In a setback for New York wine collectors, the U.S. 2nd Circuit Court of Appeals has upheld the state's ban on direct-to-consumer wine shipments from out-of-state producers.
The ruling, which runs counter to recent appeals court decisions in similar cases in Michigan and Texas, increases the likelihood that the U.S. Supreme Court could take up the issue of interstate wine sales. However, the case could become irrelevant if New York changes its liquor laws this year to allow direct shipments and collect taxes on them -- as Gov. George Pataki has proposed in his latest budget plan.
Yesterday's decision overturned a lower court ruling in 2002 that New York's shipping ban was unconstitutional because it interfered with interstate commerce and amounted to economic protectionism. The 2nd Circuit judges concluded instead that the Constitution's 21st Amendment gives states complete control over alcohol sales within their borders.
The case was originally filed by New York wine lovers who want to order wines from around the country using the Internet, phone or mail order. Joining the plaintiffs is Juanita Swedenburg, the owner of Swedenburg Estate Vineyard in Virginia, who wants to ship her wines to New York customers who have visited her winery.
But the judges wrote: "Changes in marketing techniques or national consumer demand for a product do not alter the meaning of a constitutional amendment."
Furthermore, the judges said New York wineries could continue to ship their wines within the state, a discrepancy that the plaintiffs had argued was discriminatory. "Presence ensures accountability….[In-state] violations are subject to disciplinary measures carried out in New York," they wrote. They added that out-of-state wineries could choose to establish a presence in New York so that they would be allowed to ship.
The Wine & Spirits Wholesalers of America, which is opposed to direct-to-consumer shipping, cheered the court's decision. "The 2nd Circuit Court of Appeals is to be commended for standing up for accountability and community standards," said Juanita Duggan, president and CEO of the WSWA, in a statement. The organization argues that the existing three-tier distribution system -- from producer to wholesaler to retailer to consumer -- protects against sales to minors and facilitates tax collection. The group's members also could lose business if direct sales were to become widespread.
But the plaintiffs' attorney, Clint Bolick, vice president at the Washington, D.C.-based Institute for Justice, believes the court's ruling -- particularly in the area of accountability -- is flawed. "The 2nd Circuit not only got it wrong, it got it horribly wrong," said Bolick, who believes they have a compelling case for the Supreme Court.
Out-of-state producers can't simply open a branch office; they would have to get a full winery license from New York, he said. And that violates the premise of the Constitution's Commerce Clause -- that a Virginian should be able to trade freely with someone in New York without having to move there, he argued.
In addition, Bolick said, the court overlooked the 21st Amendment Enforcement Act, which was passed in 2000 to give states access to the federal courts to prosecute violators of their shipping laws. "Wineries are fully accountable to every state to which they ship wine," he said. "The state does not require a presence to exercise jurisdiction over them."
The Institute for Justice and the Coalition for Free Trade, a winery-backed nonprofit group that supports direct-shipping lawsuits around the country, have not yet decided their next step. But Bolick said, "I'm confident that no later than 2005 Juanita Swedenburg will be able to ship wine to New York one way or another. There is the very strong possibility of corrective legislation. If that doesn't happen, this decision makes it as close to certain as these things come that the Supreme Court will review the Michigan case, the New York case or both."
In August 2003, the 6th Circuit Court of Appeals ruled Michigan's ban on direct-to-consumer wine shipments to be unconstitutional. On Jan. 30, the Michigan attorney general filed a petition to bring that case to the U.S. Supreme Court.
The news from the 2nd Circuit wasn't all bad for the wine industry. The judges did overturn a section of the New York liquor laws that banned out-of-state wineries from advertising their wines in the state. Previously, said Bolick, if a California winery had a Web site that urged people to buy its wines, it was in violation of New York law because it could be viewed by New York residents. Bolick called that a case of "classic overbroad suppression of speech."
For a complete overview and past news on the issue of wine shipments, check out our package on The Direct Shipping Battle.