Don’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The 21st Amendment, which repealed Prohibition, allows the states to regulate alcohol sales as long as the states are promoting the public health and safety.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.