Archive for December, 2006
2007 Hawaii Permits Available
December 27th, 2006
Hawaii recently made available the new permit forms for shipping directly to consumers. Even though Hawaii passed a new limited-direct model that technically went into effect on July 1st, 2006, most wineries continued to ship under the previous reciprocity rules because Hawaii did not give clear guidance on how to get permits and report under the new rules. Most hoped that the new legislation would mean a uniform, state-wide permit and reporting system, but effective January 1st, 2007, wineries must receive a separate permit from each Hawaii county before they make shipments in 2007. They must also register with the Hawaii Department of Taxation by completing the State of Hawaii Basic Business Application. Permitted wineries can ship up to six nine-liter cases to any household on an annual basis. Below are the permits for each of the four counties.
Results from Federal District Court in Kentucky
December 27th, 2006
It was pretty good, though it could have been better.
Yesterday, Judge Charles R. Simpson III reaffirmed his analysis of last August in the Cherry Hill case, finding that on-site only requirements in the direct shipment law effective on January 1 are unenforceable because they unduly burden interstate commerce relative to in-state direct shipments. The ruling, which has direct effect only in Kentucky, deprives anti-commerce elements of a frequently employed rear guard tactic against Granholm –the introduction of illusory equality by requiring both in-state and out-of-state wineries to sell only from orders placed by the buyer in person at the winery site.
Other aspects of the new law remain in place, including the right of out-of-state wineries to hold “small farm winery” licenses. The winery and consumer plaintiffs had also challenged two restrictions on small farm winery licensees, (1) that the license is available only to wineries producing no more than 50,000 gallons annually [~21,000 cases], and (2) that wineries may ship no more than two cases in a single order. While there is no doubt that many out-of-state wineries and no Kentucky wineries are affected by the volume cap, or that small order requirements are more onerous for longer distance deliveries, the court decided both restrictions were constitutionally permissible because the inequities arose from “mere geographic happenstance.” Where one draws the line between geographic happenstance and an impermissibly protectionist system remains to be decided another day. (The same opinion also upholds a peculiar part of the new law that creates state funding for zero-markup distribution of small farm wines by distributors, if any, who choose to participate, on the grounds that it will be available to all farm wineries, wherever located.)
The pro-commerce part of the opinion rests on the court’s finding “that each winery’s products are distinctive,” a principle of potentially far-reaching significance. If wholesalers and their governmental allies cannot impose on-site requirements, they are left with either accepting direct shipment or achieving the politically challenging objective of cutting it off for their own state’s wineries. As Judge Simpson put it,
“The principal problem faced by the defendants herein is that the legislature chose to permit direct shipment of alcohol. The choice to do so has thus taken us down the current road.”
Where the current road leads will be the subject of appeals in the 6th Circuit. The state’s and wholesalers’ appeal from the August ruling has been parked in the Court of Appeals, pending today’s judgment. Their appeal from both will doubtless now go forward. At this point, it is unknown whether the plaintiffs will cross-appeal on the volume cap and maximum order quantity issues.
Update: An unanswered practical question is how the two-case limit will be applied in the absence of an on-site requirement. Unless the Court of Appeals stays it, the December 26th order simply snips the in-person ordering requirement out of the statute. It makes no change in the two parts of the statute that provide, “The amount of wine shipped is limited to two (2) cases per customer per visit.” Even if the state must substitute “order” for “visit” in practice, the opinion seems to leave room for banning cost-saving measures like consolidating orders for shipment.
Kentucky Court Opinion and Judgment Posted
December 27th, 2006
The US District Court in Kentucky ruled yesterday on the lawsuit filed by Cherry Hill Vineyards, challenging provisions in Kentucky’s recent direct shipping legislation. Here are links to the court’s opinion [Huber Memorandum Opinion.pdf (324 KB)] and judgment [Huber Order and Judgment.pdf (239 KB)]. An excerpt from the opinion:
The court has evaluated the new statutory scheme put into place by SB 82. The new legislation has, for the most part, resolved the constitutional infirmities addressed by the Granholm decision. The court has rejected all challenges made by the plaintiffs but one. The court determined in the August, 2006 opinion and has reaffirmed herein that the in-person requirement in KRS 243.155 and 244.165 is unconstitutional as it discriminates in practical effect against out-of-state small farm wineries, and has not been shown to advance the legitimate local purposes asserted that cannot be adequately served by reasonable nondiscriminatory alternatives. For these reasons, the court will strike the in-person requirement from both statutes and uphold the remainder of the statutory scheme. A separate order will be entered this date in accordance with this opinion.
Update: Lexington Herald-Leader Article
Terroir II: Another Word Soon from the Court that Decided All Wines Aren’t Alike
December 22nd, 2006
A new ruling is expected before the end of the year in the Granholm-based lawsuit that challenges the states’ and wholesalers’ “on-site only” strategy for resisting direct shipment. That line of defense argues it’s equal treatment to restrict all wineries, near and far, to the same limitation of in-person orders (which seems true in the same sense that a stew is equal parts horse and rabbit if made from one rabbit and one horse.)
On August 22, 2006, in the case then known as Huber Winery v. Wilcher but subsequently renamed Cherry Hill Vineyards, LLC v. Hudgins, a federal district court in Kentucky enjoined the state from prohibiting direct shipment to Kentucky consumers by out-of-state wineries of a certain maximum size that are properly licensed in their own states. See the initial report of the case here and further analysis here for perspective on its potential long-range importance.
