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Tennessee Wine & Spirits Retailers Association v. Thomas

Oral argument transcript · No. 18-96 · October Term 2018 · argued January 16, 2019 · the respondent won

Decision: votes, opinion and citations · Official transcript (PDF) · Argument audio at the Supreme Court

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From the Court's official transcript; speaker labels as in the transcript, with advocates' full names from its list of appearances.

Chief Justice Roberts: We'll hear argument next in Case 18-96, Tennessee Wine and Spirits Retailers Association versus Blair. Mr. Dvoretzky. ORAL ARGUMENT OF SHAY DVORETZKY ON BEHALF OF THE PETITIONER

Shay Dvoretzky: Mr. Chief Justice, and may it please the Court: In the wake of the nation's failed experiment with prohibition, the Twenty-First Amendment restored to the states the powers that they previously had under the Wilson and Webb-Kenyon Acts. In exercising those powers, both before prohibition and in its immediate aftermath, states enacted residency requirements, like Tennessee's, to regulate the sale of alcohol within their territory. All along the way, this Court recognized the states' power to do so as part of their virtually complete control over how to structure the liquor distribution system. Under Granholm, that unbroken and undisputed history is dispositive. Residency 1 requirements like Tennessee's are protected from dormant Commerce Clause scrutiny because they were authorized by the Wilson and Webb-Kenyon Acts and uniformly considered constitutional at the time of ratification. Respondents offer --

Justice Sotomayor: Could I ask you to clarify for me your position? Justice Sutton, in his dissent, basically said, if your legislature came and said we don't want out-of-state wholesalers, distributors, or retailers to be in our chain of distribution, because they're going to take business away from our local enterprises, period, end of story -- are you saying that the state can do that? Are you disagreeing with Justice -- with Judge Sutton? Or do you think that there's an economic protectionism -- protection against what a state can do?

Shay Dvoretzky: So I don't think that there is an economic protectionism exception to the Twenty-First Amendment, but even if there were one, as Judge Sutton recognized in applying his test to the two-year residency requirement in this case --

Justice Sotomayor: The problem is --

Shay Dvoretzky: -- we would still prevail.

Justice Sotomayor: Well, except we have a difficulty there, which is you can't look at legislation piecemeal. You have to look at it as a whole. It was written as a whole. It's one paragraph that says two years, plus 10. So it's really 12 years because -- and he said there's no economic justification for a 10-year residency requirement. So what you have to look at is not whether it's two years but whether there's any reason for a 12-year residency requirement. I mean, if he said no to 10, then it's no to 12.

Shay Dvoretzky: So, Justice Sotomayor, that -- that gets us into a severability question. And --

Justice Sotomayor: But -- but let's go back to my initial question. Yes, it does. And -- and that's a separate question, and you can argue that one back and forth. But my fundamental question is the -- you believe the Twenty-First Amendment permits 1 states to discriminate against out-of-state interests, then does that mean Bacchus, Granholm, all our jurisprudence that has invalidated certain state laws was wrong? Is that -- are you suggesting we should just disavow all those cases and forget them?

Shay Dvoretzky: No. No, we're not. And let me address both Bacchus and -- and --

Justice Sotomayor: I know you want to limit it to producers. But that's not the way that Granholm talked about them, talked about this issue, but --

Shay Dvoretzky: Well --

Justice Sotomayor: -- you can slice and dice as much as you want, but is it your position that the Twenty-First Amendment makes all of our other jurisprudence wrong?

Shay Dvoretzky: No, it's not, and -- and let me explain how to harmonize it. Granholm -- Granholm mandated a historical test. The question in Granholm, which all nine justices agreed upon, was what were the state's pre-prohibition powers. Now the disagreement in Granholm was about whether states could discriminate against out-of-state products 1 pre-prohibition, but the framework was not an economic protectionism framework; it was a historical question.

Justice Sotomayor: But they could have --

Justice Alito: Can I come back to the -- what I -- where I thought Justice Sotomayor started, and ask you just very simply, can a state enact a 10-year residency requirement and, if not, why not?

Shay Dvoretzky: There would not be a dormant Commerce Clause problem with a 10-year residency requirement. There might be some other constitutional challenge to that, but it would be immune from dormant Commerce Clause scrutiny as long as it treated in-state and out-of-state products the same.

Justice Alito: Okay. Suppose if it was a -- a grandparents requirement. So you can't -- you can't get a liquor license in Tennessee unless your grandparents were Tennessee residents. That would not create a dormant Commerce Clause problem?

Shay Dvoretzky: It would not create a dormant Commerce Clause problem because the 1 whole point of the Twenty-First Amendment was to constitutionalize the pre-prohibition powers, which included the power to discriminate against out-of-state interests. If you think about the -- the three-tier system and the in-state wholesaler requirement, for example, that this Court in Granholm itself said was unquestionably legitimate, that discriminates against out-of-state interests.

Justice Alito: Okay. Just -- I mean, just to understand the contours of your argument, so the -- to pick up on -- on something else Justice Sotomayor referred to, suppose you have a state statute that says for the exclusive purpose of protecting in-state retailers, no -- you must be a resident of the -- of the state for two years, five years, in order to get a license. Would that be -- would that be constitutional?

Shay Dvoretzky: I still don't think there would be a dormant Commerce Clause problem with that. Now, under Bacchus, if you're looking 1 at the language in Bacchus, Bacchus does talk about economic protectionism, but it does so in the context of a case that was discriminating against out-of-state products. If the rule from Bacchus --

Justice Sotomayor: Wholesalers. Bacchus -- Bacchus is --

Shay Dvoretzky: Well, it -- it involved wholesalers, but it involved a tax -- it involved a tax exemption that applied only for in-state products rather than out-of-state products. And that --

Justice Sotomayor: Well, under your theory --

Shay Dvoretzky: -- the tax was collected through the wholesalers.

