In Courthouses and State Capitols, Wine Retailers Are Fighting for Direct Shipping

Bills have been introduced to end the restrictions on retailer shipping, and lawsuits have been filed challenging the bans
In Courthouses and State Capitols, Wine Retailers Are Fighting for Direct Shipping
Missouri lawmakers quietly killed consumers' ability to order wine from out-of-state retailers last year. (istockphotos)
Feb 2, 2018

This is part 2 of a series on the clampdown on shipping by wine retailers. To learn about how it is impacting retailers and consumers, check out part 1.

On July 11, 2017, Missouri Gov. Eric Greitens signed into law a bill presented as relating to the “sale of liquor in airports.” The state legislature’s 326-word summary of the bill explained in plain detail the effect of five provisions, mostly loosening restrictions on the purchase and consumption of beverages at distilleries, resorts and international airports in the state.

The sixth change to the state‘s Liquor Control Law simply read, “Repeals a section related to the personal shipment of wine (Section 311.462).” That section, quietly deleted, is the one that had allowed Missouri residents to receive wine from out-of-state retailers in “reciprocal” states, those whose residents could in turn legally buy wine from Missouri retailers.

When the law went into effect Aug. 28, Missouri drinkers lost all access to wine from out-of-state retailers, and Missouri merchants added California, Idaho and New Mexico to the states they could no longer do business with. Though direct-to-consumer shipment from wineries has become legal in 42 states since the 2005 Granholm v. Heald Supreme Court decision, the Missouri law reduced retailer-to-consumer shipping to just 13 states—down from 18 in 2005.

“It was sneaky, underhanded and crazy how they pulled this off,” Jason Main, an owner of wine shop the Wine Merchant Ltd. in Clayton, Mo., said of the Missouri legislation shortly after he discovered it passed. “The folks I have talked to, we all found out after the fact.”

Missouri’s was just one in a spate of recent state efforts to limit retailer direct-to-consumer shipping. On Aug. 26, 2016, Illinois Gov. Bruce Rauner signed into law a bill that made it a Class 4 felony for out-of-state retailers to ship to Illinois customers, which carries a potential one- to three-year prison term. The practice had already been illegal. On Jan. 9, 2017, Michigan Gov. Rick Snyder signed a measure prohibiting out-of-state retailers from shipping wine into that state, though previous provisions had already made it logistically near-impossible.

Main estimated that his specialty store did $1 million of sales per year in out-of-state sales before the crackdowns. “I can’t tell you how many customers I instantly lost overnight when Illinois changed their shipping laws. With Illinois passing their felony shipping legislation and this reciprocal thing, it has been decimating for what we’ve been able to do out of state,” Main said.

As retailers are stymied by the tightening of laws against shipping across state lines and the more aggressive policing of existing laws, they’re waging a battle on two fronts: in state legislatures and in court.

In Capitols

In 2017, shipping proponents introduced seven bills in state legislatures to allow out-of-state retailer shipping. The efforts failed in Alabama, Connecticut, Kentucky, Rhode Island and Texas, but two remain active.

In Massachusetts, H.3891, filed June 13, 2017, in the House of Representatives by Rep. John Lawn Jr., allows state residents to receive alcohol shipments from other states. The bill is currently before the Joint Committee on Consumer Protection and Professional Licensure.

In the New York State Assembly, a bill would allow for residents to buy wine from retailers in reciprocal states; the proposal was introduced in the House by primary sponsor Assemblywoman Amy Paulin on Feb. 21, 2017. An identical bill has been introduced in the Senate. On Jan. 3, 2018, the bills were taken up for the new year’s session by committees in both chambers.

“I like wine, and many of my constituents do, and sometimes certain fine wines are hard to find,” Paulin told Wine Spectator. “You find them through researching on the Internet, or finding they may have been distributed to some retailers outside your state. And then you can’t get them. This seemed like a fair way of changing that system.”

