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A Costly Case of Wine Heads to the High Court

The Supreme Court will hear oral arguments about direct-to-consumer shipping on Tuesday

Nick Fauchald
Posted: December 6, 2004

The nation's last word on law will hear oral arguments tomorrow on a case that could have a major effect on how wine is distributed throughout the United States. At stake is whether adult consumers can order directly from out-of-state wineries and have hard-to-find wines shipped to their homes or can buy only what's distributed locally.

The roots of this debate stretch back to 1933, when the passage of the 21st Amendment ended Prohibition and allowed each state to decide for itself how to regulate the alcohol that crossed its borders. Most states set up a three-tier distribution system in which alcohol must go through a wholesaler to a retailer before reaching the consumer.

Currently, 24 states, including New York--the second largest wine-consuming state, after California, and a major wine-producing state as well--do not allow interstate direct shipping. Thirteen allow it, often with substantial restrictions. The remaining 13, including the three other major wine-producing states--California, Oregon and Washington--allow reciprocal shipping with other states that also allow direct shipping.

The states' power to control alcohol sales, however, butts heads with the U.S. Constitution's Commerce Clause, which bars states from imposing laws that unfairly impede interstate commerce.

The U.S. Supreme Court will hear arguments for two cases that confront this discrepancy, Granholm v. Heald and Swedenburg v. Kelly, which were filed in Michigan and New York, respectively.

In one corner are small winery owners (backed by major winery trade associations) and consumers, who believe that they should be allowed to do business with each other no what state they are in. Many small wineries depend on direct sales because they do not produce enough wine to be represented by large distributors, which are declining in number around the country. "This isn't about if I can ship 50 cases of wine to New York," said one of the plaintiffs, David Lucas, who owns a winery in Lodi, Calif. "It's really about if we want to preserve small family farms."

In the opposite corner are the states of Michigan and New York, whose shipping laws were challenged in the filed lawsuits, and liquor wholesalers, as well as any other states interested in preserving the three-tier system. These parties contend that their current regulations maintain order in the wine and spirits market, as wholesalers are licensed and experienced with their state's tax laws, and help curb underage drinking. They argue that children could obtain alcohol more easily over the Internet if direct shipping was allowed.

But the wineries and consumers counter that many states' interstate shipping bans, including Michigan and New York's, really amount to little more than economic protectionism. These states allow local wineries to sell and ship directly to state residents, they say, and preventing out-of-state producers from doing the same is discriminatory.

The Supreme Court has asked both sides for a tightly framed argument, and the states are likely to put aside underage drinking issues and concentrate on their rights under the 21st Amendment.

The Michigan and New York cases followed different paths on their way to the Supreme Court. In New York, Lucas joined Virginia vintner Juanita Swedenburg and three consumers to challenge the state's direct shipping laws. Their argument that the laws are unconstitutional and discriminatory was victorious in U.S. District Court, but was overturned by a federal appeals court, which decided in favor of the 21st Amendment. The Michigan consumer and winery plaintiffs lost in the lower courts but were victorious on appeal.

Both sides boast boldface names on their legal teams. Kenneth Starr, the U.S. solicitor general for former President George Bush and lead counsel in the Whitewater and Monica Lewinsky trials, is assisting the wineries and wine consumers. New York wholesalers have retained Robert Bork, another former U.S. solicitor general and a rejected Supreme Court nominee. Both attorneys will likely be in attendance on Tuesday, but neither is expected to argue before the justices.

After hearing each side's arguments, the Supreme Court will have until June to file its decision.

The Supreme Court hasn't pondered similar jurisprudence in two decades, so where individual justices will fall on the issues is difficult to predict. In the past, Chief Justice William Rehnquist and justices Sandra Day O'Connor and John Paul Stevens have favored states' rights, while Antonin Scalia and Clarence Thomas have sided with the Commerce Clause.

"We are cautiously optimistic that the court will see this case for what it really is, which is a battle between protectionism and the ability of small family farmers to earn a living," said attorney Clint Bolick of the Institute for Justice, who will be arguing on behalf of the wineries and consumers. "I believe the Court will honor its long tradition of striking down protectionist laws."

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