California Sparks Concern With Planned Change to Wine-Shipping Laws
The state's retailers fear a pending bill could end their ability to deliver to consumers
As California tries to modify its wine-shipping laws to make sure they comply with a recent U.S. Supreme Court ruling, controversy has erupted over the measure now progressing quickly through the state legislature.
Opponents of the bill, SB 118, insist that it could prevent wine retailers in California from delivering orders to in-state customers. That could severely restrict consumers' purchasing options, particularly for those who live outside major cities. Supporters of the bill say that authorities will not enforce the statute in that way and that the measure's purpose is to eliminate protectionism from California's shipping laws.
California was the first state in the country to establish, in 1986, what are known as reciprocal shipping laws: Out-of-state wineries may ship directly to California consumers so long as their state permits direct-to-consumer shipments from California producers. But the Supreme Court declared that states' shipping statutes must treat all U.S. wineries equally--either by banning all shipments or allowing all shipments. The justices indicated that reciprocity laws could be considered discriminatory as they can prevent some producers from having equal access to the market based on their home state's shipping policies.
Under SB 118, all U.S. wine producers would have to obtain a permit from the California Department of Alcoholic Beverage Control (CABC) before shipping to consumers within California. (Current statutes require that consumers get a permit before receiving shipments). Winery shipments could not exceed 24 9-liter cases per year per consumer.
The firestorm of consternation and confusion erupted because a June 14 amendment indicates that only wineries--not retailers--can apply for a CABC shipper permit and that any person who knowingly shipped without a permit was subject to misdemeanor penalties. It was unclear whether California retailers would actually need a permit to ship in-state.
That vagueness in the language of the bill raised a red flag for a number of prominent retailers. "Not being able to ship wines directly to the consumer would have a devastating effect on our business," said Todd Zucker, president of K&L Wine Merchants, based in Redwood City.
Don Zacharia, owner of Scarsdale, N.Y.-based retail store Zachys, began doing auctions in California last October with Los Angeles retailer Wally's. "If this bill goes through, I'm out of the auction business. I can't be in the business if I can't deliver wine," said Zacharia, who estimates that their auctions have already generated about $650,000 of California tax revenue. "I'm so taken aback I don't know what to say. First of all, you can't understand [the bill's language]. You speak to four lawyers, and they each have a different interpretation."
CABC chief counsel John Peirce, who helped write the bill and would be responsible for its enforcement, said retailers' concerns that they won't be able to legally ship are distorted. "That is not my interpretation of the [current language of the] bill, and that is not how our department would apply it if enacted," he said.
The bill was introduced, in expectation of a Supreme Court ruling, on Jan. 27 by Sen. Wesley Chesbro (D), whose district includes Napa and Sonoma counties. It passed the Senate on May 16 (the same day the Supreme Court ruling was issued) with a 36 to 0 vote, with four abstentions. Now in front of the Assembly Committee on Appropriations, the bill could be presented for a vote on the Assembly floor within two weeks. Darby Kernan, spokesperson for Sen. Chesbro, declined comment on retailer concerns "until we receive formal expression of opposition."
Family Winemakers of California, a lobbying and marketing group representing 640 wine producers, supported the bill. Organization president Paul Kronenberg expressed chagrin at the controversy. "If a representative of the organization responsible for enforcement of a law says that the language is right, then I believe them," he said.
But in response to the controversy, a June 27 amendment changed the language on criminal penalties from any "persons" to "winegrowers."
That did not mollify the retailers or John Hinman, a California beverage-law lawyer with more than four dozen clients (including Zucker and Zacharia) in the restaurant, retail and alcohol-beverage production businesses. He hopes to mobilize opposition by notifying consumers and other retailers of the bill's potential consequences.
Hinman explained that no law in California expressly guarantees retailers' right to ship in-state; rather, the privilege is provided for only by CABC rules, and if SB 118 becomes law, it could trump those rules.
One of the more confusing aspects of SB 118 is that it does state that out-of-state retailers--though only those in states with reciprocal shipping laws--can ship up to two cases per month directly to any individual California consumer, but it leaves out any wording referring to California retailers.
Hinman insists that SB 118, as currently constructed, advances the interests of the Wine and Spirits Wholesalers of America (WSWA), an organization that has been spearheading opposition to direct-to-consumer shipping, which bypasses distributors. "I look at this and think why would anyone in their right mind pass a statute that criminalizes certain behavior, then says we won't enforce it? It's incredibly convoluted," he said. "The WSWA wants to shut down direct shipping. Their stated agenda is that all transactions should be face to face. That's what this bill does. Do you really think that's a coincidence?"
The CABC's current interpretation of the bill doesn't necessarily matter, Hinman added. Section 24201 of the California Business and Professions Code allows "any person" (such as a representative of a wholesaler) to submit a formal accusation that would require CABC to enforce a legal statute.
The net result of these legal intricacies seems to be general befuddlement in the industry. "I just want someone, anyone, to tell me who this benefits," Zacharia said. "I can tell you who it doesn't benefit--it doesn't help consumers and it doesn't help retailers."
