Posts from the Litigation Category
A Little Knowledge Is Not Enough: Evidentiary Burdens In On-Site Cases
August 10th, 2008
The August 7th decision of the Court of Appeals for the Seventh Circuit in Baude v. Heath has been characterized as a loss in the fight against on-site purchase requirements. Indeed, the opinion leaves Indiana’s initial personal visit requirement in place. That is not, however, the whole story.
It’s important to keep in mind in reading the opinion that the Court of Appeals is affirming the lower court’s granting of summary judgment against the state on one point and reversing it on another. That is, the district court had decided no trial was necessary because uncontested facts established the unconstitutionality of both the wholesale licensee ban and the initial on-site visit requirement. The appellate court agreed with the former conclusion and disagreed with the latter.
Statutes that openly discriminate against out-of-state wineries are almost always unconstitutional and provide fit subjects for summary judgment. Statutes without openly discriminatory provisions, but whose effect in practice is to impose a greater burden on out-of-state wineries than on local wineries, may be unconstitutional, depending (in the locution of the leading case) on whether the burden is “clearly excessive in relation to the putative local benefits.”
That determination of excess is at the heart of the 7th Circuit opinion. The appellate court had little trouble in concluding that the kinky ban on shipment by wineries that had direct distribution rights anywhere provided virtually no benefits, except to wholesalers, and was substantially burdensome. Because uncontested facts in the district court demonstrated exclusion of a substantial number of out-of-state sellers, the plaintiffs had met their burden of showing discriminatory harm to interstate commerce, shifting the obligation to produce evidence to the defendants. The state and wholesalers had offered only one intelligible counterargument –the claim that requiring commerce to go through a local middle tier makes it easier to monitor sales and collect state excises. We can keep Baude v. Heath in the column of cases that do not consider that claim a substantial justification for demonstrated burdens on commerce.
In the other (and more important) half of the 7th Circuit opinion, the same burden-benefit analysis reached a different conclusion with respect to the supposed economic consequences of Indiana’s requirement that the consumer travel to the winery site before receiving the first direct shipment order. Faced with a contention that such a burden is inherently excessive, the chief judge offered some unvarnished advice to plaintiffs’ counsel: “It is impossible to tell whether a burden on interstate commerce is [excessive] without understanding the magnitude of both burdens and benefits. . . . . Exact figures are not essential (no more than estimates may be possible)[,] and the evidence need not be in the record if it is subject to judicial notice, but it takes more than lawyers’ talk to condemn a statute . . . .” In other words, you can’t litigate a burdening case as if it were a case of overt facial discrimination. See Notes on Wine Distribution, pages 8-10, for my discussion of that point and of Cherry Hill Vineyard (which was cited in Baude) and similar cases.
Regarding judicial notice (which occurs when a court accepts something, such as a tide table, as true from published sources, without live testimony), courts seldom take notice of controversial facts. That point came up when the chief judge, sounding a bit offended by plaintiffs’ argument that there was no point in having a face-to-face screening system because determined underage purchasers would defeat or circumvent it, declined to take judicial notice of propositions they advanced in support. Plaintiffs cited some studies and attempted to use an on-line ID check provider’s advertising to show on-site screening is unnecessary. The appellate court wasn’t having it and noted that “it would be awfully hard to take judicial notice that in-person verification with photo ID has no effect on wine fraud and therefore flunks the interstate commerce clause.”
Thus, although delivery requirements involve face-to-face proof of age, Baude stands for the proposition that plaintiffs would have to prove that carrier screening undercuts the enforcement benefit of the initial winery site requirement. The appellate opinion refers to Rowe v. New Hampshire Motor Transport Ass’n, a case involving a specific tobacco-regulating statute, as forbidding states to require carriers to check age of persons receiving intoxicating liquor. That is, I believe, an egregiously wrong reading of the case (see blogging on both sides of the issue here), but the opinion does not rely on it. Rather, it describes the face-to-face transaction between carrier employee and recipient of the shipment as facially inferior to age screening at a winery, to a degree that allows the state to treat the former as inadequate. As with economic effects, plaintiff evidence was, in the court’s view, simply absent on the efficacy of at-delivery age screening: “Given the state of this record, and the state of the empirical literature, we know very little.” The take-away is that before you can knock down a duly enacted state statute, you need to know –and show– rather a lot about its discriminatory effects.
The primary importance of Baude is to add weight to an already substantial body of judicial opinion that suits based on a facially neutral law’s burdensome effects on interstate commerce relative to local commerce have to be tried quite differently from suits like Granholm, which was based on overt and explicit discrimination against interstate commerce. The case does not say that the face-to-face law would prove constitutional in a properly presented case, only that it was wrong to conclude that its unconstitutionality was so clear as to require no presentation of quantitative evidence on its burdens.
Reversing a grant of summary judgment does not require that the lower court enter summary judgment for the other side. Rather, it provides guidance to the district court as to evidentiary requirements if the case goes on to trial, and leaves the statute in place if there are no further proceedings below. The plaintiffs’ burden of proof in Baude is substantial but not unsupportable. It ain’t necessarily over.
