Southern Wine & Spirits of America, Inc. v. Division of Alcohol & Tobacco Control

United States Court of Appeals
For the Eighth Circuit
___________________________
No. 12-2502
___________________________
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,
lllllllllllllllllllll Plaintiffs - Appellants,
v.
Division of Alcohol and Tobacco Control; Lafayette E. Lacy, Supervisor of
Alcohol & Tobacco Control,
lllllllllllllllllllll Defendants - Appellees,
------------------------------
Missouri Beverage Company,
lllllllllllllllllllllAmicus 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,
lllllllllllllllllllllAmici on Behalf of Appellees.
____________
Appeal from United States District Court
for the Western District of Missouri - Jefferson City
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Submitted: April 9, 2013
Filed: September 25, 2013
____________
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 court2 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
1
The Honorable Stephanie M. Rose, United States District Judge for the
Southern District of Iowa, sitting by designation.
2
The Honorable Nanette K. Laughrey, United States District Judge for the
Western District of Missouri.
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it to retailers; and the fourth tier consists of retailers, who sell alcohol to consumers.
See Mo. 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.
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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.
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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 (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.
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State Bd. of Equalization of Cal. v. Young’s Mkt. Co., 299 U.S. 59, 62 (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
Voyage Liquor Corp., 377 U.S. 324 (1964), held that the Commerce Clause
prohibited New York from denying a license to an airport-based liquor retailer.
Because the liquor sold by this retailer was not delivered to customers until their
flights arrived at their ultimate destinations outside New York, the Court determined
that the State had sought unconstitutionally to regulate liquor distribution outside its
borders, rather than “to regulate or control the passage of intoxicants through her
territory in the interest of preventing their unlawful diversion into the internal
commerce of the State.” Id. at 333. The Court said it would be “an absurd
oversimplification” to describe the ratification of the Twenty-first Amendment as
“somehow operat[ing] to ‘repeal’ the Commerce Clause wherever regulation of
intoxicating liquors is concerned.” Id. at 331-32. The conclusion that the Twenty-
first Amendment left Congress “with no regulatory power over interstate or foreign
commerce in intoxicating liquor,” the Court continued, “would be patently bizarre
and is demonstrably incorrect.” Id. at 332. Instead, the Court reasoned that “[b]oth
the Twenty-first Amendment and the Commerce Clause are parts of the same
Constitution. Like other provisions of the Constitution, each must be considered in
the light of the other, and in the context of the issues and interests at stake in any
concrete case.” Id.Although the Court later observed that Hostetter’s language “may have come
uncommonly close to hyperbole,” it affirmed that “the basic point was sound.”
Granholm v. Heald, 544 U.S. 460, 487 (2005). So after Hostetter, the Court
continued what it described as a “pragmatic effort to harmonize state and federal
powers.” Cal. Retail Liquor Dealers Ass’n v. Midcal Aluminum, Inc., 445 U.S. 97,
109 (1980). On one side of this balance, the Twenty-first Amendment granted the
States “virtually complete control over whether to permit importation or sale of liquor
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and how to structure the liquor distribution system.” Id. at 110. This virtually
complete control over the structure of the liquor distribution system includes the
States’ prerogative to establish the so-called “three-tier system.” Granholm, 544 U.S.
at 466-67, 488-89. In other words, a State may, at a minimum, require separation
among the various levels of the distribution chain to control the importation and sale
of liquor within its borders. See North Dakota v. United States, 495 U.S. 423, 428,
432 (1990) (plurality opinion).3
On the other side, “when a State has not attempted directly to regulate the sale
or use of liquor within its borders—the core § 2 power—a conflicting exercise of
federal authority may prevail.” Capital Cities Cable, Inc. v. Crisp, 467 U.S. 691, 713
(1984); see also Midcal, 445 U.S. at 110 (“Although States retain substantial
discretion to establish other liquor regulations, those controls may be subject to the
federal commerce power in appropriate situations.”) (emphases added). In a decision
involving a State’s resale pricing system for alcohol, the Court remarked that “[t]he
question in each case 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.” 324 Liquor Corp. v. Duffy, 479 U.S. 335, 347 (1987)
(internal quotation omitted).
