Posts from the News Category
Siesta’s Over
January 27th, 2010
On January 26th, the Fifth Circuit Court of Appeals ended the puzzling status of interstate retailing in Texas created by the lower court’s decision in Siesta Village Market. The district court had ruled that out-of-state retailers had a Commerce Clause right to sell wine to Texas consumers, but only wine that had been purchased from a Texas-licensed wholesaler.
The decision is another example of uncertainties resulting from the principal unresolved Granholm question: How does one reconcile the location-neutrality principle with the infamous North Dakota dictum to the effect that states may discriminate against out-of-state wholesalers? The Fifth Circuit’s answer, like that of the Second Circuit, is that Granholm extended Commerce Clause protection to wineries, but not to wholesalers or retailers, because national markets in the lower tiers would make it impossible for a state to protect the “traditional three-tier system.” As the Court of Appeals judge said about setting aside fundamental economic policy embodied in the dormant Commerce Clause to follow a judicial aside that was not part of the Granholm holding, “That language may be dicta. If so, it is compelling dicta.”
Post-Granholm litigation shows clearly enough that judges, though not bound to follow dicta, will elevate it to persuasive precedent when it coincides with their value systems. The values question is whether states’ asserted 21st Amendment right to maintain a privileged middle tier trumps the Commerce Clause policy against differential treatment of in-state and out-of-state economic interests. All one can say at this point is, “to be continued.”
by R. Corbin Houchins, CorbinCounsel.com
Virginia ABC Offers Interim Solutions for Wineries Shipping Through Third Party Service Providers
December 4th, 2009
On November 19, Terri Beirne, Wine Institute’s Eastern Counsel, met with the Virginia ABC Board, their Director, and representatives of Wine America and the Virginia wineries to continue discussions about the July Circular Letter 09-05 prohibiting direct shippers from using any third party service providers. Despite earlier indications, the Board has no plans to issue additional circulars on this issue. They suggested that a statutory change is essential to reinstate use of pick and pack/fulfillment warehouse and other third party service providers by Virginia licensees. They also offered to work with industry to craft legislation for the 2010 Virginia General Assembly Session which starts on 1/13/10 and concludes on 3/13/10.
However, the VA ABC offered two interim solutions for Wine Institute members until the law can be changed. Nothing in Virginia law currently prevents direct shipper licensees from obtaining two (2) direct shipper licenses with two different addresses, even though a second location is not owned or controlled by the licensee. Therefore, if a winery sends wine from BOTH their tasting room and a fulfillment warehouse, it can keep a current direct shipper license intact and secure a second one with the address of their fulfillment facility, from where wine can also be shipped. The Virginia direct shipper license application fee is $65 and the annual license fee is $65. Separate tax payments and reports associated with each licenses would have to be filed.
Additionally, if the winery sends ALL wine shipments into Virginia from a pick and pack warehouse with NO shipments originating in their tasting room, the winery’s Virginia direct shippers license could be changed to list the address of the warehouse from which ALL wine will be shipped. Wineries may make such an amendment to a current license by sending a letter on winery letterhead explaining the reason for the change and including the old and new addresses to Dallas “Burnie” Gaskill, VA ABC Licensing Technician at P.O. Box 1597, Spotsylvania, VA 22553-1597. Burnie can be reached by phone at (540) 538-7838 or e-mail at dallas.gaskill@abc.virginia.gov with questions. Such letter MUST include a copy of the state license issued to the warehouse making shipments on the winery’s behalf. The letter must also contain an e-mail address for the winery, where the amended license will be sent in an electronic format.
Members can contact Annie Bones at abones@wineinstitute.org or at (415) 356-7530 with additional questions. Terri would also be pleased to talk more about this situation and can be reached at (804) 301-5505 or tbeirne@wineinstitute.org.
-Terri Cofer Beirne, Eastern Counsel, Wine Institute
Kansas permit applications available, Tennessee coming soon…
June 26th, 2009
Late yesterday the Kansas ABC posted their applications for direct shipping on their website. Wine producers across the country can now apply for permission to direct ship wine to Kansas consumers effective July 1, 2009.