7th Circuit Reverses Indiana Face to Face Ban
August 8th, 2008
The 7th Circuit Court of Appeals made an important decision yesterday regarding face-to-face transactions when shipping wine directly to Indiana consumers. After Indiana initially passed its direct shipping laws to comply with Granholm, the face-to-face requirement was successfully challenged in August of 2007. However, yesterday’s decision will eventually reverse the face-to-face clause.
None of the plaintiffs contends that Indiana’s law has led him to buy more wine from Indiana and less from other states. The law simply shifts sales from smaller wineries (in all states, including Indiana) to larger wineries (all of which are located outside Indiana). The Indiana Winegrowers Guild has filed a brief as amicus curiae opposing the face-to-face clause, which the Guild maintains has made it unduly difficult for its members to ship their wine direct to consumers. But if what the Guild says is
true, then the statute—although bad economically for Indiana’s wineries—must be sustained against a challenge under the commerce clause. Favoritism for large wineries over small wineries does not pose a constitutional problem, and the fact that all Indiana wineries are small does more to show that this law’s disparate impact cuts against in-state product than to show that Indiana has fenced out wine from other jurisdictions.The judgment of the district court with respect to the wholesale clause is affirmed, and with respect to the face-to-face clause is reversed. The case is remanded for the entry of a judgment consistent with this opinion.
We expect to receive clarification from the lower court or from the Indiana ABC on how current and future permit holders can comply with the existing statutes. We’ll update you here as we receive more information.
Woman of the Hour - Tracy Genesen
August 7th, 2008
Tracy Genesen of Kirkland & Ellis, LLP is one of the prominent forces currently driving legal change in the wine industry and was the keynote speaker at ShipCompliant’s 2008 Users Conference a few weeks ago.
Genesen’s speech analogized her role in the industry to a “court of last resort” when legislative means are unsuccessful in remedying protectionist state laws that have remained in effect despite the Granholm ruling in 2005. Granholm resolved many instances of differential treatment by the states and was extended to apply to self-distribution in the Costco ruling. However, Genesen revealed that the post-Granholm time of prosperity has given way to another host of problems. For example, states like Maine and Arkansas, in which direct shipping markets do not exist, have level playing fields; however, treating everyone the same by not allowing anyone to ship is a detriment to the wine industry. In addition, courts are struggling to deal with retail-to-consumer shipping laws in many states. Challenges to these laws have produced interesting results, like the “funky remedy” by a district court judge in a Texas lawsuit which declared that Granholm applied to retailers, but that retailers must first buy wine through Texas-licensed wholesalers. Wholesalers have also maintained their grip on states like Massachusetts by crafting legislation that is beneficial to them but also facially neutral. The 30,000 gallon capacity cap in Massachusetts exemplifies such economic protectionism and is the contention in the Family Winemakers of California case. Oral arguments in the case took place on July 29th in Boston and the decision is expected sometime this fall.
Many thanks to Tracy Genesen for sharing her insights into the current legal atmosphere of the industry. To view Genesen’s speech in its entirety or that of any of the other speakers at the conference, please see the 2008 Users Conference Simulcast. More information on the cases in Massachusetts and Texas is also available on the ShipCompliant Blog.
Family Winemakers of California Making Headway in Massachusetts
June 15th, 2008
On May 29, 2008, Family Winemakers of California filed a motion for summary judgment in Family Winemakers of California v. Jenkins, now before the federal district court for Massachusetts. The suit alleges that section 19F, the Massachusetts law that permits direct-to-consumer wine shipping, is unconstitutional because it “unequivocally discriminates against interstate commerce in both purpose and effect” by limiting direct shipment privileges to wineries annually producing no more than 30,000 gallons. The motion asks the court to declare that discrimination unconstitutional and requests that the court allow section 19F to remain in force, but enjoin Commonwealth of Massachusetts officials from applying the volume cap.
Section 19F was modified to replace a prior Massachusetts local-only direct shipping law, which was found facially discriminatory and invalidated in Stonington Vineyards, Inc. v. Jenkins. The current motion argues that the new text in section 19F was simply a more subtle means to accomplish the same protectionist ends. The bill that amended 19F was vetoed by Governor Romney, who declared that the measure would not cure the previous law’s deficiencies. The Massachusetts legislature, however, overrode his veto and signed the bill into law, setting the stage for judicial determination of which side was right.
Section 19F as amended creates a two-classification system based on the size of the winery’s annual production and wholesaler relationship. Section 19F(a) presents a choice for wineries producing more than 30,000 gallons annually –in effect, they can ship directly to consumers or have wholesaler representation. Wineries producing no more than 30,000 gallons annually can ship directly to consumers while also maintaining a relationship with a wholesaler.
Family Winemakers of California’s summary judgment motion alleges that the “large” wineries are primarily out-of-state and that section 19F, though facially neutral on location, is in intent and effect protectionist and discriminatory. Moreover, the law specifically dictates that fruit wine does not count toward the gallonage cap; the motion argues that a much larger portion of wine produced in Massachusetts is fruit wine than wine produced elsewhere, enhancing the discriminatory effect.