Bacchus Imports, Ltd. v. Dias, 468 U.S. 263 (1984), established that “mere
economic protectionism” is not a “clear concern” of the Twenty-first Amendment.
That case involved a challenge to a Hawaii tax exemption applicable only to certain
locally produced liquors. The Hawaii Supreme Court had concluded in an earlier
stage of the proceeding that the “undisputed . . . purpose of the exemption was to aid
3
Although Missouri’s distribution system contains a fourth tier of solicitors,
Southern Wine concedes that “[t]hat licensure category does not alter the basic
features of the three-tier system and is not relevant to this appeal.” Appellant’s Br.
10 n.2.
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Hawaiian industry.” Id. at 271. In that context, the Court explained that “[d]oubts
about the scope of the [Twenty-first] Amendment’s authorization 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.” Id. at 276. The
Court noted the “strong federal interests” of the Commerce Clause in “preventing
economic Balkanization,” and concluded that “[s]tate laws that constitute mere
economic protectionism are . . . not entitled to the same deference as laws enacted to
combat the perceived evils of an unrestricted traffic in liquor.” Bacchus, 468 U.S. at
276. Because the protectionist tax was “not supported by any clear concern of the
Twenty-first Amendment” and violated a “central tenet of the Commerce Clause,” it
was unconstitutional. Id.Granholm is the Court’s most recent pronouncement on the subject. There, the
Court considered regulations of two States that permitted in-state wineries to ship
their products directly to in-state consumers. 544 U.S. at 468-70. Generally,
Michigan and New York both funneled liquor distribution through their respective
versions of the three-tier system. Id. The regulations at issue, however, worked to
exempt in-state wineries—but not their out-of-state competitors—from distributing
their wines through wholesalers. Id. Because the effect of these exemptions from the
three-tier system was to lower the price of in-state wine relative to out-of-state wine,
the Court determined that “[t]he differential treatment between in-state and out-of-
state wineries constitutes explicit discrimination against interstate commerce.” Id. at
467.
The Court then traced the history of the Twenty-first Amendment and the cases
interpreting it to determine whether § 2 “saved” the laws from constitutional
infirmity. Id. at 489. In so doing, the Court observed that “the Twenty-first
Amendment does not supersede other provisions of the Constitution and, in
particular, does not displace the rule that States may not give a discriminatory
preference to their own producers.” Id. at 486. Section 2 did not save these
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exemptions, then, because they amounted to “straightforward attempts to discriminate
in favor of local producers.” Id. at 489. Granholm thus applied to laws governing
the structure of the producer tier of the three-tier system “the nondiscrimination
principle of the Commerce Clause,” id. at 487, which the Court’s post-Hostetter cases
had applied to liquor regulations other than those defining a State’s liquor distribution
system. See, e.g., Healy v. Beer Inst., 491 U.S. 324, 342 (1989) (striking down a
“price-affirmation statute” under the Commerce Clause, because “those laws have the
practical effect of regulating liquor sales in other States”); 324 Liquor Corp., 479
U.S. at 337-38, 347 (resale pricing system); Brown-Forman Distillers Corp. v. N.Y.
State Liquor Auth., 476 U.S. 573, 585 (1986) (price-affirmation statute); Bacchus,
468 U.S. at 276 (protectionist tax); Capital Cities Cable, 467 U.S. at 714-16 (alcohol-
advertisement regulation); Midcal, 445 U.S. at 99, 110 (“price maintenance and price
posting statutes”).
