Archive for September, 2007
Helpful Clarification Regarding Ohio’s New Shipping Statute Allows Some Wineries to Start Shipping
September 27th, 2007
Wine Institute has received an initial clarification from the Ohio Division of Liquor Control that should allow some wineries to begin shipments to Ohio consumers. In addition to the restriction on the size of wineries (under 150,000 gallons) that can apply for a permit, there had been confusion surrounding the “family household” limit of 24 cases annually from an aggregate of winery sources. According to the advice that was given to our staff by the ODLC any penalty for a violation of the case limit provisions will fall solely to the consumers who order the wine, so long as no individual winery were to ship more than the legal amount to a given address. That being the case, those qualifying wineries that obtain a permit to ship should be able to initiate shipments of up to 24 cases of wine annually to any one Ohio address. It is likely that additional regulations and clarifications will be forthcoming, and we will keep members posted as they do. In the meantime, however, at least some wineries should be able to begin making shipments after receiving their permits. Permit applications are available at http://www.liquorcontrol.ohio.gov/1614pdf.pdf and a document outlining the program has just been posted at http://www.liquorcontrol.ohio.gov/DirectShipping.htm . Please contact WI State Relations at (415) 356-7530 if you have further questions.
Free the Grapes!: Ohio Wine Lovers to be Cut-off October 1
September 27th, 2007
Free the Grapes! just pushed a press release about Ohio that condemns the new laws and calls for consumer action. Below are a few excerpts.
A new law effective Monday, October 1 will prevent Ohio wine lovers from continuing to purchase wines directly from many popular mid-sized wineries, according to Free the Grapes!
During the closing stages of this year’s budget process, an amendment was slipped into the budget bill that prohibits medium and large wineries and wine companies whose total production exceeds 62,500 cases from shipping wine directly to Ohio consumers.
Additionally, the law creates a potentially unworkable system that may scare eligible wineries from shipping any wine to Ohio consumers. The bill sets a 24-case annual shipping limit per “family household,” rather than an annual limit per winery, per individual, as is common in most states.
Click here to read the full press release
Ohio to initiate permit system on Monday
September 26th, 2007
Since July 19, 2005, wineries have enjoyed basically unrestricted access to Ohio consumers as the result of a judge declaring Ohio’s prohibition on direct shipping to be unconstitutional. That access will change significantly on Monday, when the Ohio Department of Commerce - Division of Liquor Control initiates the new permit system that was inserted into the 2008-2009 Ohio budget bill.
The new law establishes a capacity cap of 150,000 gallons, meaning that any winery that produces more than 150,000 gallons (roughly 63,000 cases) per year will be prohibited from shipping into Ohio. We’re also very interested to see if the DLC clarifies the “family household” volume limitation in the bill on Monday. Permitted wineries must file regular tax returns for shipments into Ohio.
The DLC confirmed via phone yesterday that the new permit application forms will probably not be available until Monday, October 1st. Stay tuned for updates early next week as we learn more from the DLC. Also, please see our previous posts to learn more about the new laws: “Ohio adopts restrictive permit system“, and “Buckeye Budget Bill Could Affect Direct Shipping“.
Update: The permit forms are now available on the DLC website. Click here to download the “S Permit” application form.
Discrimination Against Out-Of-State Retailers After Granholm
September 18th, 2007
Imminent revision of Illinois direct shipment law is producing much heated comment about retailer shipping rights, some trenchant and some off the mark, but all of significance beyond one state.
Illinois House Bill 429, sent to the governor for signature on August 8th, conforms to the all but universally held belief that Granholm condemns treating wineries differently depending upon the reciprocity or non-reciprocity of their states’ direct shipment laws. Ending reciprocity is not in itself controversial, and there is nothing particularly unusual about the way Illinois is going about it -conversion to a licensed shipper system with a volume cap (for both sales to consumers and direct distribution to retailers). One can argue about the constitutionality of volume caps, but that has not been the main issue in public media discussions lately.
Most attacks on the new law involve its allegedly unconstitutional exclusion of retailers (including those positioned as “virtual wineries”) from licensed shipment. The big question is whether Granholm prevents states from allowing deliveries to consumers from a bottle shop across town, but not from one across the state line.
I was recently misquoted in a trade magazine as saying the retailers might prove “unjust discrimination.” If injustice were enough to invalidate discriminatory liquor laws, statutes would be falling like drosophila in a gin bottle. It’s unjustified discrimination against interstate commerce relative to local commerce that condemns a law under the Commerce Clause, and justifying means only showing the discrimination is necessary to preserve certain state interests.