Kansas SB 212 was signed into law by Governor Kathleen Sebelius on April 10. Wineries interested in avoiding the hassle of the application process can purchase the license at www.easywinelicensing.com.
Licensed wineries will be able to ship up to 12 cases of wine per year to Kansas residents. To obtain a Kansas direct shipping license, wineries must pay a $50 license fee, a $50 registration fee, and post a $750 bond.
Tennessee will also open for direct shipping on July 1, although the paperwork has not yet been finalized. Tennessee’s license is available for pre-order pending the state’s posting.
Tennessee keeps the ball rolling on direct shipping
June 5th, 2009
Governor Phil Bredesen signed Senate Bill 166 into law today. With the passage of the bill, Tennessee will legally open its doors to winery direct shipping on July 1, 2009. Tennessee prohibited direct shipments from out-of-state wineries long before the landmark Granholm case. Even onsite shipments of wine were disallowed when the Attorney General issued an opinion on the matter in February 2009. Attempts to pass direct shipping legislation in the past years have failed, unaided by a Tennessee wholesaler campaign against the bills during the 2008 legislative session. However, with the Governor’s signature, in-state and out-of-state wineries alike now have access to Tennessee wine consumers. Direct shippers can expect to pay an annual license fee of $150 (an initial application fee of $300 is required for new applicants) and remit monthly sales and gallonage taxes. Some less positive aspects of the new laws include a 3 case annual shipping limit from a winery to a consumer and restrictions on who can obtain the direct shipper’s license—retailers, unfortunately, are among the excluded.
Although retailers will not be among those celebrating on July 1, the passage of SB 166 is a huge victory for many direct shippers. Governor Bredesen’s signature signals a radical change in the state’s stance on wine sold through the direct shipping channel: Tennessee is the first state to reverse its stance on direct shipments for wine since Vermont in 2006. The effective date of this legislation is less than a month away, however, there is no word, yet, on when all necessary forms will be available, so stay tuned.
Labeling Sotomayor
June 2nd, 2009
Although I don’t believe anyone has found a beverage law opinion by Judge Sonia Sotomayor, there’s a good deal of blog traffic related to the fact she did not dissent from Circuit Judge Wesley’s opinion in Swedenburg v. Kelly, a Second Circuit decision famously reversed by the Supreme Court in Granholm v. Heald. As Justice Souter was in the Granholm majority, some wholesalers have already publicly rejoiced that his putative replacement may help swing the balance toward limiting Granholm’s reach.
To understand the significance of Judge Sotomayor’s participation in Swedenburg, it is helpful to examine the context. First, Swedenburg was decided in February 2004, following the law of the circuit as it then existed. The Second Circuit is the source of Battipaglia and other conservative 21st Amendment rulings; precedent strongly supported Judge Wesley’s conclusions. It should be no surprise to an industry that rightly hails Granholm as an innovative stroke profoundly readjusting the balance between the commerce clause and the 21st Amendment that a lower court decision two years earlier did not reach the same result. Second, the Swedenburg decision was pro-commerce in its consideration of the First Amendment issue raised by the New York statutory scheme, striking down a provision that prohibited importation of information about availability of wine at out-of-state wineries, even for lawful purchase. The other two judges on the three-judge Swedenburg panel might have gone along with the result without necessarily holding “strong 21st Amendment” positions or endorsing every aspect of Judge Wesley’s analysis.
As Tom Wark said in his blog, it will be interesting to see if confirmation hearings put direct shipment in the legal news again. It will be even more interesting to see how Justice Sotomayor comes down on implications of Granholm for the second wave of commerce cases.
