Alcoholic BeveragesConstitutional Law – Whether Non-Durational Residency Requirements for Alcoholic Beverages Licensees in Harford County are Permissible Under the Commerce Clause of the United States Constitution ( 2021 )


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  • 82                                                     [106 Op. Att’y
    ALCOHOLIC BEVERAGES
    CONSTITUTIONAL LAW – WHETHER NON-DURATIONAL
    RESIDENCY REQUIREMENTS FOR ALCOHOLIC BEVERAGES
    LICENSEES IN HARFORD COUNTY ARE PERMISSIBLE
    UNDER THE COMMERCE CLAUSE OF THE UNITED STATES
    CONSTITUTION
    May 4, 2021
    The Honorable Walter A. Tilley, III
    Chair, Liquor Control Board for Harford County
    On behalf of the Liquor Control Board for Harford County
    (“Harford County Board”), you have requested our opinion on the
    constitutionality of the non-durational residency requirements for
    alcoholic beverages licenses in Harford County, as amended by
    Chapter 462 of 2020. 1 Chapter 462 abolished durational residency
    requirements for alcoholic beverages licenses, which had required
    licensees to reside in the relevant county (or, for some licenses, in
    the State) for a certain period of time before applying for a license.
    The stated purpose of that change, see 2020 Md. Laws, ch. 462,
    § 2, was to bring Maryland law into compliance with the decision
    of the United States Supreme Court in Tennessee Wine & Spirits
    Retailers Ass’n v. Thomas, 
    139 S. Ct. 2449
     (2019) (“Thomas”),
    which had held that Tennessee’s durational residency requirement
    for alcoholic beverages licenses—requiring the applicant to have
    resided in the state for a period of two years prior to the
    application—violated the Commerce Clause of the U.S.
    Constitution by discriminating against nonresidents of the state
    and was not saved by the Twenty-First Amendment’s reservation
    of state authority to regulate alcohol. 2
    1
    The Liquor Control Board for Harford County is formally named the
    Board of License Commissioners for Harford County, Md. Code Ann.,
    Alc. Bev. (“AB”) §§ 22-201, 22-301, and performs the usual functions
    of a Board of License Commissioners: the licensing and regulation of
    retail sellers of alcoholic beverages in Harford County, see 99 Opinions
    of the Attorney General 31, 32, 35 n.6 (2014).
    2
    The conclusion that durational residency provisions violate the
    dormant Commerce Clause was not a dramatic break with prior law.
    Other courts had reached the same conclusion, Cooper v. McBeath, 
    11 F.3d 547
    , 548 (5th Cir. 1994); Southern Wine and Spirits of Texas, Inc.
    v. Steen, 
    486 F. Supp. 2d 626
    , 628 (W.D. Tex. 2007); Glazer’s Wholesale
    Gen. 82]                                                                 83
    At the same time, however, the General Assembly in enacting
    Chapter 462 also retained non-durational residency requirements
    for alcoholic beverages licenses issued in Harford County and
    many other counties in Maryland, as well as for certain alcoholic
    beverages licenses issued by the State. See 2020 Md. Laws, ch.
    462. Under those non-durational residency requirements, licensees—
    or, in some cases, at least one licensee—must reside in the relevant
    jurisdiction at the time of the license application, and in many
    jurisdictions, including Harford County, the licensee is also
    required to remain a resident throughout the term of the license.
    See, e.g., AB §§ 4-103(b), 22-1401(a)(2), 22-1402(a), 22-1405(a)(2),
    (3). The question you have asked is whether the non-durational
    residency requirements applicable in Harford County can survive
    under the Commerce Clause in light of Thomas. 3
    As we will explain, it is our view that Harford County’s non-
    durational residency requirements would likely also fail under the
    reasoning of Thomas. The Supreme Court’s analysis in Thomas
    did not distinguish between durational and non-durational
    residency requirements. In finding the durational requirements
    there to be unconstitutional, the Court rejected several justifications
    for a durational residency requirement under the Commerce
    Clause, reasoning that nondiscriminatory alternatives could
    advance the same objectives. And those nondiscriminatory
    alternatives could just as easily advance the objectives of a non-
    durational residency requirement. Thus, we think that a court
    applying Thomas would likely invalidate the current non-
    durational residency requirements for alcoholic beverages licenses
    in Harford County. Although we recognize that much of this
    analysis may apply to the other non-durational residency
    requirements in Chapter 462, we have not separately analyzed each
    residency requirement in the Alcoholic Beverages Article and do
    not specifically address whether any of those other requirements
    are constitutional.
    Drug Co., Inc. v. Kansas, 
    145 F. Supp. 2d 1234
    , 1244 (D. Kan. 2001),
    as had attorneys general in at least two states, Tenn. Op. Att’y Gen. 14-
    83, 
    2014 WL 4664826
     (Sept. 12, 2014); Tenn. Op. Att’y Gen. 12-59,
    
