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WHAT HATH GRANHOLM WROUGHT

Justice Kavanagh has joined the United States Supreme Court and is expected to join in decisions explaining just how far the Granholm decision will reach.

In  Granholm v. Heald, 544 U.S. 460 (2005), the Supreme Court ruled that Michigan and New York laws permitting direct shipment of wine from in-state wineries, but forbidding the same from out-of-state wineries, violated the Commerce Clause. At the same time, Justice Kennedy, writing on behalf of the Court noted, “We have previously recognized that the three-tier system itself is unquestionably legitimate.  State policies are protected under the Twenty-first Amendment when they treat liquor produced out of state the same as its domestic equivalent.”

Section Two of the Twenty-first Amendment to the United States Constitution provides, “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.”  However,   The Commerce Clause gives Congress the power “[t]o regulate Commerce with foreign Nations, and among the several States.” U.S. Const., art. I, § 8, cl. 3. The United States Supreme Court has “interpreted the Commerce Clause to invalidate local laws that impose commercial barriers or discriminate against an article of commerce by reason of its origin or destination out of state.” C & A Carbone, Inc., v. Town of Clarkstown, N.Y., 511 U.S. 383, 390 (1994). Relatedly, the Commerce Clause “encompasses an implicit or ‘dormant’ limitation on the authority of the States to enact legislation affecting interstate commerce.” Healy v. The Beer Institute, Inc., 491 U.S. 324, 326 n.1 (1989).

Granholm deals with the tension between the Twenty-first Amendment and the dormant Commerce Clause of the United States Constitution.

As noted, Granholm struck down laws that allowed in-state wineries to ship to consumers but denied that privilege to out of state wineries.   Since Granholm was decided, retailers have argued that laws allowing in state retailers to deliver to consumers but ban out or state retailers from doing so violate the Commerce Clause.

Recently, the U.S. Supreme Court has agree to review Tennessee Wine & Spirits vs. Byrd Clayton in which the District Court ruled that Tennessee’s residency requirements for retail licenses violated the Commerce Clause. Although the State of Tennessee did not appeal District Court’s decision striking down the law, Tennessee Wine and Spirits Retailers Association did.  The Association argued that Granholm distinguishes between laws that regulate the manner in which alcoholic beverages are sold within a state from those that discriminate between products made within and without the state. In its brief the Association argued:

This Court later emphasized in Granholm, however, that “state policies” that define the structure of a three-tier distribution system “are protected under the Twenty-first Amendment when they treat liquor produced out of state the same as its domestic equivalent.”  544 U.S. at 489.  Granholm thus distinguished between discrimination against out-of-state products, which the dormant Commerce Clause prohibits, and a State’s decisions about “how to structure the liquor distribution system” within its borders, over which “[t]he Twenty-first Amendment grants the States virtually complete control.”  Id. at 488.  Indeed, all nine Justices agreed that States have virtually plenary authority over structuring a three-tier liquor distribution system, at least as long as they provide equal treatment to liquor produced in and out of state.  See id.; see also id. at 518 (Thomas, J. dissenting).

Whether a state has the right to require a brick and mortar location within its borders as a condition of delivering alcoholic beverages to consumers was also raised in Lebamoff Enterprises, Et. Al. v. Snyder, Et. Al. in which Judge Arthur J. Tarnow of the United States District Court ruled that a Michigan statute discriminated against out of state retailers and violated the Commerce Clause because it allowed package stores within the state to use third party delivery services but forbade out of state retailers from doing the same.

The fate of many wholesalers and retailers may be decided by the Supreme Court in the near future.

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