Unsurprisingly, Massachusetts has filed a cross-motion for summary judgment in response, arguing that section 19F is facially-neutral, not discriminatory, and less restrictive than similar laws in other states that have been upheld. The Commonwealth’s motion requests that the court join the courts in Maine, Kentucky, and Arizona which have left production caps in effect in their respective states. An amicus brief filed by the Wine & Spirits Wholesalers of Massachusetts also supports the 30,000-gallon production cap. A key problem with challenges in other states has been the lack of economic evidence supporting discriminatory effects; the current motion attempts to bypass that requirement, in part on the grounds that the previous flat ban on out-of-state direct shipment prevented compilation of economic evidence, excusing the plaintiff from a burden of proof it could not meet because of the defendants’ unlawful conduct.
Oral argument is scheduled for July 29, 2008. If the court determines that a genuine issue of material fact does not exist as outlined in either of the individual motions, the court will grant the motion of the party whose legal argument It finds persuasive. However, the court could deny both motions and rule that evidence is required to resolve issues of fact.
If the court grants the plaintiff’s motion, the resulting injunction enjoining Massachusetts from enforcing the capacity cap and the wholesaler relationship restriction of 19F would, in theory, open the state to shipments from out-of-state wineries. However, obstacles to direct shipments into the state might persist. For example, the decision would not directly affect current carrier policies; FedEx and UPS could continue to refuse to ship to Massachusetts. In addition, an injunction might not resolve issues apart from the volume cap, such as how individual importation limits would be enforced by state officials.
Whatever its outcome, Family Winemakers of California v. Jenkins will serve as an important precedent on the constitutionality of capacity caps. In particular, a plaintiff’s victory on summary judgment would significantly lower the evidentiary bar for challenges to thinly-veiled protectionist measures presented as facially neutral.
An Accident On The Way To Court
March 25th, 2008
The February 26, 2008 decision by an Arizona federal district court in Black Star Farms LLC v. Oliver supports an in-person purchase requirement, one of the principal legislative attacks on the level-field principle enunciated in Granholm.
In-person purchase as a precondition to direct shipment solves a fundamental political problem for the middle tier. Although Granholm allows states to eliminate discrimination against interstate direct shipment by forbidding in-state shipment, pursuing that “level down” strategy requires extravagant expenditure of political capital, because it constitutes a death sentence for a significant fraction of local wineries. Thus, wholesaler trade associations are faced with reconciling survival of direct shipment for local wineries with the core objective of forcing wineries in other states to go through three tiers, a conceptual problem after Granholm.
The solution is the “accident of geography” theory, which contends that the impracticality of, e.g., an Arizona consumer’s visiting a Yakima Valley winery to place an order for a wine advertised on the Internet, compared to the convenience of visiting an Arizona winery for the same purpose, does not discriminate against interstate commerce. The Black Star court, like a New York federal district court in Buy Right, Inc. v. Boyle and a Tennessee federal district court in Jelovsek v. Bresden, appears to have bought the theory; federal district courts in the Kentucky case, Cherry Hill Vineyards, LLC v. Hudgins, and the Indiana case, Baud v. Heath, rejected it. Appeals are reportedly under way in the fourth, sixth and seventh federal circuits; if the plaintiffs appeal in Black Star, the ninth circuit will also be involved.
At first impression, the wholesalers’ argument does not seem logical. With respect to governmental restrictions, the Commerce Clause is supposed to provide equal access to markets for interstate commerce originating in any location. True, it does not require states to neutralize natural effects of geography, such as the greater cost of shipping from a distant point, but the trade restriction in question arises from the legislative pen, not from geography itself. For legislation, the Commerce Clause supports location parity by voiding state enactments with substantial discriminatory effects, including the effect of leveraging location advantages of local businesses against distant competitors.
Ironically, the court in Black Star appears to have recognized that aspect of the Commerce Clause, as it cited a 1994 Supreme Court case on the subject, C & A Carbone, Inc. v. Clarkstown, which invalidated a facially neutral city ordinance requiring all nonhazardous solid waste received and processed in the town to be deposited at the defendant township’s transfer station. The fatal flaw of the Clarkstown ordinance was that in practice it favored local waste management business to the exclusion of all non-local competition, which sounds pretty similar to a three-tier requirement for out-of-state businesses, but the Black Star court decided not to follow that precedent for reasons that are difficult to divine in its opinion.
There is, nevertheless, a solid basis for the anti-trade result in Black Star and other recent cases, which is widely (and perhaps erroneously) understood as endorsement of a geographic accident defense to Granholm-based suits. If there were only one message I’d want readers of these blogs and Notes on Wine Distribution to take away from discussion of Granholm, it would be the enormous evidentiary difference between a facial discrimination case like Granholm itself and a de facto discrimination case like Black Star. The latter category, which includes challenges to volume caps as well as to on-site limitations, requires much more extensive preparation, with economic expert testimony, to satisfy the plaintiffs’ substantial burden of proof. The Black Star judge underlines that point in refusing to reach the same result as Hudgins and Baude: “However, Plaintiffs proffer no evidence to suggest that such a limited exception, applicable to both in-state and out-of-state wineries, erects a barrier to Arizona’s wine market that in effect creates a burden that alters the proportional share of the wine market in favor of in-state wineries, such that out-of-state wineries are unable to effectively compete in the Arizona market.” Providing the kind of evidence the court would have to see before invalidating a facially neutral statute adds something like $150,000 on top of all the other costs of the litigation, which should be a sobering, but not surprising, fact for enthusiasts of law reform by litigation, and especially for those who think Granholm provides a lay-down slam in direct shipment cases.
