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Wine Retailers Throw Down Gauntlet Against Direct-Shipping Restrictions

New lawsuit in Illinois challenges the constitutionality of direct-shipping laws; plaintiffs hope to reach the Supreme Court
Photo by: fotoguy22/iStock
Illinois lawmakers passed one of the nation's toughest bans on out-of-state retailers shipping wine this year.

Ben O'Donnell
Posted: September 20, 2016

The book on modern direct-to-consumer wine-shipping law was written at the U.S. Supreme Court in 2005 with the Granholm v. Heald decision. Now, wine retailers are hoping to write their own chapter in the story. Earlier this month, lawyers filed a complaint in a federal court, arguing that an Illinois prohibition on retailer-to-consumer direct shipping is unconstitutional. The same firm is preparing a similar complaint in Missouri.

The Illinois suit, filed on Sept. 1, named Lebamoff Enterprises, Inc. et al v. Rauner et al, states that Irwin Berkley, a Chicago-area resident, wants to buy "wines that are sold-out in Illinois but are still available from retail stores in other states, older vintage wines and limited-production allocated wines" and have them shipped to his home from Cap n' Cork, a chain of Indiana stores owned by fellow plaintiff Lebamoff Enterprises, but cannot.

"We think that the principles of Granholm apply to retailers just as well," Robert Epstein, lead counsel for the plaintiffs, told Wine Spectator. "And we're going to test it."

While not a party to the suit, the National Association of Wine Retailers (NAWR) hopes the case goes all the way up the judicial ladder. "We would relish the opportunity for a chance like this to get in front of the Supreme Court," Tom Wark, executive director of the NAWR, told Wine Spectator. "It would be a perfect case that's on point: Are retailers covered by Granholm?"

In Granholm, the court ruled that states could not block out-of-state wineries from shipping to local consumers if they allowed in-state wineries to do so, finding such laws discriminatory against interstate commerce. Currently, wineries can ship direct to consumers in 43 states, including Illinois and Missouri, compared with 27 in 2005.

States permitting out-of-state retailer shipping, however, have fallen from 18 to 14 since Granholm. While online shopping has made it easier for wine consumers to track down wines at out-of-state stores, state governments have increasingly banned buying from those stores.

"Generally when the Supreme Court speaks, it speaks in broad brushstrokes unless it specifically limits a decision to a very narrow finding, which in my opinion it did not [in Granholm]," said Epstein. (Both Epstein and another attorney for Lebamoff, James Alexander Tanford, originally argued one of the cases that helped bring Granholm up to the Supreme Court.)

Lebamoff comes just after Illinois tightened its prohibition on out-of-state wine retailers. On Aug. 26, Gov. Bruce Rauner signed a new law stiffening penalties against out-of-state parties for shipping wine into the state without the necessary licenses. Even small-scale shipments of wine could be prosecuted as a Class 4 felony, which carries a potential one- to three-year prison sentence.

"A Class 4 felony is on par with stalking and aggravated assault," said Wark. "We think most people would agree that the act of sending a bottle of wine to somebody who wants to buy it probably doesn't rise to the same crime as aggravated assault."

Retailers blame lobbying by state wholesalers for the law, accusing them of seeking to quash competition. At a February 2015 meeting of the Illinois Liquor Control Commission (ILCC), a lawyer for the Wine and Spirits Distributors of Illinois (WSDI) suggested that, "incarceration of one or two illegal shippers would send a strong message to other shippers that Illinois is serious."

But wholesalers argue that the three-tier system of wineries, local wholesalers and local retailers is about protecting consumers. "This legislation protects the health and safety of Illinois consumers by promoting compliance with state law," WSDI executive director Karin Lijana Matura wrote in a statement. "It's about protecting Illinois consumers by abiding by the three-tier system that this industry was established on."

Berkley and Lebamoff co-owner Joseph Doust's complaint against Gov. Rauner, Attorney General Lisa Madigan and two heads of the ILCC makes two arguments for why prohibiting out-of-state retailer direct shipping while allowing it for in-state retailers is unconstitutional: the Constitution's Commerce Clause ("it deprives [plaintiffs] under color of law of their constitutional rights to engage in interstate commerce") and the Privileges and Immunities Clause ("it denies Joseph Doust to engage in his profession as a wine retailer on terms equivalent to those to that given to citizens of Illinois").

"If you read Granholm, I don't think there's a question in my mind what the Supreme Court meant in that case was that the states may not discriminate against out-of-state shippers," says Wark. "And retailers are shippers just like wineries are shippers."

In Granholm, however, Justice Anthony Kennedy wrote in the majority opinion, "The Twenty-first Amendment grants the States virtually complete control over whether to permit importation or sale of liquor and how to structure the liquor distribution system. We have previously recognized that the three-tier system itself is unquestionably legitimate." In the past, some courts have found that the language of Granholm only protects alcohol producers from interstate commerce discrimination, not merchants.

This is not the only case raising this issue in federal court. In August, Texas Package Stores Association, Inc., an advocacy group for wine and spirits stores in the state, submitted a petition for a writ of certiorari to the Supreme Court in a similar case that has wended its way through Texas courts in various forms for a quarter-century. And Epstein and his colleagues are preparing a suit in Missouri that will make a similar argument against the constitutionality of Missouri's retailer shipping restrictions; the plaintiffs are a Florida specialty wine shop and a Missouri resident.

Legal experts believe it would take two years or more before Lebamoff found its way to the highest court, if it did. But the debate is gaining attention. Only a small fraction of the thousands of wines, both American and international, are legally available for purchase in all 50 states. Explaining his motivation, Epstein said, "I'm not only a wine lawyer, but I have been a wine writer and a collector and consumer. My ideal is to be able to have people that want to buy wine get it from whatever source they can legally in the United States."

James J Frakes
Rockford. IL —  September 28, 2016 1:24pm ET
Illinois Legislators don't have the time or skill to get a budget passed or deal with our state's crumbling economy and massive debt, but they move with alacrity to restrict consumer choice and protect the special interests of liquor wholesalers and distributors by restricting competition. I loved buying wine from Wines 'Till Sold Out. I have been a customer for years. And now, in an instant, I can no longer purchase from them. I detest the politicians of my home state.

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