In denying out-of-state retailers the right to ship to Missouri residents, 8th Circuit questions whether Courts should allow dormant Commerce Clause challengers to put on evidence.

One of the recent in the battle over out-of-state retailer shipping: Sarasota Wine Market v. Schmitt is another win for alcoholic beverage wholesalers. You can read our prior posts on this case here, here and here.

Briefly, out-of-state retailers wanted to ship alcohol to Missouri residents and challenged Missiouri’s refusal to let them do that because Missouri only issues retailer licenses to licensees with an in-state presence.

This case is one of many attempting to keep the holdings of Granholm at bay from the remainder of the three-tiered system by asserting a line between manufacturers and retailers that somehow shouldn’t be crossed on account of Article 2 of the Twenty-first Amendment. Expanding the Commerce Clause rulings of Granholm to the retailer tier would cut out a state’s middle wholesaler tier and ostensibly replace it with another state’s wholesaler tier (whomever supplied the out-of-state retailer with the alcohol). That’s not an easy decision for courts to make as it would toss out 90 years worth of alcohol industry operations and remove some value from wholesaler franchises that benefit from exclusivity and state protection through franchise laws. So there’s been considerable struggle in these cases from wholesaler intervenors against plaintiffs seeking unlimited freedom for consumers to order alcohol in the same way they order everything else – online, shipped to their door, and from wherever they could get the best price. Some of these cases miss the mark in not arguing that states should offer a retailer license to out-of-state retailers thereby allowing them to ship within that state, and simply press for the argument that out-of-state retailers should have the privilege. The better Commerce Clause argument for parity and the 21st Amendment is likely the “you should offer us the license as well” argument rather than “you shouldn’t restrict our shipping process.” Under the license regime, states would maintain their taxation rights (South Dakota v. Wayfair) and their licensing fees as they could force the out-of-state retailers to obtain licenses for the privilege, so the real impact is an erosion of those wholesaler franchises as sales flowed through retailers purchasing from other wholesalers in other states.

The plaintiffs came up short in this recent 8th Circuit challenge to such a retailer shipping regime. The opinion does not digress to discuss the economic impact and fallout that might occur if it went the other way. It steadfastly cites the “legitimacy” dicta of Granholm and just moves on from there under a rudimentary analysis of the issues attendant from recent Supreme Court (and sometimes questionable) appellate opinions. I believe this opinion wins the contest for using the phrase “unquestionably legitimate” the most times – 9 by my count. The odd thing about that bit of dictum that courts like to pull from Granholm v. Heald is that it was a citation in Granholm that was actually an expansive bit of rhetorical flourish on a very limited phrase Scalia penned in North Dakota v. U.S. where he said that that particular state’s system (North Dakota’s) was “unquestionably legitimate” and supported that sentence by citing Carter v. Virginia, 321 U.S. 131 (1944) and California Board of Equalization v. Young’s Market Co., 299 U.S. 59 (1936) – two commerce clause cases that have, in fact, been routinely questioned. The latter of which the dissenting Justices in Bacchus Imports v Dias pointed out was being pretty much overturned with the revisions that case brought to 21st Amendment, Article 2 jurisprudence. 

Oddly, this opinion noted an evidentiary requirement from Tennessee Wine but summarily dealt with the determination that Missouri could exclude out-of-state shipments and did not remand for evidence and a trial to determine whether Missouri met the criteria inferred by the 8th Circuit judges in this very opinion:

There are passages in the Tennessee Wine opinion that may forecast a future decision that retailer or wholesaler residency or physical presence requirements, or the mandate to purchase only from in-state wholesalers, are subject to an evidentiary weighing to determine “[h]ow much public health and safety benefit must there be to overcome this Court’s worries about protectionism ‘predominating.'” 139 S. Ct. at 2484 (Gorsuch, J., dissenting). These requirements are likely to impose greater costs than would otherwise be incurred by an out-of-state retailer selling to Missouri consumers. But Missouri imposes the same licensing requirements on in-state and out-of-state retailers. Viewed from this perspective, laws establishing a three-tiered distribution system may be economically and socially anachronistic, but they do not discriminate against out-of-state retailers and wholesalers. See Bridenbaugh, 227 F.3d at 853 (“Every use of § 2 could be called ‘discriminatory’ . . . because every statute limiting importation leaves intrastate commerce unaffected. If that were the sort of discrimination that lies outside state power, then § 2 would be a dead letter.”).