Justice Sotomayor: Yeah, that's the problem. I don't know why, under your theory of the dormant Commerce Clause, if the state can do what it wants within its borders because it's regulating liquor, I don't know why our cases would be right under your theory that they can't put a different tax on different products?

Shay Dvoretzky: Because, under 1 Granholm and under the history pre-prohibition, states could do virtually what they wanted within their borders but not everything. And -- and one important carveout -- and this is reflected in the text of the Wilson Act itself -- is that they had -- had to treat in-state and out-of-state products the same. The Wilson Act itself says -- this is in the blue brief at page 26; it's 27 U.S.C. 121 -- that states have the power to ban the importation of liquor as long as they treat -- in violation of laws in the exercise of its police powers within the state, as long as they are treating liquor to the same extent and in the same manner as those such liquors had been produced in the state or territory. So the pre-prohibition powers --

Justice Sotomayor: Then Ziffrin -- then Ziffrin was wrong? One of the cases you rely on. Because Ziffrin was really the counter to Bacchus, wasn't it?

Shay Dvoretzky: Uh --

Justice Sotomayor: And -- and Ziffrin basically said you can discriminate in terms of taxes basically.

Shay Dvoretzky: But not based on products. And the -- the key point from Bacchus was that it was about discrimination based on products. If the rule that came out of Bacchus were just a straight economic protectionism test, Granholm would have been a much easier case. Granholm could have been written by saying the question is, do the Michigan and New York laws at issue -- are they meant to protect in-state producers or not? That wasn't the analysis that Granholm used. Instead, again, Granholm set forth this historical test that required the court to look back at the pre-prohibition powers. And the -- the Wilson and Webb-Kenyon Acts, first of all, empowered states to regulate interstate shipment of alcohol so long as they treated in-state and out-of-state alcohol the same. And then, second, at that time, pre-prohibition, states also had the inherent authority to regulate in-state sales. So, combined, that meant that states, pre-prohibition, were free to structure the in-state liquor distribution systems free from 1 Commerce Clause scrutiny, again, as long as they treated in-state and out-of-state products the same.

Justice Breyer: Does it apply the Commerce Clause? I mean, if you go back to 1920, maybe they said you can only be sold on the basis of race or the basis of gender or some -- I mean, it can't be 100 percent whatever they did in 1920.

Shay Dvoretzky: Well, that's right, but that's because the Twenty-First Amendment and the pre-prohibition powers that we're talking about are -- are powers related to overriding the dormant Commerce Clause specifically, not other constitutional provisions like the First Amendment or -- or partially these others.

Justice Breyer: So now, in other words, your position, your view is all the other amendments apply, okay, the Commerce Clause applies too as long as it wasn't part of the distribution system in the Wilson Act.

Shay Dvoretzky: And -- and that --

Justice Breyer: But, if it's part of the distribution of the Wilson Act, then it's 1 free of Commerce Clause, but, otherwise, it's subject to it, and it's also subject to everything else.

Shay Dvoretzky: Well, I -- I wouldn't quite --

Justice Breyer: Is that -- is that basically -- have I got it basically right?

Shay Dvoretzky: No. I -- I wouldn't quite say we're looking at the distribution system pre the Wilson Act. But the Wilson and Webb-Kenyon Acts, which were constitutionalized in the Twenty-First Amendment, were all about permitting states to act in ways that did restrain commerce, but they weren't about permitting states to act in ways that violated the First Amendment or other, you know, individual rights, for example. And so -- and --

Justice Sotomayor: So that's where you're wrong because the law then did provide for racial discrimination, and there's nothing in the provision that limits itself to the Commerce Clause. It just says: The transportation or importation into any state, territory, or 1 possession of the United States for delivery or use therein of intoxicating liquors in violation of the laws thereof is hereby prohibited. I don't actually see in that any reference to the Commerce Clause or to any other limiting principle. Yet we have cases that have found limiting principles.

Shay Dvoretzky: Yes. But this Court's cases, including the ones that have found limiting principles, and Granholm itself, all explain that the Twenty-First Amendment has to be understood in light of what it was trying to achieve, which was constitutionalizing these statutes. And these statutes were dealing with commerce, notwithstanding their broad language. The problem that they were trying to solve and the state powers that they were trying to protect were related to powers because --

Justice Sotomayor: All right. Let me -- let me ask something about that. I do understand that the Twenty-First Amendment was geared towards giving states greater freedom in controlling the distribution and sale of liquor 1 in their jurisdiction. But I'm having a hard time understanding how the residency requirement does when it comes to a person's pre-existing residency. So, yes, we understand that having someone there who's responsible to the community is necessary. That was inherent in the three-tier system. But why is it inherent in the three-tier system that you have to have someone who's only a local do it? There are many states whose three-tier system doesn't require that. They function fairly well. I -- I don't understand the necessity of that.

Shay Dvoretzky: So, first, I don't think the question is whether it's necessary or not. The point of the Twenty-First Amendment is the courts aren't supposed to impose that kind of scrutiny. States get to decide what distribution system works within their state.

Justice Sotomayor: Well, we just --

Shay Dvoretzky: There's no one size fits all solution.

Justice Sotomayor: I -- I agree. But 1 there are some parts of the discrimination part of the -- of the Commerce Clause that we -- today still affect this. You're saying they can't use it to violate the First Amendment. We've said you can't use it to discriminate against products, although nothing in here says you can't do that. I'm -- I'm having a hard time understanding. Explain to me why it's necessary.

