Archive for May, 2006
“Domestic farm winery” bill passes Arizona legislature
May 29th, 2006
Senate Bill 1276 passed the Arizona state House last week and now awaits Governor Janet Napolitano’s signature. SB 1276 would continue to allow for the direct shipment of orders where “the wine was purchased while the purchaser was physically present at the winery”. The bill would also allow for off-site orders, but with serious restrictions. Only “limited production wineries” would be allowed to ship off-site orders, where a limited production winery is defined by SB 1276 to mean:
A licensed domestic farm winery that produces not more than twenty thousand gallons of wine in a calendar year may make sales and deliveries of wine that the licensed domestic farm winery produces to consumers off of the licensed premises and that is ordered by telephone, mail, fax or catalogue, through the Internet or by other means.
20,000 gallons equates to roughly 8,400 cases, which means that a significant number of U.S. wineries would be excluded from shipping off-site orders to Arizona.
The good folks at Free the Grapes are encouraging Arizona residents to ask Governor Napolitano to veto this bill. From their action alert:
SB 1276 is not an incremental step in the right direction; it is a big step backwards for Arizona consumers. And if it becomes law, wholesalers who oppose direct shipping will surely promote it as a workable model for other states to adopt. This will threaten years of diligent, successful work by winemakers, legislators and regulators to enact reasonable laws that allow limited, regulated direct shipments.
If passed, this bill will almost certainly be challenged in the courts. Just when it seemed like the Granholm dust was beginning to settle, states began introducing these bills with discriminatory capacity caps. New rounds of court cases challenging these caps will mean many more changes to come in the world of wine direct shipping.
Preliminary injunction in Texas is a temporary truce
May 29th, 2006
The recent preliminary injunction entered by agreement in Wine Country Gift Baskets.com v. Steen is only a temporary truce. Both sides are reportedly preparing for a contest over the final judgment, while the delivery companies and potential retailer-shippers attempt to figure out what the requirement that shipments be by �a carrier permitted by Texas Alc. Bev. Code Ch. 43� means in context.
Wine Country demonstrates that we are still struggling to understand the implications of Granholm. Much of the difficulty arises from what appears on superficial reading as an inconsistency in the majority position. The result in the case, like most of the text of the majority opinion, is decidedly hostile to location requirements. Nevertheless, the majority quotes from the Scalia opinion in the no-majority (4-4-1) case, North Dakota v. U.S., which refers to a 21st Amendment right to require all wine to pass through an �in-state wholesaler.�
North Dakota may have replaced Young�s Market as the repository of sacred text for adherents of old-time 21st Amendment theory. The subject quotation, however, is merely obiter dicta in Granholm and therefore not part of the case as a binding precedent. Mr. Justice Thomas excoriates the majority for what he takes as their obtuse failure to see the contradiction between that dictum and the actual holding of the case, which clearly finds the 21st Amendment inadequate as a basis for imposing in-state location requirements on wineries shipping to consumers. Nonetheless, careful reading of the majority opinion strongly suggests that North Dakota stands only for the right to require a three-tier system, and not a right to refuse distribution licenses to out-of-state wholesalers.
Costco has already resulted in a statutory change, granting out-of-state domestic manufacturers essentially the same rights as wholesalers within Washington. A similar suit is reportedly in preparation for Oregon, possibly couched broadly enough to include non-manufacturing suppliers, and another Texas suit, with a multi-state wholesaler plaintiff, is rumored.
Under Granholm, a successful plaintiff can only hope to level the playing field. The Costco court leveled down, on the theory that opening the state�s borders would be more disruptive to the entire regulatory system than would ending the local producers� self-distribution privilege -a ruling that would have put many local wineries in a serious bind had the legislature not leveled up before it became effective. A similarly inclined court could solve the Granholm problem in Wine Country by invalidating delivery rights of local retailers, leaving a legislative fix dependent on state politics. It would, however, be difficult to imagine a decree invalidating the right of local wholesalers to distribute, an activity that lies at the heart of nearly all regulatory schemes in the country. Thus, a win in court by an out-of-state wholesaler plaintiff could create a national market in supplying the retail trade and leave little room for legislatures to level down.
Wine Institute direct shipping portal updates
May 26th, 2006
The Wine Institute direct shipping portal was updated last night with the first of many changes to come over the summer. After launching a new look and feel for their home page, they are now turning their attention to the direct shipping portal.
