Untangling the complex world of wine direct shipping and compliance
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Possible Effects of Recent Congressional Hearing on Direct Shipping

April 6th, 2010
By Cary M. Greene, Esq., Chief Operating Officer & General Counsel, WineAmerica

You may have seen reports about a recent U.S. Congressional subcommittee hearing on “Legal Issues Concerning State Alcohol Regulation.” The hearing was important for anyone concerned about direct-to-consumer wine shipping since a primary question was whether federal courts should be stripped of their authority to strike down state alcohol laws that discriminate against out-of-state businesses—the very issue at the heart of the Supreme Court’s decision in Granholm v. Heald.

Congressional hearing
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The hearing followed a reportedly aggressive lobbying campaign by the National Beer Wholesalers Association (NBWA). The common speculation is that NBWA is concerned that large retailers and global brewers are trying to put beer wholesalers out of business, and that litigation over self-distribution—Costco v. Hoen and a recent lawsuit in Illinois over whether Anheuser-Busch can obtain a wholesaler permit—is a particular threat to their state monopoly pricing power. The undertone of the NBWA effort is that the industry needs to return to a simpler time when the 21st Amendment meant what the wholesale tier thought it did, before the Supreme Court had a chance to weigh in and reset the balance.

While the wine industry has not always benefitted from court decisions, the federal circuits and the Supreme Court have for more than 40 years consistently sought to weigh the interests of states and the market carefully when examining state alcohol laws. Under this court precedent, states have broad authority under their police powers—their ability to protect the public—and the 21st Amendment to regulate the movement and sale of alcohol beverages. But they cannot use state power to discriminate against interstate commerce or to protect in-state monopoly behavior. Despite NBWA’s apparent beliefs to the contrary, there is no evidence that courts have abused their power of judicial review in any way that would justify the blunt reconfiguration of the relationship between federal and state law.

Not that all the state regulators who testified at the hearing would agree. The chairman of Michigan’s Liquor Control Commission offered completely unsubstantiated testimony that because of litigation, direct shipping is a free for all, allowing out-of-state wineries to deliver wine into Michigan on the “honor system,” and resulting in the loss of millions in uncollected tax revenue. This position is questionable since in the wake of Granholm states have more aggressively regulated shipping and have established comprehensive systems of licensing and compliance.

Apart from the fact that state licensing systems make it easier for states to determine whether alcohol is contraband—wine can only be shipped by licensees—Michigan has at least two substantial hammers to ensure their state direct shipping laws are followed. The 21st Amendment Enforcement Act allows states to file for federal injunctions against out-of-state businesses that ignore their laws, and Alcohol Tobacco Tax & Trade Bureau (TTB) policy provides TTB authority to punish federal basic permittees, such as wineries, that violate state law.

Whether the subcommittee hearing will lead to legislation is anyone’s guess. But should a new federal law along the lines sought by NBWA come to fruition, the impact could be substantial for winery direct-to-consumer shipping. States would be free to rewrite their laws to discriminate against out-of-state wineries and subsidize local monopoly behavior. Such a federal law would be an open invitation to roll back the gains wineries have spent nearly two decades fighting to achieve.

2 Responses to “Possible Effects of Recent Congressional Hearing on Direct Shipping”

  1. [...] 2010 By Jeff Carroll – VP of Compliance, ShipCompliant As expected, the Congressional subcommittee hearing on Legal Issues Concerning State Alcohol Regulation has been followed by a House bill. H.R. 5034 was introduced yesterday by Representative Bill [...]

  2. [...] Wholesalers of America colleague Karin Moore’s spirited defense of H.R. 1161. After all, I was quoted on this blog last year as saying about H.R. 5034, the virtually identical predecessor of H.R. 1161, [...]

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