    2012 WL 2153491
     (June 6, 2012), Kan. Op. Att’y Gen. 06-12, 
    2006 WL 1722435
     (June 21, 2006).
    3
    To be clear, when we refer to residency requirements in this opinion,
    we mean the residency requirements for alcoholic beverages licensees.
    We do not address restrictions that require the licensed business itself to
    be located in or have a physical presence in the State or the relevant local
    jurisdiction within the State.
    84                                                   [106 Op. Att’y
    I
    Background
    Thomas considered the interaction of two provisions of the
    United States Constitution: Congress’s power “[t]o regulate
    Commerce . . . among the several States,” U.S. Const. art. I, § 8, cl.
    3 (the “Commerce Clause”), and the Twenty-First Amendment’s
    reservation of state authority to regulate the alcohol trade, id.
    amend. XXI, § 2. The Commerce Clause has long been understood
    not only as an affirmative grant to Congress of power to regulate
    interstate commerce, but also as a restriction on states’ ability to
    adopt “protectionist” legislation that “unduly restrict[s] interstate
    commerce.” Thomas, 
    139 S. Ct. at 2459
    . That implied “negative
    command” is typically referred to as “the dormant Commerce
    Clause.” Oklahoma Tax Comm’n v. Jefferson Lines, Inc., 
    514 U.S. 175
    , 179 (1995).
    The dormant Commerce Clause’s limitation on state authority
    is in some tension with the Twenty-First Amendment, ratified in
    1933, which ended nationwide alcohol prohibition but also
    provided:
    The 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 (“Section 2”). Section 2 was intended
    “to give each State the authority to address alcohol-related public
    health and safety issues in accordance with the preferences of its
    citizens.” Thomas, 
    139 S. Ct. at 2474
    . It was left unclear, however,
    whether Section 2 superseded other constitutional limitations on
    state regulatory authority, such as the Commerce Clause, and
    authorized state alcohol regulations that the federal Constitution
    would otherwise prohibit, such as provisions favoring the state’s
    own residents over nonresidents.
    A.    Procedural History in Thomas
    Thomas involved a provision of Tennessee law that required
    applicants for an initial license to have resided in the State for the
    prior two years. The Tennessee Attorney General had twice opined
    that this statute was unconstitutional. In the first opinion, Tenn.
    Op. Att’y Gen. 12-59, 
    2012 WL 2153491
     (June 6, 2012), the
    Attorney General concluded that the two-year residency requirement
    Gen. 82]                                                               85
    for a retail liquor license violated the Commerce Clause in light of
    the Sixth Circuit’s decision in Jelovsek v. Bredesen, 
    545 F.3d 431
    ,
    439 (6th Cir. 2008), which had concluded that Tennessee’s two-
    year residency requirement for a winery license was facially
    discriminatory against out-of-state wineries. In the second opinion,
    Tenn. Op. Att’y Gen. 14-83, 
    2014 WL 4664826
     (Sept. 12, 2014),
    the Attorney General concluded that an amended version of the law
    that retained the two-year residency requirement also violated the
    Commerce Clause. As a result, the Tennessee Alcoholic Beverage
    Commission (“TABC”) stopped enforcing the provision. Thomas,
    
    139 S. Ct. at 2458
    .
    Two years later, two companies—one formed as a limited
    liability company but owned by residents of Maryland and one
    owned and controlled by two individuals who had only recently
    moved to Tennessee—applied for retail licenses. Neither met the
    two-year residency requirement. In line with the Attorney
    General’s opinions, TABC staff recommended approval of the
    applications, Byrd v. Tennessee Wine & Spirits Retailers Ass’n, 
    259 F. Supp. 3d 785
    , 788 (M.D. Tenn. 2017), but the Tennessee Wine
    and Spirits Retailers Association (“the Association”) heard of the
    recommendation and threatened to sue. The Executive Director of
    the TABC responded by filing an action for declaratory judgment
    in Tennessee state court, which was subsequently removed to
    federal district court. Thomas, 
    139 S. Ct. at 2458
    . 4 The Executive
    Director asked the court to determine the validity of three
    provisions of Tennessee law: the two-year durational residency
    requirement for initial retail license applicants, 
    Tenn. Code Ann. § 57-3-204
    (b)(2)(A); a requirement that a person seeking renewal
    of a retail license have resided in the state for at least 10
    consecutive years, id.; and a requirement that all officers, directors,
    and stockholders of a corporate applicant meet the two-year
    durational residency requirement for initial applications and the 10-
    year residency requirement for renewal applications. 
    Tenn. Code Ann. § 57-3-204
    (b)(3)(A)-(B).
    The district court found that all three of these residency
    requirements violated the Commerce Clause. Byrd, 
    259 F. Supp. 4
    The Executive Director, represented by the Attorney General,
    apparently took inconsistent positions about the validity of the provision
    over the course of the litigation. Byrd v. Tennessee Wine & Spirits
    Retailers Ass’n, 
    883 F.3d 608
    , 613 n.1 (6th Cir. 2018).
    86                                                         [106 Op. Att’y
    3d at 797. 5 The Sixth Circuit affirmed, Byrd v. Tennessee Wine &
    Spirits Retailers Ass’n, 
    883 F.3d 608
    , 612 (6th Cir. 2018), although
    one member of the panel dissented in part, and would have held
    that the two-year residency requirement was reasonably related to
    Tennessee’s interest in “[p]romoting responsible consumption and
    orderly liquor markets,” id. at 633 (Sutton, J., concurring in part
    and dissenting in part).
    The Association then filed a petition for certiorari with the
    Supreme Court, arguing that the two-year durational residency
    requirement for initial retail license applicants (and officers and
    directors of corporate applicants) was consistent with the
    Commerce Clause. 6 The Association no longer sought to defend
    the ten-year residency requirement for renewals or the residency
    requirements for shareholders of applicant corporations. Thomas,
    
