Supreme Court Hears Oral Arguments in Direct-Shipping Case
Wineries and consumers face off against Michigan and New York on whether states have the right to ban out-of-state wine shipments
The two sides battling over direct-to-consumer shipments of wine got their day--or hour, rather--in court this morning, when the Supreme Court heard oral arguments in two cases that could drastically affect how wine is bought and sold.
The arguments centered on weighing Section 2 of the 21st Amendment, which permits states to regulate how alcohol crosses their borders, against the U.S. Constitution's Commerce Clause, which prevents states from unfairly interfering with interstate trade. Sometime by June, the court will decide the following: Do Michigan and New York have a reasonable justification for banning direct shipments from out-of-state wineries when they permit in-state wineries to ship within their borders?
Each side was allowed 30 minutes to present its case and answer questions. Arguing on behalf of wineries and consumers, attorney Clint Bolick, of the Institute for Justice, urged the Court to uphold its 1984 decision in Bacchus Imports Ltd. v. Dias, which struck down a tax exemption in Hawaii that favored locally produced pineapple wine over out-of-state products. That ruling found that the 21st Amendment does not authorize states to enforce such a discriminatory regulation. "When we look at the core values of the two cases, they do not clash," Bolick said.
Attorney Kathleen Sullivan, also representing the wineries, told the justices that Michigan and New York's bans on interstate direct shipments exist strictly to protect those states' wine distributors. "States cannot discriminate for the sole purpose of economic protectionism," she said.
Sullivan also discredited the states' argument that out-of-state direct shipping would allow minors to buy alcohol more easily through the Internet, citing the fact that Michigan allows its 40-plus wineries to accept online orders.
Attorneys representing wholesalers and the states of Michigan and New York argued that Bacchus has limited application to the shipping case. Michigan Solicitor General Thomas Casey said the states need the shipping bans because otherwise they would have trouble collecting taxes on alcohol sales from out-of-state wineries.
The justices asked Casey how (and how often) Michigan currently inspects in-state wineries for compliance, and whether it would be any more difficult to keep track of sales from out-of-state wineries to make sure they are declaring every bottle they ship to the state. Both Casey and New York Solicitor General Caitlin Halligan struggled to convince the justices that it would be more difficult. The justices stressed that the states need to show that the direct-shipping restrictions have a necessary purpose.
Justice Antonin Scalia asked Halligan about states that already allow direct shipping: Are they not worried about holding wineries accountable? "It certainly suggests that what you're arguing [for] is not essential," Scalia said. "When you have facial discrimination against out-of-state wineries, you have to raise the bar a little higher."
Bolick was allowed a short rebuttal and used his time to stress that a "panoply of tools" is available to regulate interstate shipments, making outright bans unnecessary. (For example, a federal law allows states to use the federal courts to prosecute out-of-state violators.)
At a joint press conference following the hearing, direct-shipping supporters were buoyant about the morning's arguments. Kenneth Starr, co-counsel for the wineries, commended Bolick and Sullivan's performance and stressed the importance of the issue for small wineries and consumers.
"What you saw today was the Supreme Court of the United States, with its justices essentially lifting up the vision of why we have a United States of America," Starr said. "If you allow 300 wineries in New York to direct ship, please don't tell us that someone--Cakebread or Joseph Phelps or Ravenswood--in California is not going to be as law-abiding as a winery in New York. It's insulting, it's wrong, it's discriminatory, and I think the justices today were really exploring [whether] the states have a justification for it. The New York wineries support free trade. Some of the Michigan wineries support it. It's only the wholesalers who have a very profitable oligopoly that's what's at issue here."
In turn, Casey said a loss for the states would jeopardize the three-tier system of controlling alcohol sales through wholesalers and retailers. "The statute being challenged is a fundamental keystone," he said.
But Reed Foster, co-founder of Ravenswood Winery and president of the winery-backed Coalition for Free Trade, said big changes in the three-tier system would be welcome to many wineries. "I hope this is the first step in breaking up the horrifying wholesaler monopoly," he said.
The Supreme Court has until June to file its decision. No matter what the justices rule, it will not instantly change how people purchase wine. The fight will continue in the state legislatures, as they will have to pass new regulations complying with the court's findings. Even if the court says that states can't ban interstate shipments if they allow in-state shipments, because that's unconstitutional discrimination, that may not be a complete victory for consumers and wineries. Some states could choose to bar in-state wineries from shipping to consumers, which would be a step back instead.
