Michigan Court Overturns Ban on Wine Retailer Direct Shipping

Out-of-state retailers get a legal victory in the direct-shipping wars, and Michiganders get access to 50 states of wine … for now
Michigan Court Overturns Ban on Wine Retailer Direct Shipping
Michigan wine consumers can order wine from merchants in other states, which means access to hard-to-find wines. (istockphotos)
Oct 2, 2018

After two years of legal volleys, lawyers challenging restrictions on wine direct shipping notched an important victory on Sept. 28. A federal judge in Michigan has ruled that the state's prohibition on direct-to-consumer wine shipping from out-of-state retailers is unconstitutional. If the ruling stands, Michigan residents will be able to purchase wine from stores anywhere in the country and have it shipped to their homes.

Robert Epstein, lawyer for Cap n' Cork, an Indiana chain of wine stores and plaintiffs in the case, hopes it is a bellwether for the shipping options of wine lovers across the country. "What has been accomplished is a first step in opening up shipping by retailers around the country to out-of-state clients," Epstein told Wine Spectator.

Lebamoff Enterprises, Inc. et al v. Snyder et al is one of three similar cases undertaken by the Indianapolis-based law firm Epstein, Cohen, Seif & Porter. The other two were filed in Illinois and Missouri. In each, the plaintiffs argue that state bans on out-of-state retailer direct shipping violate the U.S. Constitution's dormant Commerce Clause and Privileges and Immunities Clause.

"For Michigan consumers, it's a big win"

The Lebamoff complaint was filed in the Federal District Court for Eastern Michigan on Jan. 20, 2017, just 11 days after the state's legislature passed a bill allowing in-state retailers to deliver wine, beer and spirits to Michigan residents via common carriers like FedEx and UPS—but blocking out-of-state merchants from doing the same. "The law thus expanded the shipping rights of Michigan retailers while eliminating the shipping rights of out-of-state retailers," summarized Judge Arthur Tarnow, in his opinion granting the plaintiffs' motion for summary judgment.

"The governing question, therefore, is whether Michigan is permitted to enforce a statute that explicitly denies out-of-state retailers a privilege available to their in-state competitors. The answer at this stage must be no," wrote Tarnow.

"For Michigan consumers, it's a big win, because now they have access to nearly every wine that is sold in the United States," said Tom Wark, executive director of the National Association of Wine Retailers, which has supported the plaintiffs' case. If the Michigan legislature now acts to put a system in place for issuing permits to out-of-state retailers and collecting taxes on shipments, "then consumers will win, out-of-state retailers will win, and the state will win, too, because they'll start getting a lot of tax revenue. That's the win-win-win situation."

The Michigan Beer & Wine Wholesalers Association joined the case in support of the existing law blocking out-of-state retailer shipping. "We are disappointed in the ruling," MB&WWA president Spencer Nevins told Wine Spectator via email, "which would allow unregulated and untracked out-of-state retailers to ship alcohol direct to consumers, sapping the state of much-needed tax revenue and undermining small businesses that choose to call Michigan home, including retailers, wineries, breweries and distributors, as well as providing another avenue for underage alcohol abuse."

Potential precedent

Michigan might be the most contentious territory in the direct shipping wars. Along with New York, it was one of two defendants in the 2005 Granholm v. Heald Supreme Court ruling that in-state and out-of-state wineries should have the same shipping privileges from state to state.

But does Granholm apply to retailers? "Michigan … cannot demonstrate that permitting in-state retailers to ship directly to consumers while denying out-of-state retailers the right to do the same is inherent to its three-tier system," wrote Tarnow. "Michigan retains its 21st Amendment powers to maintain a closed three-tier system, just as it remained free after Granholm to prohibit wineries from shipping directly to consumers. But when it starts carving exceptions out of that system, it must do so without resorting to economic protectionism."

In addition to challenging the ban's constitutionality, Epstein presented the wine-buying difficulties he argued that Michigan's system imposed on his clients, Lebamoff Enterprises (the company that owns Cap n' Cork) and Michigan consumers Jack Stride, Jack Schulz and Richard Donovan.

Schulz's fiancée is Greek-American "and his claim was that he can't get a decent supply of Greek wine in Detroit." Epstein contacted a Binny's store in Chicago. "I said, 'Give me a photograph of your Greek wine section,' which was about 75 wines. So I blew that up on a poster, which I brought to court. And the judge said, 'I get it.'"

He also presented a bottle of Domaine de la Romanée-Conti La Tâche 1964 to make his case. "This was a fairly expensive bottle of wine. But the only way you can get a bottle of wine like this would be the Internet or from a specialty retailer," he argued.

What happens now? For the moment, Wark has been advising retailers that direct shipping is back for Michigan residents. "I'm telling them, 'Until Michigan does something [in the courts or legislature], you can ship.' So I would suspect that a number of them will be contacting their former Michigan clients, letting them know that they're open for business."

Supreme fight

Epstein would like to see the Supreme Court hand down an ultimate decision on whether Granholm applies to retailers. He hopes that the state appeals to the Sixth Circuit Court, "and we win." But the state legislature could also ban retailer direct shipping once again, barring it for both in- and out-of-state merchants.

The Illinois case, Lebamoff Enterprises, Inc. et al v. Rauner et al, awaits decision from the Seventh District Court of Appeals, where it was taken up after the plaintiffs' complaint to federal court was dismissed June 8, 2017. The Missouri case, Sarasota Wine Market LLC et al vs. Greitens et al is awaiting a ruling on the defendants' motion to dismiss.

Hanging over all three cases is the announcement last week that the Supreme Court will hear Tennessee Wine & Spirits Retailers Association v. Byrd, a case challenging a different but tangential regulation regarding retailers and interstate commerce. Whether the ruling on Byrd also addresses out-of-state retailer shipping is an open question; even if not, the lower-court cases could be stalled until their judges can observe how Byrd is decided. "Depending on what the Supreme Court does with Byrd, it may or may not control these other cases," said Epstein. "The takeaway is let's wait and see."


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