    139 S. Ct. at 2457
    ; Brief for Petitioner, Tennessee Wine & Spirits
    Retailers Ass’n v. Thomas, 
    139 S. Ct. 2449
     (2019) (No. 18-96), 
    2018 WL 5962887
    , at *17.7 The Association also did not argue that a
    two-year durational residency requirement could be upheld against
    a Commerce Clause challenge if any commodity other than alcohol
    5
    The court did not address the plaintiffs’ alternative challenge under
    the federal Privileges and Immunities Clause. That challenge would
    likely have been unsuccessful. It has long been held that selling
    alcoholic beverages is not a privilege of citizens of the United States and
    thus state laws requiring state residence for that purpose do not violate
    the Privileges and Immunities Clause. Mugler v. Kansas, 
    123 U.S. 623
    ,
    657, 675 (1887); Bartemeyer v. Iowa, 
    85 U.S. 129
    , 133 (1873); Trageser
    v. Gray, 
    73 Md. 250
    , 255 (1890). More modern courts have reached the
    same conclusion, Lebamoff Enters., Inc. v. Whitmer, 
    956 F.3d 863
    , 875
    (6th Cir. 2020); Glicker v. Michigan Liquor Control Comm’n, 
    160 F.2d 96
    , 98 (6th Cir. 1947), which is not surprising in light of the fact that the
    Twenty-First Amendment gives the states the right to ban the sale of
    alcohol altogether.
    6
    The Executive Director did not appeal the district court’s decision
    and did not join the Association’s petition for certiorari, which formally
    identified the Executive Director as a respondent rather than a petitioner.
    After the Court granted certiorari, however, the Attorney General of
    Tennessee filed a letter on behalf of the Executive Director supporting
    the Association’s position. Thomas, 
    139 S. Ct. at 2458-59
    .
    7
    The Supreme Court addressed this failure in dicta, saying these other
    provisions were “so plainly based on unalloyed protectionism that
    neither the Association nor the State [wa]s willing to come to their
    defense.” Thomas, 
    139 S. Ct. at 2474
    . The Court later described the
    challenged durational residency requirement as being “like the other
    discriminatory residency requirements that the Association is unwilling
    to defend,” in that the predominant effect was “simply to protect the
    Association’s members from out-of-state competition.” 
    Id. at 2476
    .
    Gen. 82]                                                          87
    was involved. Thomas, 
    139 S. Ct. at 2462
    . Thus, the sole issue
    before the Supreme Court was whether Section 2 of the Twenty-
    First Amendment protected the action of the State in imposing a
    residency requirement that would clearly violate the Commerce
    Clause in any other context.
    B.   The Supreme Court’s Decision in Thomas
    After a long discussion of the history of state attempts to
    regulate alcoholic beverages and congressional efforts to shield
    that regulation from Commerce Clause and other challenges in the
    years leading up to the adoption of the Eighteenth Amendment, the
    Thomas Court stated its view that Section 2 was meant to
    “‘constitutionaliz[e]’ the basic understanding of the extent of the
    States’ power to regulate alcohol that prevailed before
    Prohibition.” Thomas, 
    139 S. Ct. at
    2467-68 (citing Craig v. Boren,
    
