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Theodore A. Gebhard*

In a case pitting Sec. 2 of the 21^st Amendment against the Dormant Commerce Clause for which the U.S. Supreme Court has granted certiorari, I along with four others acting as amici curiae, filed an amicus brief (Brief for Law & Economics Scholars) on Dec. 20.  The case involves the constitutionality of a Tennessee state statute that requires applicants for licenses to sell alcoholic beverages at retail within the state to have been residents of Tennessee for the two years prior to the granting of the license.  The two year durational residency requirement applies equally to individuals and to officers and directors of corporate applicants. The petitioner in the case is the Tennessee Wine and Spirits Retailers Association (TWSRA), a trade association representing Tennessee wine and liquor stores and other retailers of alcoholic beverages.  The respondent is the Tennessee Alcoholic Beverage Commission (TABC), which is the entity that issues the required licenses.

The litigation began in 2016.  Prior to that time, Tennessee’s durational residency requirements were more onerous and included, in addition to the two year residency requirement for a new license, a requirement that an applicant for an annual license renewal have been a Tennessee resident for the previous ten consecutive years.  For corporate applicants, the two year residency requirement for a new license applied not only to officers and directors but also to all shareholders, and the ten year residency requirement for license renewals similarly applied to all officers, directors, and shareholders.

After being advised by Tennessee’s Attorney General that these residency requirements were unconstitutional because they impermissibly discriminated against out-of-state persons, TABC issued retail licenses to two corporate applicants who had not met the residency requirements.  TWSRA sued TABC, challenging the legality of those licenses on the grounds that Sec. 2 of the 21^st Amendment provides states with broad powers to regulate the sale of alcoholic beverage to consumers in the interest of health and safety and that these powers trump any incidental discrimination against out-of-state persons.

The 21^st Amendment, ratified in 1933, repealed the 18^th Amendment which outlawed the manufacture, sale, and transportation of alcoholic beverages, otherwise known as the Prohibition Amendment.  Sec. 2 of the 21^st Amendment states:

“The 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.”

The case was removed to federal district court where it was tried.  The district court, relying on Dormant Commerce Clause case law, found the durational residency requirements unconstitutional and struck down each of them.  Byrd v. Tennessee Wine and Spirits Retailers Assn., 259 F. Supp. 3d 785, 797 (2017).  TWSRA appealed to the Sixth Circuit which affirmed the district court’s holding.  Byrd v. Tennessee Wine and Spirits Retailers Assn., 883 F. 3d 608 (2018)  TWSRA then appealed to the U.S. Supreme court, but only with regard to the question of the constitutionality of the more limited two year durational residency requirement for new individual applicants and for officers and directors (but not shareholders) of corporate applicants. The Supreme Court granted certiorari on September 27 of this year.

In the Law & Economics Scholars brief, the amici curiae use public choice economics, which analyzes how special interest groups use government policy to advance their own economic interests, to show that Tennessee’s durational residency requirements have no legitimate purpose other than to benefit incumbents at the expense of consumers’ and potential competitors’ interests.  The requirements’ existence results from a classic case of rent-seeking by those incumbent retailers.  We conclude that, if the Court upholds the constitutionality of the durational residency requirements, it would open the door to rent-seeking on a massive scale.

Andrew M. Grossman of the Baker & Hostetler law firm served as Counsel of Record for us on the brief. The entire brief is available to read here:  Brief for Law & Economics Scholars as Amici Curiae. 

* Theodore A. Gebhard is an attorney and economist.  See his mini-bio on the Contributors page.