Another Blow to Licensee Residency Requirements

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Last month, the Office of the Attorney General of Maryland (Attorney General or Maryland Attorney General) issued an opinion (the Opinion) on the constitutionality of non-durational residency requirements. The Opinion follows the Supreme Court’s 2019 decision in Tennessee Wine & Spirits Retailers Ass’n v. Thomas (Thomas), which held that Tennessee’s durational residency requirements for off-premise wine and spirits retail licensees were unconstitutional. Durational residency ties a residency requirement (e.g., you can obtain a license only if you reside in the licensing state) to a specific minimum amount of time you must have resided in the required place. Non-durational residency only requires residency at the time the licensee obtains and holds the license. But according to the Maryland Attorney General, that difference is not enough to save a residency requirement from the holding of Thomas that such requirements violate the “dormant” Commerce Clause of the federal Constitution.

Until the last several decades, residency requirements for alcohol licensees were commonplace. But beginning in the 1990s such requirements began to face successful legal challenges. In the 1994 decision in Cooper v. McBeath, for example, the Fifth Circuit Court of Appeals sided with Southern Wine & Spirits in striking down a Texas residency requirement for wholesale licensees. Nevertheless, residency requirements, often with a durational component, remained the law of many states, particularly when applied to retail license requirements.

Last month’s Maryland Attorney General Opinion addressed a law designed to comply with the Thomas decision by eliminating prior law’s durational requirement. Most Maryland retail licensing requirements are imposed on a county-by-county (and not statewide) basis. In 2020, Maryland enacted legislation to repeal the requirement that residents have lived for a certain amount of time in the county in which the licensed business is located, but retained the county residency requirement. The Attorney General received a request from the Chair of the Liquor Control Board for Harford County asking whether the residency requirement, now non-durational, violates the principles of the Thomas decision. While the Opinion addressed the narrow question of Harford County’s residency law, its reasoning should apply to non-durational residency requirements imposed on licensees in other Maryland counties.

The Attorney General’s Opinion includes a detailed recap of Thomas, starting with a history of the challenged Tennessee law all the way through the Supreme Court’s decision. For anyone seeking a “cliff notes” summary of that rather lengthy document, the Maryland Attorney General has supplied one.

Turning to the residency requirements in Harford County, the Opinion begins with a reminder that although the Attorney General can set forth opinions on the law, the Attorney General cannot declare a law unconstitutional. As a result, the Opinion must be seen as an expression of the state’s “best legal analysis” and does not render the statutory provisions in question unenforceable. Nevertheless, an opinion by a state’s attorney general often receives substantial persuasive weight from reviewing courts and state legislatures.

On the merits, the Opinion first points out that although Thomas addressed durational residency, nothing in the Supreme Court’s opinion suggested that non-durational residency requirements merited a different treatment. Indeed, the Thomas Court began its analysis by highlighting the fundamental flaw in the Tennessee law – that it discriminated on its face against out-of-state residents. Maryland’s non-durational law suffers from the same defect. As such, the Attorney General asks the critical questions from Thomas: (a) whether the challenged requirement can be justified as a public health or safety measure, (b) whether the requirement actually promotes public health or safety, and (c) whether nondiscriminatory alternatives could not further those interests.

The Opinion next observes that many of the public health and safety rationales deemed “implausible” in Thomas remain equally implausible in the context of a non-durational requirement. For example, the justification that residency helps ensure that the licensee is subject to service of process in the licensing jurisdiction would be the same in a non-durational context, as service of process only becomes relevant once a person becomes a licensee. The Supreme Court’s rejection of this rationale accordingly should apply equally to Maryland’s non-durational residency scheme. Reviewing several other rationales, the Opinion finds that “it does not appear that a non-durational requirement would have any additional advantages that the Thomas Court did not consider.”

The Attorney General does concede that because Maryland’s law links residency to specific counties, and not the entire state, an argument can be made that the Maryland scheme better serves the objective of having licensees held by local citizens who (arguably) would better promote responsible consumption than the law struck down in Thomas. Thus, the Supreme Court’s rejection of that rationale carried less force. Nevertheless, the Attorney General ultimately concludes that this minor point would not be enough to alter the conclusion that under Thomas, a court would likely find the Harford County residency requirement unconstitutional.

The Opinion also notes that the attorneys general of Kansas and Oklahoma both reached similar conclusions in examining their own non-durational residency requirements in the wake of Thomas. While the opinions of other state’s attorneys general do not, of course, bind the state of Maryland, their analysis will usually carry some weight with their attorney general colleagues in other states.

As the Opinion points out, the Attorney General does not have the power to declare a law unconstitutional. Nevertheless, the Opinion likely will hasten the day that a legal challenge to Maryland’s residency requirements (whether for Harford County or elsewhere) materialize or that the legislature repeals them altogether.

More broadly, the Opinion represents another blow to the once-commonplace idea that licenses should be held by local persons. Indeed, that notion has deep roots in the post-Prohibition regulation of alcohol. In the 1933 treatise on how to regulate alcohol upon repeal, the authors of Towards Liquor Control include a stern warning against “the vices of absentee ownership.” Like many other notions from that day, pleas for localism today increasingly seem anachronistic in the era of instantaneous global communications and nationwide retail chains. Today it also appears that residency requirements represent a legal anachronism whose time has come and gone.

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