The Missouri laws at issue in this case are an essential feature of its three-tiered scheme, and the rules governing direct shipments of wine to Missouri consumers apply evenhandedly to all who qualify for a Missouri retailers license. “States should have considerable leeway in analyzing local evils and in prescribing appropriate cures.” United Bldg. & Constr. Trades Council v. Mayor & Council of Camden, 465 U.S. 208, 223, 104 S. Ct. 1020, 79 L. Ed. 2d 249 (1984). Given that Section 2 of the Twenty-first Amendment is a constitutional command, the Supreme Court may ultimately decide that it “is ill suited to the judicial function” to conduct a rigorous Commerce Clause inquiry into whether a state law that comprises an essential element of its three-tiered distribution system is a protectionist measure with no demonstrable connection to valid Section 2 interests. CTS Corp. v. Dynamics Corp. of Am., 481 U.S. 69, 95, 107 S. Ct. 1637, 95 L. Ed. 2d 67 (1987) (Scalia, J., concurring). We conclude we should be no more invasive of the “unquestionably legitimate” three-tiered system than the Supreme Court has mandated. Accordingly, we agree with the district court that Sarasota’s Amended Complaint failed to state viable dormant Commerce Clause claims.

In concluding the opinion the 8th Circuit made a passing remark cribbed from the 7th Circuit a while back about the changing times and pushed back against the prior note about an evidentiary basis and attack on state alcohol regulation… Likely much to the chagrin of those who’ve read Tennessee Wine: 

As our Seventh Circuit colleague David Hamilton has observed, “the three-tier distribution system [is] a model that may seem to have less and less value as the internet and e-commerce flatten the global marketplace. Yet the extraordinary constitutional status given to state alcoholic beverage laws in the Twenty-first Amendment was the compromise that allowed the repeal of Prohibition.” Lebamoff Ents., Inc. v. Huskey, 666 F.3d 455, 472 (7th Cir. 2012) (Hamilton, J., concurring). We agree with the Sixth Circuit that the Supreme Court in Granholm and Tennessee Wine did not decide that essential elements of the three-tiered system are subject to frontal attack under the dormant Commerce Clause or the Privileges and Immunities Clause. Therefore, those seeking a more consumer-oriented organization of alcohol industries must “turn to state-by-state political action on behalf of consumers who are hurt by these laws.” Id.

For our part, these decisions on the interplay between the 21st Amendment and the Commerce Clause all show the need for further Supreme Court determinations hashing out the direct interplay and the need for clarifying how courts should proceed in analyzing the Commerce Clause issues.

You can read the opinion here.

Ashley Brandt

Hi there! I’m happy you’re here. My name is Ashley Brandt and I’m an attorney in Chicago representing clients in the Food and Beverage, Advertising, Media, and Real Estate industries. A while back I kept getting calls and questions from industry professionals and attorneys looking for advice and information on a fun and unique area of law that I’m lucky enough to practice in. These calls represented a serious lack of, and need for, some answers, news, and information on the legal aspects of marketing and media. I've got this deep seeded belief that information should be readily available and that the greatest benefit from the information age is open access to knowledge... so ... this blog seemed like the best way to accomplish that. I enjoy being an attorney and it’s given me some amazing opportunities, wonderful experiences, and an appreciation and love for this work. I live in Chicago and work at an exceptional law firm, Goldstein & McClintock, with some truly brilliant people. Feel free to contact me at any time with any issues, comments, concerns… frankly, after reading this far, I hope you take the time to at least let me know what you think about the blog and how I can make it a better resource.

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