Wine v. Div. of Alcohol & Tobacco Control

• Decision Date: 25 September 2013
• Docket Number: No. 12–2502.,12–2502.
• Citation: 731 F.3d 799
• Parties: SOUTHERN WINE AND SPIRITS OF AMERICA, INC.; Southern Wine and Spirits of Missouri, Inc.; Harvey R. Chaplin; Wayne E. Chaplin; Paul B. Chaplin; Steven R. Becker, Plaintiffs–Appellants, v. DIVISION OF ALCOHOL AND TOBACCO CONTROL; Lafayette E. Lacy, Supervisor of Alcohol & Tobacco Control, Defendants–Appellees, Missouri Beverage Company, Amicus on Behalf of Appellant, National Beer Wholesalers Association; Missouri Wine and Spirits Association; Missouri Beer Wholesalers Association; Attorney General of Arkansas; Attorney General of Delaware; Attorney General of Mississippi; Attorney General of Nebraska; Attorney General of South Dakota; Attorney General of Texas; Attorney General of West Virginia; American Beverage Licensees, Amici on Behalf of Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

731 F.3d 799

SOUTHERN WINE AND SPIRITS OF AMERICA, INC.; Southern Wine and Spirits of Missouri, Inc.; Harvey R. Chaplin; Wayne E. Chaplin; Paul B. Chaplin; Steven R. Becker, Plaintiffs–Appellants,

v. DIVISION OF ALCOHOL AND TOBACCO CONTROL; Lafayette E. Lacy, Supervisor of Alcohol & Tobacco Control, Defendants–Appellees,Missouri Beverage Company, Amicus on Behalf of Appellant,National Beer Wholesalers Association; Missouri Wine and Spirits Association; Missouri Beer Wholesalers Association; Attorney General of Arkansas; Attorney General of Delaware; Attorney General of Mississippi; Attorney General of Nebraska; Attorney General of South Dakota; Attorney General of Texas; Attorney General of West Virginia; American Beverage Licensees, Amici on Behalf of Appellees.

No. 12–2502.

United States Court of Appeals, Eighth Circuit.

Submitted: April 9, 2013.

Filed: Sept. 25, 2013.

Neal Kimar Katyal, Hogan Lovells US LLP, Washington, D.C., argued (Dominic F. Perella, Washington, D.C., Andrea W. Trento, Baltimore, MD, Hogan Lovells US LLP, Johnny K. Richardson, Diana C. Carter, Brydon, Swearengen & England, P.C., Jefferson City, MO, on the brief), for appellants.

Kannon K. Shanmugam, Williams & Connolly LLP, Washington, D.C., argued (Richard B. Walsh, Jr., R. Bradley Ziegler, Lewis Rice & Fingersh, L.C., Saint Louis, MO, on the brief), for amicus curiae MissouriWine and Spirits Assn., in support of appellees.

James R. Layton, Asst. Atty. Gen., Jefferson City, MO, argued (Chris Koster, Atty. Gen., Douglas G. Leyshock, Joanna L.W. Trachtenberg, Asst. Attys. Gen., on the brief), for appellees.

Thomas C. Goldstein, Tejinder Singh, Goldstein & Russell P.C., Washington, D.C., for amicus curiae Missouri Beverage Co., in support of appellants.

Michael M. Madigan, Katherine E. Becker, Minneapolis, MN, Paul Pisano, Alexandria, VA, Stephen M. Diamond, Coral Gables, FL, for amici curiae National Beer Wholesalers Assn. and Missouri Beer Wholesalers Assn., in support of appellees.

Anthony S. Kogut, Willingham & Cote, P.C., East Lansing, MI, for amicus curiae American Beverage Licensees, in support of appellees.

David A. Curran, Asst. Atty. Gen., State of Arkansas, Little Rock, AR (Dustin McDaniel, Atty. Gen., on the brief), for amici curiae Attorneys General of Arkansas, Delaware, Mississippi, Nebraska, South Dakota, Texas, and West Virginia, in support of appellees.

Before COLLOTON and SHEPHERD, Circuit Judges, and ROSE,¹ District Judge.

COLLOTON, Circuit Judge.

Southern Wine & Spirits of Missouri, Inc. (“Southern Missouri”) applied for a license to sell liquor at wholesale in Missouri. The Division of Alcohol and Tobacco Control of the Missouri Department of Public Safety (“the Division”) denied the application, because Southern Missouri does not satisfy a residency requirement that applies to liquor wholesalers' officers, directors, and shareholders under Missouri law. Southern Missouri, its parent company Southern Wine & Spirits of America, Inc. (“SWSA”), and four individuals brought this action, challenging the constitutionality of the residency requirements. The district court ² upheld the statute, and we affirm.

I.

