or to carry out any other
purpose of the Twenty-first Amendment, but instead
acknowledges that the purpose was 'to promote a local
industry.'" Id. at 276. Thus, the Supreme
Court determined that the Twenty-first Amendment did not
immunize Hawaii's law "because the tax violates a
central tenet of the Commerce Clause but is not supported by
any clear concern of the Twenty-first Amendment."
Granholm, the Supreme Court examined whether "a
State's regulatory scheme that permits in-state wineries
directly to ship alcohol to consumers but restricts the
ability of out-of-state wineries to do so violate[s] the
dormant Commerce Clause in light of § 2 of the
Twenty-first Amendment." 544 U.S. at 471. When
considering this question, the Supreme Court stated that
"[s]tate policies are protected under the Twenty-first
Amendment when they treat liquor produced out of state the
same as its domestic equivalent." Id. at 489.
And because the "instant cases" before the Supreme
Court "involve[d] straightforward attempts to
discriminate in favor of local producers . . . [t]he
discrimination [was] contrary to the Commerce Clause and
[was] not saved by the Twenty-first Amendment."
Id. The Supreme Court also reasserted its previous
recognition that "the three-tier system itself is
'unquestionably legitimate.'" Id. at
489 (quoting North Dakota v. United States, 495 U.S.
423, 432 (1990)).
interaction between Bacchus and Granholm
has created some uncertainty. Does scrutiny under the dormant
Commerce Clause apply only when an alcoholic-beverages law
regulates producers or products? And does the Twenty-first
Amendment automatically immunize a state law regarding
retailers and wholesalers of alcoholic beverages? The Second,
Fourth, Fifth, and Eighth Circuits have attempted to
reconcile the cases. Cooper II, 820 F.3d at 743;
S. Wine & Spirits of Am., Inc. v. Div. of Alcohol
& Tobacco Control, 731 F.3d 799, 809, 810 (8th Cir.
2013); Arnold's Wines, Inc. v. Boyle, 571 F.3d
185, 190 (2nd Cir. 2009); Brooks v. Vassar, 462 F.3d
341, 352 (4th Cir. 2006).
example, in Arnold's Wines the Second Circuit
examined a state law allowing in-state licensed retailers to
deliver alcoholic beverages to customers' homes but
preventing out-of-state retailers from doing the same. 571
F.3d at 188. The court stated that "[t]he
Granholm Court set forth the test for determining
the constitutionality of state liquor regulations, "
which was that "[i]f the state measure discriminates in
favor of in-state producers or products, the regulatory
regime is not automatically saved by the Twenty-first
Amendment simply by virtue of the special nature of the
product regulated." Id. at 189. Additionally,
the court reasoned that "[i]t is only where states
create discriminatory exceptions to the three-tier system,
allowing in-state, but not out-of-state, liquor to bypass the
three regulatory tiers, that their laws are subject to
invalidation based on the Commerce Clause." Id.
at 190. Thus, "Appellants' challenge to the ABC
Law's provisions requiring all wholesalers and retailers
be present in and licensed by the state . . . [was] a frontal
attack on the constitutionality of the three-tier system
itself." Id. "Appellants' argument
[was] therefore directly foreclosed by the Granholm
Court's express affirmation of the legality of the
three-tier system." Id. at 190-91.
Southern Wine, the Eighth Circuit examined
Missouri's law requiring a corporation- including its
directors, officers, and super-majority of shareholders-to be
residents of Missouri for three years prior to obtaining a
wholesaler-alcoholic-beverages license. 731 F.3d at 802-03.
When reviewing "the current state of the relationship
between the dormant Commerce Clause and the Twenty-first
Amendment, " the Eighth Circuit noted that, "in its
most recent pronouncement on the subject, the Supreme Court
simultaneously cited Bacchus and said that
'state policies are protected under the Twenty-first
Amendment when they treat liquor produced out of the state
the same as its domestic equivalent.'" Id.
at 809 (citing Granholm, 544 U.S. at 489).