But the Court in Granholm also took care to note that its holding did not “call
into question the constitutionality of the three-tier system.” 544 U.S. at 488. Indeed,
the Court described the three-tier system as “unquestionably legitimate,” id. at 489(internal quotation omitted), referring specifically to the “in-state wholesaler” as an
element of that system. Id. (quoting North Dakota, 495 U.S. at 447 (Scalia, J.,
concurring in the judgment)). The Court explained: “The aim of the Twenty-first
Amendment was to allow States to maintain an effective and uniform system for
controlling liquor by regulating its transportation, importation, and use. The
Amendment did not give States the authority to pass nonuniform laws in order to
discriminate against out-of-state goods.” Id. at 484-85. So the discriminatory laws
at issue in Granholm were unconstitutional, but “States can mandate a three-tier
distribution scheme in the exercise of their authority under the Twenty-first
Amendment,” id. at 466, and “[s]tate policies are protected under the Twenty-first
Amendment when they treat liquor produced out of state the same as its domestic
equivalent.” Id. at 489.
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III.
A.
The question presented by this appeal is whether the residency requirement
applicable to the wholesale tier of Missouri’s liquor distribution system, which is
otherwise impermissible under Commerce Clause jurisprudence, is authorized by § 2
of the Twenty-first Amendment.
Southern Wine first argues that the residency requirement is invalid under the
Court’s rationale in Bacchus. According to Southern Wine, the legislative purpose
of the residency requirement was “mere economic protectionism.” Bacchus, 468 U.S.
at 276. Southern Wine contends that this singular purpose may be gleaned from a
contemporaneous newspaper article that purports to describe statements made “in the
assembly” by one of the legislation’s four sponsors. This article reported that M.C.
Matthes, then the president pro tem of the state senate (and later a judge of this court,
see, e.g., Aaron v. Cooper, 257 F.2d 33 (8th Cir.) (Matthes, J.), aff’d sub nom. Cooper
v. Aaron, 358 U.S. 1 (1958)), said the law “was intended to prevent a few big national
distillers from monopolizing the wholesale liquor business in Missouri.”
Southern Wine argues that this news report demonstrates Missouri’s “clear
protectionist motive,” and that liquor regulations motivated by such protectionist
intent are unconstitutional, because they violate a central tenet of the Commerce
Clause and are not supported by any clear concern of the Twenty-first Amendment.
Bacchus established that a showing of discriminatory purpose “is sufficient to
demonstrate the State’s lack of entitlement to a more flexible approach permitting
inquiry into the balance between local benefits and the burden on interstate
commerce.” 468 U.S. at 270. So Southern Wine attempts to sail under the Bacchus
flag, contending that the legislative history supplied by this newspaper report
“dooms” the residency requirement.
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Bacchus considered a protectionist tax exemption, not a regulation of the three-
tier distribution system. Granholm, however, considered the Bacchus rationale
“fatal” to the States’ position in a case that involved regulations of the producer tier
of the three-tier system, 544 U.S. at 488, while at the same time declaring that “[s]tate
policies are protected under the Twenty-first amendment when they treat liquor
produced out of state the same as its domestic equivalent.” Id. at 489. Assuming that
Bacchus’s analysis of economic protectionism should apply to a regulation of the
wholesale tier that does not discriminate against out-of-state liquor, Southern Wine’s
position based on the newspaper article and alleged protectionist intent is nonetheless
unpersuasive.
First, Southern Wine did not raise this protectionist-intent argument in the
district court, enter the newspaper article into the record, or even cite Bacchus in their
briefs on summary judgment. See R. Docs. 34, 42, 48. The State thus had no
occasion to present evidence regarding the legislature’s motivation, and the district
court made no findings. Because the argument was not raised in the district court,
Southern Wine has waived it. See St. Paul Fire & Marine Ins. Co. v. Compaq
Computer Corp., 539 F.3d 809, 824 (8th Cir. 2008).
Second, insofar as we have discretion to consider Southern Wine’s contention
for the first time on appeal, we are not inclined to do so where the only evidence
offered is a newspaper article. Newspaper articles are “rank hearsay,” Nooner v.