Shay Dvoretzky: Let -- let -- let me make two points. One, just quickly going back to your earlier question about the text of the Twenty-First Amendment, the text does refer to the delivery or use of alcohol. So that -- that is invoking the sort of Commerce Clause concern that the history confirms. But, to get to your other question about the purposes of a durational residency requirement, everybody agrees that a residency requirement of some sort is constitutional, notwithstanding that it would otherwise raise Commerce Clause concerns. And the durational component of a 1 residency requirement serves very much the same interests. For example, residency requirements are important because they allow states to conduct background checks. Having somebody be a -- a resident for a longer period of time allows the -- those who decide whether to issue licenses to actually observe the person and to observe the person's character and give the -- the state a better ability to decide whether to issue a license and to conduct the background check. Likewise --

Justice Alito: Well, now you're -- you're arguing that they serve a public health and safety purpose, and -- but I thought you -- you answered my previous question by saying it doesn't matter. If the only purpose of the -- of the regulation -- and this is spelled out right in the statute itself -- is economic protectionism, that does not create a dormant Commerce Clause problem because the Twenty-First Amendment gave the states that authority.

Shay Dvoretzky: So -- so I think that's right. I think there's no historical pedigree for an economic protectionism sort of 1 exception. If the Court were to engage in that, it would essentially be a standardless inquiry that would --

Justice Alito: Well, I think you're turning -- maybe you're turning it around, and maybe my understanding of history is wrong, so you'll correct me, but I thought that the purpose of the Eighteenth Amendment was a determination by those who adopted it and ratified it that alcohol created a public health and safety problem. And I thought the purpose of the -- the -- the Twenty-First Amendment and Section 2 of the Twenty-First Amendment was to say this is a determination, the public health and safety determination is not going to be made on the national level. It's going to be made by the states. But none of that seems to me to have anything to do with economic protectionism. But where am I wrong in that? What is the -- what is the -- the basis for thinking that the purpose of or a purpose of Section 2 of the Twenty-First Amendment was to authorize the states in this one area, dealing with 1 alcohol, to engage in protectionist activities that wouldn't be permitted with respect to any other commodity?

Shay Dvoretzky: I -- I don't think the purpose was specifically to allow protectionist activity. But I do think that the purpose was to shield state laws from scrutiny under the dormant Commerce Clause. And for sure, one way that states might exercise that authority would be economic protectionism. But there's no historical pedigree for that kind of a carveout from what is otherwise virtually complete authority for states to legislate in this area free from dormant Commerce Clause scrutiny.

Justice Kavanaugh: When you --

Shay Dvoretzky: If the court --

Justice Kavanaugh: When you say virtually complete authority, and you've said several times the point of the Twenty-First Amendment, the purpose of the Twenty-First Amendment, the problem that I'm having in thinking about this is the text -- the text of the Twenty-First Amendment does not support that, as I read it. 1 You mentioned delivery or use, but it doesn't just say the states have complete authority over delivery or use. It's talking about the transportation or importation into any state. And why isn't that most naturally read to allow states to remain dry and, therefore, ban transportation or importation, but not to otherwise impose discriminatory or, as Justice Alito says, protectionist regulations?

Shay Dvoretzky: Two points in response to that, Justice Kavanaugh. First, the Twenty-First Amendment has to be read against the backdrop of the inherent authority that states already had to regulate the distribution systems within their system. The Twenty-First Amendment didn't need to say that expressly because it was understood at the time. Second, this Court in Midcal said -- and this is --

Justice Kavanaugh: Wait. I'm going to stop you there. I'm sorry. Where -- where do you get that -- that idea that it somehow -- the backdrop was to give the states authority 1 to enact protectionist legislation or legislation that discriminated against out-of-state producers, retailers, wholesalers?

Shay Dvoretzky: So -- so I direct you to Judge Sutton's dissent in the Sixth Circuit, which walks through the understanding of state authority -- of state authority at that time.

Justice Kavanaugh: I -- I -- I've gone through all that, and I -- and I don't see that in the Webb-Kenyon Act, that the -- the things that led up to that were not the -- the Act was not, as I understood it, enacted to enable states to enshrine protectionist legislation into state law.

Shay Dvoretzky: Those -- those statutes were enacted in order to avoid circumvention of certain inherent state powers by importing product into the --

Justice Kavanaugh: When they wanted to -- when they wanted to remain dry states, as I understood it.

Shay Dvoretzky: But, when the Twenty-First Amendment was enacted, obviously, that was the end of prohibition. But it also restored to the states powers that they 1 previously had to regulate -- regulate authority within their borders. I'd also direct the Court to Midcal, this is at 445 U.S. at 106, which said that although the Twenty-First Amendment on its face gives the states control over the transportation or importation, such control logically entails considerable regulatory power not strictly limited to importing and transporting alcohol. That too is referring to the Court's -- to the state's inherent power to regulate the systems within their states. If I may reserve the remainder of my time.

Chief Justice Roberts: Thank you, counsel. General Franklin. ORAL ARGUMENT OF DAVID L. FRANKLIN FOR ILLINOIS, ET AL., AS AMICI CURIAE, IN SUPPORT OF THE PETITIONER

David L. Franklin: Mr. Chief Justice, and may it please the Court: This Court has repeatedly stated, most recently in Granholm itself, that Section 2 of 1 the Twenty-First Amendment gives states virtually complete control over how to structure their domestic liquor distribution systems. Now questions have obviously arisen already this morning about whether residency requirements were -- were part of that structure. And they were. We know that, for example, from the Vance case in 1898. The -- the Court's discussion there is very instructive. Vance involved the South Carolina dispensary law, but the Court there said the dispensary law was comparable to a situation in which a state required for a retail license that the retailer be a resident of that state. And the Court treated that situation as so self-evidently valid that it used that as the basis for upholding the South Carolina law by saying any rule that would question that --

Justice Kagan: Mr. --

David L. Franklin: -- just couldn't be the law.

