Bill Threatening Wine Direct Shipping Gains New Life in Congress

Wineries and retailers maintain that H.R. 5034 will allow states to ban direct shipping of wine; hearing scheduled for Sept. 29

Robert Taylor
Posted: September 21, 2010

A bill in the U.S. House of Representatives that could severely restrict consumers’ ability to order wine directly from wineries or from out-of-state retailers has new life. Last week, the proposal’s sponsor, Rep. William Delahunt (D-Mass.), submitted a revised version of H.R. 5034, the Comprehensive Alcohol Regulatory Effectiveness (CARE) Act. And the House Judiciary Committee has scheduled a public hearing on the bill for Sept. 29, a crucial step toward getting it to the floor of Congress for a vote.

H.R. 5034 could open the door to reversing five years of court decisions on direct shipping of wine and other alcohol to consumers, sparked by the Supreme Court’s landmark Granholm decision in 2005. In that case, the Court ruled that states cannot discriminate between in- and out-of-state wineries in matters of direct-to-consumer wine shipping, arguing that the 21st Amendment, which ended Prohibition and put states in charge of alcohol regulation, does not trump the Constitution’s Commerce Clause, which prevents states from restricting interstate trade.

Since its introduction in April, H.R. 5034’s supporters, most notably alcohol wholesalers, have argued that a law is needed to prevent frivolous lawsuits and to allow states to maintain firm control of sales and prevent alcoholism and underage drinking. Critics, which include wineries as well as distillers and breweries, argue that the bill would allow wholesalers to protect their turf from competition and prevent consumers from being able to buy wines and other alcoholic beverages not carried by local wholesalers.

In a letter to Rep. John Conyers (D-Mich.), chairman of the Judiciary Committee, dated Sept. 13, Delahunt writes, “I have removed from the text language that some claim would have allowed the states to engage in anticompetitive behavior.” Opponents to the bill insist that is not the case. The core of the bill is still there, which says the Commerce Clause shall not prevent any state’s ability to regulate alcohol sales.

The most significant change to the new bill reads, “State or territorial regulations may not intentionally or facially discriminate against out-of-state producers of alcoholic beverages in favor of in-state producers unless the state can demonstrate that the challenged law advances a legitimate purpose that cannot be adequately served by reasonable non-discriminatory alternatives.” The change, on its face, may protect wineries’ ability to ship directly to consumers, but it still gives states the right to create laws which discriminate against wineries based on production volume, known as cap limits, or requiring face-to-face consumer shipment sales, which offer an advantage to in-state wineries. Such laws are currently being challenged in federal court.

Opponents of the bill fear it will permit legislators in all states, including the 37 that currently allow direct shipping, to pass new laws that effectively ban shipping, all in the name of protecting state control.

“You can’t slap a new coat of paint on an old car and call it a new car.”—Tom Wark

Delahunt did remove a provision that would have made it almost impossible for parties to sue states over discriminatory alcohol regulations, but the revised language has not satisfied critics. In a letter sent to members of Congress dated Sept. 20, the presidents of the Distilled Spirits Council, the Wine Institute, the Beer Institute, the Brewers Association, Wine America and the National Association of Beverage Importers all condemned the revision, calling it an attempt to “wall off the Granholm decision, [providing] a variety of ways to discriminate [and] doing irreparable damage to a fair and equitable marketplace.”

“Everybody gets screwed,” says one wine industry source working closely with the opposition to H.R. 5034. “It creates a legislative environment that allows states to pass discriminatory laws for alcoholic beverages, and it makes those laws invulnerable to the Commerce Clause. States [would have] a green light to openly defy the Constitution.”

“It seems clear that family wineries have become enough a face of the opposition to the bill that [its supporters] are specifically trying to calm the fears of wineries that they are the targets of the bill, but that doesn’t make it a good bill,” says Jason Haas, Tablas Creek partner and general manager.

The revision also does not address the concerns of retailers, who would be left without Commerce Clause protections and would have no recourse against laws that discriminate between in- and out-of-state direct shipping of wine from retailers to consumers. Among the 37 states that currently permit direct shipping of wine from producers to consumers, only 13 permit retailers to do the same.

“This is an unprecedented power grab on the part of wholesalers, without any justification,” says Tom Wark, executive director of the Specialty Wine Retailers Association. “What makes it so necessary for retailers to have their Commerce Clause protections stripped?”

As reported in a previous Wine Spectator investigation, the National Beer Wholesalers and Wine and Spirits Wholesalers of America have contributed heavily to members of Congress since the Supreme Court’s Granholm decision. In the period since that report, Delahunt has accepted an additional $5,000 in contributions from wholesaler interest groups.

With the hearing scheduled for Sept. 29, both sides will present their arguments. It’s unclear whether the committee will vote to send the bill to the full House before November’s elections. So far, no companion bill has been introduced in the Senate.