On April 21, the US Court of Appeals for the Fifth Circuit handed down its opinion in Cooper v. Texas Alcoholic Beverage Commission, No. 14-51343. It provides further guidance, at least within the Fifth Circuit, on the interplay of the “dormant” Commerce Clause and the 21st Amendment following the Supreme Court of the United States’ oft-cited decision in Granholm v. Heald, 544 US 460 (2005).
The case arose when the Texas Package Store Association attempted to revisit the Fifth Circuit’s two-decade old decision in Cooper v. McBeath, 11 F.3d 547 (5th Cir. 1994). Cooper v. McBeath permanently enjoined the Texas Alcoholic Beverage Commission (TABC) from enforcing certain residency requirements imposed on wholesalers and retailers by the Texas Alcoholic Beverage Code. In that decision, the Fifth Circuit decided that the residency requirement was a protectionist measure and therefore unconstitutional under the so-called “dormant” Commerce Clause of the US Constitution.
In 2014, the Texas Package Store Association (TPSA) moved for relief from the Cooper v. McBeath injunction, arguing that Granholm and its progeny undermined the earlier decision’s reasoning. The district court ruled that the TPSA lacked standing to seek relief, although it also suggested that TPSA’s motion for relief should be denied on the merits.
In last month’s Cooper v. Texas Alcoholic Beverage Commission decision, the Fifth Circuit concluded that TPSA had standing to seek relief from the Cooper v. McBeath injunction, but then held that TPSA’s motion should be denied on the merits. Laying out the standard for relief as whether Granholm and its progeny represent a “significant change in decisional law,” the Fifth Circuit concluded that no significant change had occurred.
The Fifth Circuit begins its analysis by noting that Granholm expressly refused to overrule prior cases holding that the Commerce Clause qualified states’ rights under the 21st Amendment. TPSA argued that the statement in Granholm labeling the three-tier system “unquestionably legitimate” essentially removed Commerce Clause protections from state laws dealing with the wholesale and retail tiers of the industry. Characterizing that language in Granholm as “dictum,” the Fifth Circuit rejected TPSA’s argument as “unconvincing.” Refusing to follow an Eighth Circuit decision that embraced logic similar to the argument advanced by TPSA, the Fifth Circuit instead relied on its own decision in Wine Country Gift Baskets.com v. Steen, 612 F.3d 809 (5th Cir. 2010). Thus “state regulations of the retailer and wholesaler tiers are not immune from Commerce Clause scrutiny just because they do not discriminate against out-of-state liquor.” Instead, although the 21st Amendment permits a state to impose a physical-residency requirement that may favor in-state businesses, it may not impose “a durational-residency requirement on the owners of alcoholic beverage retailers and wholesalers.” (Quoting Cooper v. McBeath, emphasis in original).
The Fifth Circuit accordingly reasoned that nothing in Granholm and its subsequent application represent a significant change in the law. It therefore reversed the decision of the district court and directed it to enter an order denying on the merits TPSA’s motion for relief.
Cooper v. Texas Alcoholic Beverage Commission represents yet another wrinkle in the federal courts’ ongoing struggle to reconcile the holding of Granholm (a state cannot discriminate between the shipping rights of out-of-state versus in-state wineries) with its dictum that the three-tier system is “unquestionably legitimate.” By drawing a previously unrecognized distinction between “physical-residency” and “durational-residency” requirements and, perhaps, distinctions based on business location versus owner location, the Fifth Circuit also has introduced significantly more complexity and nuance into the Commerce Clause/21st Amendment analysis.
We expect that the Supreme Court will eventually address this subject again to reconcile what is now a clear “circuit split” between the Fifth and Eighth Circuits. But the Court will likely allow the issue to further “percolate” in the lower courts, as the case law in this area remains quite new. We also wonder whether litigants seeking to narrow Granholm, who have scored a number of significant “wins” in the Second, Fifth (Steen) and Eighth Circuits in the decade since Granholm, will put those decisions in jeopardy by seeking Supreme Court review of the Cooper v. Texas Alcoholic Beverage Commission decision.