Justice Kagan: Mr. Franklin, you're representing quite a number of states, 1 including Tennessee, I guess. Maybe? These states have very varying residency requirements. And I want to take you back to Justice Alito's question. Tennessee appears to be on one end of the spectrum. And is there anything in your argument that would give us a way to say, you know, when there's a 12-year residency requirement, when there's a 100 percent shareholder requirement, these have stopped being public health and safety measures; these are clearly protectionist and we should not allow those to occur?

David L. Franklin: Well, I agree with my co-counsel that there wouldn't be a dormant Commerce Clause claim there because the Twenty-First Amendment, as he stated, was designed to supplant or displace dormant Commerce Clause analysis. Now there may come a point where the residency requirement is so extreme or so excessive as to be truly arbitrary, and then it could fail the Fourteenth Amendment's background presumption all --

Justice Kagan: Well, it's not arbitrary if you are intending to promote 1 economic protectionism. And as I understand your position, it's that that's part of the states' prerogatives too. And then, you know, the sky is the limit. Every -- the more you do, the more protectionist it gets.

David L. Franklin: Well, for example, it's our position in this case that the interplay between the initial two-year residency requirement for a license under Tennessee law and the 10-year renewal requirement, it's hard to see a rational basis for that. It seems like a trap for the unwary. That -- that's not a dormant Commerce Clause problem, but it could be a violation of the background rationality --

Justice Kavanaugh: Why --

David L. Franklin: -- minimal rationality requirement under the Fourteenth amendment.

Justice Kavanaugh: Why is that? To pick up on Justice Kagan's question, economic protectionism is rational. It's -- and in certain circumstances, it's disputed, but it's rational, and maybe a dormant Commerce Clause problem. And you're saying no, it's no dormant 1 Commerce Clause problem. Then it would seem -- I'm repeating Justice Kagan now -- the sky is the limit.

David L. Franklin: My comment went simply to the interplay between --

Justice Kavanaugh: I know.

David L. Franklin: -- the initial requirement and the subsequent requirement.

Justice Kavanaugh: Yeah, but the 12 years, no dormant Commerce Clause problem, you said, and the rationality argument would be that it's designed to favor in-state retailers. That's rational.

David L. Franklin: Our position would simply be that, at some point down the line, there -- there could be a failure of minimal rationality.

Justice Gorsuch: I guess --

David L. Franklin: But that's certainly not the case with respect to the two-year requirement that the --

Justice Gorsuch: Well, General, I guess the question is, if -- if -- if you're conceding that much, what's the delta? What's the difference between what the dormant 1 Commerce Clause would otherwise disallow and what I -- I take it to -- to be your position the Equal Protection Clause would -- would permit? If it's -- if it's irrational under one, why is it rational under the other? And are we just going to re-create our dormant Commerce Clause jurisprudence elsewhere?

David L. Franklin: Well, I do think it would be a mistake to re-create the dormant Commerce Clause elsewhere because --

Justice Gorsuch: Presumably.

David L. Franklin: Right.

Justice Gorsuch: But why? Isn't that exactly the invitation you're issuing us through this concession?

David L. Franklin: I -- I don't think so. All -- all legislation is subject to the Fourteenth Amendment's background requirement of minimal rationality. We don't think we're close to that here. And the protectionism lens is just the wrong lens through which to look at this issue.

Justice Breyer: Suppose you -- law: Any liquor store has to use paint made in 1 Tennessee, asphalt made in Tennessee for the parking lot, neon -- you know, I can go on. (Laughter.)

David L. Franklin: I -- I -- I suppose at some point, if we're talking about the use of paint, then we're really getting pretty far afield from the state's structuring the in-state distribution and sale.

Justice Breyer: And so there's just as good a reason for saying the out-of-state owner has to be -- live here for 12 years, as there is to say paint. In fact, a better reason because Tennessee paint's really good. (Laughter.)

David L. Franklin: But this -- the statute here, Your Honor, goes to the question of who can sell to whom and on what terms. That's always been at the heartland of what the Twenty-First Amendment was meant to protect, the state's ability to structure the intrastate sale of its product.

Justice Kagan: I -- I guess, Mr. Franklin, the -- that a question that followed from my last is wouldn't it be a better idea if we said the dormant Commerce 1 Clause does apply, and then let the state come back and say we can meet that test; we have real health and safety concerns here, and our law is well tailored to address those concerns. And so it's not a dormant Commerce Clause violation.

David L. Franklin: I -- I think that approach, which is essentially Judge Sutton's approach, would still embroil the courts in the kind of line drawing that the Twenty-First Amendment was designed to relieve them of by -- by creating what this Court has called an exception to the normal operation of the dormant Commerce Clause. It would be at odds with the broad regulatory discretion that's -- that's conferred by the Twenty-First Amendment. But -- but it's -- I think it's important to note also that the Respondents' approach -- which is not that approach, right? Their approach says no discrimination of any kind under the Twenty-First Amendment. And that approach really would leave the Twenty-First Amendment with no meaningful role to play in our modern constitutional order. 1 Think about the three-tier system for a moment. This Court described it in Granholm not only as unquestionably legitimate but also as involving sales to and purchases from an in-state wholesaler. Now that arrangement disadvantages out-of-state business interests. It wouldn't fly if we were talking about milk or trash. But this Court has treated it as unquestionably legitimate because it's part of the state's choice about how to structure the in-state sale of this particularly dangerous product that has distinctive constitutional treatment under the Twenty-First Amendment. In the end, Respondents are asking this Court to treat alcohol like any other article of commerce. But it's not. It was actually 100 years ago today that the Eighteenth Amendment was -- was finally ratified. And 14 years after that failed experiment, the Twenty-First Amendment restored to the individual states their broad police powers over delivery and sale of this product within their borders so long as they treated out-of-state and in-state products the same. 1 And that proviso comes directly from the text of the Wilson Act, which was Congress's instruction as to how and to what extent to overturn this Court's original package doctrine case law from the late 19th Century. That was the line Congress drew and no further. Granholm drew the same line. It said we're not going to import all of the dormant Commerce Clause's non-discrimination principles into the Twenty-First Amendment, but we are going to import so much of it as the historical analysis and the Wilson Act require.