Frames were removed from the direct shipping portal as a first step, so you can now link directly to the offsite compliance map, onsite compliance map, state detail pages such as Florida or New York, and the “Who Ships Where” page for example.
Coming soon will be an all new look and feel for the direct shipping portal, more dynamic and well organized content, better help and navigation, and an all new page for self-distribution rules and regulations.
If you have any ideas about how to make the direct shipping portal more informative and valuable, please fill out their feedback form.
Kansas to allow direct shipment of on-site orders
May 25th, 2006
Kansas Governor Kathleen Sebelius signed Senate Bill No. 297 last week, making it legal for in-state and out-of-state wineries to ship wine directly to Kansas consumers provided that “the consumer must purchase the wine while physically present on the premises of the wine manufacturer”. The new laws go into effect on July 1st. The legislation is a small step in the right direction as Kansas was previously a prohibited state for shipping wine. Kansas consumers will be responsible for paying all applicable taxes.
SB 297 also establishes new, but complex rules for off-site purchases. Wineries that produce less than 100,000 gallons can apply for a $50 permit that allows for off-site orders to be placed by Kansas consumers if the wine is first shipped directly to a licensed retailer.
Wine sold and shipped by a person holding a shipping permit shall be delivered to the licensed premises of the licensed retailer designated by the purchaser during hours the retailer is authorized by law to sell alcoholic liquor. The retailer shall collect taxes with regard to such wine pursuant to K.S.A. 79-4101 et seq., and amendments thereto, in accordance with rules and regulations of the secretary, as if the sale were made in this state. The retailer may charge the purchaser a handling fee of not more than $5 for each delivery of wine received by the retailer on behalf of the purchaser. The retailer shall ensure that the purchaser of the wine is 21 or more years of age.
Wineries that produce more than 100,000 gallons must ship off-site orders via the three-tier system.
the wine shall be shipped in the original unopened container to a licensed distributor, who shall deliver the wine to the licensed premises of the retailer designated by the consumer;
Connecticut permit fee clarification
May 15th, 2006
The direct wine shipping permit application process in Connecticut just became a littler clearer thanks to their new forms. The Connecticut Department of Consumer Protection Liquor Division has put all of the forms needed to obtain an Out-of-State Shipper�s Permit on their website. The same forms are linked to Wine Institute�s Direct Shipping website. There is now one initial permit fee of $250.00 as well as a $100.00 application filing fee for out-of-state wineries of all sizes. However, out-of-state wineries that provide an affidavit affirming that the winery did not produce more than 100,000 gallons of wine during the most recent calendar year are eligible to ship directly to retailers for no additional fee. These out-of-state wineries must continue to register their brands with the Liquor Control Division and register with the Department of Revenue Services. Labels must be registered by the winery, cost $100.00 per label and must be renewed every 3 years. In addition, wineries must pay excise taxes and 6% sales tax on all shipments to Connecticut consumers.
Vermont opens for direct wine shipment
May 13th, 2006
We love to see a purple state turn blue! Vermont officially moved from a prohibited state to a limited direct state on Thursday when Governor Jim Douglas signed into law S.58. In-state and out-of-state wineries can now apply for a $300 direct shipping license and ship up to 12 cases annually to Vermont consumers. Wineries will be required to file direct shipping, excise, and sales tax reports regularly.
The bill also establishes a $200 self-distribution license for in-state and out-of-state wineries. This establishes a means for wineries to “sell up to 2,000 gallons of vinous beverages a year directly to first or second class licensees” provided the winery ships “no more than 40 gallons of vinous beverages per month to any single first or second-class licensee.”
We’ll post more details as they become available…
FedEx Express and FedEx Ground policy for return of wine shipments
May 11th, 2006
FedEx Express and FedEx Ground have clarified their policy for the return of direct-to-consumer wine shipments. Because FedEx policy only allows for approved licensees to ship wine, it has been understood and interpreted that individual consumers as recipients of a wine shipment are prohibited from returning such a shipment to the sender. However, return shipments can be tendered to Fedex from consumers or licensees, but must be initiated by the original shipper/licensee. A likely “return” would be the shipper packed the wrong wine bottle and the recipient customer needs to send it back for replacement for the correct item. The returned wine must be in its original packaging. Please visit the FedEx website at www.fedex.com/us/wine/ or contact Wine Institute at 415-512-0151 to learn more about the FedEx Wine Shipping Program and Wine Institute Member discount.