Tennessee Wholesalers - Crossing the Line?
March 24th, 2008
There are a couple of direct shipping bills in the Tennessee legislature that would allow Tennessee consumers to order wine from any winery or retailer in the country, with some of the regular restrictions. This would be a big deal, considering direct shipments into Tennessee have not been allowed from any state in recent history. However, what would normally be a run-of-the-mill direct shipping bill has turned into a subject of controversy over actions taken by Tennessee wholesalers to sway public opinion of the bill.
Wine Spectator Online reports that Tennessee wholesalers have been sending direct-mail and online initiatives to Tennessee residents, saying that SB 1977 and its counterpart, HB 1850 are a threat to Tennessee’s youth and asking them to sign a petition for children to come first. Jackson, one of the authors of the bill, has notified the Tennessee ethics commission of the wholesalers’ intent, saying that this is illegal lobbying because the direct-mail and online initiatives say nothing about being funded by the Tennessee wholesalers. He argues, “[those who view the teen drinking initiatives] think it’s some sort of philanthropic organization that’s concerned about youth consumption of alcohol. But the populous is deprived of the ability to find out who’s really behind this campaign” and that the bill wouldn’t increase availability of wine to minors. Tom Wark of the Specialty Wine Retailers Association issued a press release about Tennessee SB 1977 and has this to say about minors obtaining wine via direct shipping:
The Supreme Court of the United States and the Federal Trade Commission both looked at the issue and determined that minors are highly unlikely to use direct shipping to obtain wine. No state that allows direct shipping has reported even a small problem with minors accessing wine via direct shipping.
That being said, we should focus on what is really important about this bill: consumer choice. If passed, SB 1977 would allow permitted wine manufacturers, producers, suppliers, importers, wholesalers, distributors and retailers to ship wine directly to Tennessee residents. Permitted shippers could ship no more than 18 liters per year to an of-age Tennessee resident in a “wet” area. The permitted shipper would have to pay a $100 application fee, a $50 annual license fee, and pay sales and excise taxes on all shipments.
Kill the Bill: Maryland and Direct Wine Shipping
March 19th, 2008
Maryland continues to be one of six states in which direct shipping is completely prohibited. In a previous post we reported that HB1260 and SB616 were favorable direct shipping bills in Maryland’s current legislative session. Both of these bills died in committee. If passed, they would have allowed permitted wineries and retailers to ship directly to Maryland residents. Though the bill was widely supported, the Licensed Beverage Distributors of Maryland argued that the bill would “hurt Maryland wineries, reduce distribution-related jobs in the state, hamper tax collection and make it easier for minors to obtain alcohol” (as reported in the Baltimore Sun), “It’s always a tough fight when a majority of people stand up for the common good against entrenched special interests”
Wine Distribution Notes - Release 26
March 6th, 2008
Release 26 of Notes on Wine Distribution by R. Corbin Houchins is now available for viewing.
These notes are a great resource for keeping up to date with developing trends in direct shipping and direct distribution. As always, you can find the most recent version of these notes at the ShipCompliant Blog by clicking on the “Wine Distribution Notes” link under “Compliance Resources” on the right hand side of the page.
Each new release shows green highlighting on sections with changes from the preceding release. Release 26 highlights changes from the last two releases: highlights from release 25 include updates to Alaska, Maryland, New Mexico and Tennessee. Highlights from release 26 include updates to Florida, Indiana, and others. Read the notes to find out what else is new.
Another Rowe to Hoe
February 25th, 2008
There’s been a lot of silliness lately about the Maine cigarette case, with some observers declaring that the recent Supreme Court opinion in Rowe v. New Hampshire Motor Transport Ass’n prevents states from regulating carrier deliveries of interstate wine shipments. Whether honest mistake or disinformation, that assertion might seem plausible from a superficial reading of news reports on the decision, so it’s worth looking into.
This Rowe is a straightforward federal preemption case, affirming a Court of Appeals decision (itself based on a well-known 1992 Supreme Court decision) that a federal statute with a specific preemption clause does just what it says. Enacted in 1994, the motor carrier statute provides: “[A] State . . . may not enact or enforce a law . . . related to a price, route, or service of any motor carrier . . . with respect to the transportation of property.” The Maine law struck down as inconsistent with the federal statute attempted to prevent shippers from using interstate motor carriers lacking controls to prevent delivering cigarettes to minors, an objective the justices found worthy, but within the exclusive province of the federal congress.