Justice Alito: As Justice Kavanaugh pointed out in an earlier question, the Twenty-First Amendment is about the transportation or importation of alcohol into a state. How do you get from there to a durational residency requirement that is imposed on the owner of a retail outlet in the state? Suppose I am not a resident of Tennessee and I want a license to operate an entity that will sell only Tennessee whiskey. How would that fall within the terms of the 1 Twenty-First Amendment?

David L. Franklin: Well, if I can quote from Midcal in the way that my colleague was beginning to do, what the Court said there is very instructive. It said yes, in terms, the amendment gives states control over transportation and importation. But, of course, such control -- I'm quoting still -- logically entails considerable regulatory power not strictly limited to importing and transporting alcohol. It's true, in other words, that the Twenty-First Amendment speaks of importation, though it also speaks of delivery and use, but it does so --

Justice Alito: It speaks of transportation for the purpose of delivery or use.

David L. Franklin: For the purpose of protecting the state's ability to control the terms on which delivery or use will take place within its borders. And that's exactly what's at issue here. The Twenty-First Amendment, in other words, presupposes and safeguards the state's 1 broad control over intrastate distribution and sale. And this Court has said that repeatedly. Granholm and -- and Bacchus are not to the contrary. What they do is undertake a historical analysis and recognize a proviso to that. But the broad rule still stands: States have virtually complete control over intrastate distribution and sale.

Chief Justice Roberts: Thank you, General Franklin. Mr. Phillips. ORAL ARGUMENT OF CARTER G. PHILLIPS ON BEHALF OF THE RESPONDENTS

Carter G. Phillips: Thank you, Mr. Chief Justice, and may it please the Court: I think I'd like to start with the history because it seems to me that there's a fundamental difference here, and this Court actually has answered the question of what the history of the Wilson Act and the Webb-Kenyon Act and the Twenty-First Amendment was designed to get at. And the language of the Twenty-First Amendment speaks directly to exactly what the purpose of this entire exercise was. 1 The problem that the two federal statutes were designed to deal with was the fact that states had complete authority to say we're not going to allow any use or sale of alcohol within our states and had absolutely no authority to stop the import from other states of -- of alcohol. In the first instance, in the original package doctrine, they could sell it to retailers, and then, ultimately, beyond that, they could sell it directly to consumers. And the statutes were passed to stop that specific practice. And -- and then we go to the prohibition, which, as somebody already noted, is exactly 100 years ago today. And then we come back and we repeal the prohibition. And the language in Section 2 tracks very closely the language and the intention. It's not designed -- it's not a grant of authority. It's a protection against allowing out-of-state operators to come in and sell directly liquor under certain circumstances. That was the entire purpose of it. that's what the Court held in Bacchus, and 1 that's what the Court held in -- in Granholm. Bacchus said it was not the -- I'll quote it -- "doubts about the scope of the amendment's authorization, Section 2, notwithstanding, one thing is certain, the central purpose of the provision was not to empower states to favor local liquor industries by erecting barriers to competition." Candidly, I don't know that the Court had to go past Bacchus when it decided Granholm because those statutes were clearly just as economically protectionist as this one is, but the principle from Bacchus is, if a statute has no purpose, and this statute has no purpose except to be protectionist of the local industries, it's unconstitutional.

Justice Kagan: Is that your standard? Because you seem to slide back and forth a little bit between standards in your brief -- or -- or I thought that you did maybe. If -- if a state can come forward with any purpose other than protectionism, the state wins?

Carter G. Phillips: No, no. It's when the state doesn't come forward with anything except 1 protectionism, the state loses.

Justice Kagan: Well, suppose a state comes forward and says: We like this because it's protectionist. We were trying to do --

Carter G. Phillips: Right.

Justice Kagan: -- some protectionist things. And we also, coincidentally, we found a way that our protectionist interests matched up completely with our health and safety interests.

Carter G. Phillips: Right.

Justice Kagan: What happens then?

Carter G. Phillips: Then you're in Granholm. And that's -- that's where -- I mean, Granholm, I think, could have concluded anyway that the statutes involved there were really just economic protectionism and not gone beyond it, but it did go beyond that. And what it said is, if, in fact, the state is engaged in discrimination under the -- under normal Commerce Clause standards, it's presumptively unconstitutional, and the state must come forward and justify the discrimination on the basis of non-discriminatory, less restrictive means of 1 achieving the same objective. And under that standard -- and that's -- I'm perfectly comfortable with the standard, because there's no doubt that what we're talking about here is rank discrimination on the basis of commerce.

Justice Breyer: The -- the argument -- look, it also says in Granholm that the Twenty-First Amendment grants the states virtually complete control as to how to structure the liquor distribution system.

Carter G. Phillips: Right.

Justice Breyer: We have previously recognized that the three-tier structure is unquestionably legitimate. And then we go back into the history. And it's just history, but it is history. And -- and we discover that the states, the vast majority, always have had rules like the Tennessee rule. And, today, 34 states, apparently, according to my -- our count, have rules just like this, except maybe not the same number of years.

Carter G. Phillips: Oh, I --

Justice Breyer: And so -- so this amendment was enacted against a history. This 1 Court has several times say we honor that history. And the history favors the other side. So -- so what do we do about that?

Carter G. Phillips: Well, I don't think the history does favor the other side, first of all.

Justice Breyer: Why not?

Carter G. Phillips: I -- it's pretty clear to me there's nowhere near 34 states that have durational residency requirements.

Justice Breyer: Well, that may be, but they say you have to be a resident on some form or other.

Carter G. Phillips: Right.

Justice Breyer: But there are a lot.

