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Supreme Court Blasts Economic Protectionism as it Strikes Down Durational Residency Requirements for Business Licenses

To Protect Existing Liquor Stores from Competition, Tennessee Required License Seekers to Live in State for Two Years Before a License Would be Granted, 10 Years to Renew

Arlington, Va.—By a 7-2 margin, the U.S. Supreme Court today issued a broadside against state-based economic protectionism as it struck down a Tennessee law that had required anyone seeking a retail liquor license to first reside in the state for two years—and 10 years before they could renew it.

“To put it mildly, today’s opinion by Associate Justice Samuel Alito and the six justices of the Court who joined with him was an indictment against in-state economic protectionism,” said Anya Bidwell, an attorney with the Institute for Justice (IJ), which litigated the case on behalf of Doug and Mary Ketchum.

The Ketchums own Kimbrough Wines & Spirits, a mom-and-pop liquor shop in Memphis, Tennessee, which they purchased in 2016 after moving from Utah. Because they had moved from out of state, the Tennessee Wine & Spirits Retailers Association—a special interest group that exists to protect its members from competition—threatened to sue the Tennessee Alcoholic Beverage Commission if it granted the Ketchums’ application or a separate application submitted by Total Wine around the same time. At that point, the Commissioner himself went to court and asked it to resolve, once and for all, whether Tennessee’s durational residency requirements were constitutional.

The Ketchums and Total Wine won in the federal trial court and before the 6th U.S. Circuit Court of Appeals, and then the liquor cartel appealed the case to the U.S. Supreme Court seeking to preserve its state-based economic protectionist scheme.

The Retailers’ Association tried to defend Tennessee’s durational residency requirements as legitimate exercises of Tennessee’s power under the Twenty-First Amendment, which allows states to regulate alcohol distribution. But today the U.S. Supreme Court rejected that contention, writing:

  • Tennessee’s two-year durational residency requirement “violates the Commerce Clause and is not shielded by Section 2 of the Twenty-first Amendment.”
  • Section 2 of the Twenty-First Amendment “is not a license to impose all manner of protectionist restrictions on commerce in alcoholic beverages.” Tennessee’s law “blatantly favors the State’s residents and has little relationship to public health and safety.”
  • The “Commerce Clause by its own force restricts state protectionism.”
  • “Removing state trade barriers was a principal reason for the adoption of the Constitution.”
  • “Tennessee’s 2-year durational-residency requirement plainly favors Tennesseans over nonresidents.”
  • There is no evidence that the Twenty-First Amendment “was understood to give States the power to enact protectionist laws.”
  • The aim of the Twenty-First Amendment “was not to give States a free hand to restrict the importation of alcohol for purely protectionist purposes.”
  • The Twenty-First Amendment “does not license the States to adopt protectionist measures with no demonstrable connection to [health and safety] interests.”
  • Tennessee’s residency requirements’ “overall purpose and effect is protectionist.” Some of them are “plainly based on unalloyed protectionism.”
  • “The Association has fallen far short of showing that the 2-year durational-residency requirement for license applicants is valid.”
  • “[T]he predominant effect of the 2-year residency requirement is simply to protect the Association’s members from out-of-state competition.”

In essence, the Court ruled, protectionism is not a legitimate state interest, writing, “Although some Justices have argued that [Section 2 of the Twenty-First Amendment] shields all state alcohol regulation—including discriminatory laws—from any application of dormant Commerce Clause doctrine, the Court’s modern . . . precedents have repeatedly rejected that view. We have examined whether state alcohol laws that burden interstate commerce serve a State’s legitimate [Twenty-First Amendment] interests. And protectionism, we have stressed, is not such an interest.”

Michael Bindas, a senior attorney with the Institute for Justice, said, “Today’s ruling makes plain that all Americans have a right to earn an honest living and that government cannot deny someone that right simply because of where they live or used to live. No state may discriminate against out-of-staters or newcomers to protect established, in-state interests from competition.”

Bindas said, “As the Court recognized, the Twenty-First Amendment is not a blank check, and the states’ power to regulate alcohol is not unlimited. Although states can impose reasonable regulations on alcohol to protect public health and safety, they cannot discriminate in order to protect favored economic interests.”

The Ketchums had moved to Tennessee from Utah in 2016 to save the life of their 34-year-old daughter, Stacie, who suffers from cerebral palsy and quadriplegia. When one of Stacie’s lungs collapsed during a temperature inversion that severely worsened the air quality in the Salt Lake valley, her doctor urged the Ketchums to move to a healthier climate or risk losing Stacie within a year, prompting their move to Tennessee. Tennessee held the promise of cleaner air and a better quality of life for Stacie, but it also offered bright economic prospects for Doug and Mary, who learned of a rare opportunity to purchase a historic liquor store in Memphis called Kimbrough Wines & Spirits. The store is a Memphis institution and was frequented by legends like Johnny Cash. Becoming business owners would offer the Ketchums the flexibility necessary to spend time caring for Stacie, as well as supply them with a stable income to provide for themselves and their family.

Laying bare the protectionist nature of the durational residency requirements, it was the Retailers Association—not the State of Tennessee—that asked the Supreme Court to hear the case, and it was the Retailers Association’s private counsel—not the Tennessee Attorney General—who defended the residency requirements before the High Court.

Upon hearing about the Supreme Court’s decision, Doug Ketchum said, “This has been three years of nail-biting, waiting for this final opinion. This decision now means no more looking over our shoulder and worrying if they’re going to take away our license. Now we can get on with growing our business and earning the resources we need to care for our daughter over the long haul and provide for our retirement someday.”

Bidwell added, “The Court today did right by the Ketchums and other business owners all across this nation. It found that provincial economic protectionism is not only unconstitutional but also un-American. As Justice Alito pointed out in his opinion, removing state trade barriers was one of the most important drivers behind the adoption of the federal Constitution. The Twenty-first Amendment does nothing to change this. And it is certainly not an excuse for blatant discrimination against out-of-staters.”

Jeffrey Redfern, another IJ attorney on the case, noted that by protecting the right of Americans to engage in commerce throughout the country, the Court’s opinion will help guarantee our nation’s economy remains robust. “Being able to move freely from state to state is not only constitutionally enshrined in the Commerce Clause and the Privileges or Immunities Clause of the Fourteenth Amendment, it has also had the practical benefit of making America one of the most dynamic societies and marketplaces in the world thanks to our freedom of movement and commerce,” Redfern explained.

IJ President and General Counsel Scott Bullock concluded, “This opinion makes it clear the Court believes that the major purpose of the Commerce Clause is to prevent states from passing laws simply to favor its own residents. We plan on building on this precedent today to strike down other blatantly protectionist laws, whether across state lines or favoring one group of in-state businesses over another.”

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