Opinion handed down September 25, 2013
http://media.ca8.uscourts.gov/opndir/13/09/122502P.pdf
A subsidiary of
Southern Wine and Spirits of America (“SWSA”) applied for a license for
wholesale distribution of liquor with the Division of Alcohol and Tobacco
Control of the Missouri Department of Public Safety (“the Division”). The
application was denied because Missouri law requires a liquor wholesaler to
meet certain residency requirements and SWSA, a Florida corporation, could not
satisfy these requirements. SWSA sued, arguing that the residency requirement
violated the Commerce Clause because its purpose is simply to discriminate
against out-of-state commerce while insulating in-state enterprises against
competition. The Division responded by arguing that Section 2 of the Twenty-first
Amendment grants states greater power to regulate alcohol distribution than
normally allowed under the Commerce Clause. After considering the interaction
between the Commerce Clause and the Twenty-First Amendment and reviewing the
Supreme Court of the United States’ decisions on the subject, the Eight Circuit
Court of Appeals held that the residency requirement was constitutional.
I. Facts & District Court Holding
In order to obtain a
license to sell liquor at wholesale under Missouri law, a wholesaler must be a
“resident corporation.”[i] In order to qualify as a
resident corporation, an entity must be incorporated under the laws of
Missouri, all of its officers and directors must be “qualified legal voters and
taxpaying citizens of the county…in which they reside” and have been bona fide
residents of the state for at least three years.[ii] Furthermore, at least 60
per cent of the legal and beneficial interest in the corporation must be owned
by resident stockholders.[iii]
A wholly owned
subsidiary of Southern Wine and Spirits of America (“SWSA”) applied for a
wholesale license with the Division of Alcohol and Tobacco Control of the
Missouri Department of Public Safety (“the Division”).[iv] Because SWSA was a
Florida corporation, all of its officers and directors were Florida residents,
and over 51 percent of all shares of the corporation were held by Florida
residents, the Division denied the application because SWSA failed to satisfy
the residency requirement.[v]
SWSA sued the
Division, arguing that the residency requirement is unconstitutional. Specifically,
it argued that the requirement discriminates against out-of-state enterprises
in violation of the Commerce Clause of the U.S. Constitution.[vi] While the Division agreed
that the requirement discriminates against interstate commerce, it argued that
Section 2 of the Twenty-first Amendment supersedes the Commerce Clause and
authorizes such discrimination with regard to alcohol regulation.[vii] The District Court
agreed with the Division and granted summary judgment in its favor.[viii]
III. Legal Background
In deciding this
case, the Eight Circuit began by analyzing the Supreme Court of the United
States’ treatment of alcohol
regulation cases under the Twenty-first Amendment in order to delineate the
scope of that provision.[ix] While noting that the
earliest cases held that the Twenty-first Amendment completely removed state
liquor regulations from Commerce Clause scrutiny, the Court has steadily reined
back this broad interpretation.[x] Most recently, the Court
in Granholm v. Heald[xi]
found that state systems that exempted in-state alcohol producers from certain
distribution requirements constituted “explicit discrimination against
interstate commerce.”[xii] Because the Twenty-first
Amendment “does not displace the rule that States may not give a discriminatory
preference to their own producers,” systems like the one at issue were
unconstitutional.[xiii]
The Eighth Circuit
noted that despite its holding, the Court’s reasoning in Granholm endorsed in-state wholesaler requirements like the one in
effect in Missouri.[xiv] The court pointed out
that Granholm described the tiered
distribution system, and the in-state wholesaler component of such systems, as
“unquestionably legitimate.”[xv] The Eighth Circuit
further distinguished Granholm by
reasoning that the regulations were found unconstitutional because they failed
to treat “liquor produced out of
state the same as its domestic equivalent.”[xvi] Tiered systems are
unconstitutional if they discriminate against out-of-state products, but
in-state wholesaler requirements are part of a state’s “exercise of authority under
the Twenty-first Amendment.”[xvii]
SWSA argued that the
purpose of the residency requirement was simply “mere economic protectionism.”[xviii] In Bacchus Imports, Ltd. V. Dias,[xix] the Supreme Court of the
United States held that “[t]he central purpose of the [Twenty-first Amendment]
was not to favor local industries by erecting barriers to competition.”[xx] While the Eighth Circuit
recognized that alcohol regulations that seek merely to protect in-state
enterprises from competition are unconstitutional, the court held that SWSA had
failed to adduce sufficient evidence of protectionist intent.[xxi] Furthermore, the statute
containing the residency requirement contained a statement of the law’s
purposes, including “to promote responsible consumption, combat illegal
underage drinking,” and other plainly legitimate, non-protectionist purposes.[xxii]
Ultimately, the
Eighth Circuit held the residency requirement constitutional.[xxiii] The Twenty-first
Amendment provides states with greater power to regulate alcohol than other
commerce.[xxiv]
While such regulation cannot be solely for protectionist purposes under Bacchus,[xxv] in-state wholesaler
regulations have been expressly sanctioned by the Supreme Court of the United
States in Granholm.[xxvi] Thus, because
Missouri’s wholesaler residency requirement is not solely for protectionist
purposes and is within the state’s power under the Twenty-first Amendment, the
Eight Circuit held the law constitutional.[xxvii]
II. Instant
Decision
The decision in Southern Wine and Spirits depended on the interaction between the
so-called “dormant Commerce Clause” and section 2 of the Twenty-first
Amendment. The Dormant Commerce Clause refers to an inference drawn from the
Commerce Clause[xxviii]
– which gives Congress the power to regulate interstate commerce – that states
do not have the power to unfairly discriminate against out-of state commerce.[xxix] However, section 2 of
the Twenty-first Amendment provides 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.”[xxx] Thus it would seem that
the Twenty-first Amendment gives states greater power than they would otherwise
have under the dormant Commerce Clause in the area of alcohol regulation.