    429 U.S. 190
    , 206 (1976); Granholm v. Heald, 
    544 U.S. 460
    , 484
    (2005)).      The Court further concluded that this “basic
    understanding” did not permit states “to impose protectionist
    measures clothed as police-power regulations.” Thomas, 
    139 S. Ct. at 2468
    . In other words, the pre-1933 understanding of the
    Commerce Clause constrained states’ regulatory authority under
    Section 2.
    The Court recognized that early cases under Section 2 seemed
    to rely on the theory that Section 2 overrode all other provisions of
    the Constitution, 
    id. at 2468
    , but explained that subsequent cases
    showed that the Court ultimately “saw that [Section] 2 cannot be
    read that way.” 
    Id. at 2469
    . The Court noted, for instance, that it
    had previously scrutinized laws regulating alcoholic beverages for
    compliance with other portions of the Constitution including the
    Free Speech and Establishment Clauses of the First Amendment,
    the Equal Protection and Due Process Clauses of the Fourteenth
    Amendment, and the Import-Export Clause. 
    Id.
    The Court further explained that the latter approach had also
    been applied in cases raising Commerce Clause objections to
    alcoholic beverages laws. 
    Id. at 2470
    . In Bacchus Imports, Ltd. v.
    Dias, 
    468 U.S. 263
    , 273, 276 (1984), for example, the Court
    invalidated a discriminatory tax that applied to all out-of-state
    liquor but exempted certain Hawai’i products. Similarly, in Healy
    v. Beer Institute, 
    491 U.S. 324
    , 340-41 (1989), the Court found that
    a requirement that out-of-state shippers of beer affirm that their
    wholesale price for products sold in Connecticut was no higher
    than the prices they charged to wholesalers in bordering states
    88                                                    [106 Op. Att’y
    violated the Commerce Clause because it discriminated against
    brewers and shippers of beer engaged in interstate commerce. And
    in Granholm v. Heald, the Court struck down a set of
    discriminatory direct-shipment laws that favored in-state wineries
    over out-of-state competitors. 8 
    544 U.S. at 492-93
    . Thus, the
    Court concluded that, while it had “acknowledged that [Section] 2
    grants States latitude with respect to the regulation of alcohol,” it
    had also “repeatedly declined to read [Section] 2 as allowing the
    States to violate the ‘nondiscrimination principle’ that was a central
    feature of the regulatory regime that the provision was meant to
    constitutionalize.” Thomas, 
    139 S. Ct. at 2470
    .
    The Court went on to reject the Association’s arguments
    about how the line between Section 2 and the Commerce Clause
    should be drawn. Specifically, the Court rejected the argument that
    the nondiscrimination principle applied only to discrimination
    against out-of-state products and not to laws regulating in-state
    alcohol distribution. 
    Id. at 2470-71
    . Although the Court had
    previously suggested in Granholm that Section 2 protects the
    traditional “three tier system” of alcohol distribution, under which
    manufacturers, wholesalers, and retailers must obtain state
    licenses, the Thomas Court opined that durational residency
    requirements could not be considered an essential feature of that
    system, given that many states with three-tiered systems do not
    impose durational residency requirements and some do not impose
    residency requirements at all. 
    Id. at 2471-72
    . The Court also held
    that the long history of durational residency requirements did not
    mean that they were constitutional. 
    Id. at 2472-73
    .
    In sum, the Court concluded that Section 2 “allows each State
    leeway to enact the measures that its citizens believe are
    appropriate to address the public health and safety effects of
    alcohol use and to serve other legitimate interests, but it does not
    license the States to adopt protectionist measures with no
    demonstrable connection to those interests.” 
    Id. at 2474
    . Thus, the
    court crafted an “inquiry” that would apply specifically to alcoholic
    beverage regulations, in an effort to balance the interests of Section
    2 and the Commerce Clause. 
    Id.
    8
    See also Capital Cities Cable, Inc. v. Crisp, 
    467 U.S. 691
    , 716
    (1984) (invalidating ban on TV wine ads emanating from other states);
    California Retail Liquor Dealers Ass’n v. Midcal Aluminum, Inc., 
    445 U.S. 97
    , 114 (1980) (invalidating wine-related resale price maintenance
    and price posting statutes); Hostetter v. Idlewild Bon Voyage Liquor
    Corp., 
    377 U.S. 324
    , 331-32 (1964) (invalidating regulation of alcohol
    passing through JFK Airport that would not be used until arrival at
    international destination).
    Gen. 82]                                                               89
    In conducting that inquiry, the Court looked to “whether the
    challenged requirement can be justified as a public health or safety
    measure or on some other legitimate nonprotectionist ground.” Id.
    at 2474. The Court also identified two relevant factors to help
    determine whether that was the case: (1) whether the requirement
    “actually promotes public health or safety” and (2) whether
    “nondiscriminatory alternatives would be insufficient to further
    those interests.” Id. If consideration of these factors demonstrates
    that “the predominant effect of a law is protectionism, not the
    protection of public health or safety, it is not shielded by [Section]
    2” and is instead subject to ordinary Commerce Clause scrutiny.
    Id. 9 The Court placed the burden on the defender of the law to
    provide “concrete evidence” in support of the law’s nonprotectionist
    justifications, stating that “‘mere speculation’ or ‘unsupported
    assertions’ are insufficient to sustain a law that would otherwise
    violate the Commerce Clause.” Id.
    Because the Association had relied on its argument that the
    Commerce Clause did not apply (and the State offered no
    independent argument), the Court found the record “devoid of any
    ‘concrete evidence’ showing that the 2-year residency requirement
    actually promotes public health or safety,” nor was there “evidence
    that nondiscriminatory alternatives would be insufficient to further
    those interests.” Id. The Court then considered and rejected all of
    the nonprotectionist justifications for the requirement that had been
    suggested in the arguments before the Court and found that “the
    Association has fallen far short of showing that the 2-year
    durational-residency requirement for license applicants is valid.”
    Id. at 2475-76.
    For example, in response to the Association’s argument that
    the residency requirements were justified because resident retailers
    are “amenable to the direct process of state courts,” the Court
    suggested that problem could easily be addressed by requiring
    nonresident licensees to designate an agent to receive process or to
    consent to suits in Tennessee courts. Id. at 2475 (citing Cooper v.
    McBeath, 
    11 F.3d 547
    , 554 (5th Cir. 1994)).
    9
    Under ordinary Commerce Clause scrutiny a provision that
    discriminates against interstate commerce is “virtually per se . . .
    invalid[],” City of Philadelphia v. New Jersey, 
    437 U.S. 617
    , 624 (1978),
    and will be upheld only if the state is able to show that it is “narrowly
    tailored to ‘advanc[e] a legitimate local purpose,’” Thomas, 
    139 S. Ct. at
    2461 (citing Department of Revenue of Ky. v. Davis, 
    553 U.S. 328
    , 338
    (2008)).
    90                                                  [106 Op. Att’y
    Similarly, in response to the Association’s argument that the
    two-year requirement improved the ability of the State of
    Tennessee to determine the fitness of applicants, the Court pointed
    out that state law already required criminal background checks and
    that more searching checks could be ordered if necessary,
    concluding that “if the State desires to scrutinize its applicants
    thoroughly . . . it can devise nondiscriminatory means short of
    saddling applicants with the burden of residing in the State.” 
    Id.
    (internal quotation marks and alterations omitted). The Court went
    on to explain that the residency requirement was not well-designed
    to serve the goal of judging the fitness of applicants because, if a
    person were to move to the state with the intent to apply for a
    license in two years, the state would have no reason to begin an
    investigation until the person actually applied for a license at the
    end of the two-year period. 
    Id.
     Moreover, a prospective applicant
    would not be obliged “to be educated about liquor sales, submit to
    inspections, or report to the State” during the two-year waiting
    period. 
    Id.
    The Court also rejected the argument that the residency
    requirement was necessary to maintain oversight over liquor store
    operators. The Court pointed out that the retail stores in question
    were located in the state, allowing the state to monitor their
    operations through on-site inspections and audits and to address
    violations of the law with penalties up to and including revocation
    of the license. 
    Id.
    Finally, in response to the argument that the two-year
    residency requirement would promote responsible alcohol
    consumption, the Court found that it was “very poorly designed”
    to accomplish this purpose because it applied to the license holder
    rather than the person who would actually be making the sales,
    because it required residence in the state generally rather than in
    the community where the store would be located, and because a
    license holder who lived right over the border might actually be
    closer to the community in question than a license holder in a
    distant part of the same state. Id. at 2476. The Court also pointed
    to other nondiscriminatory alternatives that could promote
    responsible consumption, including limiting the number of licenses
    in an area, placing volume limits on sales to individuals, mandating
    more extensive training for managers and employees, requiring
    managers and employees to show familiarity with the
    neighborhood, or requiring managers of liquor stores to obtain
    permits, satisfy background checks, and undergo “alcohol
    awareness” training. Id.
    Gen. 82]                                                           91
    C.   Residency Requirements in Harford County
    After the Supreme Court’s decision in Thomas, the General
    Assembly repealed Maryland’s durational residency requirements
    for alcoholic beverages licenses and replaced them with non-
    durational residency requirements. See 2020 Md. Laws, ch. 462.
    As relevant here, under the law as amended in Chapter 462,
    individuals applying to the Harford County Board for an alcoholic
    beverages license must reside in the county at the time of the
    application and during the license term. AB § 22-1402. An
    alcoholic beverages license may only be issued for the use of a
    partnership if all partners meet the same residency requirement. Id.
    § 22-1401(a)(2) (incorporating AB § 4-103). And the Harford
    County Board may issue a license for the use of another type of
    legal entity, such as a corporation or limited liability company, only
    if at least one officer and shareholder of the entity is a resident of
    the county and acts as a day-to-day manager of the business. Id.
    § 22-1405. These requirements apply to all classes of licenses
    issued by the Harford County Board. See id. §§ 22-1402, 22-1405.
    II
    Analysis
    We now turn to your question of whether the non-durational
    residency requirements for licensees that were retained in Chapter
    462 for Harford County are unconstitutional under the Supreme
    Court’s decision in Thomas.
    A.   The Attorney General’s Role               in   Assessing     the
    Constitutionality of a Statute
    When our Office is asked to advise on the constitutionality of
    a Maryland law, we must be “mindful of the obligation of the
    Attorney General to defend, in litigation, the constitutionality of
    statutes enacted by the Legislature.” 93 Opinions of the Attorney
    General 154, 160 (2008) (citing State v. Burning Tree Club, Inc.,
    
