Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—8th Cir.: Residency requirement of Missouri wholesale liquor law held constitutional, (Sep 26, 2013)

By Jody Coultas, J.D.

The U.S. Court of Appeals in St. Louis has held that a residency requirement applicable to wholesalers under the Missouri liquor distribution law was constitutional (Southern Wine and Spirits of America, Inc. v. Division of Alcohol and Tobacco Control, September 25, 2013, Colloton, S.).

Southern Wine & Spirits of Missouri, Inc. applied for a license to sell liquor at wholesale in Missouri. To obtain to obtain a wholesaler license to sell liquor containing alcohol in excess of five percent by weight, a corporation must be a “resident corporation.” A resident corporation is incorporated under the laws of Missouri and all of its officers and directors must be legal voters and taxpaying citizens of the county in which they reside and must have been residents of Missouri for at least three years. The Division of Alcohol and Tobacco Control of the Missouri Department of Public Safety denied the application because Southern Wine did not satisfy the residency requirement. Southern Wine and Spirits of America, Inc., the parent company of Southern Missouri, is a Florida corporation.

Southern Wine argued that the residency requirement discriminated against out-of-state corporations in violation of the Commerce Clause and the Equal Protection Clause of the Fourteenth Amendment. The Division countered that the residency requirement was authorized by § 2 of the Twenty-first Amendment, which prohibits”[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.”

Southern Wine failed to show that the residency requirement was unconstitutional on the ground that it was motivated by mere economic protectionism, according to the court. Southern Wine contended that a newspaper article describing statements made in the assembly by one of the legislation’s four sponsors was proof that the residency requirement was merely for economic reasons. The then-president pro tem of the state senate said the law “was intended to prevent a few big national distillers from monopolizing the wholesale liquor business in Missouri.” Bacchus Imports, Ltd. v. Dias, 468 U.S. 263 (1984), established that “mere economic protectionism” is not a concern of the Twenty-first Amendment. The court declined to make a constitutional determination based on a news article that did not even provide a direct quotation from one legislator. The remarks reflected only one of the legislator’s views and did not establish protectionist intent.

The residency requirement was constitutional and did not violate the Commerce Clause, according to the court. Some courts have held that the proper inquiry in a Commerce Clause challenge to a state liquor regulation is “whether the interests implicated by a state regulation are so closely related to the powers reserved by the Twenty-first Amendment that the regulation may prevail, notwithstanding that its requirements directly conflict with express federal policies.”

In the most resent holdings by the U.S. Supreme Court on the issue, the Court has cited Bacchus and held that state laws are protected under the Twenty-first Amendment when they treat liquor produced out of state the same as liquor produced in the state. It was beyond question that states may require wholesalers to be in-state without running afoul of the Commerce Clause, the appeals court held. It was plausible that the legislature legitimately believed a wholesaler governed predominantly by Missouri residents was more apt to be socially responsible and to promote temperance. Missouri residents may be more likely to respond to concerns of the community, as expressed by their friends and neighbors whom they encounter day-to-day, the court noted. Also, the legislature logically could conclude that in-state residency facilitates law enforcement against wholesalers, because it is easier to pursue in-state owners, directors, and officers than to enforce against their out-of-state counterparts.

The Division established a sufficient basis for its residency requirement and that it was tied to the aim of the Twenty-first Amendment to allow states to maintain an effective and uniform system for controlling liquor by regulating its transportation, importation, and use, the court concluded.

The case is No. 12-2502.

Attorneys: Diana Carter (Brydon & Swearengen) for Southern Wine and Spirits of America Incorporated. James Robert Layton, Attorney General’s Office, for Division of Alcohol and Tobacco Control.

Companies: Southern Wine and Spirits of America Incorporated

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