The district court judge adopted a far-reaching analysis in rejecting the state’s argument that it could eliminate discrimination by applying the same on-site-only rule to all wineries, noting the real-world discrimination against a much larger number of wineries in states far from Kentucky than in neighboring states and the unique nature of wine, which supports a right in consumers to purchase from distant producers. His August order removed the instate location and fruit production requirements from licensing a “farm winery,” which is the category of producer entitled to retail to Kentucky consumers, but did not remove the requirement that licensees be located on a “farm with a producing vineyard” or the 25,000-gallon annual production cap. The order also enjoins application of the criminal penalty statute against out-of-state wineries that ship to consumers, if they qualify as small farm wineries.
The motion for judgment on the pleadings that produced the August opinion and order did not require the court to rule on the constitutionality of enacted Senate Bill 82, which is now the subject of further summary judgment motions. If not blocked by the court, the bill will be effective on January 1, 2007, purporting to reinstate the on-site requirement and raise the production cap to 50,000 gallons.
The rationale of the August 2006 opinion would invalidate the new law’s on-site limitation, but the ruling of current motions could be differently reasoned after the extensive briefing that has taken place. If the judge rules consistently with the previous order and is sustained on appeal, the case will represent a significant advance for freer interstate trade by banning the level-down prohibitionist strategy of a uniform on-site only rule.
In a December 20, 2006 ruling, the court granted the intervening wholesaler trade association until December 22, 2006 to file its reply brief to the plaintiff winery’s response to the wholesalers’ motion for summary judgment, rather than January 2, 2007, as the intervenor had requested, and an attorney for the plaintiff has reported that the judge intends to rule by December 31st. The December 20th ruling also disposed of various procedural rulings. Another substantive motion in the district court, to stay or suspend the August injunction, is also pending and will likely be decided (or dismissed as moot) in the year-end ruling, but stays in the appellate court remain a possibility.
Important ruling in Kentucky expected by year-end
December 22nd, 2006
U.S. District Judge Charles R. Simpson III is expected to give a very important important ruling in Kentucky by the end of the year, according to the Louisville Courier-Journal. The ruling will help decide the fate of the Kentucky law that was set to take effect on January 1st. The new law would allow for direct shipments into Kentucky, but only for wineries with production under 50,000 gallons. The law also includes a requirement, inserted by the wholesale lobby, that the sale takes place while the customer is physically present at the winery. The original Huber lawsuit claims this requirement puts small out-of-state wineries at a competitive disadvantage.
Stay tuned for more information on Kentucky as the events unfold. Also, see our previous posts on 8/28, 9/20, and 10/2 for background information on this important battle.
Happy Holidays
December 21st, 2006
Happy Holidays from the Six88 Crew - Barclay, Bev, Elizabeth, James, Jason, Jeff, Kim, Laurent, Marc, Mike, Pete. Not pictured - Bob, Sarah, Rajiv, Richard, Steve.
(taken from the rooftop of our office in Boulder, CO)
Additional information regarding Pennsylvania’s Limited Winery Permit
December 20th, 2006
Important caveat on Pennsylvania in particular and “Notes on Wine Distribution” in General. The recent development posted on 12/14 regarding direct shipment to Pennsylvania residents in that the state, is that the Liquor Control Board, which has known since November 2005 that it lost the Cutner case and therefore may not prohibit direct shipment from outside the state, as least so long as Pennsylvania wineries are free of the requirement to ship through state stores, has stated that direct shipment from out-of-state is permissible for holders of the “limited winery permit.” That statement, which is expressly “non-binding”, does not include procedural guidance on obtaining the license, although the Cutner injunction would prevent imposition of procedures or delays rendering it practically unavailable.
The Wine Institute continues to advise wineries not to ship directly to Pennsylvania consumers, and neither of the major carriers has added the state to its interstate shipment list. The Notes for Pennsylvania point out both that there are unanswered procedural questions and that carriers are making only in-state deliveries. Reportedly, trade associations have been trying for some time to obtain information from Pennsylvania on how to make a lawful shipment under Cutner. The absence of guidance is hardly surprising, as the state has no obligation to provide it to anyone other than its own officials, the legal personnel who affirm that the license is required are not responsible for nuts-and-bolts administrative matters, and the people who are doubtless hope the legislature will make the issue go away in the next session. All releases of “Notes on Wine Distribution” in their opening paragraph refer the reader to other sources for guidance on what is presently practicable, including the Wine Institute site
Wine Distribution Notes, v12
December 14th, 2006
R. Corbin Houchins released version 12 of his Notes on Wine Distribution, with an important development for shipments to consumers in Pennsylvania.
Click here to read the new release
Update: Please see the post above for more information on PA. Also note the definition of a “limited winery”.
Costco appeal on fast track
December 2nd, 2006
The case is moving along very rapidly, the Ninth Circuit Court of Appeals having taken the initiative in a November 30, 2006 order by designating the appeal as expedited and setting a very prompt date for argument (March 2007). The defendants’ motion before the Court of Appeals for an indefinite stay was denied, but can be renewed at oral argument. The timing adds uncertainty to the legislative process, as the session is scheduled to end in late April, and the cut-off date for introducing new laws will probably occur before there is a ruling on the extended stay. The stay now in place, which was entered by the trial court, expires on May 1, 2007, a schedule intended to prompt the legislature to act if it wants to revise the liquor laws in light of the Costco judgment, which unless stayed by the Court of Appeals would then become effective, rendering a sizeable chunk of Washington liquor regulation unenforceable.
Click here for a description of the effects of the judgment.
