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US Supreme Court Strikes Down Tennessee Law Involving Distributors

In a ruling that is likely to echo across state regulators across the United States, the United State Supreme Court extended certain protections, previously provided under Granholm, to alcoholic beverage distributors. More specifically, the U.S. Supreme Court upheld the appellate level decision which had struck down a Tennessee state law that imposed a two-year durational residency requirement for establishing and renewing a retail liquor license.

What Happened in Granholm Case?

The state laws at issue in Granholm involved the discrimination against out-of-state producers/manufacturers, which were deemed to have violated the Commerce Clause. In particular, the Court noted that the direct-shipment laws in question contradicted dormant Commerce Clause principles because they “deprived citizens of their right to have access to the markets of other States on equal terms.” However, the Court in Granholm never indicated whether the ruling applied to only producers/manufacturers or if it also extended to wholesalers/distributors. This had left many industry insiders with little-to-no guidance as to how similar restrictions would apply to out-of-state wholesalers/distributors.

What Did the Court Say in Tennessee Wine?

In Tennessee Wine, the Court stated that the Commerce Clause, and referenced language in Granholm, prohibits state discrimination against all “out-of-state economic interests.” In those instances where a state statute directly regulates or discriminates against interstate commerce, or when its effect is to favor in-state economic interests over out-of-state interests, the Court has generally struck-down those laws. This means that the ruling in Granholm was not intended to be limited to producers/manufacturers only.

Can States Still Restrict Out-of-State Commerce?

Even if they can’t, you will certainly see some try to create laws that protect special interests groups within each state. Should states try to pass new laws in response to the ruling in Tennessee Wine, they will find that they are under great scrutiny. They will have to demonstrate that any law which restricts commerce is based on health and public safety grounds.

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