Sixth Circuit Court of Appeals Strikes Down Residency Requirement for Tennessee AlcoholicBeverage Licensees

Sixth Circuit Court of Appeals Strikes Down Residency Requirement for Tennessee Alcoholic Beverage Licensees

      In a decision rendered February 21, the 6^th Circuit Court of Appeals affirmed the decision of the trial court that declared unconstitutional, on Commerce Clause grounds, Tennessee statutes imposing residency requirements with respect to licensees. Byrd v. Tennessee Wine and Spirits Retailers Association, No. 17-5552 (5^th Cir. Feb. 21, 2018).

      Tennessee had a statute that imposed broad residency requirements on those who would seek to have a license to manufacture, distribute or sell alcoholic beverages. With respect to an individual, Tennessee required that an individual seeking a license must have “been a bona fide resident of [Tennessee] during the two-year period immediately preceding the date on which the application is made to the commission.” Tenn. Code § 57-3-204(b)(2)(A). With respect to corporations seeking a license, it was required that that same two-year bona fide residency requirement be applied to any officer, any director and any stockholder. Two prospective licensees challenged these statutes on the grounds that they impede interstate commerce. In effect, in order to receive a license, a person would need to move to Tennessee and be resident there for two years before filing. With respect to corporate entities, that requirement would apply to all of the perspective officers, directors and shareholders.

      There exist a tension, recognized through a long string of cases, between the 21st Amendment and the Commerce Clause. The 21st Amendment vests in the states the ability to regulate the manufacture and trade in alcoholic beverages. In contrast, the Commerce Clause invalidates state efforts to erect protectionist barriers, treating inter-state commerce differently than intra-state commerce. Of most recent vintage, in Granholm v. Heald, the Supreme Court declared invalid state statutes that allowed intra-state shipments of wine while forbidding inter-state shipments. This is a topic I previously considered, including in an article co-written with Micah C. Daniels, Who's Selling the Next Round: Wines, State Lines, the 21st Amendment and the Commerce Clause, 33 N. Ky. L. Rev. 1 (2006).

      In this instance, affirming the determination of the trial court, the 6^th Circuit Court of Appeals found that these residency requirements violated the Commerce Clause. There was a dissenting opinion, and it is noteworthy that the majority decision responded to (and in my view refuted) the dissent in a series of detailed footnotes distributed throughout the opinion.

      Ultimately, this is yet another opinion confirming that states do not have unilateral authority to impose restrictions on the alcoholic beverage industry that have the effect of impacting inter-state commerce, restrictions applicable not only to the alcoholic beverages themselves, but also the privilege of engaging in that industry.