    301 Md. 9
    , 36-37 (1984)). However, we also have an obligation,
    at least when there is “neither pending nor imminent litigation,” to
    provide an opinion with “our best legal analysis” on the
    constitutionality of the law at issue so as to help our clients avoid
    constitutional liability and “administer statutes in compliance with
    constitutional provisions.” Id. at 160-61; see also, e.g., 71
    Opinions of the Attorney General 266, 269-70 (1986) (concluding
    that statute debarring certain labor-law violators from state
    contracts was preempted pursuant to the federal Supremacy Clause,
    92                                                        [106 Op. Att’y
    in light of Supreme Court decision invalidating a similar Wisconsin
    statute); 70 Opinions of the Attorney General 3, 12, 15, 17-18
    (1985) (concluding that various abortion laws were
    unconstitutional pursuant to then-recent Supreme Court authority);
    Letter from Kathryn M. Rowe, Assistant Attorney General, to the
    Hon. Edward R. Reilly (Dec. 12, 2019) (advising that a citizenship
    requirement for liquor license holders is likely unconstitutional);
    Letter from Gerald Langbaum, Assistant Attorney General, to
    Joseph P. Oates & Joseph Val Collom (July 19, 1976) (same). 10
    To be clear, “even if we conclude that the statute is
    constitutionally deficient, an Attorney General opinion cannot
    itself invalidate an act of the General Assembly.” 93 Opinions of
    the Attorney General at 161. It is, after all, not the role of the
    Attorney General to “declare” laws unconstitutional. 63 Opinions
    of the Attorney General 644, 645 (1978). “Only a court has the
    power to declare a statute invalid because it does not comply with
    constitutional requirements.” First Cont’l Sav. & Loan Ass’n v.
    Director, State Dep’t of Assessments & Taxation, 
    229 Md. 293
    , 301
    (1962). But, with those limitations in mind, we will provide our
    “best legal analysis,” employing “all of the presumptions in favor
    of, and against, the statute that a court would consider,” 93
    Opinions of the Attorney General at 160, to determine whether
    Harford County’s non-durational residency requirements are likely
    to be found unconstitutional.
    B.        The Application of Thomas to Harford County’s Non-
    Durational Residency Requirements
    The residency requirement at issue in Thomas, like the ones
    in effect in Harford County prior to the passage of Chapter 462,
    required that the applicant be a resident of the jurisdiction for a
    certain period of time prior to filing an application for a license.
    But in holding that Tennessee’s durational residency requirement
    10
    When reviewing bills that have been passed by the Legislature prior
    to their approval or veto by the Governor, this Office applies what we
    call a “not clearly unconstitutional” standard. 93 Opinions of the
    Attorney General at 161 n.12 (citing 71 Opinions of the Attorney General
    266, 272 n.12 (1986)). Because Chapter 462 has already been enacted,
    we need not consider in this opinion whether it was “clearly
    unconstitutional” under that standard. But even if Chapter 462 were
    clearly unconstitutional, we would not have recommended that the
    Governor veto it because the bill was, at the very least, less
    constitutionally problematic than the law as it existed at the time, in that
    it eliminated the type of durational residency requirements that the
    Supreme Court had expressly struck down in Thomas.
    Gen. 82]                                                          93
    violated the Commerce Clause, the Thomas Court never suggested
    that a non-durational residency requirement—i.e., that the licensee
    be a resident of the jurisdiction only at the time of the application
    or from the time of the application through the end of the license
    period—would merit different treatment. Although the Court’s
    opinion primarily spoke in terms of durational residency
    requirements because that was the nature of the licensing regime
    before it, Thomas’s reasoning strongly suggests that non-durational
    residency requirements will likely be difficult to defend. Cf. 
    139 S. Ct. at 2471
     (rejecting Association’s effort to limit Granholm to
    the regulatory regime at issue in that case).
    As an initial matter, Tennessee’s durational residency
    requirement triggered Commerce Clause scrutiny because it
    “discriminate[d] on its face against nonresidents.” 
    Id. at 2474
    . A
    non-durational residency requirement does the same; it expressly
    bars nonresidents from applying for or retaining an alcoholic
    beverages license, whereas residents may do so. And although the
    residency requirements at issue here require licensees to reside in
    Harford County (meaning that residents of other Maryland
    jurisdictions are also ineligible), it seems clear based on Supreme
    Court precedent that a requirement of residency in the county still
    facially discriminates against interstate commerce. See, e.g., Fort
    Gratiot Sanitary Landfill, Inc. v. Michigan Dep’t of Natural Res.,
    
