Son of Granholm Inches Closer

By on July 2, 2018

Two recent developments reinforce my expectation that the Supreme Court will need to clarify the scope of its 2005 Granholm v. Heald decision within the next few years.

Granholm struck down state restrictions on the interstate sale and shipment of wine by wineries, where the state permitted in-state wineries to engage in such direct-to-consumer sales activities but withheld that privilege from out-of-state wineries. According to that decision, such facially-discriminatory laws are virtually per se unconstitutional under the so-called “dormant” Commerce Clause, and are not saved by the additional power that states have over alcohol sales under the 21st Amendment. The Granholm court also referred to the three-tier system as “unquestionably legitimate.”

In the years since Granholm, lower federal courts have wrestled with the question of whether or not the Commerce Clause’s non-discrimination principle is limited to state laws imposing different rules on in-state versus out-of-state producers and products. Decisions by several Circuit Courts of Appeal, including the US Court of Appeals for the Second Circuit (Arnold’s Wines, 2009) and the Eighth Circuit (Southern Wine, 2013), have concluded that only those state laws discriminating against out-of-state producers or products face the high level of scrutiny mandated by Granholm. Others, including the Fifth Circuit (Cooper II, 2016) and the Sixth Circuit (Byrd, 2018), have concluded that state laws regulating the wholesale- and retail-tiers remain subject to vigorous Commerce Clause scrutiny. Notably, however, the Fifth and Sixth Circuit opinions also suggest that the outcome of a challenge to a state law regulating the wholesale- or retail-tier may depend on the type of law challenged, and both involved residency requirements for licensees, not laws directly regulating the sale and shipment of alcohol.

Developments in the past month add incremental pressure on the federal judiciary to provide clarity on these issues.

First, on June 14, 2018 Orion Wine Imports filed a complaint alleging that the California laws prohibiting out-of-state wine importers and wholesalers from selling directly to California retailers violate the dormant Commerce Clause, as in-state importers and wholesalers can (of course) make such sales. (As in most Commerce Clause cases, the complaint also includes a count arising under the Privileges and Immunities Clause, but such claims almost invariably rise or fall with the outcome of the Commerce Clause claim.) Among the counsel for Orion Wine Imports are Robert Epstein and James Tanford, two Indiana-based attorneys who have been at the forefront of direct wine shipping litigation for almost two decades. Notably, California falls within the Ninth Circuit, and that court has yet to issue an opinion taking a position on the application of Granholm to laws regulating the wholesale- or retail-tiers.

Second, on June 15 the US District Court for the Eastern District of Missouri handed down an opinion in Sarasota Wine Market v. Parson, E.D. Mo. No. 4:17CV2792 HEA. The opinion grants the state defendants’ motion to dismiss a case brought by a Florida wine retailer and a Missouri resident seeking to purchase wine from out-of-state retailers. Because Missouri sits within the Eighth Circuit, it was not surprising at all that the district court found the plaintiffs’ claims under the Commerce Clause and Privileges and Immunities Clause foreclosed by the Eighth Circuit’s 2013 decision in Southern Wine and Spirits v. Division of Alc. & Tobacco Control. Much more surprising was the district court’s conclusion that the plaintiffs lacked standing to sue. An appeal seems likely.

With another post-Granholm case filed and another case decided and likely headed to an appeal, these developments add incrementally to the pressure for the US Supreme Court to hear a case involving the application of the dormant Commerce Clause to a state alcohol beverage law regulating the wholesale- or retail-tier. Which particular case and particular issue eventually becomes the subject of Supreme Court review is anyone’s guess. But the stakes are high for both sides: A limitation of the non-discrimination principles arising from the Commerce Clause to state alcohol laws regulating only producers or products would remove an important tool that various plaintiffs have used to challenge the alcohol market’s status quo in the past decade. Conversely, the broad application of non-discrimination principles to state alcohol laws regulating wholesale and retail sales would forcefully push the United States towards a single national alcohol beverage market.

It remains possible that the Supreme Court does not address these questions for decades. But the existing circuit split and escalating litigation activity illustrated by last month’s developments all point to a Granholm sequel at the Supreme Court—what I call the “Son of Granholm”—sooner rather than later.