Following up on last month's ruling, a federal judge issued an injunction this afternoon preventing New York state from enforcing its current ban on interstate direct shipments of wine to consumers.
However, New York wine lovers still are not free to call up their favorite producer in California or Washington and order a case to celebrate the legal victory. The judge immediately stayed his ruling, allowing the state to enforce its laws pending an expected appeal.
"From a market-access perspective, this is the biggest victory in [our] five-year campaign to level the playing field for all U.S. wineries," said Tracy Genesen, legal director of the Coalition for Free Trade, a winery-supported group that is coordinating shipping lawsuits around the country. "It paves the way for a solution that will allow New Yorkers to order from out-of-state wineries, and for New York wineries to ship to consumers in states that allow such shipments."
New York allows in-state wineries to ship directly to New York customers, but prohibits out-of-state producers from doing the same. The latter must distribute all their wine through the three-tier system, selling it to a state-licensed wholesaler who then resells it to retailers. Three wine consumers, joined by two small wineries from Virginia and California, filed a lawsuit in the U.S. District Court for the Southern District of New York, claiming that this discrepancy amounted to economic protectionism.
In November, U.S. District Judge Richard Berman agreed, ruling that the New York state laws are discriminatory and therefore unconstitutional as they violate the Commerce Clause. But he left the matter of determining a remedy until a hearing this morning.
The two sides argued whether the best solution would be opening New York's market to out-of-state wineries, or striking down the portion of the law that allows in-state wineries to ship. Either approach could have a major economic impact on New York producers: The former would open up new markets, as wineries could ship to other states that have "reciprocal" shipping laws in place, while the latter would remove a significant portion of their business.
"In our view, it would be perverse, in a lawsuit filed by consumers and out-of-state wineries, to have a remedy that constrains opportunities rather than expanding them," said the plaintiffs' attorney Clint Bolick, vice president at the Institute for Justice.
But attorneys for the state and some major New York wholesalers argued for removing the shipping exemption for local wineries and keeping the rest of the state's licensing system as is. "Don't kill the patient," said attorney Randy Mastro, who represents Peerless Importers. "The ABC system has served the state well."
Only hours later, Berman issued his ruling, choosing wording that leans toward opening the market to enforce equality. He wrote that the state cannot prevent out-of-state wineries "from shipping their wine to New York consumer on the same terms and conditions applicable to New York wineries," or likewise prevent consumers "from receiving wines shipped directly to them from out-of-state wineries on the same terms and conditions applicable to consumers of New York wines."
At the hearing, Berman indicated that the issue would ultimately have to be settled by the New York state legislature. Assuming that the U.S. Court of Appeals for the Second Circuit upheld his decision, state legislators would still have a choice between overhauling their rules on wine shipping or simply removing the exemption for local wineries.
Bolick said that, if the legislature were to decide to ban all direct shipping, "We would have to go back to court to challenge any new protectionist laws afresh." But he added, that approach seems unlikely. "There is too much at stake for the New York wine industry."
For a complete overview and past news on the issue of wine shipments, check out our package on The Direct Shipping Battle.
Read more about the judge's decision:
Read about the recent court decision in Florida:
Read recent news about wine-shipping legislation:
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