    504 U.S. 353
    , 361-63 (1992) (invalidating Michigan statute
    preventing landfills from accepting out-of-county waste, reasoning
    that allowing such measures at the county level, when they are not
    permissible at the state level, would enable a state to “avoid the
    strictures of the Commerce Clause”); C&A Carbone, Inc. v. Town
    of Clarkstown, 
    511 U.S. 383
    , 392 (1994) (observing that an
    ordinance excluding out-of-locality as well as out-of-state
    competition “just makes the protectionist effect of the ordinance
    more acute”).
    Accordingly, a court confronted with a non-durational
    residency requirement like the ones applicable in Harford County
    would apply the test developed in Thomas, arising from the
    intersection of the Commerce Clause and the Twenty-First
    Amendment. That test, in turn, asks whether “the challenged
    requirement can be justified as a public health or safety measure or
    on some other legitimate nonprotectionist ground” and, in
    answering that question, examines whether the requirement
    “actually promotes public health or safety” and whether
    94                                                          [106 Op. Att’y
    “nondiscriminatory alternatives would be insufficient to further
    those interests.” Thomas, 
    139 S. Ct. at 2474
    . 11
    The Association and its amici raised several health and safety
    justifications for Tennessee’s durational residency requirement,
    each of which the Court rejected as “implausible on its face.” 
    Id. at 2475
    . Critically, several of the justifications the Court
    considered and rejected are best understood not as justifications for
    requiring a licensee to have two years of residency prior to the
    application, but as arguments for requiring residency at the time of
    the application and/or during the period of the license—that is, as
    arguments that would support non-durational residency
    requirements like Harford County’s.
    For example, the Association argued in Thomas that a
    residency requirement was needed to ensure that licensees would
    be amenable to service of process in Tennessee. 
    Id. at 2475
    . It
    11
    The Supreme Court did not fully explain how the test it established
    in Thomas for alcoholic beverage regulations differs from the standard
    dormant Commerce Clause analysis. The Thomas Court indicated that
    Section 2 gives states more “leeway” to regulate alcohol than they would
    otherwise have under the Commerce Clause. 
    139 S. Ct. at 2457-74
    . But
    both the Thomas test and the standard Commerce Clause test require that
    the law be supported by nonprotectionist justifications and that a
    reviewing court examine whether nondiscriminatory alternatives would
    advance the same purpose. See, e.g., Maine v. Taylor, 
    477 U.S. 131
    , 138
    (1986). As one possible distinction, Thomas did suggest that Section 2
    protects the “essential feature[s]” of traditional state “three-tiered
    alcohol distribution systems.” 
    139 S. Ct. at 2471
    . Such systems require
    alcoholic beverage producers to sell to state-regulated wholesalers,
    wholesalers to sell only to state-regulated retailers, and only state-
    regulated retailers to sell to consumers. 
    Id. at 2457
    . Thus, the Twenty-
    First Amendment may allow a state, in the interest of maintaining the
    integrity of its three-tier system, to require alcohol retailers (as contrasted
    from their owners) to be physically located in the state—a requirement
    which might be questionable under the ordinary Commerce Clause
    framework. See Sarasota Wine Mkt., LLC v. Schmitt, 
    987 F.3d 1171
    ,
    1182-84 (8th Cir. 2021) (upholding Missouri requirement that “retail
    liquor stores be physically located within the State” as a “core
    provision[] of Missouri’s three-tiered system”); Lebamoff Enters., Inc.,
    956 F.3d at 870, 875-76 (same in Michigan). However, the Thomas
    Court was clear that it did not consider residency requirements for liquor
    store owners—whether durational or not—to be an essential feature of
    the traditional three-tier system. See 
    139 S. Ct. at 2471-72
    . In any event,
    we do not decide here the exact contours of how the Court’s test in
    Thomas differs from its ordinary dormant Commerce Clause test.
    Gen. 82]                                                             95
    would make little sense to require that individuals be amenable to
    service of process prior to their application for a license, so this
    argument makes the most sense as a justification for requiring
    residency after issuance of the license. Similarly, the Association
    argued that residency requirements would make it easier for the
    state to oversee the operators of liquor stores. 
    Id.
     This argument,
    too, seems to be a defense of requiring licensees to maintain
    residency during the license term, when the business is actually
    operating. The Court rejected both of these justifications for a
    residency mandate, noting that nondiscriminatory means were
    available to pursue each objective. 
    Id.
     And more to the point, the
    alternatives the Court suggested, such as requiring applicants to
    appoint an in-state agent for service of process or mandating that
    retail staff undergo alcohol-awareness training, would function
    equally well as substitutes for a non-durational residency
    requirement. See 
    id. at 2475-76
    .
    The Court’s analysis thus suggests that it did not merely
    consider the durational aspect of Tennessee’s residency
    requirement—that is, the requirement that applicants reside in the
    state for two years before applying—but instead evaluated and
    rejected the purported benefits of residency requirements for
    license applicants more generally. 12 Indeed, it is unclear what
    health or safety interests would be advanced by a non-durational
    residency requirement like Harford County’s that would not also
    be advanced by a durational residency requirement. In other
    words, it does not appear that a non-durational requirement would
    have any additional advantages that the Thomas Court did not
    consider.
    In fact, in some ways, the justification for a non-durational
    residency requirement is weaker than the justification for a
    durational residency requirement. For example, if residency
    requirements promote responsible sales practices by ensuring
    retailers have a stake in the community, then a durational residency
    requirement is superior to a non-durational requirement because it
    12
    The dissenting opinion in Thomas also appeared to assume that the
    majority opinion’s analysis would govern all residency requirements, not
    just durational residency requirements. See 
    139 S. Ct. at 2484
     (Gorsuch,
    J., dissenting) (wondering whether, “if residency requirements are
    problematic,” a state may require a retailer to have a physical presence
    in the state).
    96                                                       [106 Op. Att’y
    ensures stronger community ties. 13 Given that it is unclear what, if
    any, health or safety advantages a non-durational residency
    requirement would have over a durational requirement, we think
    the Court would likely reject a non-durational residency
    requirement similar to Harford County’s if one were before it.
    Attorneys general in other states have reached similar
    conclusions. The Attorney General of Oklahoma, for instance, has
    opined that “the inescapable conclusion from [Thomas] is that the
    U.S. Supreme Court would strike down all residency
    requirements” for alcoholic beverage retailers or wholesalers,
    because “the Court's logic extends to non-durational residency
    requirements and those outside the retail context.” Okla. Op. Att’y
    Gen. 2019-13, 
    2019 WL 7424693
    , at *3-4 (Dec. 31, 2019).
    Similarly, the Attorney General of Kansas recently concluded that,
    in light of Thomas, a “constitutional challenge to . . . a ‘non-
    durational’ residency requirement” would “likely be successful,”
    because Thomas’s reasoning offers no basis for distinguishing
    between durational and non-durational requirements. Kan. Op.
    Att’y Gen. 2020-11, 
    2020 WL 7422704
    , at *2 (Dec. 10, 2020). 14
    13
    See Byrd, 883 F.3d at 633 (Sutton, J., concurring in part and
    dissenting in part) (“Requiring individual retailers to reside in one place
    for a sustained, two-year period ensures that they will be knowledgeable
    about the community's needs and committed to its welfare.”); see also,
    e.g., Brief for U.S. Alcohol Policy Alliance et al. as Amici Curiae
    Supporting Petitioner, Tennessee Wine & Spirits Retailers Ass’n v.
    Thomas, 
    139 S. Ct. 2449
     (2019) (No. 18-96), 
    2018 WL 6168786
    , at *15
    (“[R]equiring two years of residency, rather than something nominal,
    like days or weeks, enhances the prospects that retailers are firmly
    anchored in the state and have meaningful communal relationships that
    matter to them.”).
    14
    We are not aware of any federal or state court decision that has
    directly addressed this question after Thomas. One federal appeals court,
    in concluding that a state may require alcohol retailers to be physically
    located in the state, did characterize the Missouri licensing scheme at
    issue as involving a separate “residency” requirement and did not reject
    that requirement as unconstitutional. Sarasota Wine Mkt., LLC, 987 F.3d
    at 1177. However, the focus of the court’s opinion was on a different
    question, namely, the combined effect of the Missouri provisions—
    especially the physical-presence requirement—that prevented out-of-
    state alcoholic beverage retailers from shipping directly to Missouri
    consumers. See id. at 1182-84. And it also appears that the plaintiff in
    Sarasota could have satisfied the Missouri residency requirement simply
    by appointing a Missouri resident as the manager of a physical retail
    location in Missouri. See id. at 1178-79 & n.6. Sarasota thus did not
    decide the validity of a non-durational residency requirement imposed
    Gen. 82]                                                                 97
    To be sure, a non-durational residency requirement imposes
    less of a burden on nonresidents than a durational residency
    requirement. But that distinction would have little relevance under
    Thomas’s framework. Thomas indicates that whenever a state
    alcoholic beverages law facially discriminates against
    nonresidents, the burden shifts to the state to justify it; there is no
    threshold inquiry into whether the law imposes an undue or
    excessive burden on nonresidents. See 
    139 S. Ct. at 2474
    . 15
    We also recognize that the justification for Harford County’s
    non-durational residency requirements may be at least marginally
    stronger than the justification for the Tennessee residency
    requirement in light of certain differences between the two
    statutory schemes. See Thomas, 
    139 S. Ct. at 2472
     (“[E]ach
    variation must be judged based on its own features.”). The Thomas
    Court recognized that a state has a legitimate interest in promoting
    “responsible sales and consumption practices” and considered the
    argument that a residency requirement promotes that interest by
    making it “more likely that retailers will be familiar with the
    communities served by their stores.” 
    Id. at 2475-76
    . This was the
    health-and-safety justification that the dissenting opinions in the
    Supreme Court and the Sixth Circuit appeared to find most
    plausible. See 
    id. at 2482
     (Gorsuch, J., dissenting); Byrd, 883 F.3d
    at 633 (Sutton, J., concurring in part and dissenting in part). The
    Court rejected that justification, though, because Tennessee’s
    requirement (1) mandated only that licensees live in the state, not
    directly on the owner and licensee of an alcohol retail business. Instead,
    the court was focused on the constitutionality of a physical presence
    requirement for retailers. See id. at 1182-84. Of course, if one or more
    courts were ultimately to conclude that non-durational residency
    requirements are constitutional under Thomas, that would improve the
    chances that the Harford County requirements would be upheld.
    15
    The Thomas Court also referred to the lack of record evidence
    supporting Tennessee’s health and safety justifications for its durational
    residency requirement as one reason for rejecting those justifications.
    See 
    139 S. Ct. at 2474
    . But the Court’s treatment of those justifications
    as facially implausible, in part because of the existence of “obvious”
    nondiscriminatory alternatives, suggests that it is unlikely that additional
    evidence would have altered the Court’s conclusion. See 
    id. at 2474-76
    ;
    see also Kan. Op. Att’y Gen. 2020-11, 
    2020 WL 7422704
    , at *2 (“[W]e
    do not consider it likely that the State could make a showing of a
    legitimate local purpose that would satisfy constitutional muster, given
    the Supreme Court's unsympathetic attitude toward the public health and
    safety justifications put forth by Tennessee.”).
    98                                                         [106 Op. Att’y
    in the particular community where the business operates; (2) did
    not apply to bars and other businesses that serve alcohol for on-
    premises consumption; and (3) governed license holders rather
    than the individuals who actually make sales. Thomas, 
    139 S. Ct. at 2476
     (majority op.).
    Harford County’s residency requirements, unlike Tennessee’s,
    require the resident applicant to reside not just in the State but in
    the county, AB §§ 22-1402, 22-1405; do not distinguish between
    licenses for on-premises and off-premises consumption for
    purposes of the residency requirement; and, for applications on
    behalf of legal entities like corporations, require the resident
    applicant to be a “manager or supervisor” and to be “physically
    present on the premises for a substantial amount of time on a daily
    basis,” AB § 22-1405(a)(4). 16 Thus, Harford County’s residency
    requirements arguably better serve the objective of having locally
    rooted licensees promote responsible consumption.
    Ultimately, however, we believe that a court applying Thomas
    would probably find these distinctions insufficient to produce a
    different result. The Thomas Court placed great weight on the
    availability of nondiscriminatory alternatives that would allow the
    state to pursue the same objectives. 
    139 S. Ct. at 2474-76
    . As to
    the community-knowledge justification specifically, the Court held
    that states could achieve the goal of promoting responsible
    consumption without discriminating against nonresidents in
    several ways, including by placing limits on sales or by requiring
    more extensive training for sales managers and employees. 
    Id. at 2476
    . The same would presumably be true here. What is more, a
    requirement of residency in the county, like a requirement of
    residency in the State, still raises the concern, noted by the Court
    in Thomas, that a person who lives close to the community at issue
    but who happens to fall on the wrong side of a state or county
    border could be excluded from the market, while someone who
    lives farther away from the community, but within the same
    county, could qualify for a license. See 
    id.
     In other words, a
    person’s jurisdiction of legal residence will often be a poor proxy
    for their knowledge of a particular community.
    Thus, even if Harford County’s residency requirements more
    effectively “promote[] public health or safety” through community
    knowledge by licensees than the residency requirement in Thomas,
    
