Wine lovers in Texas, and for that matter in many states around the country, have reason to rejoice. Yesterday, a federal appeals court granted a key victory to consumers in their legal fight for the right to order wines from producers in any state and have those purchases shipped directly to their homes.
The 5th Circuit Court of Appeals has overturned Texas laws that ban out-of-state wineries from shipping their products directly to residents, but allow in-state wineries to do so. Those regulations are discriminatory and amount to economic protectionism for in-state businesses, according to the court.
"Absent an identical restriction on Texas wineries, Texas's prohibition against out-of-state wineries directly selling and shipping wine to Texas consumers is constitutionally defective under the Commerce Clause [which protects free trade among the states]. This is not even a close call," the three-judge panel wrote in a strongly worded 55-page decision.
Even more importantly, the judges supported the argument of the plaintiffs -- three wine lovers from the Houston area who were represented by Texas attorneys Sterling Steves and Mark Harwell -- that all U.S. wineries, regardless of their location, should be allowed to ship directly to Texas residents. The court indicated that it was more appropriate to extend the laws' benefits to out-of-state producers than to impose new burdens on Texas wineries, as the state had argued for as a remedy.
"This is the biggest legal win to date," said Tracy Genesen, legal director for the Coalition for Free Trade, a winery-backed group that coordinates and assists with shipping lawsuits around the country. Aside from Texas, lawsuits are pending in Florida, Michigan and New York and North Carolina.
Texas officials could now choose to petition the appeals court for a rehearing, and if that is not successful, then ask the U.S. Supreme Court to review it.
The Coalition for Free Trade is hoping for the Supreme Court to eventually settle the issue of direct-to-consumer wine shipments, and the group recently hired Kenneth Starr to help with its legal strategy. There is a good chance that the highest court could take up one of the lawsuits as there is now a conflict in the case law -- an important criteria for Supreme Court review.
Earlier this year, the 7th Circuit Court of Appeals ruled that a North Carolina law similar to the one in Texas is unconstitutional, but the judges decided that the state could solve the problem by revoking in-state wineries' ability to ship. That is the opposite of the solution that the consumer and winery plaintiffs had sought.
In Texas and North Carolina, as in about half the states in the country, most sales of wines (aside from those made by local wineries) must go through the "three-tier" system: from the producer to a licensed wholesaler to the retailers who sell to the consumers. Many U.S. wholesalers -- who could lose business to direct sales via the Internet, phone or mail -- have filed court briefs in support of state bans on direct shipments, citing concerns such as collection of taxes and the availability of alcohol to minors.
In the Texas case, unlike lawsuits in some other states, the courts have ruled consistently in favor of consumers' and wineries' right to free trade. In 2000, a district court ruled that a Texas ban on direct wine shipments was unconstitutional. Judge Melinda Harmon determined that the ban was not protected under the 21st Amendment -- which repealed Prohibition and granted states the right to control alcohol sales within their borders -- because it did not meet the goal of temperance. In July 2002, after Texas passed a new law allowing in-state wineries to ship, Harmon reaffirmed her earlier ruling, saying that Texas' regulations were now "economically discriminatory." The state had continued to enforce its laws during the appeal, but the judge's stay expired on May 31.
Out-of-state wineries are not yet able to ship legally to Texas. Despite the court's wording, the state legislature could still choose to pass new rules prohibiting Texas wineries from shipping anymore. If the state does accept the court's decision rather than appeal, the Texas Alcohol Beverage Commission must issue new regulations on how it will control direct shipments and collect taxes.
Excerpt from the 5th Circuit's conclusion:
"Plaintiffs demonstrated before the district court that Texas's restrictions against direct sales and shipments by out-of-state wineries to Texas residents are intended to -- and in fact do -- discriminate to the benefit of in-state wineries, which are not hamstrung by the economic constraints of having to sell their products through Texas's otherwise legitimate three-tier system.
"As the record makes clear, small out-of-state wineries, which constitute a substantial majority of the total number of wineries throughout the country, are hurt by these discriminatory restrictions, as Texas wholesalers (despite having permits to import their wine) do not import their products because the quantity of product and the consumer demand in each wholesaler's local market are too small to justify the wholesaler's marginal cost in importing and selling the product.
"The Texas legislature thus achieves exactly what it sought: Texas wines are more available for purchase by Texas consumers because these consumers are essentially denied access to the products of out-of-state wineries, and vice-versa. This is exactly the type of geographic discrimination that is prohibited by the Commerce Clause and, as applied, is a patent violation of Plaintiffs' constitutional rights."
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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