Massachusetts' Direct-Shipping Laws Under Fire
Volume caps there and in other states could make shipping impossible instead of legal
Eric Arnold
Posted: September 21, 2006
Wineries and wine lovers are trying to overturn Massachusetts' shipping laws once again, even though less than a year ago the state passed a law that ostensibly allows more producers to send wine directly to consumers. In a lawsuit filed in federal court Sept. 18, two Massachusetts consumers and the Family Winemakers of California allege that the law, similar to ones subsequently passed in several other states, is actually framed in a way to prevent direct shipping altogether.
The key issue is a volume cap. The new statutes restrict shipments based on a winery's size. This is "a clumsy attempt to avoid the law of the land," said attorney Kenneth Starr, who is heading the plaintiffs' case.
On the surface, Massachusetts' new law--passed last winter over a veto by Gov. Mitt Romney--appears to present a level playing field for in- and out-of-state wineries: A winery can ship wine directly to consumers if it produces less than 30,000 gallons per year (and has not been represented by a Massachusetts wholesaler in the past six months).
But the volume cap is just higher than the production of the largest winery in Massachusetts. In major winegrowing states such as California, even small wineries tend to produce more than 30,000 gallons per year, so the limit makes it difficult for most out-of-state wineries to ship to Massachusetts customers.
"Massachusetts has simply tried to do indirectly what it cannot do directly," said Starr, counsel at law firm Kirkland & Ellis and dean of Pepperdine Law School. "The courts have been overwhelmingly favorable to the proposition that states should not discriminate against out-of-state wineries. This is discriminatory legislation in purpose and in effect, and should be struck down."
The volume caps are an unexpected twist in the direction that wine-shipping legislation has taken since the U.S. Supreme Court ruled on the subject in May 2005. The justices determined that, under the Constitution's Commerce Clause, states cannot treat in-state and out-of-state wineries differently--they can't allow direct shipments from one set and ban them from the other. Several states have since changed their regulations.
After a federal judge ruled against Massachusetts in a lawsuit in October 2005, the state became the first to pass a shipping law with volume caps. Others soon followed. Arizona's new law, which went into effect in September, sets a limit of 40,000 gallons. Kentucky's limit will be 50,000 gallons as of Jan. 1, 2007. Indiana's law, passed in March, has more breathing room, at 500,000 gallons. But that law also limits a winery's annual shipments to the state to a total of 3,000 cases and a consumer's orders to 24 cases per year--and that's only if an Indiana wholesaler has not represented the winery in the past 120 days.
"This is a pretty good attempt to reinstate discrimination against out-of-state wineries," said Corbin Houchins, a Seattle-based attorney who specializes in alcoholic-beverage law.
But can wineries actually ship directly to consumers under these setups? "It's very difficult," said Kathleen Hoertkorn, CEO of New Vine Logistics, a Napa, Calif.-based company that ships wine for producers and helps them with the tax and reporting requirements in each state. It's not direct shipping in the true sense, said Hoertkorn. Orders placed by Massachusetts consumers and handled by New Vine Logistics actually move through "what we call clearing wholesalers and clearing retailers," she explained.
Indiana is "even worse," Hoertkorn said. "A consumer can only get X amount, but the wineries have no way of knowing how much a person has ordered from somebody else. It's not feasible for most of the fine wines."
Some legislators might be realizing that. In recent months, wine-shipping bills with volume caps failed in both Illinois and Florida.
"The introduction of this cap idea in Florida got a lot of consumer press and attention," said Jeremy Benson, executive director of direct-shipping advocacy group Free The Grapes. "We had over 1,600 letters written in about a 90-day period from consumers to legislators saying that this was discrimination." The bill died in committee.
The bill in Illinois failed due to other complications, Benson said, but it could resurface by December. In the meantime, however, other lawsuits are in the works to challenge Kentucky and Arizona's volume caps.
"We're only just beginning this battle, I'm sure," said Houchins.