Carter G. Phillips: And my -- and my client is here, as I -- as we say in our brief -- actually, both of our clients are here to say we -- we -- we are not challenging the three-tier system. All we are seeking is the opportunity to compete into this market.

Justice Sotomayor: See, I -- I -- the problem I have is it seems -- I don't think that you would challenge a state -- the state's residency requirement moving forward, meaning 1 that almost all of the states require their wholesalers, distributors, and retailers to be resident in the state.

Carter G. Phillips: Or present. Some say present; some say resident.

Justice Sotomayor: Present. But pretty much you're not challenging that.

Carter G. Phillips: I do not challenge that whatsoever.

Justice Sotomayor: So now the challenge seems to me why is a pre-registration or pre-licensing residency requirement of the normal length, one or two years, because I think even the dissent below thought the 14 was too -- the 12 was too long, all right, but let's concentrate on the two. Let's do the severability your adversary wants.

Carter G. Phillips: Right. Sure.

Justice Sotomayor: Why is that two years not reasonable --

Carter G. Phillips: Okay.

Justice Sotomayor: -- given the history of what other states have done, et cetera, et cetera?

Carter G. Phillips: Okay. So the -- the 1 core principle that's embedded in here, right, is the -- is that there's a non-discrimination principle. And so adopting a durational residency requirement is, by definition, discriminating against out-of-state interests. And unless you're going to limit it just to producers, which is an irrational limitation this Court's never adopted with respect to any Commerce Clause analysis, we are being discriminated against. And, therefore, it's the state's burden to come forward and to justify that discrimination. There is no rational basis for the two-year ban that they've put in place here. The Tennessee attorney general himself has twice looked at this ban and said it doesn't remotely serve any purpose that's designed under the Twenty-First Amendment when we're dealing with alcohol or public safety or public health or anything else. It's only designed to exclude us.

Justice Sotomayor: Except for the attorney general may -- may represent the government, but the legislature gave a reason.

Carter G. Phillips: And -- and the reason 1 it gave was, because this is alcohol, we're protecting the public interest. That's fine. But that doesn't remotely explain the two-year durational residency requirement. That just explains all of the other regulations that were adopted at the same time, including the 12-year residency requirement. So that -- it's their burden, and they should come forward not just in making statements to the legislature, they can come into court -- and that's what Granholm says. Look, you discriminate against out-of-state interests. That triggers a burden on the state to justify the limitation -- the discrimination that it's imposed. And what does it say? In this case, it said absolutely nothing. It didn't -- it didn't file a single affidavit. It didn't put forward any kind of a witness. It didn't put on any defense whatsoever. And the reason is pretty clear. The sole purpose of this statute was, as my friend here who -- who represents the retailers association proves beyond any question, what this is designed to do is be exclusively protectionist, which is why in some 1 places we say that's a basis for the Court to reach the decision, because this is exclusively protectionist, but, if you don't accept that, our fall-back position is Granholm requires them to come forward with more than they have come forward with.

Justice Sotomayor: Let's have --

Justice Breyer: The same question.

Carter G. Phillips: I'm sorry.

Justice Breyer: That is, yes, of course, but to have -- to be able to have what is called the three-tier system is unquestionably legitimate.

Carter G. Phillips: Right.

Justice Breyer: Virtually complete control over how to structure liquor distribution. A liquor distribution system employs people. And how can you structure -- you can, but you could structure a liquor system involving the people who are to work there. The people who are to work there are an integral part of such a system.

Carter G. Phillips: Right.

Justice Breyer: And, therefore, given 1 the case law and the history and the absence of any discrimination forbidden by others, this has been the law for 100 years. Don't change it. Not all law makes that much sense. (Laughter.)

Justice Breyer: And there we are.

Carter G. Phillips: But this law does make sense because everything you're talk --

Justice Breyer: I mean, you want to say their -- their law -- you want to say their law does make sense?

Carter G. Phillips: No. What I'm saying is that if they can apply the other kinds of -- of restrictions equally to both in-state operators and out-of-state operators, we don't have any problem with that. So, if your question to go back to your hypothetical about paint is if they say: If you're an in-state operator, you've got to -- you have to have green walls, and you're an out-of-state operator you have to have green walls, we have no quarrel with that. Our concern is that this is a blatantly discriminatory statute. And --

Justice Gorsuch: Well, Mr. Phillips, 1 I -- I -- I -- if we were here on a dormant Commerce Clause case --

Justice Breyer: It would be easy.

Justice Gorsuch: -- it would be easy, right?

Carter G. Phillips: We'd be done.

Justice Gorsuch: Right. But I -- I'm stuck where Justice Breyer is, and I just want to give you another opportunity --

Carter G. Phillips: Okay.

Justice Gorsuch: -- to discuss the history here. Alcohol has been treated differently --

Carter G. Phillips: Right.

Justice Gorsuch: -- than other commodities in our nation's experience for better or worse. And -- and we have the Twenty-First Amendment. We have the Heublein decision, for example, in 1972 that required the use of a resident representative to sell alcohol.

Carter G. Phillips: A presence.

Justice Gorsuch: Yeah. And I didn't see you address that case anywhere in your brief. And I -- I just want to give you one 1 more shot --

Carter G. Phillips: Sure.

Justice Gorsuch: -- at the -- at the history --

Carter G. Phillips: Yeah.

Justice Gorsuch: -- and dealing with the Wilson Act and Webb Act and --

Carter G. Phillips: Thank you, Justice Gorsuch.

Justice Gorsuch: -- those sorts of things.