Missouri funnels liquor sales through a tier system, separating the distribution market into discrete levels: the first tier consists of producers, such as brewers, distillers, and winemakers; the second tier is comprised of solicitors, who acquire alcohol from producers and sell it “to, by or through” wholesalers; the third tier is made up of wholesalers, who purchase alcohol from producers or solicitors and sell it to retailers; and the fourth tier consists of retailers, who sell alcohol to consumers. SeeMo.Rev.Stat. §§ 311.180(1), 311.200. Any individual or corporation who “manufacture[s], sell[s], or expose[s] for sale ... intoxicating liquor” in Missouri must first “tak[e] out a license.” Id.§ 311.050. To obtain a wholesaler license “for the sale of intoxicating liquor containing alcohol in excess of five percent by weight,” a corporation must be a “resident corporation.” Id. § 311.060.2(3).

To be a “resident corporation,” the corporation must be incorporated under the laws of Missouri, and all of its officers and directors must be “qualified legal voters and taxpaying citizens of the county ... in which they reside” and have been “bona fide residents” of Missouri for at least three years. Id. § 311.060.3. “[A]ll the resident stockholders ... shall own, legally and beneficially, at least sixty percent of all the financial interest in the business to be licensed under this law.” Id. The residency requirement also contains a so-called grandfather clause, which exempts corporations licensed as wholesalers as of January 1, 1947, or “any corporation succeeding to the business of [such] a corporation ... as a result of a tax-free reorganization.” Id. One corporation is licensed as a wholesaler in Missouri despite its noncompliance with the residency requirement, because it satisfies the terms of the grandfather clause.

SWSA, a Florida corporation, is a distributor of wine, spirits, beer, and various non-alcoholic beverages, with operations in 32 states and the District of Columbia. Collectively, four Florida residents own over 97 percent of SWSA's voting shares and more than 51 percent of all shares. Southern Missouri is incorporated in Missouri and is a wholly owned subsidiary of SWSA. In July 2011, Southern Missouri applied to the Division for a wholesaler-solicitor license to which the residency requirement applies. On its application, Southern Missouri stated that its sole shareholder is SWSA, and that its officers and directors are Florida residents. The Division denied Southern Missouri's application, because Southern Missouri failed to “qualify as a resident corporation” within the meaning of the statute.

SWSA, Southern Missouri, and four Florida residents who are shareholders of SWSA and officers or directors of SWSA and Southern Missouri (collectively, “Southern Wine”) brought this action against the Division and the Supervisor of the Division in his official capacity, challenging the constitutionality of the residency requirement and seeking declaratory and injunctive relief. Both sides moved for summary judgment. As relevant to this appeal, Southern Wine asserted in the district court that the residency requirement discriminates against out-of-state corporations, in violation of the Commerce Clause and the Equal Protection Clause of the Fourteenth Amendment. Southern Wine argued, as it does on appeal, that the residency requirement is constitutionally infirm, because it does not advance any legitimate state interest. Southern Wine relied on the existence of the grandfathered out-of-state wholesaler and the deposition testimony of the Division's deputy supervisor indicating that he did not think licensing Southern Missouri as a wholesaler would erode Missouri's liquor-distribution system.

The Division conceded that conditioning wholesaler licenses on the in-state residency of officers, directors, and a super-majority of shareholders discriminates against interstate commerce. The Division maintained, however, that the residency requirement is 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.” The Division further argued that the requirement does not violate the Equal Protection Clause because, among other reasons, it is rationally related to the State's interest in ensuring that liquor wholesalers are publicly accountable.

The district court granted the Division's motion for summary judgment and denied Southern Wine's. Southern Wine now appeals.

II.

This case involves the intersection of what has come to be known as the “dormant” or “negative” Commerce Clause and the Twenty-first Amendment. Typically, the Commerce Clause forbids a State to discriminate against out-of-state residents: laws that provide for “differential treatment of in-state and out-of-state economic interests that benefits the former and burdens the latter” have been considered “virtually per se invalid.” Or. Waste Sys., Inc. v. Dep't of Envtl. Quality of the State of Or., 511 U.S. 93, 99, 114 S.Ct. 1345, 128 L.Ed.2d 13 (1994). The Twenty-first Amendment, however, provides that “[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. This provision thus grants States certain prerogatives particular to the regulation of alcohol.

Over time, the Supreme Court has sent conflicting signals about the relationship between these two constitutional provisions. Early cases interpreting the Twenty-first Amendment appeared to say that § 2 immunized state liquor regulations from scrutiny under the Commerce Clause. In 1936, three years after the ratification of the Twenty-first Amendment, the Court explained:

The words used [in § 2] are apt to confer upon the state the power to forbid all importations which do not comply with the conditions which it prescribes. The plaintiffs ask us to limit this broad command. They request us to construe the amendment as saying, in effect: The state may prohibit the importation of intoxicating liquors provided it prohibits the manufacture and sale within its borders; but if it permits such manufacture and sale, it must let imported liquors compete with the domestic on equal terms. To say that, would involve not a construction of the amendment, but a rewriting of it.

State Bd. of Equalization of Cal. v. Young's Mkt. Co., 299 U.S. 59, 62, 57 S.Ct. 77, 81 L.Ed. 38 (1936).

Over the ensuing decades, however, the Court has declined to accept this broad view of the Twenty-first Amendment. In 1964, the Court in Hostetter v. Idlewild Bon...