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Senate Acts Quickly on Direct-Shipping Bill

Dana Nigro
Posted: March 3, 2000

The U.S. Senate is moving quickly to pass a controversial bill that would put the power of the federal courts behind state laws banning or restricting adult consumers from having wine shipped directly to their homes from out-of-state sources.

This morning, the Senate Judiciary Committee approved "The 21st Amendment Enforcement Act," bill S577, which would allow state attorneys general to seek federal court injunctions against out-of-state companies that violate state laws pertaining to shipments of alcoholic beverages. The legislation could go to the Senate floor for a full vote as early as next week.

The Wine Institute -- one of the foremost trade organizations lobbying on behalf of U.S. wineries -- has stated that it would not continue to fight the bill, as it now contains new provisions minimizing its impact on small wineries. "All in all, it's a fair and balanced bill," said Robert Koch, senior vice president in the Wine Institute's Washington, D.C., office.

However, differences over the finer points of the legislation have left a rift between various segments of the wine industry that have been struggling to ensure that wineries will be able to sell directly to their customers. Earlier this week, many in the wine industry were shocked to learn that California's E. & J. Gallo had weighed in against direct shipping in a court case in Indiana, filing a "friend of the court" brief on behalf of the state wholesalers. Some expressed fear that the wine giant's move damaged the unified image wineries had conveyed to Congress on the issue of direct shipping.

Barbara Olson, a lobbyist for the Informal Coalition to Preserve Consumer Access to Wine, started by a group of retailers in favor of direct shipping, expressed fears that the Wine Institute is backing down on its staunch support for direct shipment. She complained that the Wine Institute pushed for changes to the bill's language without consulting its other allies first. "They sold us out," she said. "This is being jammed down our throats."

Meanwhile, the Wine & Spirits Wholesalers of America -- a Washington, D.C.-based group whose members may be threatened by the increase in sales of wine via the Internet, phone and mail-order -- is claiming success in the direct-shipping debate.

"This is a significant, clear victory for the 'three-tier' system [the distribution of alcohol from wineries to wholesalers to retailers] and for a state's ability to enforce alcohol sales and distribution as it sees fit," said Juanita Duggan, CEO of WSWA. "This is exactly what we wanted. It leaves the current judicial landscape untouched. Basically, the vintners and others who wish to continue to ship alcohol illegally were handed a major defeat by the committee."

Sen. Orrin Hatch first introduced S577 in 1999, and the Senate included a version of the legislation in last year's juvenile-justice bill, which remains deadlocked with a competing version of the House bill.

Last August, the House passed HR2031, its own version of the 21st Amendment Enforcement Act, sponsored by Rep. Joe Scarborough, R-Fla. Winery trade groups were able to get changes incorporated into the House bill that would make obtaining a federal injunction more difficult. The bill also contained language clarifying that it could not be used to violate the commerce clause of the Constitution, which prevents states from discriminating against out-of-state sellers solely for the economic protection of in-state businesses.

Winery groups sought these same protections in the Senate legislation, and today, Hatch introduced a revised version that incorporates many of the requested changes. Also, a new amendment proposed by Sen. Dianne Feinstein, D- Calif., removed the language about the commerce clause and substituted wording saying that the bill shall not be construed to be in conflict with any provision of the Constitution.

"This makes it clear that S577 is a narrow jurisdictional statute that does not grant states any additional power or alter the critical balance between the 21st Amendment [which grants states the right to control alcohol within their borders] and other provisions of the Constitution," said Koch of the Wine Institute. He added that the language clarifies that Congress has not endorsed any state alcohol law by passing this piece of legislation; courts will have to determine whether a state law is inconsistent with any part of the Constitution before deciding whether or not to issue an requested injunction.

But Olson of the retailers group argued that the new language is actually weaker than the original provision. "This language is sort of a placebo ? it's not going to help any small wineries," she said. "They drafted [the amendment] in a way that gives mere recognition of a problem without a solution."

Koch countered that the new language "is clearly far better than what the Senate has come up with in past." He said that the Wine Institute is not actively supporting the bill but will not actively fight it, either. "My hunch is that this will now pass easily on the Senate floor," he said. "With this language included, it makes no sense to oppose it. These are important improvements that we need to have preserved in a bill that is going to pass on the Senate floor. And that is the rationale for our position."Koch stressed that passage of S577 would not affect direct shipments of wine in the 20 states that allow interstate shipments and the 30 states that allow intrastate shipments. In a published statement, the Wine Institute said that it would still continue to fight to change state laws to allow limited direct shipments of wine.

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For a complete overview of the direct-shipping issue, read our special feature package The Wine Wars.

Read recent news about the direct-shipping debate

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