According to established state law, to obtain a license to sell alcohol in Tennessee, one must be a resident for at least two years. But confusingly, to renew that license, which business must do annually, they must be a resident for at least ten years.
Tennessee’s attorney general has twice stated that the residency requirement for an off-premise license was in violation of the U.S. Constitution because it runs afoul of the Commerce Clause, which gives the federal government the right to regulate interstate commerce. Due to this, enforcement has remained inconsistent.
The Tennessee Wine and Spirits Retailers Association (TWSRA), which represents some 500 retailers in the state and supports the residency requirement, threatened to sue the Tennessee Alcoholic Beverage Commission (ABC) if they granted licenses to newcomers Doug and Mary Ketchum, as well as and Total Wine and Spirits. The licenses were denied.
Threatening Small Businesses
When the Ketchums bought Kimbrough Fine Wine & Spirits in April 2016 in Memphis, it seemed to be the answer to their pressing needs. They had been living in Salt Lake City, Utah, which is ringed by mountains that trap the cold and the pollution. Their daughter Stacie, who suffers from cerebral palsy, almost died in 2015.
“Sometimes the pollution is so bad, you can’t even see across the street,” said Doug. “She caught pneumonia and her lungs collapsed, and filled with liquid. The doctor told us he didn’t think she would make it another year unless we could find a healthier environment.”
The couple took their retirement money and looked for something that could give them more flexibility to spend time with their daughter. Doug, a network engineer, and Mary, a network technician, had never owned a business and had only a consumer’s knowledge of the alcoholic beverage industry.
But Memphis had clean air. Once the previous owner of Kimbrough assured the Ketchums that the general manager, who had been with him for 20 years, would stay on, they quickly reached a selling price.
They were still in Salt Lake when the city approved their application, and they got word from the ABC that their license would be approved and not affected by the state’s 10-year residency period.
The 21st Amendment v. Commerce Clause
The TWSRA made good on their threat and sued Total Wine, the Ketchums and the ABC. The association argued that the 21st Amendment, ending Prohibition, gives states the right to regulate liquor sales by granting retail or wholesale licenses only to individuals or entities that have resided in-state for a specified time. The 21st Amendment therefore outweighed the Commerce Clause. Early court rulings disagreed.
“So, we went to federal district court, and we won there,” said Doug. “Then the [TWSRA] appealed it to the [U.S.] circuit court and we won there.”
If TWSRA had won, the number of big-box liquor stores and small mom-and-pop retailers would have been severely limited, thereby cutting competition and preventing consumers from getting perhaps better or different wines at lower prices.
To the Supreme Court
Along the way, the Ketchums got their license, as did Total Wine and Spirits. “But then it went to the Supreme Court and there was no way we could afford that,” said Doug.
So while groups like Wine and Spirits Wholesalers of America, National Conference of State Legislatures, National Beer Wholesalers Association, Cato Institute and Consumer Action along with at least 10 others were filing friend-of-the-court briefs, backing one side or the other, the Ketchums had to bow out.
It was not until the Institute for Justice, volunteered to represent them pro bono that the Ketchums could participate and have their day in the Supreme Court, which is set for January 16.
“We took this case because it’s an incredibly important opportunity to make clear that states cannot discriminate against out-of-staters or newly arrived residents,” said Michael Bindas, attorney at the Institute for Justice. “The Constitution protects the right of all Americans, whether out-of-state Americans or newly arrived state residents to engage in trade and Tennessee’s laws are abridging that right.”
A representative for Total Wine and Spirits said the company never comments on ongoing litigation as a matter of policy. The Tennessee Wine and Spirits Retailers Association also did not return emails seeking a comment.
Oral arguments in the U.S. Supreme Court case, No. 18-96, Tennessee Wine and Spirits Retailers Association vs. Clayton Blair, et al., are scheduled for Wednesday, January 16.