    id. at 2474
    , we suspect that a reviewing court would probably hold
    16
    We need not decide whether the General Assembly could require a
    license holder to be physically present on the premises on a daily basis,
    without also requiring that the license holder reside in the State or county.
    Gen. 82]                                                        99
    that the nondiscriminatory alternatives suggested in Thomas (e.g.,
    requiring more extensive training) remain available and would
    serve the same interest “without discriminating against
    nonresidents,” 
    id. at 2476
    . That is, under the test set forth in
    Thomas, a court would still be likely to conclude that the Harford
    County residency requirements cannot be justified on “legitimate
    nonprotectionist ground[s]” and that, instead, the requirements are
    predominantly protectionist measures. 
    Id. at 2474
    .
    III
    Conclusion
    In our opinion, the non-durational residency requirements
    imposed on alcoholic beverages license applicants in Harford
    County likely violate the Commerce Clause of the United States
    Constitution as interpreted by the Supreme Court in Thomas and
    would not be saved by Section 2 of the Twenty-First Amendment.
    That is, the reasoning in Thomas seems to extend to Harford
    County’s non-durational residency requirements, even after the
    enactment of Chapter 462. Although we recognize that much of
    this analysis may apply to the other non-durational residency
    requirements for licensees in Chapter 462 as well, we did not
    separately analyze each residency requirement in the Alcoholic
    Beverages Article and therefore do not specifically address
    whether or not any of them would be upheld under Thomas.
    Brian E. Frosh
    Attorney General of Maryland
    Kathryn M. Rowe
    Assistant Attorney General
    Patrick B. Hughes
    Chief Counsel, Opinions & Advice
    *Thomas S. Chapman, Assistant Attorney General, contributed
    significantly to the preparation of this opinion.
    

