If you’ve been following along with dormant Commerce Clause litigation in the alcohol space, the 9th Circuit’s recent ruling in Day v. Henry should grab your attention. If you haven’t been tracking these cases, you’re missing a fascinating evolution of law where state alcohol regulations keep running into constitutional roadblocks, and courts attempt to chart a consistent legal framework post-Granholm v. Heald and Tennessee Wine & Spirits Retailers Ass’n v. Thomas.
This case challenges Arizona’s statutory scheme that prevents out-of-state wine retailers from shipping directly to Arizona residents while allowing in-state retailers to do so. A 2-1 panel majority ruled in favor of Arizona, holding that because the law allows out-of-state retailers to establish Arizona locations and then qualify for shipping privileges, the law does not discriminate against interstate commerce. The dissent, authored by Judge Forrest, strongly criticized this approach, arguing that the majority misconstrued Tennessee Wine and improperly bypassed the second prong of that case’s two-part test.
- The Growing Judicial Trend: Tennessee Wine as a Two-Step Test
Since Tennessee Wine, courts have begun to coalesce around a two-step approach to dormant Commerce Clause challenges to state alcohol laws:
- Is the law discriminatory? If it facially or effectively discriminates against out-of-state interests, it presumptively violates the Commerce Clause.
- Can the discrimination be justified? If a law is found to be discriminatory, it can only survive if the state demonstrates that the measure is necessary to serve a legitimate, non-protectionist interest, such as public health and safety, and that no reasonable nondiscriminatory alternatives exist.
In Day v. Henry, the majority never even reached the second step. The court reasoned that because out-of-state retailers could set up in-state premises, the law was not discriminatory. This logic has already been rejected by other circuits, such as in the 4th Circuit’s B-21 Wines, Inc. v. Bauer, where a similar restriction was deemed discriminatory and required further justification under Tennessee Wine.
- The Dissent Got It Right: Arizona’s Law is Clearly Discriminatory
Judge Forrest’s dissent correctly pointed out that Arizona’s statute is inherently protectionist. The requirement that out-of-state retailers establish a physical storefront in Arizona is a clear barrier to market access that local retailers do not face. This type of economic isolationism is exactly what the Commerce Clause prohibits. As the dissent noted, the Supreme Court has never accepted such an easy workaround to the non-discrimination principle.
Moreover, the dissent emphasized that the real battle should be fought at the second step of the Tennessee Wine test. That’s where states must prove that their laws serve legitimate public health and safety concerns rather than mere economic protectionism.
- The Real Question: What Will Qualify as a Legitimate Non-Protectionist Ground?
One of the biggest unresolved issues in these cases is what justifications will be deemed sufficient under the second prong of Tennessee Wine. Public health and safety concerns have been the go-to rationale, but as I’ve argued before, unless states redefine public health and safety to mean temperance, they’re unlikely to establish compelling, evidence-based arguments for these restrictions. And temperance carries with it some barriers given prior cases that have noted that temperance is not a sufficient rationale for laws that violate the Commerce Clause states can easily and more effectively achieve temperance through public information campaigns and advertising – other non-protectionist and less invasive means.
Instead, states would be better served by focusing on alternative justifications grounded in antitrust principles and the historical rationales behind the three-tier system. As Toward Liquor Control (written by Fosdick and Scott, the architects of modern alcohol regulation) explained, the system’s primary goal was to prevent the return of the tied house system, promote community based-regulation, reduce social harm and allow for tax revenue collection and governmental oversight. Interestingly, they also noted the goals of supporting fair competition and preventing monopoly power – prevent market domination and tied-house abuses, which aligns with pro-competitive justifications rather than protectionist barriers that were in the air at the beginning of the 20th Century and during the time when the book was written in the 1930s. Attorneys pushing these cases at the state level will be able to point to ample scientific evidence of the beneficial competition effects of the three-tiered system and tied-house regulations. I still do not understand why this is not a main emphasis from states in defending this type of litigation other than that this area of the law and economics is little practiced.
- What’s Next? En Banc Review and the Road Ahead
The plaintiffs have filed for en banc review of the Day v. Henry decision, and there’s a strong chance the full 9th Circuit will take up the case. Given the split among circuits—particularly between the 4th Circuit’s B-21 Wines decision and the 9th Circuit’s ruling here—it’s only a matter of time before the Supreme Court is forced to step in again to clarify the law.
For now, the key takeaway is that courts are increasingly recognizing Tennessee Wine as establishing a rigorous two-step test. The real battleground will be in proving whether these laws serve legitimate, non-protectionist ends as health and safety seem as dead as temperance in that public information and awareness campaigns brought through advertising and information will likely always produce better results than protectionist statutes. Just ask MADD. And if you’re in the business of shipping alcohol across state lines, you should be watching closely as this area of law continues to evolve.
The post The 9th Circuit’s Decision in Day v. Henry: Another Step in the Developing Dormant Commerce Clause and 21st Amendment Jurisprudence appeared first on Libation Law Blog.