Exactly what those interests are remains subject to differences of opinion. Granholm is the most profound statement on the subject in many years. It is not, however, among the easiest Supreme Court opinions to encapsulate.
To understand Granholm, one must observe a distinction lawyers make between the essential rationale, or “holding,” of the case and incidental statements of judges. The holding is binding precedent and, if the case is a Supreme Court decision, pretty much determines what the federal constitution means in all subsequent cases decided by all other courts. Everything in the opinion not essential to the result is considered “said in passing” -obiter dicta in Latin, or “dicta” for short. Dicta may give important insights into judges’ reasoning and help predict their future decisions in other cases on appeal, but dicta don’t control the outcome of cases in lower courts. (An example of significant dicta is the proposition that reciprocal shipment laws are unconstitutional because they create trade zones, contrary to the purpose of the Commerce Clause. The Court was not deciding a case about reciprocity, so what it said on the subject was not essential to the result.)
Separating holdings from dicta is an exercise of judgment. For Granholm, a reasonable reading begins with the formulation of the Supreme Court in its decision to grant review of the lower court decisions and picks up the facts the Court seemed to regard as dispositive. That produces a line of reasoning: “The Commerce Clause forbids overt discrimination favoring local commerce relative to interstate commerce, except in very limited circumstances. A state that allows its own sellers to ship directly to consumers but restricts out-of-state sellers in shipping directly to the same consumers is overtly discriminating. No relevant exception applies because (1) historical and constitutional analysis shows that the supposed 21st Amendment right of states to discriminate in favor of in-state producers when they regulate direct shipment of wine does not, in fact, exist, (2) as with any other article of commerce, the burden of justifying discrimination is on the states, and (3) neither state proved it needed to engage in discrimination to advance a legitimate local purpose that could not be adequately served by other means. Therefore, the discriminatory laws are invalid under the Commerce Clause.”
From the rationale of the case and the key facts noted in the opinion, one can extract the holding, which is in effect a decisional algorithm lower courts must apply unless the Supreme Court modifies it in a subsequent opinion. Put in the form of a conditional statement, a permissible interpretation of the Granholm holding might look like this:
If:
- Law 1 of a state authorizes businesses resident in the state to sell and ship wine directly to consumers within the state.
- Law 2 of the same state either prohibits, or renders economically impractical, wine shipments from out-of-state businesses.
- The state claims the discrimination is justified because it is necessary for preventing sales of wine to minors, for collecting excise taxes on wine, facilitating orderly markets, protecting public health and safety, and ensuring regulatory accountability.
- Out-of-state wine sellers face the loss of state and federal licenses if they fail to comply with state law regarding sales to minors and payment of taxes.
- There is no reason to believe direct shipment by out-of-state sellers would cause more access by minors than direct shipment by in-state sellers.
- Out-of-state wine sellers have a history of complying with tax reporting and payment procedures associated with distribution through three tiers.
- The state’s objectives related to orderly markets, public health and safety and accountability can be achieved with ordinary licensing requirements and modern means of transmitting information, without discrimination based on licensee location.
- The TTB can revoke the out-of-state wine seller’s federal basic permit for violation of the state’s laws, resulting in inability to sell in any other state.
- The state does not demonstrate that, notwithstanding the above factors, its legitimate objectives can be achieved only by discriminating against interstate commerce.
Then:
Law 1 and Law 2 cannot constitutionally coexist. The state has to change one of them, to treat in-state and out-of-state sellers on evenhanded terms.
Different observers will put different lists of “if-clauses” in the holding, depending on what facts they conclude were essential. If I were arguing the pro-commerce case, I’d like to take items 4 through 8 out of the holding, demoting them to “makeweight” statements that support the outcome but weren’t essential to it. The states and their allies would, of course, like to expand the list.
The differences are important, because parties wanting a pro-regulation response in a Commerce Clause case will have to find an essential if-clause unsatisfied. There are two traditional routes to that. Pointing out factual distinctions that prevent checking off a necessary condition is known as “distinguishing” a case. Expanding the list of if-clauses to embrace so many facts that the decision would be repeated only in a precisely identical case is called “limiting the case to its facts,” a step just short of overruling. Post-Granholm litigation involving industry members other than wineries or licensed beverages other than wine is going to be all about making and parrying attempts to distinguish the Granholm decision or limit it to its facts.
One blogger on the Illinois issue described fanciful attempts to distinguish famous civil and criminal rights cases on irrelevant fact differences (school segregation of Hispanics versus African-Americans, etc.), arguing that it would be equally silly to distinguish Granholm on the basis of retailer versus winery. Rights cases like Brown and Miranda, however, contain no suggestion that they turn on such peripheral differences. By contrast, Granholm makes explicit reference to features of wineries, established in the record of lower court proceedings, that support the majority decision.
