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U.S. Supreme Court to Address Wine-Shipping Controversy

Justices decide to hear two cases on direct-to-consumer wine shipments, one from Michigan and one from New York.

Dana Nigro
Posted: May 24, 2004

The U.S. Supreme Court will take up the issue of direct-to-consumer wine shipping in its next term, weighing in on the controversy over whether wine lovers should be able to buy hard-to-find bottlings via the Internet, mail or phone.

Today, the high court issued a list of cases that it has decided to accept for the term starting this fall. Among them are two cases in which wine lovers sued Michigan and New York for the right to order from out-of-state wineries and have the wines delivered to their homes. The Supreme Court is expected to hear arguments in December and issue a decision by July 2005.

Both Michigan and New York allow local wineries to ship directly to residents, but ban out-of-state producers from doing the same. Small wineries have joined the two lawsuits, arguing that these laws discriminate against out-of-state companies and amount to unconstitutional economic protectionism.

"These cases are about economic survival for our nation's small family-owned wineries," said Tracy Genesen, legal counsel for the Coalition for Free Trade, a winery-backed group that provides support for shipping-related lawsuits, including the ones in Michigan and New York.

In taking the cases, the Supreme Court will be throwing its weight into a long-running struggle that pits wine drinkers and wineries against state regulators and distributors, through which alcohol must currently be sold. The justices will be dealing with a clash between market forces such as the Internet, which has made it easier to buy and sell products across the country, and Prohibition-era concerns about preventing easy access to alcohol. But no matter which way the justices rule, the court's decision is unlikely to result in sweeping, immediate change in state regulations across the country.

Essentially the cases boil down to a conflict between the 21st Amendment, which granted states the right to control alcohol sales within their borders once Prohibition was repealed, and the Constitution's Commerce Clause, which is supposed to ensure free trade among the states. The Supreme Court has framed the core question narrowly: Does the 21st Amendment permit states to discriminate against out-of-state wineries?

Kenneth Starr, the former U.S. Solicitor General and former U.S. appeals court judge who is providing legal advice to the winery industry on the shipping cases, said framing the question this way was "very helpful" as the court has a history of opposing economic discrimination.

"Our position is so simple -- states can regulate, but can't discriminate," Starr said.

The states, backed by local alcohol-beverage wholesalers, argue that the 21st Amendment gives them full control to determine their regulations. Furthermore, they say, their existing distribution systems -- in which wine must go through a wholesaler to a retailer -- should be preserved because they facilitate tax collection and prevent sales to minors.

So far, the federal appeals courts have issued conflicting decisions. In the Michigan case, the 6th Circuit Court of Appeals ruled in August 2003 that the state's ban on interstate wine shipments was unconstitutionally discriminatory. Michigan's attorney general petitioned the Supreme court to take the case. In the New York lawsuit, the U.S. 2nd Court of Appeals ruled in February that the state laws were not discriminatory and were upheld by the 21st Amendment. The Institute for Justice, which represents the plaintiffs, decided to appeal.

The Supreme Court's decision could apply only to a limited number of states, in addition to Michigan and New York. Twenty-six states in the country now permit interstate shipments of wine in some form (though often with substantial restrictions). Of the remaining 24 that ban direct shipments, not all allow local wineries to ship, nor have a system that clearly discriminates against out-of-state wineries, said Genesen of the Coalition for Free Trade. If the judges rule that discriminatory wine-shipping laws are not protected by the 21st Amendment, it would not automatically void the laws in all of the no-shipping states, but could open them up to new legal challenges.

Such a decision would have "to give pause to states where the law is somewhat ambiguous," Starr noted.

On the other hand, if the court rules that the 21st Amendment gives states license to discriminate, said Starr, "It's not saying that states must discriminate. It puts the issue back in the hands of legislators and state officials to decide what they want their system to be."

Initially, the Coalition for Free Trade had been reluctant to bring a case in front of the Supreme Court at this time, since the wine industry felt it had been making significant progress in relaxing state laws. As recently as the 1980s, nearly all shipping was illegal, but extensive lobbying and legal efforts by wine industry groups and wine consumers have changed that. In recent years, Virginia, North Carolina and South Carolina have passed laws allowing direct shipments. In addition, Texas now permits interstate shipping since the 5th U.S. Circuit Court of Appeals struck down its ban.

"We want to see that momentum continue rather than leaving everything where it is" while the Supreme Court case is pending, said Starr.

New York, for example, is considering a bill, proposed in Gov. George Pataki's budget for 2004-2005, to allow interstate direct shipments of wine and collect the tax revenue. "Nothing about the court's decision to take the case today would prevent the New York legislature from passing this provision," Genesen said.

Perhaps the most important aspect of the direct-shipping cases, said Starr, is that by accepting them, "the court will really shine a spotlight on the issue." He added, "I hope it will galvanize and energize consumers.

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Read past news on this subject:

  • March 15, 2004
    Attorneys Ask U.S. Supreme Court to Rule on Interstate Wine-Shipping

    For a complete overview and past news on the issue of wine shipments, check out our package on The Direct Shipping Battle.

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