Washington Liquor Control Board to appeal Costco ruling
May 4th, 2006
The Washington State Liquor Control Board announced yesterday it will appeal the ruling issued by Judge Marsha Pechman. The state will likely file its appeal in the next few weeks and will claim that the 21st Amendment should trump the Sherman Antitrust Act. In other words, the state should have the right to create monopolies, which are prohibited by the Sherman Act, because they were granted extraordinary powers by the 21st Amendment, which repealed Prohibition in 1933 and gave the states control over alcohol regulation.
The broader effects of Costco
May 1st, 2006
I. Discrimination against Direct Distribution from Outside the State
There seems little doubt that Costco�s reading of Granholm will survive appeal. Nothing appeared in the Costco record to distinguish direct shipment of beer and wine to retailers from direct shipment of wine to consumers.
Most states with wine industries allow local wineries some form of direct distribution. Only Washington extends an equal privilege to out-of-state wineries, a result of the Costco remedial legislation. A few states, such as New Jersey, have taken preemptive action by eliminating or restricting direct distribution rights of in-state producers. Limiting direct distribution according to annual production of the producer is emerging as a common theme. Florida recently arrived at a legislative “compromise” that set the cutoff just above the size of the largest Florida winery, a transparently protectionist measure that may or may not evade analysis as discrimination, but, like all size caps, is open to Commerce Clause objection for disproportionate burden on commerce originating outside the state.
Thus, the immediate concern is with legislation in the states that must level up or down. The Costco decision accommodated state concerns by leveling down (with a stay for legislative override) and thus does not constitute precedent for requiring open access to local markets. Because other lower courts may also find the unconstitutionality of discriminatory schemes in the protectionist measures favoring local wineries, rather than in the more basic regulatory objective of controlling the traffic pattern of liquor entering the state, neither Granholm nor Costco suggests that suppliers can rely on widespread opening of markets to direct distribution.
II. Posting and Ancillary Restraints
Costco illustrates a great divide in basic Sherman Act jurisprudence. For some observers, no contract, combination, or conspiracy can be inferred from private actors� facially unilateral acquiescence in state restraints, even if the effects are anticompetitive. That is, roughly, the Fisher v. Berkeley view. See, e.g., Sisters of St. Vincent Health Services, Inc. v. Morgan County, 397 F. Supp. 2d 1032, 1046 (S.D. Ind. 2005), citing Massachusetts Food Ass’n v. Massachusetts Alcoholic Beverages Control Comm’n, 197 F.3d 560, 564-66 (1st Cir.1999).
Naturally, the district court in Seattle regarded Miller v. Hedlund as controlling 9th Circuit precedent. The reasoning in Miller is difficult to pin down. It appears influenced by anticompetitive effects (which we know are alone insufficient), but also to rely on the participation of private actors, consisting of filling in the blanks of a posting system which was then enforced by the state. The opinion mentions potential for collusion, but does not seem to require it. Last December�s antitrust rulings in Costco clearly rest on the wholesaler�s participation in the form of supplying prices that then become mandatory by the power of the state, resulting in a hybrid system requiring state supervision (which was lacking in Washington’s case) to survive preemption. However, all the U.S. Supreme Court authority overturning price posting deals with systems that require or condone private conduct that itself violate the Sherman Act. The Costco judge, like the Court of Appeals in Miller, seems to find a combination by, so to speak, putting the state in the same room with each private actor who posts a price. By contrast, Midcal and the other Supreme Court cases invalidating price posting laws deal with systems that send the private actors to a room where they constitute the unlawful combination on their own. How the Fisher-Miller dissonance resolves is, I think, the most important issue for the Costco appeal.
Another significant issue in applying Costco to the law in other states is the extent to which the cluster of other restraints that frequently accompany posting would fall with it. I see three bases on which that might occur. First, the court might conclude that the system is so integrated that the legislature would not have enacted the other restraints if it had known posting itself to be illegal. Second, on general principles of equity, a court issuing an injunction against unlawful conduct has power to enjoin lawful conduct associated with it if necessary to render complete relief from the threatened harm. Third, a court might conclude that the other restraints constituted per se antitrust violations on their own, which appears as an alternative basis for decision in the December opinion on summary judgment motions, incorporated by reference in the conclusions of law for the final judgment.
That third possible approach would extend Costco�s effects to more states, including some without price posting. It is, however, the most controversial of the three, as it requires finding a public-private hybrid restraint without an overt role for private parties, such as providing prices the state then enforces.
