Tag Archives: Tennessee retailer decision

Federal appeals court slaps down Texas Walmart liquor stores

Texas Walmart liquor storeDoes the appeal court’s Texas Walmart liquor store ruling diss the Supreme Court?

Remember the Supreme Court’s June Tennessee decision about out-of-state retailers?

That’s the one that was supposed to free us from the shackles of the antiquated, Prohibition-era three-tier system of liquor regulation. If so, the U.S. Fifth Circuit of Appeals wasn’t paying attention. It ruled last week that a Texas law that forbids public companies like Walmart from owning liquor stores may not be unconstitutional.

In other words, Tennessee can’t discriminate against out-of-state retailers, but Texas may be able to discriminate against publicly-owned retailers.

Arghhhhhhhhhhhhhhhh.

“We could be right back at the Supreme Court,” says Taylor Rex Robertson, an attorney with Haynes and Boone in Dallas. “The appeals court may have taken the easy way out.”

In this, Robertson says, the appeals court didn’t exactly rule that the Texas law is constitutional. Instead, it disagreed with the way the trial court judge analyzed the case and applied the law. Rather than make a decision, the appeals court sent the case back to the trial judge to do what needs to be done to analyze the case correctly. Call this a technicality, but one of the technicalities that oils the gears of the legal system.

And why not a technicality, since this is three-tier? If anything, the almost totally unexpected decision in the Texas Walmart liquor store case proves just how resilient three-tier is. Because it was a shock; the trial court had called the Texas law “irrational.”

Controversy, controversy, controversy

Still, it’s not like these kinds of contradictory decisions are unusual. In 2005, the Supreme Court ruling that allowed wineries to ship directly to consumers was supposed to end three-tier’s stranglehold. Until it didn’t.

Or, as a friend of mine put it: “Precedent? There’s no such thing as precedent when it comes to three-tier.”

Legally, the two decisions weren’t about exactly the same thing, even if an out-of-state retailer and a publicly-held retailer may seem to be pretty much alike to those of us who buy wine. But in the convoluted and tortured system that was set up to keep Al Capone out the liquor business after Prohibition, they’re vastly different. (Which, without boring you with legal-ese, is sort of why the appeals court did what it did.)

Hence, the Supreme Court ruled that barring out-of-state retailers wouldn’t necessarily promote the health and safety of Tennessee residents, which is the litmus test for a law’s constitutionality. The Supremes said an out-of-state retailer could just as effectively promote the health and safety as a local retailer. But in the Texas Walmart liquor store case, the appeals court said that there is no evidence that publicly-held retailers couldn’t promote the health and safety of Texas residents as effectively as privately-held companies could.

In other words, a Total Wine employee in Tennessee would card underage shoppers, fill out the state’s booze-related paperwork, and buy only from approved wholesalers more effectively than a Walmart employee in Texas would.

Arghhhhhhhhhhhhhhhh.

No, I don’t know what’s going to happen next. The only certainty, says Robertson, is that the Texas Walmart liquor store saga isn’t gon away anytime soon. What I do know is that whatever glimmer of hope we had that it would be easier to buy wine in the near future has glimmered away.

Drawing courtesy of Peter Hudspith via Flickr using a Creative Commons license

What’s next for three-tier after the Supreme Court’s Tennessee retailer decision?

Tennessee retailer decisionDon’t make too many bets three-tier will open up after the Tennessee retailer decision; we’ve been down that road before

The cyber-ether has been awash with confident pronouncements since the U.S. Supreme Court’s Tennessee retailer decision, which struck down a law that limited who could own a liquor store in that state. Many predicted the beginning of the end of the antiquated and restrictive three-tier system that regulates alcohol sales in the U.S.: “Consumers could benefit from Supreme Court ruling,” “Supreme Court hands retailers a big win,” and so on. One of the smartest people in the wine business even said we should see these pro-consumer changes quickly.

Don’t bet on it.

I’ve spent the three weeks since the Tennessee retailer decision interviewing attorneys who practice liquor law, analysts, and other knowledgeable people. And their consensus, almost to the syllable: The Tennessee retailer decision may be a big deal at the moment, but don’t expect much to change about three-tier — and it’s not going to get easier for us to buy wine.

“I don’t see this ruling going much farther,” says Tucker Herndon, an attorney in Nashville who is the office managing partner of Burr & Forman LLP. “I don’t think it’s going to open the floodgates, and I don’t think it’s going to give us a regulatory system without a lot of limitations.”

The Supreme Court ruling said Tennessee couldn’t impose a residency requirement on liquor store owners because such a requirement didn’t promote the public health and safety. All it did, said the ruling, was shield local retailers from competition from national and regional chains. In fact, residency laws are common in in the retail booze business for just that reason, and we’ve had one in Texas in one form or another for years.

The 21st Amendment, which repealed Prohibition, allows the states to regulate alcohol sales as long as the states are promoting the public health and safety. Hence, the Tennessee law ran afoul of the Constitution’s Commerce Clause, which says states can’t favor their residents ahead of people from other states unless there is a very good reason, like public health and safety.

Nothing new about this test

Hence, what seems to a litmus test for the three-tier system. But the attorneys I talked to said that public health and safety has always been a litmus test, and it’s a long way from the Tennessee retailer decision to Internet wine sales. That’s what many analysts are predicting in the wake of the decision: That we will be able to buy wine from any retailer anywhere in the country with the click of a computer mouse.

The attorneys and analysts cited three reasons for their pessimism:

First, the decision didn’t really do anything but overturn a bad law that even the state of Tennessee didn’t think much of. The state attorney general didn’t appeal the lower court ruling; the state’s liquor retailer trade group did because the attorney general didn’t think the law was defensible.

Second, says Herndon, the decision is about retailer residency – nothing more. That someone doesn’t need to be a Tennessee resident to get a retail liquor license to open a store in Tennessee doesn’t mean that someone who doesn’t live in Tennessee can get a license to open a store outside of Tennessee. It’s a subtle difference, perhaps, but an important one. He says the state can almost certainly show that it’s protecting the public health and safety by requiring anyone who has a Tennessee retail license to use that license for a store in Tennessee.

Third, says Lou Bright, the former generral counsel for the Texas Alcoholic Beverage Commission, it’s a long legal journey from this ruling to Internet wine sales. Three-tier mandates that consumers can only buy from retailers and restaurants, while retailers and restaurants must buy from wholesalers and they can’t buy from producers. And producers must, save for one small exception, sell only to wholesalers.

Bright says Tennessee was about who can get a retail license, and not about retailers selling wine directly to consumers. When the court carved out the small, direct shipping exception in 2005, it didn’t address the mechanics of the three-tier system and the role of wholesalers. And, he says, this ruling didn’t, either.

Photo: “Moot Courtroom” by College of William & Mary Law Library is licensed under CC BY-NC-ND 2.0