As the Southern Wine and Spirits court notes,
early United States Supreme Court cases interpreted the Twenty-first Amendment
very broadly,[xxxi]
while more recent cases have seen the Court scaling back its interpretation of
the amendment to harmonize its coverage with the Commerce Clause.[xxxii] The court in Southern Wine and Spirits relied heavily
on the Supreme Court of the United States’ most recent pronouncement on the
issue – Granholm v. Heald.[xxxiii] In that case, the Court
noted that “state regulation of alcohol is limited by the nondiscrimination principle
of the Commerce Clause”[xxxiv] while recognizing that
“States have broad power to regulate liquor under § 2 of the Twenty-first
Amendment.”[xxxv]
Because the laws in question had the effect of favoring in-state producers of
wine over their out-of-state competitors, the Court held that “these
regulations cannot stand…under our Commerce Clause jurisprudence.”[xxxvi]
The Southern Wine and Spirits court used Granholm to reach the opposite conclusion – that Missouri’s
residency requirement for wholesale liquor distributors was constitutional. The
alcohol regulations at issue in Granholm
burdened out-of-state producers of
alcohol while conferring benefits on domestic producers. As the Granholm court held: “State policies are
protected under the Twenty-first Amendment when they treat liquor produced out
of state the same as its domestic equivalent.”[xxxvii] In Southern Wine and Spirits, out of state
producers of alcohol were not burdened by the residency requirement – access to
Missouri’s market for liquor could still be obtained by distributing through a
resident wholesaler. Because the residency requirement treats in-state and
out-of-state products the same, it is within the Twenty-first Amendment’s protection.
Perhaps most on point, the Granholm
court approvingly cites Justice Scalia’s concurrence in North Dakota v. United States,[xxxviii]where he stated that
“[t]he Twenty-first Amendment ... empowers [a state] to require that all liquor
sold for use in the State be purchased from a licensed in-state wholesaler.”[xxxix]
III. Comment
- Keith Holland
[i]
Mo. Rev. Stat. § 311.060.2(3).
[ii]
Id. at § 311.060.3
[iii]
Id.
[iv]
Southern Wine and Spirits, No. 12-2502 at 2.
[v]
Id. at 3.
[vi]
Id. at 4.
[vii]
Id.
[viii]
Id.
[ix]
Id. at 5.
[x]
Id. at 5-6.
[xi]
544 U.S. 460 (2005).
[xii]
Id. at 467.
[xiii]
Id. at 486.
[xiv]
Southern Wine and Spirits at 9.
[xv]
Id. (citing Granholm v. Heald, 544
U.S. 460, 488 (2005)).
[xvi]
Id. (emphasis added).
[xvii]
Id. (quoting Granholm v. Heald, 544
U.S. 460, 466 (2005)).
[xviii]
Id. at 10.
[xix]
468 U.S. 263 (1984).
[xx]
Id. at 276.
[xxi]
Southern Wine and Spirits at 10-12.
[xxii]
Id. at 12-13.
[xxiii]
Id. at 19.
[xxiv]
Id. at 16.
[xxv]
Id. at 12.
[xxvi]
Id. at 16-17.
[xxvii]
Id. at 19.
[xxviii]
U.S. Const. art. 1, § 8, cl. 3.
[xxix]
See, e.g., Or. Waste Sys., Inc. v.
Dep’t of Envtl. Quality of Or., 511 U.S. 93 (1994).
[xxx]
U.S. Const., amend. 21, § 2.
[xxxi]
See, e.g., State Bd. of Equalization
of Cal. v. Young’s Mkt. Co., 299 U.S. 59, 62 (1936) ( holding that the
Twenty-first Amendment removed state liquor regulations from Commerce Clause
scrutiny).
[xxxii]
See, e.g., Cal. Retail Liquor Dealers
Ass’n v. Midcal Aluminum, Inc., 445 U.S. 97 (1980).
[xxxiii]
544 U.S. 460 (2005).
[xxxiv]
Id. at 487.
[xxxv]
Id. at 493.
[xxxvi]
Id.
[xxxvii]
Id. at 489.
[xxxviii]
495 U.S. 423 (1990).
[xxxix]
Id. at 447 (Scalia, J., concurring).
[xl]
Southern Wine and Spirits at 14-15.
[xli]
Id. at 14.