Why doesn’t that knock out state laws restricting delivery of wine to minors? In the first place, there is a more specific federal statute dealing with alcoholic beverages, which provides: “The shipment or transportation … of any … intoxicating liquor … from one State … into any other State … intended … to be received … in violation of any law of such State … is prohibited.” In other words, federal law specifically authorizes state laws regulating deliveries of wine and adds federal weight to their enforcement. One cannot argue that the liquor statute, passed in 1935, is impliedly repealed by the 1994 motor freight legislation, because they do not exhibit the kind of irreconcilable conflict that evinces congressional intent to repeal the older statute. Well-settled principles of statutory construction in cases of conflict prohibit implied repeal if reconciliation is possible and provide that facially conflicting statutes can be reconciled by allowing the more specific to govern over the general in its particular subject area. Thus, if we had only the two statutes to consider, rules of statutory construction would require that the 1935 act remain in force as a subject matter exception to the more general 1994 enactment. One could quibble about the extent to which states are authorized to dispense with an intent requirement, but there’s no doubt that the federal statutory scheme leaves room for state laws controlling wine deliveries.
It is not, however, merely a matter of two statutes. The second problem with the Chicken Little reading of Rowe is a clincher. The U.S. Constitution states, “The transportation or importation into any State, Territory, or possession of the United States for delivery or use therein of intoxicating liquors, in violation of the laws thereof, is hereby prohibited.” There is no need to resort to implied congressional intent. The Supremacy Clause says that the U.S. Constitution itself and the laws of the United States shall be the supreme law of the land, a provision that is interpreted to mean, “in that order.” Thus, the same clause that underlies preemption of the Maine cigarette delivery law by a federal statute absolutely prevents preemption of a state wine delivery law by that congressional enactment, provided the state law does not violate some other constitutional provision, e.g., by discriminating against wine produced by persons of a certain race or religion –or by a winery outside the state.
Costco Asks Court of Appeals to Think Again
February 21st, 2008
On February 19, 2008, Costco Wholesale filed a petition for rehearing in the Ninth Circuit Court of Appeals, asking the original panel to reconsider a three-judge panel’s decision of January 29th, which upheld the ruling of a federal district court in Seattle that Washington’s price posting requirement is invalid under federal antitrust law, but reinstated other parts of the price posting statute the district court had struck down as part of the invalid statutory scheme, as well as the ban on central warehousing. The petition also asks that the entire appeals court hear the case if the original panel does not grant Costco’s request, in view of the importance of the antitrust issues, the inconsistency of the result with those in an earlier Ninth Circuit case and a recent Fourth Circuit case, and the necessity to interpret a leading Supreme Court opinion. The petition offers a clue to how an appeal to the Supreme Court might be structured.
Six Veils Out of Seven: Retailer Shipments Under Granholm
January 30th, 2008
On January 14, 2008, a district court in Texas rendered a mostly pro-trade decision in Siesta Village Market, LLC v. Perry that clarified much, but danced around the hottest issue, leaving the final veil in place.
The case upholds the basic Specialty Wine Retailers contention that a state that allows its retailers to deliver to consumers must permit direct shipment by out-of-state retailers. It also has some important things to say about the meaning of Granholm’s less pellucid passages. In particular, it attempts to deal with the most significant internal tension of the Granholm majority opinion, viz., the difficulty of squaring the holding of the opinion, that states cannot require out-of-state wineries to become residents as a condition to reaching local markets, with a dictum-within-a-dictum quoted from a 1990 Supreme Court case, North Dakota v. United States, to the effect that the 21st Amendment empowers states “to require that all liquor sold for use in the State be purchased from a licensed in-state wholesaler.” (For an explanation of the difference between holdings and dicta, see the blog post, Discrimination Against Out-of-State Retailers After Granholm).
The Siesta Village decision and its implications merit further discussion, in particular on the following points:
1. Texas had a “citizenship” requirement of at least a year’s residence in the state for most licenses. It had already been declared unconstitutional when applied to newly arriving wholesalers with physical premises within the state. Siesta Village goes farther by analyzing the statute as a location requirement and holding it unconstitutional on Commerce Clause grounds, to the extent it prevented issuance of the requisite retailing licenses to out-of-state retailers.
2. The Siesta Village judge takes Granholm as a location parity case, and his opinion is explicit that physical presence requirements “plainly discriminate against interstate commerce.” However, like every analyst of Granholm, he had to deal with a key question posed by the quotation from North Dakota, noted above: If a state has the right to require all wine to “be purchased from a licensed in-state wholesaler,” how does one give effect to the Commerce Clause policy against location discrimination? One way of resolving the issue is to require the state to accept methods of consummating the purchase requirement that do not substantially burden interstate commerce relative to local, such as running the sale through the local middle tier without requiring the wine to take an economically disadvantageous logistical path when sold by an out-of-state retailer. Another is to declare that the quotation is dicta and therefore not binding in applying the Granholm holding to a different chain of distribution where its effect on commerce is more problematic –rather too bold a departure to expect in a district court opinion. In the event, the judge simply let the contradiction lie, holding that the retailers have to comply with Texas laws requiring a state retail license and purchase from a Texas-licensed wholesaler, a deferral that has been described as a ticket to the next round of litigation. Meanwhile, the Texas Alcoholic Beverage Control Commission has informally commented that it is not their problem.
3. Experts disagree on the extent to which Granholm was a “weak record case” that could have gone the other way had the states made a better showing of regulatory problems, for example in tax collection and averting deliveries to underage recipients. Siesta Village takes the opposite view, and granted summary judgment, which means the court decided Texas failed to show substantial likelihood that, if it were afforded a full hearing, it would present evidence on which a judgment in its favor could be based. To win in a direct discrimination case a state would have to show there is no reasonable alternative to discrimination for achieving legitimate regulatory objectives. The court reads Granholm to say that the availability of licensing and modern communications makes such an argument inherently implausible, and comes close to saying a state can never prevail on the proposition that interstate delivery is more likely to cause underage drinking than intrastate delivery.