Norris, 594 F.3d 592, 603 (8th Cir. 2010); Miller v. Tony & Susan Alamo Found., 924
F.2d 143, 147 (8th Cir. 1991), and they thus provide a doubtful basis for an important
judgment about the constitutionality of legislation. Although courts have mentioned
news reports in the course of discussing legislative purpose, e.g., Morse v. Republican
Party of Va., 517 U.S. 186, 206 n.22 (1996), we decline to rest a constitutional
determination on a news article that does not even purport to provide direct
quotations from the one legislator cited.
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Third, assuming the article accurately describes Senator Matthes’s remarks,
those statements represent only a single legislator’s views about the purpose of the
residency requirement. “What motivates one legislator to make a speech about a
statute is not necessarily what motivates scores of others to enact it, and the stakes are
sufficiently high for us to eschew guesswork.” United States v. O’Brien, 391 U.S.
367, 384 (1968). While a legislative sponsor’s statements to the general assembly
may be entitled to greater weight than the statements of other legislators in certain
situations, see Corley v. United States, 556 U.S. 303, 318 (2009), there is not a
sufficient basis in this case to impute the reported statements to the entire legislature
and the governor.
Fourth, even assuming that Senator Matthes’s statements represented the views
of the legislature, they do not establish the sort of protectionist intent that was
conceded by the State in Bacchus. According to the newspaper article, Senator
Matthes said that the residency requirement was “intended to prevent a few big
national distillers from monopolizing the wholesale liquor business in Missouri.” But
the legislature may have sought to prevent monopolization by out-of-state
wholesalers and to encourage the use of in-state wholesalers for legitimate reasons,
such as to promote social responsibility and public accountability among liquor
wholesalers or to facilitate law enforcement.4
Finally, the chapter of the Missouri Code containing the residency requirement
includes a “purpose clause,” which provides the stated purposes of the provisions
4
Amicus American Beverage Licensees, citing other newspaper articles,
suggests that the Missouri residency requirement was enacted in 1947 “in response
to a particular circumstance, which was not that of out-of-state competition per se,
but a threat to the state’s three-tier distribution system,” namely, that a national
distillery was attempting to distribute its own alcohol in Missouri and elsewhere
through a wholly-owned subsidiary. See State ex rel. Cont’l Distilling Sales Co. v.
Vocelle, 27 So.2d 728 (Fla. 1946).
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within that chapter: “to promote responsible consumption, combat illegal underage
drinking, and achieve other important state policy goals such as maintaining an
orderly marketplace composed of state-licensed alcohol producers, importers,
distributors, and retailers.” Mo. Rev. Stat. § 311.015. Southern Wine argues that this
provision “sheds no light” on the purposes of the residency requirement because (1) it
applies to the entire chapter rather than just the residency requirement, and (2) it was
enacted in 2007, sixty years after the residency requirement was adopted. We are not
convinced by either contention. Whether or not the “purpose clause” applies to more
statutory provisions than the residency requirement, it applies to that requirement all
the same. And Southern Wine offers no support for the proposition that a later
legislature—considering a preexisting law useful but perhaps for different reasons
than its predecessor—cannot supplant an earlier legislature’s intended purpose by
enacting an express statutory purpose provision.
For these reasons, Southern Wine has not shown that the residency requirement
is unconstitutional on the ground that it was motivated by mere economic
protectionism.
B.
Whether Missouri’s wholesaler residency requirement is constitutional thus
depends on the current state of the relationship between the dormant Commerce
Clause and the Twenty-first Amendment. In at least some cases, the proper inquiry
in a Commerce Clause challenge to a state liquor regulation asks “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.” Bacchus, 468 U.S.
at 275-76 (internal quotation omitted). But in its most recent pronouncement on the
subject, the Supreme Court simultaneously cited Bacchus and said that “[s]tate
policies are protected under the Twenty-first Amendment when they treat liquor
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produced out of state the same as its domestic equivalent.” Granholm, 544 U.S. at
489.