Carter G. Phillips: Appreciate the opportunity. The case that, it seems to me, speaks directly to this really is Walling versus Michigan. It predates the Wilson Act. It predates Webb-Kenyon. It specifically says categorically that you cannot -- states cannot discriminate against out-of-state sellers by imposing a tax on them. And I guarantee you that under the -- under the approach offered by my friends on the other side, they read the Twenty-First Amendment to say: Of course, you can impose a tax on them because you're regulating the sale 1 of alcohol, and if you regulate the sale of alcohol on a wholesaler, under those circumstances, you can put a billion-dollar tax on him as long as it's within the Twenty-First Amendment, and that's constitutional. And that predates all of these things. And nothing in the Wilson Act, nothing in the Webb-Kenyon Act, and certainly nothing in the Second Amendment -- Second -- or the Twenty-First Amendment was designed to overrule Walling. And, indeed, this Court said in Granholm, Granholm specifically, that that case and Scott -- and the third case whose name is going to escape me -- Tiernan, all three survived Section 2 of the Fourteenth Amendment. So while it is true that they can -- they can -- they have virtual control -- virtually control -- virtual control is something else -- they have the ability to control the structure, that's simply a recognition of the three-tiered system. And just to go back to the history, what's the -- what's the purpose of the three-tiered system? It's to avoid the tied 1 sales arrangement that gave rise to the prohibition in the first place. You want to have three distinct levels, you know, the -- the producers, the wholesalers, and the retailers.

Justice Kavanaugh: So that the three --

Carter G. Phillips: They're not interrelated -- interrelated.

Justice Kavanaugh: -- the three-tier system does not necessarily, in your view, entail favoritism of in-state interests?

Carter G. Phillips: It probably has some --

Justice Kavanaugh: Doesn't it do that?

Carter G. Phillips: -- some advantages but not -- not that is inherent to it.

Justice Kavanaugh: Because when we're talking --

Justice Gorsuch: Isn't -- isn't -- isn't that the next case --

Justice Kavanaugh: -- the paragraph that Justice --

Carter G. Phillips: I'm sorry?

Justice Gorsuch: No, I'm sorry.

Justice Kavanaugh: The paragraph that Justice Breyer's referred to multiple times also has a quote from a Justice Scalia concurrence which that says the Twenty-First Amendment empowers the state to require that all liquor be sold by an in-state wholesaler. In other words, that is interpreting the three-tiered system, I think, to entail favoritism of in-state interests.

Carter G. Phillips: Right. But -- but, see, we -- we would regard ourselves as an in-state retailer within the meaning of that. We have satisfied every condition necessary to -- to operate in state, with a presence in state of a very large facility that can be examined, can be determined to be in compliance, can satisfy every single one of the state's vast requirements.

Justice Gorsuch: But, Mr. Phillips, I'd agree with you on that, but I would think that the next case would be -- much as we've reexamined Quill, for example, and the requirement of physical presence in state, that the next lawsuit would be that, yes, this three-tier system is, in fact, discriminatory 1 by requiring some sort of physical presence in state. And under the dormant Commerce Clause jurisprudence, you have a point. You have a good point. So I -- why isn't this just the camel's nose under the tent?

Carter G. Phillips: Well, if only because, under these circumstances, as the camel at least, or I guess I'm the nose of the camel, that's not what I'm looking for.

Justice Gorsuch: I think you may be, yes. (Laughter.)

Carter G. Phillips: I am not -- that's -- that's -- you know, it is fundamentally at odds with my client's business model to be looking to undo the three-tier principle.

Justice Gorsuch: But isn't the next business model just to -- to try and operate as the Amazon of -- of liquor?

Carter G. Phillips: No, Amazon wants to operate --

Justice Gorsuch: Or --

Carter G. Phillips: -- as the Amazon of liquor or may at some point. No, my client 1 operates on a -- on a more -- on a brick-and-mortar business model that says we're perfectly comfortable operating within the sphere of regulation that the state imposes on every in-state operator. And all we are seeking to have is not to be discriminated against.

Justice Breyer: All right. That's totally rational to me.

Carter G. Phillips: I appreciate that.

Justice Breyer: I look at the Webb-Kenyon Act, 1913, and it says you can't send liquor into a state if it's going to be possessed or sold in a -- in any manner used in violation of any law of the state. Now "any," well, maybe we can work with that, but we know at the time that these states did all, or 30 or 20 or 50, have laws that said when you, in fact, structure your distribution system in our state, you have to have local residents. That's one of our employee requirements. So, when they passed Webb-Kenyon, did they mean all of them except that one? And there could have been a lot that were, in fact, 1 violation of dormant Commerce Clause. That -- that's where I'm -- I -- I -- I get all the arguments, but I'm worried about that history.

Carter G. Phillips: Well, Justice Breyer, you know, I don't know how you can just limit it to that history, though. My guess is, if you go back to the point in time of the -- of Webb-Kenyon, the Court didn't have in mind every state law that happened to be involved with the -- with the distribution of alcohol.

Justice Breyer: No, but there were a lot that said you have to be a resident.

Carter G. Phillips: Yeah, but there were probably a lot, as you said earlier, that also probably discriminated on the basis of race, discriminated on the basis of ethnicity --

Justice Breyer: Those other amendments say they took care of that. They -- they -- they -- all the -- the race, the women and all these different things, they said, no, no, of course, they trump the --

Carter G. Phillips: But -- but the reason why they trump is because --

Justice Breyer: -- they -- they trump it. But why should -- but this --

Carter G. Phillips: -- you can't read under the laws of the state so broadly as to mean any law. They have to be valid laws. And so you just go back, that just brings you back to the same fundamental question, Justice Breyer. Is it permissible for the state to discriminate with a durational residency requirement, not just a presence, but with a durational requirement --

Justice Kagan: But, to go back to Justice Gorsuch's question, I mean, I'm trying to figure out what kind of opinion we could write, Mr. Phillips, that says you win, but then, when the next case comes along and the next case is somebody that says we don't like this brick-and-mortar stuff, we don't want to have any physical presence at all, and the state is preventing that, and in doing so, the state is discriminating against out-of-state companies. And, you know, you've said that that's not valid, so we're entitled to do what we want to do too.