Three glaring differences between the two producer cases decided in Granholm and the impending retailer cases make the outcome of the latter problematic. First, wineries have a track record of filing shipment reports, excise tax returns, and other compliance documents in multiple states, without creating collection problems. Second, a federal layer of winery regulation means that punishment for violations can be nationwide loss of access to markets, not merely loss of the state whose laws were violated, by action against the basic permit. Retailers do not hold federal basic permits. Third, it seems likely the states will have some factual ammunition to bolster the argument that interstate retailing will present them with sellers that are both much more numerous and less demonstrably law-abiding than wineries.
In Granholm the states relied heavily on a free pass to discriminate when the goods are liquor, with a very sketchy presentation on the need for of discriminatory treatment to achieve regulatory ends. Now that everyone knows location discrimination will have to be justified by demonstrated necessity, the states may make a better factual record. Justification is not easy, but it is certainly not impossible. The Granholm court noted, as an example, Maine’s right to discriminate directly against out-of-state game fish to protect its piscine population against exotic species. The various interests advanced by the states in Granholm were not dismissed as spurious, only as not demonstrably unprotectible by nondiscriminatory means.
So where does that leave non-Illinois retailers wishing to ship to Illinois residents?
There is plenty of comfort for the pro-trade retailer position among the Granholm dicta, but to win a lawsuit simply by citing Granholm, the retailers will have to meet the conditions of the if-clauses the courts see as part of its holding. Failing that, they will have to persuade the courts not merely to apply Granholm, but to extend the holding beyond its facts. In that endeavor, they would be aided by dicta in Granholm, which, though not binding, might encourage judges to take a more expansive view. In particular, the statement that citizens have a right of access to the markets of other states on equal terms contains an echo of lofty principle.
There is no ordained outcome. The next round will depend on how well the parties play the litigation game and the predilections of human beings who decide cases.
Connecticut Revises Consumer Aggregate Volume Limit Rule
September 12th, 2007
The Connecticut Direct Shipping Law has been slightly altered. Wineries with an approved Out-Of-State Wine Shipper’s Permit will be able to ship up to 5 gallons (twenty-five 750 ml bottles) to a consumer every 2 months instead of every 60 days. The change becomes effective October 1, 2007 and should make it easier for wineries to track consumer aggregate volume limits. Under the new law a winery that ships 5 gallons of wine to a consumer on October 12, 2007 cannot ship wine to the same consumer until December 13, 2007. No other Connecticut direct shipping regulations have been changed in any way. Information about how to apply for a CT Out-Of-State Wine Shipper’s Permit is available on the Wine Institute website.
Indiana and Oregon - starkly different paths to wine shipping laws
September 11th, 2007
Wine Spectator Online has a good article that compares the different paths that Indiana and Oregon took in arriving at their new rules. It’s definitely worth a read. Here are some excerpts:
Advocates of direct-to-consumer wine shipments recently scored two points in the win column: Oregon and Indiana. Both states now have more open direct-shipping laws, though they came about in starkly different ways and, unfortunately for Indiana wine lovers, probably face different levels of success in the long term. But for now, consumers in both states can legally receive wine shipments directly from in- and out-of-state wineries.
Because the judge focused on those two particular elements of Indiana’s law, the state’s existing direct-shipping rules remain intact. So long as the wineries are willing to ship and the courier services such as FedEx and UPS are willing to deliver, direct wine shipments to Indiana residents can commence. Unfortunately, however, Indiana consumers can’t count their chickens just yet. Since the law is written to limit individual households to 24 cases per year rather than the wineries themselves, the wineries have no way of knowing if they’ll be sending, say, the 25th case to a particular Indiana resident, and therefore violating the law. It’s a risk some wineries are willing to take-but not all of them.
Click here to read the full article.
Virginia Out-of-State Winery Shipper’s Application Checklist
September 6th, 2007
The Shipper’s application is titled “Retail License Application Parts I and II” (rev. 06/2007).
Please follow the steps below to ensure your application can be processed and approved in a timely manner. Applicants must have already completed the VA Sales Tax Application and received a VA sales tax number.
RETAIL LICENSE APPLICATION - PART I
- Specify type of license applied for as “Wine Shipper Out-of-State” (question 8 )
- Select “Shipper” as Type of Business (question 15)
RETAIL LICENSE APPLICATION - PART II
- Specify type of license applied for as “Wine Shipper “Out-of-State” (question 2)
- Questions 4-5 and 7-9 are not applicable
- Question 6 requires a “general statement” only
- Only 2 parts of question 10 apply. Attach a copy of the FEIN certificate and a copy of your VA sales tax certificate.