"Given Granholm's recency and specificity,
" the court decided that Granholm provided the
"best guidance." Id. The Eighth Circuit
concluded that "[i]f it is beyond question that States
may require wholesalers to be 'in-state' without
running afoul of the Commerce Clause, then . . . States have
flexibility to define the requisite degree of
'in-state' presence to include the in-state residence
of wholesalers' directors and officers, and a
super-majority of their shareholders." Id. at
810 (citation omitted). "Insofar as Granholm
imported [Bacchus's] balancing approach to
regulations of the three-tier system, . . . it drew a bright
line between the producer tier and the rest of the
system." Id. Therefore, in the view of the
Eighth Circuit, the residency requirement for
alcoholic-beverages wholesalers did not violate the dormant
Commerce Clause. See id. at 809.
the Fifth Circuit determined that Bacchus is still
good law. In Cooper II, the defendant, a Texas trade
association, moved for relief from an injunction under
Federal Rule of Civil Procedure 60(b) on the ground that
Granholm created a significant change in the law
since the Fifth Circuit enjoined a state durational-residency
requirement in Cooper v. McBeath (Cooper I), 11 F.3d
547 (5th Cir. 1994). Cooper II, 820 F.3d at 734,
742. However, the Fifth Circuit disagreed. After examining
the language in Granholm, the Fifth Circuit held
that Granholm did not overrule or alter
Bacchus. Id. at 742. And regarding
Granholm's statement that "state policies
are protected under the Twenty-first Amendment when they
treat liquor produced out of state the same as its domestic
equivalent, " the Fifth Circuit determined that this
statement did not limit scrutiny under the Commerce Clause to
producers because the statement was dicta. Id. at
743. Instead, the Fifth Circuit "interpreted
[Granholm] as reaffirming the applicability of the
Commerce Clause to state alcohol regulations, but to a lesser
extent when the regulations concern the retailer or
wholesaler tier as distinguished from the producer tier, of
the three-tier distribution system." Id.
the Fifth Circuit's reconciliation of Bacchus
and Granholm persuasive for six reasons. First, the
Supreme Court explicitly declined to overrule
Bacchus in Granholm. Second, in
Granholm, the Supreme Court reiterated
Bacchus's concern about the protection of
economic interests across state lines, suggesting that the
Twenty-first Amendment does not automatically immunize a
state's alcoholic-beverages law regarding wholesalers or
retailers. Third, the Supreme Court emphasized that the
Twenty-first Amendment does not permit a state to
discriminate on the basis of citizenship; accordingly, the
flow of products across state lines is not the sole concern
under the dormant Commerce Clause. Fourth, the Supreme Court
again stated that the Commerce Clause limits the Twenty-first
Amendment. Fifth, the Supreme Court also stated that there
are times when the three-tier system is invalid. And lastly,
Granholm did not limit its application of the
Commerce Clause to alcoholic-beverages laws regarding
producers.Thus, Bacchus and
Granholm are reconcilable.
the Supreme Court in Granholm explicitly declined to
overrule Bacchus; therefore, the reasoning in
Bacchus still stands:
Recognizing that Bacchus is fatal to their position,
the States suggest it should be overruled or limited to its
facts. As the foregoing analysis makes clear, we decline
their invitation. Furthermore, Bacchus does not
stand alone in recognizing that the Twenty-first Amendment
did not give States complete freedom to regulate where other
constitutional principles are at stake. A retreat from
Bacchus would also undermine Brown-Forman
and Healy. These cases invalidated state liquor
regulations under the Commerce Clause. Indeed, Healy
explicitly relied on the discriminatory character of the
Connecticut price affirmation statute. 491 U.S., at 340-41.
Brown-Forman and Healy lend significant
support to the conclusion that the Twenty-first Amendment
does not immunize all laws from Commerce Clause challenge.
Granholm, 544 U.S. at 488. Clearly, the Supreme
Court refused to overrule Bacchus or limit
Bacchus to its facts.
in Granholm, the Supreme Court focused on a general
Commerce Clause principle-the prohibition of discrimination
against out-of-state economic interests. The Court began by
discussing this general principle: "[t]ime and again
this Court has held that, in all but the narrowest
circumstances, state laws violate the Commerce Clause if they
mandate 'differential treatment of in-state and
out-of-state economic interests that benefits the
former and burdens the latter.'" Id. at 472
(emphasis added) (quoting Or. Waste Sys., Inc. v.
Dep't of Envtl. Quality, 511 U.S. 93, 99 (1994)).