Carter G. Phillips: I think there are two ways you can go about this. The first one 1 would be -- I mean, you can write an opinion that just says Bacchus again. This is -- this is really protectionist and ought to be declared unconstitutional. Leave for another day the rest of those kinds of issues. The second one is, if you want to take up the question and say, you know, what -- why is -- why is brick-and-mortar more important, well, brick-and-mortar is fully consistent with the three-tier system. And we'll leave for another day whether the three-tier system, if it, in fact, operates --

Justice Kagan: Well, we're leaving a lot of things for another day, but they all seem to be demanded by the principles that you're asking us to adopt.

Carter G. Phillips: Well, I don't think so. All I'm asking -- the principle I'm asking you to adopt is to not discriminate against us under these circumstances where we are clearly exactly identically situated and where the state's interests in -- in protecting against alcohol can be fully protected. And leave it for another day if there are other rules that are challenged to see what 1 those rules are --

Justice Kagan: I guess what I'm asking --

Carter G. Phillips: -- how they operate, and what's the state's justification for them.

Justice Kagan: Because the hypothetical I was attempting to pose is a hypothetical where the state is acting in a discriminatory manner. And I guess I'm -- what I'm asking you for is, why would some kinds of discrimination be permissible and other kinds of discrimination not be permissible?

Carter G. Phillips: Because, under certain circumstances, there may not be any less discriminatory way of achieving the state's objective.

Chief Justice Roberts: Well, but, I mean, are you incorporate --

Carter G. Phillips: Granholm says that.

Chief Justice Roberts: -- are you incorporating the dormant Commerce Clause jurisprudence completely?

Carter G. Phillips: Well, it's a little tricky because Granholm's a little unclear to me on that because the -- I mean, the normal 1 Commerce Clause says if you discriminate, it's -- it's almost per se unconstitutional. Granholm didn't seem to go that far and just talked about narrow tailoring and non-discriminatory means of achieving its objective. And I can imagine in a close case it would make a difference how you deal with that.

Justice Gorsuch: But isn't that exactly --

Carter G. Phillips: This is not a close case. I'm sorry, Your Honor.

Justice Gorsuch: Isn't that exactly where you want us to go? Not today, of course, but tomorrow or next year.

Carter G. Phillips: Or maybe not ever. (Laughter.)

Justice Gorsuch: And all --

Carter G. Phillips: Only if I'm standing here, Your Honor.

Justice Gorsuch: And we'll see you again. And -- and, surely, you know, the state can achieve all the regulatory interests it wants to achieve through virtually -- dealing with virtual sellers from out of state, just as 1 easily as it can with the physical presence sellers in state. I mean, surely that's tomorrow's argument, isn't it?

Carter G. Phillips: I -- I -- I'm -- perhaps, but at least the state --

Justice Gorsuch: This is just like --

Carter G. Phillips: -- at least the state will have the opportunity --

Justice Gorsuch: -- just like milk, just like books.

Carter G. Phillips: But, Justice Gorsuch, somebody is going to -- at that point, presumably, the state will say: This is why we can't regulate effectively. This is why we won't have the orderly market. This is why we need this restriction. But what Tennessee has never done here is ever tried to explain why a durational residency requirement of 10, 12, and why you need all stockholders to be in -- in the town, all the -- all the directors, et cetera. That's the issue before this Court. That seems to me so clearly beyond what the Twenty-First Amendment was designed to achieve that the Court simply should declare it 1 unconstitutional. If there are no further questions, Your Honors.

Chief Justice Roberts: Thank you, counsel. Two minutes, Mr. Dvoretzky. REBUTTAL ARGUMENT OF SHAY DVORETZKY ON BEHALF OF THE PETITIONER

Shay Dvoretzky: Thank you, Mr. Chief Justice. Respondents offer no administrable rule that would support even the basic presence requirement that this Court recognized in Granholm was unquestionably legitimate, and no account of the history. First, Respondents concede a residency requirement. A durational residency requirement follows from that: first, because states get to define what residency is, and, second, because the same interests that serve a presence requirement also serve a durational -- durational residency requirement. Duration facilitates background checks. It facilitates investigation and 1 enforcement of the law because somebody who's been there for a while is more likely to have substantial assets that can be enforced -- that can be seized, and is less likely to flee at the first sign of trouble. Once you concede that residency requirements are okay, courts shouldn't be second-guessing the extent to which those very same interests are served by durational residency requirements. The whole point of the Twenty-First Amendment was to take that out of the hands of courts. With respect to the history, Mr. Phillips referred to Walling and to Scott. Both of those were cases like Granholm and Bacchus that involved taxing out-of-state product more heavily than in-state product. That is the exception that Granholm recognized to the state's virtually complete authority. But, when we're talking about purely in-state regulation, like a durational residency requirement for a liquor license, that is what the Twenty-First Amendment is concerned with. There's no economic protectionism test 1 that is either consistent with the history or is administrable. If the Court were to go down that road, there would be challenges to dozens of state laws. And how do we draw a line about whether 30 days is protectionist, a year is protectionist, two years is protectionist? At that point, the inquiry just becomes the same as any other dormant Commerce Clause challenge. And the one thing we know from the Twenty-First Amendment is that alcohol was to be treated differently for dormant Commerce Clause purposes. Respondents' rule allow no room for that. Lastly, even if there were an economic protectionism test, for the reasons given by Judge Sutton in his dissent below, and for the reasons I said earlier, Tennessee's law satisfies the necessary level of scrutiny, which is not a searching sort of strict scrutiny but just is there a plausible reason for the law that makes it survive. Thank you.

Chief Justice Roberts: Thank you, counsel. The case is submitted. 1 (Whereupon, at 11:59 a.m., the case was submitted.)