Wine Freedom in the South? Tennessee Direct Shipping Bill Passes the Senate
April 27th, 2009
Tennessee, one of 13 states that still bans direct-to-consumer shipping, took steps towards ending that association on April 13, 2009 when the Senate-approved Senate Bill 166, which allows direct shipments of wine. Currently, anyone who transports wine into Tennessee by bypassing the three-tier system is committing a felony (see Section 57-3-401.b of the Tennessee Code) an act that bill sponsor Senator Paul Stanley says is already widely committed. Due to this continuous violation of existing law, Senator Stanley calls SB 166 a “common-sense bill.” Senate Bill 166 requires out-of-state wineries to obtain a $300 license non-refundable application fee and $150 annual permit fee and also sets a shipping limit of 3 cases per calendar year per individual consumer.
During the Senate Committee hearings, there was lengthy questioning regarding enforcement mechanisms to ensure out-of-state wineries are in compliance. Senator Tim Burchett also voiced concerns about the lack of jurisdiction that the Tennessee Alcohol Beverage Commission has over out-of-state wineries, to which committee chair Senator Bill Ketron responded with a quote from Section 1.C.2 of the bill, which states that applicants must, “execute a consent to jurisdiction and venue of all actions… in the state of Tennessee.” Senator Ketron also noted other enforcement mechanisms such as a clause that makes direct shipping without a permit a Class (E) Felony. Primary Sponsor Senator Stanley addressed the doubts about enforcement and compliance by pointing to many other states that have successfully instituted and enforced direct shipping laws. In addition to mentioning the success of other direct-shipping states, bill supporters also noted that SB166 could bring in an estimated $10 million in additional annual revenue.
The approved version of the bill was passed in the Senate by a 22-8 margin with two amendments, imposed by the Senate Finance, Ways and Means committee. The first amendment reduced the total annual wine shipments allowed to one resident to 27-Liters from the original 108 Liters per year, with a one case per month limit. The second amendment was apparently inserted with no specific purpose except to appease the three-tier distribution system by stating that nothing in the direct shipping bill is meant to “diminish the three-tiered scheme.” The Senate-approved version of SB 166 also requires wineries to report the appropriate sales and gallonage taxes, and direct shippers must keep records of all shipments in case the Tennessee Alcoholic Beverage Commission requests such information. Now that the bill has moved through the Senate, it awaits discussion and approval by the House Government Operations Committee.
In February, Tennessee’s Attorney General chose to level-down by banning all direct-to-consumer shipments and transports of wine for personal use. Only two months later, however, the passage of SB 166 in the Senate demonstrates willingness to accommodate consumer demand by opening up the state to direct shipping.
Tennessee’s AG Rules Consumers May Not Bring Wine into Tennessee, Federal On-Site Provision No Longer Applies
February 27th, 2009
On February 24th, 2009, Tennessee’s Attorney General issued Opinion No. 09-15, which concluded that consumers may not legally carry any amount of wine on their person into Tennessee. This ruling, prohibiting consumers from carrying wine into Tennessee, means that the federal on-site provision does not apply to consumers in Tennessee. Wineries are therefore prohibited from making shipments via common carrier to Tennessee consumers under any circumstance. All wine must enter Tennessee through the 3-tier system without exception.
On a positive note, a number of favorable direct shipping bills (Bill H 1155, S 166 & S 1690) have been introduced and are currently awaiting action in the Tennessee legislature. If enacted, these bills would create a direct-to-consumer shipping permit for wineries, allowing for the payment of taxes and reporting. Wineries with a permit would be able to ship up to 24 cases a year to Tennessee consumers, depending on which bill might pass.
Annie Bones, State Relations – Wine Institute
Up and Running (So Far)
December 19th, 2008
Happily for the plaintiffs, Judge Zobel’s final judgment in Family Winemakers of California v. Jenkins took the path that seemed most likely from the tone and content of her memorandum and order of 19 November 2008 and leveled up. The judgment entered 18 December 2008 orders the state “to permit wineries of all sizes to apply for licenses under Mass. Gen. Laws ch. 138, § 19F(b),” which does not contain the § 19F(a) disqualification of wineries that have sold to a Massachusetts wholesaler within six months of applying for the license, formerly applicable to all 30,000-gallon-and-over wineries. In her November opinion, the judge had noted that the “choice” to use direct shipment only after abandoning all sales through wholesalers for six months was, in effect, prohibition.
