Twenty Years Since Granholm v. Heald
This month commemorates the 20th anniversary of the pivotal Granholm v. Heald case, in which the United States Supreme Court invalidated protectionist alcohol shipping laws that favored in-state wineries over those from out-of-state. Viewed at the time as a significant step towards a truly national marketplace for alcoholic beverages, the Granholm ruling continues to be regarded more as a legal obstacle than a binding precedent by lower courts.
The Background of Granholm
In Granholm, a collection of wineries challenged a Michigan law that permitted in-state wineries to directly ship their products to state residents while obliging out-of-state wineries to sell through wholesalers. This case consolidated various legal disputes, including a New York law that restricted out-of-state wineries from direct-to-consumer shipping unless they maintained a “branch factory, office, or storeroom within the state.”
The Supreme Court Decision
In a closely contested 5-4 ruling, the Supreme Court struck down both Michigan and New York laws, declaring them violations of the “dormant Commerce Clause.” This constitutional principle prevents state governments from favoring in-state economic interests by discriminating against out-of-state businesses. The decision was seen as a significant victory for out-of-state wineries seeking to enter the market without unnecessary barriers.
Impact on State Legislation
The Granholm ruling initiated numerous state-level legislative victories that enabled wineries to ship their products directly to consumers, thereby bypassing the restrictive three-tier system of alcohol regulation. This shift was anticipated to open up the marketplace for alcohol sales and encourage competition, benefiting consumers by providing more choices.
Granholm’s Place in Legal History
Despite being characterized as a “landmark” ruling, Granholm has often been treated similarly to an obscure 19th-century Supreme Court case that has since been reversed. In the immediate aftermath of Granholm, the so-called Arnold’s Wine line of cases emerged, named after the Second Circuit’s Arnold’s Wines, Inc. v. Boyle case. In these cases, lower federal courts effectively restricted the Granholm decision’s application to alcohol producers, excluding retailers from its protections.
Subsequent Developments
Other federal courts rejected this narrow interpretation of the Granholm precedent, ultimately prompting the Supreme Court to examine the issue anew in the 2019 case Byrd v. Tennessee Wine & Spirits Retailers Association. In this instance, the Court ruled by a 7-2 margin that a Tennessee law mandating liquor store owners to be state residents for at least two years before they could apply for a license was unconstitutional. The reasoning reiterated that states could not discriminate against out-of-state economic interests unless such discrimination was justified by legitimate health and safety concerns.
Remaining Ambiguities
As underscored by a majority opinion written by Justice Samuel Alito, the Court aimed to clarify the reach of Granholm. However, lower courts quickly began to overlook this clarification, leading to ongoing confusion regarding the application of these legal principles.
The Tennessee Wine Two-Step Test
Lower courts have since gravitated toward what is now known as the Tennessee Wine Two-Step Test: 1. Does the alcohol law in question either explicitly or effectively discriminate against out-of-state economic interests? 2. If such discrimination exists, can it be justified by serving a “legitimate, non-protectionist interest,” like health and safety concerns?
Creative Workarounds in Lower Courts
Lower courts have been resourceful in employing these questions to develop workarounds for both Granholm and Tennessee Wine. For instance, in 2022, a panel from the 4th U.S. Circuit Court of Appeals upheld a North Carolina law that permitted in-state retailers to ship wine to North Carolina consumers while barring out-of-state retailers from doing the same. Although the court acknowledged the law’s clear discrimination against out-of-state economic interests, it justified the law under the second question of the two-step test, claiming that protecting the state’s alcohol regulatory framework constituted a legitimate non-protectionist ground.
Further Legal Challenges
The 9th Circuit took a more extreme stance when faced with a challenge to an Arizona law requiring wine retailers to have a physical presence in the state to conduct interstate direct-to-consumer shipments. The court ruled that this law was not discriminatory, reasoning that establishing a physical storefront in Arizona did not create a ‘per se burden on out-of-state companies’ since the ability to do so depends on a company’s resources and overall business model, rather than its citizenship or residency.
Implications of the 9th Circuit Ruling
The rationale from the 9th Circuit is already influencing other jurisdictions, with a district court in Washington State leveraging this ruling to conclude that a Washington law, which discriminated against out-of-state distilleries in favor of in-state businesses, was similarly permissible. This trend raises concerns about the consistency and coherence of judicial interpretations following Granholm and Tennessee Wine.
Neglecting Founder Intent
Amid the intricate legal maneuvering surrounding these cases, there is a fundamental oversight regarding the core message of Granholm and Tennessee Wine. As stated by Justice Alito in Tennessee Wine, “the Commerce Clause does not allow states to impose protectionist measures disguised as police-power regulations.” However, many states appear to be doing precisely that, with lower courts confirming these trends, often in questionable legal interpretations.
The Future of Alcohol Regulation
As states continue to adopt protectionist measures that defy previous rulings, the likelihood of the Supreme Court stepping in once more grows. The ongoing judicial friction and the apparent disregard for the principles established in landmark cases like Granholm and Tennessee Wine present challenges for the future of alcohol regulation. The legal landscape may need another high-profile examination to realign court interpretations with the original intent of the Commerce Clause and restore some measure of consistency in how states regulate alcohol sales.
