Archive for December 27th, 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
