Eighth Circuit Affirms Decision Against Southern Wine & Spirits Allowing Discrimination Against Out-of-State Wholesalers

In September, the Court of Appeals for the Eighth Circuit decided a case with respect to wholesale licensing in the state of Missouri. Southern Wine and Spirits of America, Inc. (“SWSA”), the plaintiff-appellant, appealed from a lower court decision. The plaintiff-appellant, a foreign alcohol wholesaler, applied for a license to sell alcohol at wholesale in the state of Missouri. The Division of Alcohol and Tobacco Control of the Missouri Department of Public Safety denied SWSA’s application because the corporation did not satisfy the residency requirement of the state’s statute. SWSA originally filed an action against the Division of Alcohol and Tobacco Control of Missouri Department of Public Safety arguing that the state’s residency requirement for a license to sell liquor at wholesale was unconstitutional. See Southern Wine & Spirits, et al. v. Division of Alcohol and Tobacco, et al. 2013 WL 5340391 (8th Cir. Sept. 25, 2013). The district court upheld the constitutionality of the state’s statute and the Court of Appeals for the Eighth Circuit affirmed.

Under the relevant Missouri law, Chapter 311 of Missouri Revised Statutes (The Liquor Control Law), the state defines a resident corporation as:

a corporation incorporated under the laws of this state, all the officers and directors of which, and all the stockholders . . . shall be qualified legal voters and taxpaying citizens of the county and municipality in which they reside and who shall have been bona fide residents of the state for a period of three years continuously immediately prior to the date of filing of application for a license, provided that a stockholder need not be a voter or a taxpayer, and all the resident stockholders of which shall own, legally and beneficially, at least sixty percent of all the financial interest in the business to be licensed under this law

Mo. Rev. Stat. § 311.060.3.

SWSA is a Florida corporation with operations in thirty-two states and four Florida residents collectively own over 97% of SWSA’s voting shares and more than 51% of all shares. See Southern Wine & Spirits, et al. v. Division of Alcohol and Tobacco, supra. Southern Missouri is a wholly-own subsidiary of SWSA and is incorporated in Missouri. In its application for a wholesale license in Missouri, Southern Missouri declared that the company’s sole shareholder is SWSA and that the sub’s officers and directors are Florida residents. As a result, the Missouri Division of Alcohol and Tobacco Control denied Southern Missouri’s application because the subsidiary did not meet Missouri’s definition of a resident corporation. Mo. Rev. Stat. § 311.060.3.  

While the Eighth Circuit recognized that this case involved the dormant or “negative” commerce clause, the Court of Appeals also highlighted the much-disputed second section of the 21st Amendment: “[t]he transportation or importation into any State, Territory or possession of the United States for delivery or use therein of intoxicating liquors, in violation of the laws thereof, is hereby prohibited.” U.S. Const. amend. XXI § 2. Effectively, the Court ascertained that this provision of the 21st Amendment “grants States certain prerogatives particular to the regulation of alcohol.” Southern Wine & Spirits, et al. v. Division of Alcohol and Tobacco, supra. The Court also recognized that, in previous years, the Supreme Court has addressed and “sent conflicting signals” pertaining to the relationship and functionality of these two very important amendments and specifically focused on the Supreme Court’s most recent ruling, Granholm v. Heald. Id. See additional background at Revisited: Granholm v. Heald and the Wine Industry and The Alcoholic Beverage Legal Environment Post-Granholm.

The Eighth Circuit reasoned that the constitutionality of Missouri’s wholesaler residency requirement rested on the relationship between the Commerce Clause and the 21st Amendment. In its analysis, the Court recognized the Supreme Court’s prior holding that the three-tier system is “unquestionably legitimate,” and that state practices that determine the structure of its liquor distribution system “while giving equal treatment to in-state and out-of-state liquor products and producers are ‘protected under the Twenty-first Amendment.'” Id. citing Granholm v. Heald, 544 U.S. 460, 489 (2005). The Eighth Circuit relied heavily on dicta from the 2005 Supreme Court decision Granholm, and reasoned that since the Missouri wholesaler requirement did not discriminate against out-of-state alcohol products or producers, the law was per se valid and thus barred from attacks questioning its constitutionality with respect to the Commerce Clause. 

There is a range of differing viewpoints throughout the courts pertaining to whether the holding of the Granholm Court extends to state regulation of out-of-state retailers and wholesalers in addition to producers. One might pose the argument that reading Granholm to cover only alcohol beverage producers—and thus leaving out-of-state wholesalers and retailers from constitutional protection—without proving an alternative means is ineffective, is a clear violation of the dormant Commerce Clause; after all, out-of-state wholesalers and retailers affect interstate commerce. However many courts, like the Eighth Circuit Court of Appeals, rely heavily on the dicta from Granholm and argue that the “more natural reading” of the renowned 2005 case is to review a questioned law in light of whether the law treats in-state and out-of-state alcohol in the same manner and whether the challenged law discriminates against out-of-state products or producers. Id. If it is decided that the law treats in-state and out-of-state alcohol in the same manner and does not discriminate against either out-of-state products or producers, then it is the view of the Eighth Circuit that the law need not be reviewed further with respect to the Commerce Clause doctrine.

In conclusion, the Eighth Circuit recognized that Missouri established a sufficient basis for the residency requirement for wholesaler licenses and that such was properly tied to the goal of the 21st Amendment (allowing states to regulate and maintain a system for controlling alcohol beverage transportation, importation, and use within the State).

For more information on wine or alcohol law, direct shipping, or three-tier distribution, please contact Lindsey Zahn.

DISCLAIMER: This blog post is for general information purposes only, is not intended to constitute legal advice, and no attorney-client relationship results. Please consult your own attorney for legal advice.