Document Info

Docket Number: 106OAG082

Filed Date: 5/11/2021

Precedential Status: Precedential

Modified Date: 5/11/2021

Authorities (21)

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Mugler v. Kansas , 8 S. Ct. 273 ( 1887 )

City of Philadelphia v. New Jersey , 98 S. Ct. 2531 ( 1978 )

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Hostetter v. Idlewild Bon Voyage Liquor Corp. , 84 S. Ct. 1293 ( 1964 )

Craig v. Boren , 97 S. Ct. 451 ( 1976 )

Capital Cities Cable, Inc. v. Crisp , 104 S. Ct. 2694 ( 1984 )

Bacchus Imports, Ltd. v. Dias , 104 S. Ct. 3049 ( 1984 )

Maine v. Taylor , 106 S. Ct. 2440 ( 1986 )

Fort Gratiot Sanitary Landfill, Inc. v. Michigan Department ... , 112 S. Ct. 2019 ( 1992 )

Oklahoma Tax Commission v. Jefferson Lines, Inc. , 115 S. Ct. 1331 ( 1995 )

Granholm v. Heald , 125 S. Ct. 1885 ( 2005 )

Department of Revenue of Kentucky v. Davis , 128 S. Ct. 1801 ( 2008 )

Tennessee Wine and Spirits Retailers Assn. v. Thomas , 204 L. Ed. 2d 801 ( 2019 )

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