Given Granholm’s recency and specificity, we think the Court’s discussion
there provides the best guidance. The three-tier system is “unquestionably
legitimate,” Granholm, 544 U.S. at 489 (internal quotation omitted), and that system
includes the “licensed in-state wholesaler.” Id. (quoting North Dakota, 495 U.S. at
447 (Scalia, J., concurring in the judgment)). More broadly, state policies that define
the structure of the 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. Viewed in context, the Court’s statement must mean that such
policies are “protected” against constitutional challenges based on the Commerce
Clause.
This court has shared the First Circuit’s view that “federal appellate courts are
bound by the Supreme Court’s considered dicta almost as firmly as by the Court’s
outright holdings, particularly when . . . a dictum is of recent vintage and not
enfeebled by any subsequent statement.” McCoy v. Mass. Inst. of Tech., 950 F.2d 13,
19 (1st Cir. 1991); see Fond du Lac Band of Lake Superior Chippewa v. Frans, 649
F.3d 849, 852 (8th Cir. 2011). Here, the Court’s most recent decision on the Twenty-
first Amendment dedicated a paragraph to delimiting Granholm’s rationale, in an area
where the Court’s jurisprudence has been characterized by a case-by-case balancing
of interests that defies ready predictability. The prudent course for an inferior court
in this circumstance is to hew closely to the Court’s specific, contemporary guidance.
See Arnold’s Wines, Inc. v. Boyle, 571 F.3d 185, 200-01 (2d Cir. 2009) (Calabresi,
J., concurring) (“[T]he best that we can do is to look to the bulk of cases decided by
the Supreme Court and read with special care its latest decision—at the moment,
Granholm.”).
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Granholm’s guidance applies readily to the residency requirement at issue in
this case. The residency requirement defines the extent of in-state presence required
to qualify as a wholesaler in the three-tier system. See Mo. Rev. Stat. § 311.060.3.
The rule does not discriminate against out-of-state liquor products or producers. If
it is beyond question that States may require wholesalers to be “in-state” without
running afoul of the Commerce Clause, Granholm, 544 U.S. at 489 (internal
quotation omitted), then we think States have flexibility to define the requisite degree
of “in-state” presence to include the in-state residence of wholesalers’ directors and
officers, and a super-majority of their shareholders. Southern Wine says the State has
no good reason to require in-state residency of these actors: wholesalers do not pay
excise taxes; any corporation doing business in Missouri under a license is within the
reach of the State’s enforcement arm; and the social responsibility of wholesalers is
irrelevant because they do not sell alcohol directly to the public. But these arguments
prove too much, for the same could be said about why it is unnecessary for a
wholesaler to have even a warehouse and registered agent in Missouri. Yet we know
from Granholm that the States may require “licensed in-state wholesaler[s],” 544 U.S.
at 489 (internal quotation omitted), notwithstanding what Southern Wine views as
attenuated state interests.
Southern Wine contends that even after Granholm, the constitutionality of
residency requirements in the wholesale tier depends on a case-specific balancing of
interests under the Commerce Clause and the Twenty-first Amendment. Insofar as
Granholm imported a balancing approach to regulations of the three-tier system,
however, it drew a bright line between the producer tier and the rest of the system.
The more natural reading of Granholm is the Second Circuit’s: “Because New
York’s three-tier system treats in-state and out-of-state liquor the same, and does not
discriminate against out-of-state products or producers, we need not analyze the
regulation further under Commerce Clause principles.” Arnold’s Wines, 571 F.3d at
191.
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Southern Wine argues, however, that state policies are “protected” by the
Twenty-first Amendment only if they concern “inherent” or “integral” aspects of the
three-tier system, and that a residency requirement for wholesalers does not qualify.
