After two years of legal wrangling, a federal judge struck down Massachusetts' direct shipping law this past week, ruling that the law's volume caps were discriminatory. The case could have a far-reaching impact on similar laws in other states.
After the Supreme Court's 2005 Granholm decision ruled that states cannot treat in- and out-of-state wineries differently when it comes to shipping rules, Massachusetts passed House Bill 4498. It was the first winery direct-shipping law to institute volume caps on wineries eligible to ship to residents, and it started a trend among state legislatures across the country. Direct-shipping laws with volume caps appear to treat in-state and out-of-state wineries equally, in compliance with Granholm, but typically prevent the vast majority of California, Oregon and Washington wineries from selling to residents by prohibiting shipping from wineries that produce more than a specified amount of wine each year. The legislature typically sets this volume cap slightly above the production level of the state's largest winery.
In her Nov. 19 Family Winemakers of California vs. Jenkins decision, United States District Court Judge Rya Zobel struck down the law, ruling that the volume caps were discriminatory. Zobel wrote in her decision, "The sequence of events leading up to the passage of [H.B. 4498] and the public comments of the bill's sponsor provide strong support for plaintiffs' assertion that [the bill] was designed to allow in-state wineries to continue direct shipping while forcing the majority of interstate wine to go through the three-tier system, thereby preserving the economic interests of both Massachusetts wholesalers and Massachusetts wineries."
Barring an appeal, wineries can apply for a shipping permit from Massachusetts once the state's Alcoholic Beverage Control Commission complies with the ruling. Massachusetts residents will now be able to receive shipments of wine directly from any winery, in the state or out.
Judge Zobel's ruling will now likely be taken under consideration by parties challenging volume caps in other states, such as in Arizona and Ohio.
"This is a very, very important ruling, because it's really one of the first that looks at how the wholesalers have been trying to game Granholm, and it shut them down," said Tom Wark, executive director of the Specialty Wine Retailers Association, an organization that advocates for direct shipping to consumers. "The key to this ruling is that the law was clearly passed with the intention of discriminating against out-of-state wineries, and the testimony from when [House Bill 4498] was passed makes that absolutely clear," Wark said, referring to testimony by Massachusetts State Sen. Michael Morrissey that was cited in the decision.
Morissey, the sponsor of HB 4498, which the Wine and Spirits Wholesalers of Massachusetts helped draft, testified during that bill's senate debate that "with the limitations that we are suggesting in the legislation, we are really still giving an inherent advantage to the local wineries," suggesting that those who drafted the bill were well aware it did not provide equal footing for in-state and out-of-state wineries as required by Granholm and the Constitution's commerce clause.
"I would argue that every single volume cap passed since Granholm has been a discriminatory measure against out-of-state wineries. In the case of Massachusetts it was clear," Wark said. "I think this might dissuade other states from going down this path."
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