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Pennsylvania Faces Direct-Shipping Lawsuits and Legislation

Court temporarily prevents state from ending local wineries' deliveries to consumers; more permanent solution expected soon

Eric Arnold
Posted: November 8, 2005

Pennsylvania is the new hotbed of activity in the fight over direct-to-consumer shipments of wine. Yesterday, two direct-shipping cases were argued in the courts, and a bill that would give in-state and out-of-state wineries equal direct-shipping rights was introduced in the legislature.

In Pennsylvania, liquor stores are run by the state. Local wineries have been permitted to ship directly to consumers, while a separate system has been set up for special orders from out-of-state wineries. But those regulations are likely to be deemed unconstitutional, following a U.S. Supreme Court decision that states must treat in- and out-of-state wineries equally as far as direct shipping is concerned. The Pennsylvania Liquor Control Board allows state residents to order directly from out-of-state wineries, over the Internet, only if state stores do not carry those wines. The wineries must apply for a free shipping license, and customers are limited to one case per month and must pick up the wines at a PLCB store rather than have them sent to their homes.

In response to a lawsuit filed in federal court, the PLCB had attempted to address the discrepancy last month by issuing a temporary rule change. "The board had put an interim policy in place, which as of Nov. 1 would have prohibited Pennsylvania wineries from shipping to the home," explained PLCB spokeswoman Molly McGowan. "They would now have to go through the same process as the out-of-state wineries and ship to one of the stores."

But the Pennsylvania Wine Association and two of its member wineries filed a lawsuit challenging the policy, arguing that it would substantially harm their businesses because they do most of their direct shipping during the holiday season. Yesterday, a judge for the Commonwealth Court of Pennsylvania in Harrisburg issued a temporary restraining order preventing the PLCB from enforcing its new policy. Additional arguments will be held this Thursday. "At the moment, Pennsylvania wineries can still ship to the home," said McGowan.

On the same day, the U.S. District Court for Eastern Pennsylvania was hearing arguments in a case filed by Pennsylvania resident Clyde Cutner and Chateau Thomas Winery in Indiana, from which Cutner would like to have wine shipped to him. Indianapolis-based attorney Robert Epstein, who represents the plaintiffs (as well as consumers in several other direct-shipping cases, including the recent victory in Michigan), said he expects a ruling in the next couple of weeks.

The PLCB is also a defendant in the federal case. "We're not recommending one way or the other whether [the state] should open it up for everybody or prohibit it for everybody," said McGowan. "Whatever the lawsuits turn out, it's still likely that the legislature is going to have to pass something. The unconstitutional language in our liquor code is still there, so that's going to have to be fixed one way or the other."

To that end, state Sen. Jim Ferlo (D) introduced Senate Bill 996, which seeks to allow out-of-state wineries to ship directly to consumers just as Pennsylvania wineries currently do. "I would want to do it in a prudent way," said Ferlo, who has 11 cosponsors for his bill. He added, "Obviously we'd want the safeguard that wine shipped in would not be resold by any person, and if so, that would be considered a misdemeanor." Under his proposal, all wineries would have to register with the state, pay an annual shipping license fee of $100 and ship no more than two cases per month to any one customer.

The bill is opposed by the Independent State Stores Union, which represents the employees of the liquor stores. The union argues that the bill does not adequately address issues of taxes and shipping to minors. "If you want to have a control system and really do believe you do a superior job of at-the-counter surveillance of underage drinking and also collect every nickel of tax on every bottle, direct shipping knocks the hell out of all of that," said Ed Cloonan, president of the union. Pennsylvania has an 18 percent excise tax on wine and liquor, and Ferlo's bill requires only that the state sales tax be paid, not the excise tax.

Regarding the issue of minors' access to alcohol, Ferlo said, "We want it so that if UPS or FedEx delivers, there has to be an adult home, signing for the wine, which I think is a reasonable protection." As far as collection of taxes, he added, "I wrote [the bill] in such a way that it would be the most liberal and progressive, leaving room for those who might object on the issue of revenue base."

Ferlo expressed concerns about the bill's likelihood of passage, because he is a Democrat and Republicans control both houses of the legislature. "I'm hoping that with some public pressure and consumers thinking about this issue and speaking up to their representatives, maybe it would help me to push this bill a little bit," he said. "People need to express their views on the issue."

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