We find these modifiers unhelpful. There is no archetypal three-tier system from
which the “integral” or “inherent” elements of that system may be gleaned. States
have discretion to establish their own versions of the three-tier system, and Granholm
itself announced the unquestionable legitimacy of the three-tier system in a case
involving two different versions of that system from New York and Michigan. See
Granholm, 544 U.S. at 468-70. Even if Granholm sub silentio meant to protect only
the “inherent” or “integral” aspects of the three-tier system, whatever they might be,
the Court cited the “in-state wholesaler” in connection with the very sentence
affirming that “the three-tier system itself is unquestionably legitimate.” Id. at 489(internal quotations omitted). In-state wholesalers, therefore, must be “integral” to
the three-tier system under Granholm. Cf. Brooks v. Vassar, 462 F.3d 341, 352 (4th
Cir. 2006) (opinion of Niemeyer, J.) (“[A]n argument that compares the status of an
in-state retailer with an out-of-state retailer—or that compares the status of any other
in-state entity under the three-tier system with its out-of-state counterpart—is nothing
different than an argument challenging the three-tier system itself. . . . [T]his
argument is foreclosed by the Twenty-first Amendment and the Supreme Court’s
decision in Granholm[.]”).
If, despite the “protected” status promised by Granholm, state policies defining
the three-tier system are subject to deferential scrutiny, Missouri’s law passes muster.
The legislature legitimately could believe that a wholesaler governed predominantly
by Missouri residents is more apt to be socially responsible and to promote
temperance, because the officers, directors, and owners are residents of the
community and thus subject to negative externalities—drunk driving, domestic abuse,
underage drinking—that liquor distribution may produce. Missouri residents, the
legislature sensibly could suppose, are more likely to respond to concerns of the
community, as expressed by their friends and neighbors whom they encounter day-to-
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day in ballparks, churches, and service clubs. 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 residency requirement is not so attenuated
as Southern Wine’s hypothetical rule that all officers, directors, and shareholders of
a wholesaler must be born in Missouri. Cf. U.S. Const. Art. II, § 1, cl. 5.
Southern Wine maintains that the State’s assertion of legitimate interests is
undermined by the deposition testimony of a deputy state supervisor for the Division,
who was designated to testify on behalf of the Division pursuant to Federal Rule of
Civil Procedure 30(b)(6). The deputy supervisor testified that he did not “think” that
the residency rule “impacts the distribution system,” because “we have a three-tier
system of distribution,” and residency “doesn’t affect the distribution.” When asked,
“But this lawsuit doesn’t erode the three-tier system, does it?” he answered, “No.”
The witness elaborated that he did not see a court order to license Southern Missouri
“as doing anything,” because the State already licensed one non-resident corporation
under a grandfather provision. He added that wholesalers have “little impact upon”
the “direct sale” of alcohol to minors, and that he could not “think of any”
relationship between the residency requirement and the safety of Missouri citizens.
Southern Wine also relies upon the grandfather clause in the residency statute,
arguing that the existence of a non-resident wholesaler licensed under that clause
undercuts the Division’s asserted rationales.
It is fair to say that the deputy state supervisor did not mount the most vigorous
defense of Missouri’s law; M.C. Matthes may well have done better. But this
official’s testimony was not as devastating to the Division’s cause as Southern Wine
suggests. The witness did not disclaim the possibility that Missouri’s residency
requirement furthers some of the interests asserted by the State in defending the law.
He couched several responses in terms of his own knowledge and thoughts about the
matter. He addressed some questions that were directed at the impact of licensing
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Southern Missouri alone, not at the effects of licensing an unlimited number of out-
of-state wholesalers. Cf. Heffron v. Int’l Soc. for Krishna Consciousness, Inc., 452
U.S. 640, 652 (1981). Other answers do not really refute the Division’s
position: there is no contention by the State that wholesalers are involved in “direct
sale” of alcohol to minors, or that the residency status of wholesalers affects whether
the distribution system has three tiers. A 30(b)(6) witness’s legal conclusions are not
binding on the party who designated him, AstenJohnson, Inc. v. Columbia Cas. Co.,
562 F.3d 213, 229 n.9 (3d Cir. 2009), and a designee’s testimony likely does not bind
a State in the sense of a judicial admission. A.I. Credit Corp. v. Legion Ins. Co., 265
F.3d 630, 637 (7th Cir. 2001). But even assuming the Division conceded certain
points through its witness’s testimony, the deputy supervisor also offered support for
the Division’s asserted interest in ensuring community responsibility: “Some
wholesalers do get involved in community action committees and things like that. So
some of them do get involved in anti-drinking campaigns with various coalitions.”
