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Pennsylvania Wine-Shipping Laws Declared Unconstitutional

Courts allowing direct-to-consumer shipments from out-of-state wineries; legislation to follow

Eric Arnold

Posted: Thursday, November 10, 2005

In a week that has already seen heated activity over the issue of wine shipping, a federal district judge ruled on Wednesday that a portion of Pennsylvania's laws on wine sales are unconstitutional and that the state cannot currently enforce its ban on out-of-state producers selling and shipping directly to its residents.

On top of that, today a state court followed up on its Nov. 7 temporary restraining order and filed a preliminary injunction preventing Pennsylvania from halting local wineries' deliveries to their customers. The court said the state could not take that action without the legislature changing the statute. Lawmakers may take up the issue soon: On Nov. 7, a bill was introduced to give in-state and out-of-state wineries equal direct-shipping rights.

"At the moment, in- and out-of-state wineries can ship directly to Pennsylvania consumers," said Molly McGowan, spokeswoman for the Pennsylvania Liquor Control Board (PLCB). No guidelines have been set for how direct shipments in the state should be handled now, and the PLCB is not taking further steps until the legislature passes a new law.

But consumers may still have to wait before they can expect to receive orders. "We believe the judge is opening this up, but people shouldn't start moving product until it's approved by the common carriers [such as FedEx]," said Steve Gross, head of state relations for the San Francisco-based Wine Institute, which represents California wineries. "Until we have an affirmation from the state and the common carriers that everyone's ready to go, we err on the side of caution."

The PLCB was the defendant in both the federal and state lawsuits, as it operates all liquor stores in the state. Under the state's current laws, local wineries are permitted to ship directly to consumers, while a separate system exists for special orders from out-of-state wineries. The PLCB allows state residents to order directly from out-of-state wineries, over the Internet, only if state stores do not carry those wines. The wineries must apply for a free shipping license, and customers are limited to one case per month and must pick up the wines at a PLCB store rather than have them sent to their homes.

"It is clear that the present restrictions against out-of-state wineries cannot constitutionally be enforced," wrote Judge John Fullam, of the U.S. District Court for Eastern Pennsylvania in his Nov. 16 memorandum and order. In May, the U.S. Supreme Court decided that discrimination against out-of-state wineries was prohibited and that states must treat all wineries equally as far as direct shipping is concerned. Fullam's order enjoined the state from enforcing its statutes and administrative code "so as to prohibit out-of-state wineries from selling and shipping wine directly to consumers, hotels and restaurants in the Commonwealth of Pennsylvania, if, and so long as, in-state wineries are not subject to equivalent restrictions."

The lawsuit was filed earlier this year by Pennsylvania resident Clyde Cutner and Chateau Thomas Winery in Indiana, from which Cutner wanted to have wine shipped to him. Indianapolis-based attorney Robert Epstein, who won the recent shipping case in Michigan), represented the plaintiffs at the hearing.

The state had argued that the discrepancy in its laws no longer existed, because the PLCB had issued an advisory notice in October to change the rules temporarily. "The board had put an interim policy in place, which as of Nov. 1 would have prohibited Pennsylvania wineries from shipping to the home," explained McGowan. "They would have to go through the same process as the out-of-state wineries and ship to one of the stores."

But the Pennsylvania Wine Association and two of its member wineries filed the lawsuit in state court challenging the new policy, arguing that it would substantially harm their businesses because they do most of their direct shipping during the holiday season. On Nov. 7, a judge for the Commonwealth Court of Pennsylvania in Harrisburg issued a temporary restraining order preventing the PLCB from enforcing the change, and today he followed it up with the injunction.

Though the federal court hearing was also on Nov. 7, Judge Fullam took the state court's initial restraining order into account in his decision and further declined Pennsylvania's request to resolve the dilemma by imposing restrictions on local wineries. In his memorandum, he noted, "It would violate due process to impair the statutory rights of in-state wineries in litigation in which they are not represented." Fullam struck down only the ban on out-of-state shipments, because the statute allowing local wineries to sell directly is constitutionally valid, but he said it is up to the legislature to determine how to address the discrepancy in the statutes.

To that end, state Sen. Jim Ferlo (D) has introduced Senate Bill 996, which seeks to allow out-of-state wineries to ship directly to consumers just as Pennsylvania wineries currently do. "I would want to do it in a prudent way," said Ferlo, who has 11 cosponsors for his bill. He added, "Obviously we'd want the safeguard that wine shipped in would not be resold by any person, and if so, that would be considered a misdemeanor." Under his proposal, all wineries would have to register with the state, pay an annual shipping license fee of $100 and ship no more than two cases per month to any one customer.

The bill is opposed by the Independent State Stores Union, which represents the employees of the liquor stores. The union argues that the bill does not adequately address issues of taxes and shipping to minors. "If you want to have a control system and really do believe you do a superior job of at-the-counter surveillance of underage drinking and also collect every nickel of tax on every bottle, direct shipping knocks the hell out of all of that," said Ed Cloonan, president of the union. Pennsylvania has an 18-percent excise tax on wine and liquor, and Ferlo's bill requires only that the state sales tax be paid, not the excise tax.

Regarding the issue of minors' access to alcohol, Ferlo said, "We want it so that if UPS or FedEx delivers, there has to be an adult home, signing for the wine, which I think is a reasonable protection." As far as collection of taxes, he added, "I wrote [the bill] in such a way that it would be the most liberal and progressive, leaving room for those who might object on the issue of revenue base."

Ferlo expressed concerns about the bill's likelihood of passage, because he is a Democrat and Republicans control both houses of the legislature. "I'm hoping that with some public pressure and consumers thinking about this issue and speaking up to their representatives, maybe it would help me to push this bill a little bit," he said. "People need to express their views on the issue."

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