Friday, September 27, 2013

Eighth Circuit Upholds State Residency Requirement for Liquor Wholesalers

The Eighth Circuit this week in Southern Wine and Spirits of America, Inc. v. Division of Alcohol and Tobacco Control upheld Missouri's requirement that liquor wholesalers reside in Missouri against a dormant Commerce Clause challenge.  The ruling means that Missouri's law stays on the books, at least for now.

The case pitted the equal treatment requirement of the dormant Commerce Clause against the state's authority to regulate alcohol under the Twenty-first Amendment.  In the Supreme Court's last foray into that area, in Granholm v. Heald, the Court struck a state law allowing in-state wineries to ship their products directly to in-state consumers, but requiring out-of-state wineries to sell through wholesalers.  The law meant that in-state wineries could sell their wine at lower costs.  The Court said that "the Twenty-first Amendment does not supersede other provisions of the Constitution and, in particular, does not displace the [dormant Commerce Clause] rule that States may not give a discriminatory preference to their own producers."  

But the Supreme Court also noted that its holding didn't call into question the constitutionality of the three-tier distribution system set by the state--producers, wholesalers, and retailers.  In particular, it wrote (in dicta) that the three-tier distribution system is "unquestionably legitimate" and that the system includes the "licensed in-state wholesaler."  It also wrote that state policies that define the structure of the liquor distribution system--and that give equal treatment to in-state and out-of-state liquor products and producers--are "protected under the Twenty-first Amendment."

Missouri's law requires wholesalers to be "resident corporation[s]."  That means that the corporation has to be incorporated under Missouri law, all of its officers and directors must be residents of Missouri for at least three years, and resident stockholders must own at least 60 percent.  The law has a grandfather clause, exempting licensed wholesalers as of January 1, 1947.  (There is currently just one such wholesaler.)

The Eighth Circuit upheld the law against the dormant Commerce Clause challenge.  In particular, the court held that there was no evidence of protectionist intent.  And it said that under Granholm the law didn't discriminate against out-of-state products or producers, and that under Granholm states could require wholesalers to be "in-state."  

The court held that Missouri's law easily passed the "deferential scrutiny" that Granholm says applies to state policies defining the distribution system.  It said that the legislature could have believed that a wholesaler governed by Missouri residents might be more socially responsible and promote temperance, and that Missouri residents might be more likely to respond to concerns of the community.  The court also said that the legislature could have concluded that in-state residency promotes law enforcement.

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