J.A. 67. And he testified that the requirement “may serve” the State’s interest in
promoting temperance, just “not as much as it used to.” Id. at 68.5
Likewise, the existence of a grandfather clause and one non-resident
wholesaler in Missouri does not doom the statute. Exceptions like grandfather
clauses do not, in and of themselves, demonstrate the invalidity of rules from which
they are carved. Missouri’s legislature in 1947 reasonably could have chosen to
address incrementally the perceived ills targeted by the residency requirement, and
to accommodate preexisting business interests while keeping the floodgates closed.
The deputy supervisor testified that sometimes dealing with the grandfathered
nonresident wholesaler “is difficult;” but even the absence of negative effects from
5
The deputy state supervisor also testified that nonresident status of a
wholesaler caused a “problem” with “assurance of excise tax collection,” because “if
they have 32 states they’re licensed in . . . things could . . . move across state borders
very easily without . . . us being able to detect whether or not . . . the excise taxes
were paid.” J.A. 63, 79.
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a single nonresident wholesaler does not preclude a judgment by the State that
unlimited nonresident wholesalers would still pose a threat to legitimate state
interests. There is no narrow tailoring requirement under the Twenty-first
Amendment, and the residency requirement is not invalid because the legislature
might have gone further than it did. Cf. Minn. v. Clover Leaf Creamery Co., 449 U.S.
456, 467-68 (1981); City of New Orleans v. Dukes, 427 U.S. 297, 305 (1976).
Southern Wine urges us to follow the Fifth Circuit’s decision in Cooper v.
McBeath, 11 F.3d 547 (5th Cir. 1994), which invalidated a Texas residency
requirement for certain liquor permits. Id. at 555-56. But Cooper pre-dated
Granholm, and its placement of a “towering” burden on a State, id. at 553, to justify
a three-tier regulation that does not discriminate against out-of-state products or
producers, cannot be reconciled with the deference demanded by Granholm’s
considered dicta. The Fifth Circuit’s cryptic statement about Cooper in Wine Country
Gift Baskets.com v. Steen, 612 F.3d 809, 821 (5th Cir. 2010), does not enlighten us
about that court’s present view. Wine Country did not involve a residency
requirement on appeal, id. at 813, and the court had no need to address the continuing
vitality of Cooper.
The Division has established a sufficient basis for its residency requirement,
which is meaningfully 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.” Granholm, 544 U.S. at 484. For
similar reasons, the requirement has a rational basis and does not deprive Southern
Wine of equal protection of the laws under the Fourteenth Amendment. See FCC v.
Beach Commc’ns, Inc., 508 U.S. 307, 313-14 (1993).6
6
Southern Wine emphasized at oral argument that even if some residency
requirements may be constitutional, Missouri’s durational residency requirement of
three years does not advance any legitimate purpose. See Mo. Rev. Stat. § 311.060.3.
This argument was not developed in the district court or the opening brief on appeal,
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* * *
The judgment of the district court is affirmed.
______________________________
and it is therefore waived. See Rotskoff v. Cooley, 438 F.3d 852, 854 (8th Cir. 2006);
St. Paul Fire & Marine, 539 F.3d at 824. In any event, a declaration that Missouri
may require officers, directors, and a super-majority of shareholders of wholesalers
to demonstrate current residency, but not three-year residency, would not redress
Southern Wine’s alleged injury, because Southern Wine does not claim to be a current
resident within the meaning of the statute.
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