Appeals Court Rules North Carolina Must Change Unconstitutional Wine-Shipping Laws

But judges say state could ban local wineries from home delivery rather than allow out-of-state wineries to ship to consumers.

Lynn Alley, Dana Nigro
Posted: April 15, 2003

North Carolina wine lovers have been fighting in the federal courts for the right to have hard-to-find wines delivered to their homes. But a recent appeals court decision did not hand them quite the victory for which they had hoped.

A panel of three judges ruled on April 8 that North Carolina laws that allow in-state wineries to ship wines directly to consumers, but make it a felony for out-of-state wineries to do the same, unconstitutionally discriminate against interstate commerce.

However, the 4th U.S. Circuit Court of Appeals in Richmond, Va., said North Carolina does not have to allow interstate wine shipments to its residents. Instead, the state could pass a new law that would also ban North Carolina wineries from direct shipping.

"The circuit court threw the decision back into the hands of North Carolina legislators by saying only they should come up with a law that is constitutional regarding direct shipping," said Patricia McRitchie, who handles regulatory and marketing issues for Shelton Vineyards in North Carolina.

Preventing local wineries from shipping runs counter to what the plaintiffs had sought, which was to open up the state to even more direct shipments. In June 2000, a group of North Carolina wine lovers, joined by Oakstone Winery in Fair Play, Calif., filed a suit seeking to allow consumers to order from out-of-state wineries. Last April, U.S. District Judge Graham Mullen overturned the state's regulatory system and would have allowed out-of-state shipments.

While the appeals court upheld Mullen's finding that the laws violated the Commerce Clause of the Constitution, the three-judge panel differed in finding that North Carolina "retains great flexibility to determine what sort of relief to provide to cure the discriminatory treatment."

In their appeal, state officials indicated that they would prefer to strike down the 1981 law that gave preferential treatment to the growing local wine industry. If the legislature chooses to do so, North Carolina wineries would only be able to sell out of their tasting rooms or distribute their wines through the traditional three-tier distribution system -- from producer to wholesaler to retailer to consumer -- just like out-of-state wineries.

The Coalition for Free Trade, a winery-backed group that provides support to wine-shipping lawsuits around the country, will likely ask for a rehearing. "The North Carolina wineries are not a party to this lawsuit," said Tracey Genesen, legal director for the CFT. "They had no opportunity to be heard, and yet their rights may have just been taken away. We are pursuing a strategy that will allow the North Carolina wineries to be heard."

The 4th Circuit Court heard arguments in a similar wine-shipping suit in Virginia at the same time it heard the North Carolina case, but the parties in Virginia have asked the judges to dismiss that case. After a district court judge ruled last year that Virginia's laws were unconstitutional, the state legislature passed a law this year allowing both in-state and out-of-state wineries to ship wines directly. Virginia governor Mark Warner signed it on April 9.

As of July 1, Virginia wine lovers will be able to receive up to two cases per month from any producers that acquire a shipping license from Virginia. In addition, Virginia wineries will have access to new markets as they will be able to sell to consumers in 13 states that have "reciprocity" laws, which only permit shipments of wine from states that allow similar shipments.

There is currently no similar bill pending in the North Carolina legislature that would address the direct-shipping issue.

Three other wine-shipping suits -- in Michigan, New York and Texas -- are pending in appeals courts, while circuit court judges returned a case in Florida back to the original trial court. The 4th Circuit ruling may not be the final word for North Carolina wine consumers. Eventually, the Coalition for Free Trade hopes to take the issue to the Supreme Court and has hired Kenneth Starr to assist with its legal strategy.

"The more conflicting decisions there are about the issue, the more likely the issue will go to the Supreme Court," said McRitchie. "The Supreme Court's job is to clarify issues over which the lower courts cannot agree."

For a complete overview and past news on the issue of wine shipments, check out our package on The Direct Shipping Battle.

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