- Question 18 is not applicable
- Posting and Publishing and ABC Notice Sections are not applicable (pages 9-11)
Attach the following documents to your application:
- Charter for your corporation or LLC
- Articles of Incorporation for your corporation, or Articles of Organization for your LLC
- Alcoholic beverage license from your state, if applicable
- Copy of Federal alcohol basic permit
- The completed personal data sheet, as found in the application, for each officer, director, or shareholder owning 10% or more of the stock. Although a criminal history is not required, the completed sheets for all of the above persons are necessary to complete the process
- Brand names of product for shipment
- If shipping products from other than your winery, letter giving approval for shipment from brand owner
- If your product is already sold in Virginia, letter to Virginia wholesaler(s) currently distributing your product informing them of your application for a license
- Federal COLA (Certificate of Label Approval) for each brand you intend to ship, if not already a brand being sold in Virginia
- The license tax per year is $65.00, which is in addition to the application fee of $65.00.
Parts of Indiana law declared unconstitutional. Can I ship there now?
September 4th, 2007
Earlier this year, we discussed the “new vintage” of wine litigation that was taking place across the country. As background, since the 2005 Granholm decision, the wine wholesale lobby has recognized that they must pick their battles, and therefore concede the ability for wineries to ship directly to consumers in most states. Recognizing they would be hard pressed to pass legislation that would prohibit direct shipping outright, they instead began introducing provisions in direct shipping bills that created de facto discrimination.
Two such examples could be found in the text of Indiana HB 1016. The first was a previous visit requirement in Indiana that said a Hoosier resident must first make a physical visit to a winery before placing an off-site (Internet, wine club, phone, etc.) order. The second was a ridiculous requirement that prohibited wineries that were permitted in their state to wholesale wine (this is the case in California, Washington, and Oregon, which represent 90% of the wine produced in this country) from obtaining a Direct Wine Seller’s Permit.
On Wednesday, Judge John Daniel Tinder of the U.S. District Court in the Southern District of Indiana ruled on these forms of discrimination in Baude v. Heath.
IT IS THEREFORE ORDERED, ADJUDGED, AND DECLARED that the Indiana Code Section 7.1-3-26-7(a)(6) is unconstitutional insofar as it bars wineries that possess wholesale privileges in states other than Indiana from seeking a Direct Wine Seller’s permit. Defendant David L. Heath, in his official capacity as Chairman of the Indiana Alcohol and Tobacco Commission, is ENJOINED from enforcing this statute to that extent.
IT IS FURTHER ORDERED, ADJUDGED, AND DECLARED that Indiana Code Sections 7.1-3-26-6(4) and 7.1-3-26-9(1)(A) are unconstitutional insofar as they require an initial transaction to be made physically in person between customers and permit holders before a Direct Wine Seller permit holder may ship its products directly to an Indiana resident. Defendant Heath, in his official capacity as Chairman of the Indiana Alcohol and Tobacco Commission, is ENJOINED from enforcing these statutes to that extent.
In the decision, Tinder even went so far as to say “The wholesale prohibition is not aimed so much at protecting Indiana’s wineries as it is at guarding the bank accounts of Indiana’s wholesalers.” Wow! These forms of discrimination can no longer be part of the wholesaler arsenal because they violate the Commerce Clause of the U.S. Constitution.
This is a very important decision, and many are rightfully celebrating the victory for wineries and consumers. However, a major roadblock to shipping wine into Indiana remains in place. HB 1016 stipulates that “A consumer may not receive more than two hundred sixteen (216) liters of wine in total from one (1) or more direct wine sellers in a calendar year.”
As we’ve discussed before, most wineries will continue to choose not to ship to Indiana consumers because they can’t possibly know if the consumer has already received their 24 case allotment. FedEx and UPS will continue to ship to Indiana, and some wineries will likely assume the risk and ship to Indiana consumers anyway. But the majority of wineries will opt out until the Indiana ABC clarifies their enforcement policies on this matter. Hopefully the Indiana legislature will address this issue directly in the next session.
Litigation and legislation battles continue in other states that will further shake up the wine shipping landscape. For example, in Family Winemakers of California v. Jenkins, the Family Winemakers seek to overturn the Massachusetts provision that prohibits wineries that produce more than 30,000 gallons from receiving a direct shipping permit. Massachusetts also has a law similar to Indiana where a MA resident may receive no more than 240 liters across all wineries.
Click here to read the full Baude v. Heath Opinion