Final judgment does not settle the issue of a possible stay of the injunction pending appeal. The state has 30 days from entry of the judgment to file notice of appeal, which would be a prerequisite to moving for a stay in the trial court and, if unsuccessful there, in the Court of Appeals.
By R. Corbin Houchins, Attorney at Law
Utah Allows Shipment of Wine? Well, Not Exactly
December 18th, 2008
In one of the most regulated and restricted states in the US, residents may now special-order alcohol online. The Utah Department of Alcoholic Beverage Control (DABC) announced that Utah residents may use an online Special Order Form to purchase alcohol that is otherwise unavailable in the State’s liquor stores. The alcohol would then be shipped to a DABC store location of the buyer’s choosing for pickup. Available since September of this year, the system was relatively unknown until recently due to limited exposure.
Residents of Utah may special order from any licensed vendor located in the United States, which includes producers, authorized agents, and wholesalers, among others. For Utahns ordering international products, they must order the product from a licensed US importer. All vendors, of domestic and international products alike, must be registered with the DABC. There is no cost associated with registration. For more information about what type of vendor to order from and how to register as a vendor refer to the website.
After deciding on the product and vendor from whom to purchase, the ordering process is very straightforward. Some important information required for ordering includes the product name, size and vintage and also the specific DABC store location and date desired for pickup. When ordering, Utahns should keep in mind that vendors may not ship products individually and be prepared to order by-the-case. Also, applicable sales taxes (state and local) are paid by the consumer.
Although the order form takes a relatively short amount of time to fill out, delivery takes much, much longer. The buyers should expect delivery 45 days after the DABC receives the price quotation, at the earliest. This is due, in part, to the custom nature of each order.
The fact that Utah, a heavily controlled state, created an easy-to-use order form for residents to purchase almost any alcoholic beverage available in the US (albeit with a lengthy transaction completion time line) is an acknowledgement of the importance of consumer access and choice. However, it is very important to note that the new special order form does not allow direct shipments to Utah residents because the products may only be picked up at a DABC store.
Family Winemakers Court Win is Big for the Industry
November 20th, 2008
On November 19th, 2008, Judge Rya W. Zobel, in the case of Family Winemakers of California v. Jenkins, allowed the plaintiffs’ motion for summary judgment, concluding that Massachusetts General Laws chapter 138, section 19F:
… has a discriminatory effect on interstate commerce because as a practical matter it prevents the direct shipment of 98% of out-of-state wine to consumers but permits all wineries in Massachusetts to sell directly to consumers, retailers and wholesalers.
Therefore, the Massachusetts statute in practice prevents direct shipment of approximately 98% of out-of-state wine while allowing 100% of Massachusetts wineries to sell direct. This clearly confers disproportionate benefits on both Massachusetts wineries and wholesalers.
In the decision, Judge Zobel provided a fascinating account of the history of what became Massachusetts House Bill No. 4498. She details the original lobbying from wholesalers, pleas from in-state wineries, negotiation in the Massachusetts House and Senate, passage of the bill on November 17th, 2005, veto by then-Governor Mitt Romney, and finally an override by the Legislature on February 15th, 2006. The detailed account sheds light on a fact that we known all along – that the 30,000 gallon capacity cap was set conveniently above the production capacity of the largest winery in Massachusetts (24,000 gallons). This cap was designed to allow the Massachusetts wineries to ship directly to consumers, while simultaneously protecting Massachusetts wholesalers by prohibiting out-of-state medium and large wineries from doing the same.