In sum, Costco is not carte blanche for ignoring other states’ posting laws, although within the Ninth Circuit an aggressive position could be justified. As a rough first look, here are some immediately vulnerable points: AZ quantity discount limits, CA beer posting, CT posting, DE delivered wholesale pricing, FL malt beverage price change waiting period and possibly the limits on quantity discounts, GA posting, HI possibly restrictions on quantity discounts, ID posting, IN posting, IA posting (possibly), KS posting (possibly), ME posting and discount restraints, MD posting and quantity discount ban (already analyzed in TFWS I through III), MA posting, MI posting and quantity discount ban, MN posting and possibly restriction on quantity discounts, MO posting and 1% limit on quantity discounts, NH beer posting, NY posting (including amendments effective in September), NC quantity discount ban, OH posting, OK posting and quantity discount ban, OR price record-keeping (possibly, because of deterrent effect on spot pricing) and price uniformity requirement, SD posting, TN posting and quantity discount ban, VT posting, VA posting, WV beer posting.
III. Central Warehousing
Central warehousing bans are difficult to analyze, because (unlike the case in Washington) they are often based on interpretation of retail license privileges or tied house laws, rather than on express prohibition. Caveats regarding ultimate application of Costco to posting and its ancillary restraints apply strongly to central warehousing bans, because they may appear more severable from direct restraint on price than, e.g., quantity discount bans. The Costco antitrust opinion of December and the recent findings of fact and conclusions of law do not present a clear rationale for distinguishing the central warehousing ban, which it classified as an antitrust violations, from the retailer-to-retailer sales ban, which it found was unilateral state action not preempted by federal antitrust law. Thus, it is difficult to predict how courts, even those following the Miller v. Hedlund line on antitrust combinations, will respond to the Costco ruling if asked to evaluate central warehousing in other states.
The following represents a currently incomplete survey of states potentially affected by Costco on use of central retail warehouses:
Central retail warehouses banned: AL, AR, CO, DE, ID, IL, IA, KS, MD, MI, NH, NM
Not banned: AK, AZ, CA, CT, DC, MA, OR
We are still researching the status of central warehousing in the states not listed above.
R. Corbin Houchins
May 1st, 2006
We are very happy to announce that R. Corbin Houchins from the Beverage Practice Group of Graham and Dunn is joining us as a blog author. Our goal is to continuously add value to the readers of this blog by providing insight and analysis in the world of wine shipping compliance. Mr. Houchins is certainly an expert in the field and we look forward to his thoughts. Below is a brief bio…
“R. Corbin Houchins, has worked with the issues of liquor regulation and its relationship to antitrust law daily since 1971, as house counsel for E & J Gallo Winery and for Olympia Brewing Company and in private practice, including representation of the plaintiff in the landmark resale price maintenance case, Simpson v. Union Oil Co. He has written and lectured extensively on the effects of antitrust law on regulatory systems. Mr. Houchins is senior beverage law attorney at Graham & Dunn, one of the Northwest region’s most distinguished complex antitrust litigation firms, where he maintains a national beverage law practice, with clients ranging from garagiste wineries to major transnational liquor enterprises.”
His first post is coming up next.
Where is Jim Barbuti?
May 1st, 2006
Effective today, Jim Barbuti of the State of New Hampshire Liquor Commission has a new mailing address. This new address should be used to send your monthly reports as well as any correspndence to Mr. Barbuti.
Mailing Address
State of New Hampshire Liquor Commission
Bureau of Enforcement
Attn: Direct Shipping
PO Box 1795
Concord NH 03302-1795
Fax: (603)271-3758
Does the name Jim Barbuti ring a bell to most of you? Ever received “the call” from Mr. Barbuti? He’s notorious for being extremely thorough in the enforcement of wine direct shipping in NH.
I’ve spoken to Mr. Barbuti a number of times and he is a really nice guy. He just plays by the book. I think the world of direct shipping is much better off because of Mr. Barbuti. When the wholesaler lobby tries to claim that wine direct shipments might end up in the hands of minors or that state taxes will not be collected effectively, all we have to do is point to the state of New Hampshire to refute those claims. In fact, the FTC letter mentioned previously quotes Mr. Barbuti in their defense of supporting direct shipping laws in Florida.
We see many wineries that are reluctant to ship to New Hampshire, but this should not be the case. Get a permit, play by the rules, and everything will be just fine. Other states will soon follow New Hampshire’s lead with more thorough enforcement, but this should not deter wineries from shipping. Understand the rules, get compliant, and take advantage of the powerful direct shipping channel.
(ed.note: Thanks to TD for the tip.)