"When a state statute directly regulates or
discriminates against interstate commerce, or when its effect
is to favor in-state economic interests over
out-of-state interests, [the Supreme Court has] generally
struck down the statute without further
inquiry." Id. at 487 (emphasis added)
(quoting Brown-Forman, 476 U.S. at 579).
the Supreme Court also discussed the general principle that a
state cannot bar out-of-state citizens from engaging in its
economy; thus, a state's alcoholic-beverages law is not
automatically valid just because it "treat[s] liquor
produced out of state the same as its domestic
equivalent." Id. at 489. The Supreme Court
stated that "[t]he rule prohibiting state discrimination
against interstate commerce follows also from the principle
that States should not be compelled to negotiate with each
other regarding favored or disfavored status for their own
citizens." Id. at 472. Laws cannot
"deprive citizens of their right to have access to the
markets of other States on equal terms." Id. at
473. Additionally, the Supreme Court has "viewed with
particular suspicion state statutes requiring business
operations to be performed in the home State that could more
efficiently be performed elsewhere." Id. at
475. For instance, in Granholm, the Supreme Court
stated that "New York's in-state presence
requirement runs contrary to [the Supreme Court's]
admonition that States cannot require an out-of-state firm
'to become a resident in order to compete on equal
terms.'" Id. at 475 (first quoting
Halliburton Oil Well Cementing Co. v. Reily, 373
U.S. 64, 72 (1963); and then citing Ward v.
Maryland, 12 Wall. 418 (1871)). Therefore, scrutiny
under the dormant Commerce Clause is not limited to laws
the Supreme Court again emphasized in Granholm that
the Commerce Clause limits a state's power under the
Twenty-first Amendment. According to the Court, "[t]he
central purpose of the [Twenty-first Amendment] was not to
empower States to favor local liquor industries by erecting
barriers to competition." Id. at 487 (quoting
Bacchus, 468 U.S. at 276). Regardless of the
Twenty-first Amendment, "state regulation of alcohol is
limited by the nondiscrimination principle of the Commerce
Clause." Id. (first citing Bacchus,
468 U.S. at 276; then citing Brown-Forman, 476 U.S.
at 573; and then citing Healy v. Beer Inst., 491
U.S. 324 (1989)). Therefore, in Granholm, the
Supreme Court continued to recognize that the Commerce Clause
does limit the Twenty-first Amendment.
a state's alcoholic-beverages law is not immune simply
because it is part of a three-tier system. In
Granholm, New York and Michigan "argue[d] that
any decision invalidating their direct-shipment laws would
call into question the constitutionality of the three-tier
system." Id. at 488. But the Supreme Court
disagreed, noting that, although three-tier systems are
"unquestionably legitimate, " those systems are not
valid when they "involve straightforward attempts to
discriminate in favor of local producers." Id.
at 488, 489. Based on this language, a state's
alcoholic-beverages law is not automatically valid simply
because it addresses a portion of a three-tier
lastly, the Supreme Court did not state that the Commerce
Clause applies only to alcoholic-beverages laws regarding
producers. The statement that "[s]tate policies are
protected under the Twenty-first Amendment when they treat
liquor produced out of state the same as its domestic
equivalent" must be read in its context. Id. at
489. The Supreme Court wrote the full paragraph as follows:
The States argue that any decision invalidating their
direct-shipment laws would call into question the
constitutionality of the three-tier system. This does not
follow from our holding. "The Twenty-first Amendment
grants the States virtually complete control over whether to
permit importation or sale of liquor and how to structure the
liquor distribution system." Midcal, supra, at
110. A State which chooses to ban the sale and consumption of
alcohol altogether could bar its importation; and, as our
history shows, it would have to do so to make its laws
effective. States may also assume direct control of liquor
distribution through state-run outlets or funnel sales
through the three-tier system. We have previously recognized
that the three-tier system itself is "unquestionably
legitimate." North Dakota v. United States, 495
U.S., at 432. See also id., at 447 (Scalia, J.,
concurring in judgment) ("The Twenty-first Amendment . .
. empowers North Dakota to require that all liquor sold for
use in the State be purchased from a licensed in-state
wholesaler"). State policies are protected under the
Twenty-first Amendment when they treat liquor produced ...