The wine distribution system is shaped like an hourglass, in that there are a large number of producers (the top) and a large number of consumers (the bottom), but significantly fewer wholesalers (the middle). This structure has the effect of giving wholesalers greater bargaining power with both wineries and retailers in states where it is mandatory to have a wholesaler. Generally wholesalers prefer to carry a larger volume of a particular wine, rather than an equivalent volume of several wines, because it is more profitable for a wholesaler to warehouse, manage and sell a single
wine. Many wineries produce both specialty wines in small quantities and higher volume wines. It is rare for a winery producing approximately 30,000 gallons per year to have all of its wines represented by a wholesaler.
Family Winemakers of California put out a press release immediately yesterday, hailing the decision as a win for the industry. Paul Kronenberg, president of Family Winemakers of California, was quoted as saying “State laws that protect and perpetuate wholesaler monopolies at the expense of wineries seeking market opportunities and consumers seeking a wider choice in wine, run counter to the concept of free trade within the nation”. Tracy Genesen, lead attorney on the case from Kirkland & Ellis, said “The decision tracks Granholm, since ‘allowing States to discriminate against out-of-state wine invites a multiplication of preferential trade areas destructive of the very purpose of the Commerce Clause.” Kenneth Starr of Kirkland & Ellis explained that “Freedom to conduct commerce across state boundaries without undue restrictions was a fundamental principle of the framers of the Constitution”.
Free the Grapes! also published a press release yesterday, highlighting the case as a big loss for efforts by wholesalers to ban “legal, regulated wine shipping”. “Today’s ruling in Family Winemakers v. Jenkins strikes a blow to the wholesalers’ campaign by declaring that Massachusetts’ restrictions on winery-to-consumer shipments are unconstitutional”.
This is a big win for the industry. We applaud Family Winemakers of California, Coalition for Free Trade, Kirkland & Ellis, and everyone else involved for all of their hard work in fighting this long battle. The ruling will certainly have ripple effects not only in Massachusetts, but also Ohio, Arizona, and many other states as current and future examples of such non-facial discrimination will be questioned, challenged, and overturned.
We’ll keep you posted as this story develops. The immediate effects in Massachusetts are unknown at this time (see our post “Why Can’t I Have a Boston Wine Party?” from June, 2007). Common carrier restrictions will need to be clarified before any out-of-state shipping can commence. Stay tuned for more information and analysis…
DHL to Cease Wine Shipments Nov 3rd
October 6th, 2008
Steve Bachmann at The Wine Collector is reporting that DHL has notified its customers that it will cease wine shipments effective November 3rd. DHL has struggled to gain a foothold in the interstate wine shipping market, where FedEx and UPS dominate.
If you have received the notification letter from DHL, we’d love to see a copy of it. You can always reach our blog authors and editors at blog@shipcompliant.com.
UPDATE: We received a copy of the letter that DHL sent out to their customers. See the letter below.
Indiana Still Standing on Their Face
September 19th, 2008
On September 11th, the 7th Circuit Court of Appeal said that they will not rehear an appeal concerning the original opinion of the Court in Indiana. The denial to rehear the case confirms that currently it is legally within the power of the State of Indiana to require wineries to ship wine to Indiana consumers only if an initial face-to-face transaction occurs. According to the Family Winemakers of California, this was “due to the fact that there was an insufficient evidentiary record to demonstrate that such a provision discriminated against interstate commerce”. Since a rehearing was denied, the only step remaining for Baude v. Heath would be an appeal to the U.S. Supreme Court.
Follow us on Twitter: winecompliance
August 19th, 2008
When we make a post here on the ShipCompliant blog, we take the time to really understand an issue, research the facts involved, and make a substantive post that adds value to the issue that we are discussing. However, the ShipCompliant research team hears news and information from many different sources every day that may not necessarily end up as the subject of a post on this blog. Because of this, we recently started posting updates on Twitter to give you a heads up about articles or blog posts that we think are interesting in the world of wine compliance.