4. Another point of controversy among lawyers is whether the Commerce Clause is indifferent to whether a court cures discrimination by leveling up or down. Siesta Village takes the side of those who argue that it makes no sense to level down in enforcing a constitutional provision intended to encourage interstate trade, at least in the absence of a clear legislative statement requiring termination of in-state privileges in case of invalidity of interstate prohibition. In constitutional law terms, the Siesta Village judge may have discovered a penumbra to the Commerce Clause that would prevent courts from taking such simplistic approaches as counting the number of lines of statutory text that would have to be rewritten and picking the smaller revision.
5. Although Siesta Village rejected the wholesalers’ strange argument that the discrimination arose not from Texas’s intent, but from the happenstance of the plaintiffs’ locations, it indulged in dicta indicating states can adopt on-site-only laws, in which case the “accident of geography,” and not state discrimination, would be responsible for excluding remote sellers. It appeared to accept the reasoning that because there is no “direct shipment market” in those states, the remote sellers are not excluded from anything by the prohibition, which is arguably a flawed argument under the Commerce Clause, whose policy extends to disproportionate burden as well as overt discrimination.
Appeals seem likely. Meanwhile, the parties in Knightsbridge Wine Shoppe, LTD v. Jolly, who agreed to extend Granholm, at least temporarily, to non-producing retailers selling to California consumers, will presumably take up their cudgels on application of the Siesta Village analysis, versus that of the New York case, Arnold’s Wines, Inc. v. Boyle on September 9, 2007. In Arnold’s Wines, the New York federal district court dismissed a retailer suit without an evidentiary hearing, on the grounds that the state had a 21st Amendment right to require all sales to go through an in-state wholesaler, a proposition suggested by the vexing dictum in the Granholm opinion.
The Arnold’s Wines decision seems to miss Granholm’s point that a state may have the right to require all wine to go through three tiers, but does not have the right to apply its rule with location discrimination unless it provides evidence that its discrimination against interstate sellers is required by a legitimate state objective that cannot be achieved through nondiscriminatory means. The Siesta Village judge expressly declined to follow Arnold’s Wines, which it plausibly characterized as putting the 21st Amendment above the Commerce Clause, precisely what Granholm forbids.
Dulling the Cutting Edge
January 30th, 2008
Yesterday’s decision of the Ninth Circuit Court of Appeals rejected almost everything about the trial court’s decision in Costco Wholesale Corp. v. Hoen that was innovative under federal antitrust law, turning the case into an expression of conservative deference to state law.
Appellate judges did not even throw Costco the scrap of a favorable word about the Granholm portion of the judgment, on which the state had already acquiesced by changing its statutory scheme to eliminate discrimination against out-of-state manufacturers. A small mitigating factor for trade in wine is that the Ninth Circuit did not attempt to expand the effect of the 21st Amendment , leaving in place both the district judge’s definition of the supposed Section 2 defense and her finding that it had not been proved.
The immediate effect of the decision, once a mandate is issued to the district court, will be threefold: (1) Washington will have to stop requiring suppliers to post prices and hold them unchanged for 30 days without actively supervising them for reasonableness, a practice the court agreed constitutes a per se violation of federal antitrust law. (2) The state may nevertheless enforce other restraints that have operated as part of the price posting scheme, i.e., the bans on quantity discounts and credit, the minimum 10% markup and the requirement that suppliers charge all retailers in the state the same price, irrespective of the point of delivery. (3) The state may also continue the two challenged restraints of trade operating only indirectly on price, the bans on central warehousing and on sales between retailers. It seems likely the mandate will take effect in due course, as there is no reason to expect the Court of Appeals to entertain a request for rehearing, and the odds are against the Supreme Court’s accepting the case for review, should a party attempt to appeal.
Practical compliance with the opinion will raise interesting administrative issues on which the Court of Appeals offered no guidance. The first unanswered question is, assuming the state wishes to retain the allowed price restraints, how it could operate a price posting system without the illegal “hold” requirement? Would some hold period significantly shorter than 30 days be legal? If not, how could one administer an instantly revisable posting? If there is can be no mandated time period for holding a price, can a uniform price rule apply to any transactions that are not exactly contemporaneous? Assuming posting is out for practical reasons, liquor price law enforcement would be mostly on the same footing as enforcement of trade laws generally, requiring investigation and often relying on competitor’s complaints, a scenario that invites cost-benefit analysis of interfering in a marketplace that is already regulated under general antitrust and fair competition laws.
All those uncertainties arise at a time when the Washington State Liquor Control Board is considering freer trade policies and some wholesalers are becoming less ardent in their support of post-and-hold price restraints. The state legislature is in a short session currently, with relatively little opportunity for profound and controversial changes in a major regulatory scheme, but the anomalies created by the Costco case suggest an attempt at a legislative fix, possibly including consideration of jettisoning the posting-related laws the Court of Appeals said the state could keep.
