This month marks the twentieth anniversary of the seminal Granholm v. Heald case, during which the US Supreme Court docket struck down protectionist alcohol transport legal guidelines that discriminated in opposition to out-of-state wineries. Seen on the time as a harbinger of a very nationwide e-commerce market for alcoholic drinks, Granholm continues to be handled extra like a authorized inconvenience than a binding precedent by decrease courts.
In Granholm, quite a few wineries challenged a Michigan regulation that allowed in-state wineries to ship on to state residents however required out-of-state wineries to promote their merchandise by way of wholesalers. As a result of the case was a consolidation of a number of authorized challenges, it additionally concerned a New York regulation that solely permitted out-of-state wineries to interact in direct-to-consumer transport if that they had a “department manufacturing unit, workplace or storeroom inside the state of New York.”
In a 5–4 resolution, the Supreme Court docket struck down each legal guidelines as a violation of the so-called “dormant Commerce Clause,” which establishes the precept that state governments can’t blatantly favor in-state financial pursuits by discriminating in opposition to out-of-state financial actors.
Importantly, the regulation ushered in a number of state-level legislative victories that allowed wineries to ship their merchandise on to their buyer base, thereby circumventing the infamous three-tier system of alcohol regulation.
Regardless of almost at all times being referred to as a “landmark” ruling, Granholm has been handled extra on par with an obscure Nineteenth-century SCOTUS case that has lengthy since been reversed. Within the years instantly following Granholm, the so-called Arnold’s Wine line of instances—named after the Second Circuit’s Arnold’s Wines, Inc. v. Boyle case—got here out, during which decrease federal courts successfully restricted the Supreme Court docket’s Granholm resolution to alcohol producers (not retailers).
Different federal courts rejected such a cramped studying of the Granholm precedent, and finally, the dispute pressured the Supreme Court docket to weigh in once more within the 2019 case Byrd v. Tennessee Wine & Spirits Retailers Affiliation. In Tennessee Wine, the Court docket held—this time by a 7–2 vote—{that a} Tennessee regulation requiring liquor retailer homeowners to have been residents of the state for a minimum of two years earlier than making use of for a license was unconstitutional. Once more, the rationale was primarily based on the truth that states weren’t permitted to discriminate in opposition to out-of-state financial pursuits except there was a correct well being and security purpose to take action.
As lawyer Sean O’Leary put it, the Court docket’s majority opinion—penned by Justice Samuel Alito—”put to relaxation any ambiguity on the attain of Granholm.” Besides, someway, it apparently did not, as a result of decrease courts nearly instantly began to disregard the Court docket as soon as once more.
Decrease courts have coalesced round what has been known as the Tennessee Wine Two-Step Take a look at: 1. Does the alcohol regulation at concern both facially or successfully discriminate in opposition to out-of-state financial pursuits? 2. In that case, is the discrimination nonetheless permissible by serving a “respectable, non-protectionist curiosity” (corresponding to defending well being and security)?
Decrease courts are creatively utilizing these inquiries to primarily manufacture workarounds for each Granholm and Tennessee Wine.
In 2022, a panel of the 4th U.S. Circuit Court docket of Appeals upheld a North Carolina regulation that allowed in-state retailers to ship wine to North Carolina shoppers however forbade out-of-state retailers from doing the identical. Though the court docket agreed that the regulation at concern was clearly discriminatory in opposition to out-of-state financial pursuits, it seized upon the second prong of the two-step, holding {that a} state defending its system of alcohol regulation was in and of itself “a respectable non-protectionist floor” for the regulation.
The ninth Circuit just lately went even additional. Listening to a problem to an Arizona regulation that requires wine retailers to have an in-state bodily presence as a way to have interaction in interstate direct-to-consumer shipments inside the state, the court docket dominated that the regulation wasn’t even discriminatory. Underneath the court docket’s reasoning, “establishing a bodily storefront in Arizona just isn’t a ‘per se burden on out-of-state corporations'” as a result of the power to ascertain such a storefront relies “on an organization’s assets and enterprise mannequin, not its citizenship or residency.”
The ninth Circuit’s rationale is already spreading, with a district court docket in Washington State utilizing the choice as a foundation to now conclude {that a} Washington regulation that discriminates in opposition to out-of-state distilleries in favor of in-state distilleries is equally permissible.
Misplaced in all of the authorized slicing and dicing of those post-Granholm and post-Tennessee Wine instances is the straightforward actuality that they are clearly ignoring the primary import of those choices. As Alito famous in Tennessee Wine, “the Commerce Clause didn’t allow the States to impose protectionist measures clothed as police-power rules.”
Sadly, that seems to be precisely what states are doing—and so they’re being readily rubber-stamped by keen federal judges. “The selections preserve getting stranger and stranger,” as O’Leary put it in an interview with Wine-Searcher. “I actually thought this concern was put to relaxation when Alito wrote Tennessee Wine. He wrote that Granholm applies to everybody. It was a 7–2 ruling. I believed that was the top of it.”
States embracing protectionism and clearly thwarting earlier rulings might pressure the Supreme Court docket to step in as soon as once more.
