North Coast vintners watch pivotal Supreme Court case over interstate wine sales

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WASHINGTON — Supreme Court justices indicated Wednesday that they thought Tennessee’s tough residency requirements for those who want to run liquor stores have more to do with protecting in-state economic interests than guarding against the evils of alcohol.

But they also wondered how far they could go, since the Constitution gives states an especially pivotal role in regulating booze.

The two-year residence requirement is being challenged by a mom and pop who moved to Memphis to own a liquor store, as well as by retail giant Total Wine, which is based in Maryland.

The oral argument, coincidentally, was held on the 100th anniversary of the ratification of the 18th Amendment, which banned the nationwide sale of alcohol from 1920 to 1933. The 21st Amendment, which ended Prohibition, returned the power over alcohol regulation to the states.

A decision to strike down the barrier could have an effect on the wine industry and the North Coast, depending on how broad the court’s ruling turns out to be when issued later this year.

Wineries gained greater access to sell across the state lines as a result of a 2005 Supreme Court decision. Only seven states currently prohibit such sales, according to the Wine Institute, a trade group for California vintners.

Since the ruling, the online direct-to-consumer wine business now has blossomed into a $2.7 billion industry as of 2017 and is a critical part of the business of most local wineries.

But wine retailers were not included in the earlier court ruling and only 13 states and Washington, D.C., allow for such wine sales by them.

A broad ruling could lead toward a path for more parity for wine retailers, especially as that issue has been litigated in lower courts.

“It makes the market far more efficient,” said Tom Wark, executive director of the National Association of Wine Retailers. His group argues that wine retailer parity would increase overall wines sales with another outlet also selling the product.

“Take people who live in Texas and want to buy Williams Selyem (of Healdsburg) but the winery’s sold out on a (particular) vintage. They can find it in a shop in Chicago,” Wark said.

During oral arguments, Justice Neil Gorsuch had the line of the day when he worried that the next step after getting rid of residency requirements — a majority of the states have them — would be to expand online sales of alcohol without state involvement.

Isn’t the next business model “to try and operate as the Amazon of liquor?” Gorsuch asked Washington lawyer Carter Phillips, who is representing Total Wine.

That might be Amazon’s dream, Phillips said. But Total Wine wants more brick-and-mortar operations like the one it owns in Knoxville and in 22 other states. The case requires the court to harmonize the 21st Amendment’s authorization to states to regulate distribution of alcohol in its borders with the so-called Dormant Commerce Clause, which forbids states from erecting barriers to out-of-state economic interests.

Tennessee’s law says retail licenses may be issued only to those who have been “a bona fide resident of this state during the two-year period immediately” proceeding application. Moreover, it requires those renewing the one-year license to have been a resident for a decade.

The state’s attorney general has written that the law is probably unconstitutional, and the state did not enforce it for six years. But a trade group, the Tennessee Wine and Spirits Retailers Association, objected to an out-of-state application in 2016 and is defending the law in courts.

It lost at the U.S. Court of Appeals for the 6th Circuit, and the Supreme Court agreed to review it.

Washington lawyer Shay Dvoretzky, representing the retailers, said the 21st Amendment gave states “virtually complete control over how to structure the liquor distribution system” within their borders, and protected them from Dormant Commerce Clause claims.

Several justices, most vocally Sonia Sotomayor and Samuel Alito, were skeptical. Under questioning, Dvoretzky said that neither a 10-year residency requirement nor a hypothetical requirement that an applicant’s grandparents be residents would be a Dormant Commerce Clause, nor even a statute that said the restriction was for the “exclusive purpose of protecting in-state retailers.”

Justice Brett Kavanaugh said the text of the constitutional amendment gives the states power over the “transportation or importation” of liquor to their states. That is “most naturally read to allow states to remain dry,” he said, but “not to otherwise impose discriminatory or, as Justice Alito says, protectionist regulations.”

Illinois Solicitor General David Franklin represented more than 30 states supporting Tennessee, and he, too, received tough questioning.

Justice Elena Kagan proposed that finding that the Dormant Commerce Clause applied would still allow states to defend their laws. They could, for instance, show that “we have real health and safety concerns here, and our law is well-tailored to address those concerns,” she said.

Franklin resisted. That would still “embroil the courts in the kind of line drawing that the 21st Amendment was designed to relieve them of.”

Gorsuch told Phillips that the case would be easy, except that “alcohol has been treated differently than other commodities in our nation’s experience, for better or worse.”

Phillips — speaking for Total Wine and Doug and Mary Ketchum, the Utah couple who moved to Memphis to buy a liquor store — said the court need not settle all questions about the states’ powers to find that Tennessee’s law is extreme. Kagan said it was not that easy.

“We’re leaving a lot of things for another day, but they all seem to be demanded by the principles that you’re asking us to adopt,” she said.

Press Democrat Staff Writer Bill Swindell contributed to this story.

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