A setback for Costco
January 30th, 2008
A three-judge panel of the United States Court of Appeals for the Ninth Circuit ruled yesterday in the case of Costco Wholesale Corp. v. Hoen. The panel largely reversed the April, 2006 decision that declared much of Washington’s three-tier system to be unconstitutional.
Although the court did agree with Costco that the “post and hold” requirement that forces suppliers to post their prices and hold them unchanged for a period of time is unconstitutional, it disagreed with Costco on two main points. The first upheld the liquor board’s right to ban central warehousing, meaning that distributors must deliver product to each retail store instead of to a central warehouse owned by the retailer. This takes away a key advantage that Costco has in efficient distribution. The court also upheld the liquor board’s right to ban high-volume discounts to different retailers.
Both sides now have the option of appealing the court’s decision within two weeks. They could also appeal to the United States Supreme Court within three months. Costco has expressed disappointment in the decision, but it is not clear whether either side will appeal the ruling.
Retailers win one, lose one in Texas court
January 16th, 2008
Judge Sidney Fitzwater of the U.S. District Court for the Northern District of Texas handed down a very important decision on Monday. In the Siesta Village Market Opinion, Judge Fitzwater said the following
The court concludes that Texas’ ban on the sale and shipment of wine by out-of-state retailers to Texas residents is unconstitutional, but it also holds that the requirement that wine retailers——including out-of-state retailers——first purchase such wine from Texas-licensed wholesalers is constitutional.
We’ll have much more to say about this case in the future, but this opinion is important because, for the first time, Judge Fitzwater said effectively that the principals of Granholm v. Heald should apply not only to wine producers, but also to wine retailers. In other words, just as Texas must treat in-state and out-of-state wineries evenhandedly, it must also treat in-state and out-of-state retailers evenhandedly. The following sentence in the opinion highlights this claim.
Because the retailer-plaintiffs and in-state wine retailers are engaged in the same business——the sale of wine to retail consumers——and seek access to the same market——Texas consumers——they are potential competitors and are therefore similarly situated for purposes of dormant Commerce Clause analysis.
Unfortunately for retailers, the good news also came with a new twist. The decision upheld the constitutionality of the Texas requirement that both in-state and out-of-state retailers that wish to ship to Texas consumers first purchase the wine from a wholesaler licensed in the state of Texas. A California wine retailer, therefore, must first purchase wine from a licensed Texas wholesaler before shipping it to Texas consumers. Tom Wark, Executive Director of the Specialty Wine Retailers Association, had the following to say about the new twist.
Not only is it illegal under California law and other state’s law, but I believe it’s illegal under Texas law, Wark said. We won on everything but there’s that little unfortunate part the judge got wrong. I feel sorry for Lou Bright (who heads the Texas ABC). How is he going to implement this?
Prior to this decision, the parties had agreed to a preliminary injunction that allowed out-of-state retailers to ship wine into Texas without a permit. We’ll now wait for administrative guidance from the Texas ABC. In parallel, the decision will likely be appealed.
Is the retail to consumer shipping battle headed to the Supreme Court?
October 15th, 2007
The issue of direct shipments by retailers to consumers has become a very hot topic of late. As of today, retailers can ship to less than half of the number of states to which producing wineries can ship. The Specialty Wine Retailers Association is fighting hard with both legislative efforts and litigation to open more states for retail to consumer shipments. The heated battle in Illinois, where out-of-state retailers recently lost the ability to ship to consumers under HB 429, raised national awareness to this issue.
The fundamental question is whether the decision in Granholm v. Heald that said states must treat in-state and out-of-state wineries evenhandedly should also apply to in-state and out-of-state retailers. R. Corbin Houchins recently made two posts (September 18th and October 5th) that do an excellent job of highlighting the legal questions that come into play when attempting to extend Granholm to retailers. In his October 5th post, Mr. Houchins indicates his disagreement with the reasoning of the recent and important Arnold’s Wines v. Boyle opinion, which upheld discrimination against out-of-state retailers in New York.
There is a very interesting recent article, with substantial background materials for lawyers who do not practice in the subject area, on FindLaw.com titled “The Fight Over State Laws Favoring In-State Alcohol Purveyors: Do Such Laws Violate the Dormant Commerce Clause?” that also examines the important ruling in Arnold’s Wines. This article is definitely worth reading.
The Court has had to examine the intersection between the dormant Commerce Clause idea and the Twenty-First Amendment a number of times. Two years ago, in the seminal case of Granholm v. Heald, the Court appeared to send a message that while the Twenty-First Amendment may indeed empower states in some ways, it does not trump the anti-discrimination, anti-balkanization norm of the Commerce Clause.
The federal district judge in the recent Arnold case in New York properly acknowledged the importance of Granholm. Nevertheless, the judge held that Granholm’s ban on state discrimination against out-of-staters applied only to state laws regulating producers of alcohol, not laws (such as the one at issue in the recent New York case) that regulated wholesalers or retailers.
The New York judge’s interpretation of Granholm is, I believe, in error.
The Arnold’s Wines case will likely impact current (Texas, California) and future (Illinois?) cases in the battle over retail to consumer shipments and could possibly end up in the Supreme Court, where a favorable decision could potentially open the legislative floodgates for retailers as Granholm did for wineries in 2005.