If you’re interested in learning more about wine compliance, please follow winecompliance on twitter! If you don’t yet have an account on twitter, we also added a sidebar widget that lists the five most recent updates on the bottom right of this page ->
The Poster Prohibited State Slackens Slightly
August 8th, 2008
Last Friday, Wine and Spirits Daily reported that Utah’s grip on liquor has let up, at least a little bit. The recent rule change applies only to Utah brewers and distilleries but this could potentially be good news for everyone in the alcohol industry. The new ruling allows Utah residents to purchase onsite orders from Utah breweries and distilleries. Utah wineries have enjoyed this same freedom since 1991. This decision is part of Governor Huntsman’s effort to free the state of the private clubs. Though it hasn’t been mentioned as a step in the governor’s plans to “liberalize” Utah’s liquor laws, perhaps this loosening will open up the gateway for responsible direct shipping legislation in the future.
News from Kentucky
February 7th, 2007
The headline said, “State drops out of wine suit: Small operators can ship directly,” but the reported change in direct shipment rights occurred in December of last year. What’s new is that the state has abandoned its appeal, leaving the wholesaler trade association to continue alone in attempting to persuade the Court of Appeals to reverse the pro-commerce part of the Huber/Cherry Hill ruling. (The ruling is not entirely favorable; see the current revision of Wine Distribution Notes for details.) The practical effect is that whatever chance the wholesalers may have had to get a stay from the Court of Appeals, to render the lower court decision ineffective during the appeal, is vastly reduced by the acquiescence of the state in the December judgment.
TSA Prohibits Carry-On Liquids (including wine)
August 10th, 2006
In light of recent disrupted terrorist plots to detonate liquid explosives in commercial airlines, the Transportation Security Administration is implementing the following security procedures effective immediately:
NO LIQUIDS OR GELS OF ANY KIND WILL BE PERMITTED IN CARRY-ON BAGGAGE. ITEMS MUST BE IN CHECKED BAGGAGE. This includes all beverages, shampoo, suntan lotion, creams, tooth paste, hair gel, and other items of similar consistency.
This includes “all beverages” with the sole exceptions of baby formula, breast milk or juice (in the presence of a small child or baby). Expect to send your onsite purchase of wine below deck, or dumped out.
After September 11th, President Bush signed legislation allowing the shipment of “onsite” purchases in certain states to help avoid the need to carry on bulky wine packages. It looks like this provision will certainly come in handy for the wine industry’s tourists in the foreseeable future.
A response from the common carriers assisting in this matter is expected.
Granholm v. Heald
October 1st, 2005
On May 16th, 2005, the Supreme Court of the United States issued a landmark decision in the case of Granholm, Governor of Michigan, Et Al, v. Heald Et. Al.. We will discuss this case at length in this blog, but let’s start with the basics.
You can see the official Supreme Court decision here, but the key passage from Justice Kennedy’s opinion follows:
These consolidated cases present challenges to state laws regulating the sale of wine from out-of-state wineries to consumers in Michigan and New York. The details and mechanics of the two regulatory schemes differ, but the object and effect of the laws are the same: to allow in-state wineries to sell wine directly to consumers in that State but to prohibit out-of-state wineries from doing so, or, at the least, to make direct sales impractical from an economic standpoint. It is evident that the object and design of the Michigan and New York statutes is to grant in-state wineries a competitive advantage over wineries located beyond the States� borders. We hold that the laws in both States discriminate against interstate commerce in violation of the Commerce Clause, Art. I, �8, cl. 3, and that the discrimination is neither authorized nor permitted by the Twenty-first Amendment. Accordingly, we affirm the judgment of the Court of Appeals for the Sixth Circuit, which invalidated the Michigan laws; and we reverse the judgment of the Court of Appeals for the Second Circuit, which upheld the New York laws.
Basically, because the states of New York and Michigan were allowing in-state wineries to ship directly to consumers while prohibiting out-of-state wineries from shipping directly to consumers in their state, the states were in violation of the Commerce Clause.
As a result, states must treat in-state and out-of-state wineries evenhandedly. This effectively means that states have two options – allow both in-state wineries and out-of-state wineries to ship directly to consumers in their state or prohibit direct shipments altogether.