Wrong, but Not Surprising: A Loss in Extending Granholm to Shipments by Retailers
October 5th, 2007
The recent decision in Arnold’s Wines, Inc. v. Boyle, Docket No. 06 Civ. 3357 (Southern District of NY, Sept. 9, 2007), which upholds New York’s requirement that retailers be located within the state to sell and ship to New York residents, illustrates the difficulty of separating dictum from holding in the Granholm case. (See the September 18th blog post for an explanation of the difference.)
My reading of the Arnold’s Wines opinion is that Judge Howell failed to put a famous statement from the 1990 North Dakota case, quoted in Granholm, in the context of the Granholm holding. The key quotation is that North Dakota had a 21st Amendment right “to require that all liquor sold for use in the State be purchased from a licensed in-state wholesaler.” States and local licensee trade associations cite the statement as a fundamental principle of constitutional law, while out-of-state plaintiffs dismiss it as mere dictum and therefore incapable of serving as the decisional principle in discrimination cases. In Arnold’s Wines it appears each side was half right.
To determine whether the North Dakota reference in Granholm is controlling precedent, one must examine the latter opinion to see if it was necessary to the result. When one does that, it seems clear that New York has the right to require all wine to go through a three-tier system, but no right to require that any element of that system be located within the state of New York unless the discrimination against out-of-state sellers can be justified under the Commerce Clause.
Nothing in the Arnold’s Wines memorandum opinion suggests evidence of justification other than New York’s desire to have a three-tier system and the general objectives of states’ adopting such systems after Repeal. Three-tier systems are like any other exercise of regulatory power by the state; they are valid only if they either do not discriminate against interstate commerce relative to local or discriminate no more than necessary to serve a legitimate state purpose that cannot be achieved by available nondiscriminatory means. The burden is on the state to justify discrimination. However, the court decided that the defendants win as a matter of law, with no factual hearing. It looks to me as if the court wrongly deprived the plaintiff of its right to require the state to prove its case.
Free the Grapes!: New Illinois Law to Expand Consumer Choice for Winery-to-Consumer Shipments from 5 to 50 States, But Corks Out-of-State Retailers
October 5th, 2007
From Free the Grapes!:
Illinois Governor Rod Blagojevich yesterday signed House Bill 429 which goes into effect June 1, 2008. The new law dramatically expands consumer choice for winery-to-consumer purchases made by Illinois wine consumers. Under the new law, wineries in all 50 states may purchase a permit to ship. Under the old law, wineries in just five states, including Illinois, were allowed to direct ship to Illinois consumers. The trading network of states with so-called ‘reciprocal’ wine shipping arrangements has decreased from a dozen to just five: New Mexico, Wisconsin, Iowa, Oregon (changes to permit law in January 2008) and Illinois (changes to permit law in June 2008).
“The new law is a boon for winery-to-consumer shipments, and long overdue, but unfortunately it corks out-of-state retailers. An amendment, widely supported by Illinois consumers and Free the Grapes! would have allowed out-of-state retailers the same privileges as wineries. It was defeated by powerful Illinois retailers and wholesalers,” said Jeremy Benson, executive director, Free the Grapes!, a winery-consumer grassroots coalition.
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.
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
Free the Grapes! Legislation and Litigation Update
August 8th, 2007
From Jeremy Benson at Free the Grapes! :
Free the Grapes! Media Update
August 2007
Now that we’re at the end of most state legislative sessions, we thought it timely to provide an update on direct-to-consumer (DTC) wine direct shipping as of month-end July 2007. Here are some highlights, followed by a more detailed description.
Highlights:
o DTC legislation was considered in 23 states;
o Two states transitioned from reciprocal to a DTC permit system (MO, WV) with additional states pending (OR, IL).
o The legal direct shipping states for wineries represent 78% of wine consumption in the U.S., although retailers can reach far fewer states.
Wins:
- Florida: the third largest state for wine enjoyment, remains a legal state for winery shipments after a fierce defense of the court order that allowed shipping;
- Hawaii: a concerted effort to reduce quantity limits failed;
- Missouri: transitioned from reciprocal to permit status (no fee);
- North Dakota: increased shipping quantity limits;
- Virginia: now allows Internet retailers without a physical presence to direct ship;
- West Virginia: replaced reciprocal status with permit bill.
Losses:
- Arkansas: DTC permit bill failed in committee;
- New Mexico: reciprocal transition bill failed due largely to opposition by wholesalers and the beer lobby;
- Georgia: effort to replace cumbersome law with permit bill failed;
- Texas: passed a law limiting DTC shipping from in-state retailers outside their particular county;
- Ohio: passed potentially unworkable permit system for DTC shipments, including capacity cap of 150,000 gallons;
- Legal rulings supported the on-site sale requirement in ME, and opposed a challenge to TN’s shipping prohibition.
LEGISLATIVE UPDATE
Wine Institute provided significant input to the following summary of state activity this year.
States with Legislation Under Consideration
Wisconsin – For 20 years, Wisconsin has been a reciprocal state, allowing its consumers to purchase wine directly from wineries as well as in-state wine retailers. But cons