Sen. Terrence Murphy, sponsor of the bill in the Senate, told Wine Spectator via email, “New Yorkers have seen the incredible growth of the wine industry and want greater access to it. Ultimately, allowing direct shipments from out-of-state retailers who are licensed in the same manner as out-of-state wineries could not only provide New York consumers with access to thousands of products not available in our state, but also could provide millions of dollars in tax revenue to New York.”

Tom Wark is founder of the National Association of Wine Retailers (NAWR), a group that represents retailers in favor of shipping. The organization supports all seven bills and helped craft several of them. Wark said he has “high hopes” for the two that remain active. He launched the website in mid-2017 to draw public attention to the issue, connecting drinkers with the state legislatures where shipping bills are under consideration.

“More and more consumers are finding that they can’t buy the wines they want, and so they’re starting to speak up,” said Wark. “All of the sudden, they can’t have them shipped, and they ask why.”

The primary hurdle to retailer direct shipping in state legislatures, according to proponents, is the influence of large companies, mostly distributors. “This is just collusion between state governments, big-box retailers and importers to put all the independents out of business,” said Main of the restrictive Missouri law. “To me, this is as embarrassing as politicians can behave. They have no reason for doing it other than a lobby paid them to push this through. There’s no, like, kid who ordered a pallet of Grey Goose, and it showed up on his doorstep.”

Paulin agrees that wholesalers are the opposition. “The distributors, who worry that they will be left out of the loop, are strongly opposed in New York to this change” to allow retailer shipping, she said. “They’re very strong politically, and because of their opposition we have not been able to move the bill. But it’s a new session, new battle, and we‘ll continue to pursue.”

Craig Wolf, president and CEO of the Wine and Spirits Wholesalers of America (WSWA), welcomes the challenges in legislatures. “Go to the legislature in New Jersey [for example], try to get the laws changed. And we’re happy of that, because we happen to think that we’re on the right side of that issue, that accountability is important, that states have the right certainly to control how alcohol gets to their consumers in the state.”

On Jan. 2, 2018, an additional bill to allow winery and retailer direct shipping was introduced in the Mississippi House of Representatives, but it died in committee Jan. 30.

Wark told Wine Spectator to expect bills advocating for retailer shipping to be introduced in Connecticut, Rhode Island, Alabama and possibly Illinois in 2018.

In Courts

In the legal arena, three court cases challenging retailer direct-shipping restrictions are in various stages of maturity. The plaintiffs in each case are out-of-state wine merchants and in-state would-be customers. Each of the suits argues that prohibitions on out-of-state retailer shipping violate the Constitution’s dormant Commerce Clause and Privileges and Immunities clause.

And each was filed by attorneys from Indianapolis-based firm Epstein, Cohen, Seif & Porter. Lawyers Robert Epstein and James Tanford also argued the Michigan case that eventually went to the Supreme Court as Granholm v. Heald and believe that the principles of Granholm allowing out-of-state winery direct-shipping also apply to retailers.

Lebamoff Enterprises, Inc. et al v. Snyder et al, filed Jan. 20, 2017, in the Federal District Court for Eastern Michigan, is the case Epstein thinks is nearest to resolution. The plaintiff, Lebamoff Enterprises, operates the Indiana specialty wine merchant chain Cap n’ Cork, which is barred from shipping wine to the state to its north.

The consumer co-plaintiffs are Michigan residents Jack Stride, Jack Schulz and Richard Donovan. The complaint states, “The laws of the state of Michigan treat interstate sales, shipment and delivery of wine by retailers differently and less favorably than intra-state sales, shipment and delivery of wine. This statutory scheme discriminates against out-of-state wine retailers and provides economic advantages and protection to wine retailers in Michigan.” Both sides have given depositions.

Two of the plaintiffs had moved to Michigan from places where they had access to a greater variety of wines. “The second guy is engaged to a Greek gal, and he testified that he used to live in Chicago and could go to Binny’s and find 100 Greek wines. And in the Detroit area, you might be lucky to find three,” said Epstein. Another young plaintiff testified he was accustomed to shopping for other goods like clothes and food online and wanted to have the freedom to do the same for wines, especially those not available in Michigan, said Epstein.

The Michigan Beer & Wine Wholesalers Association joined the state as an intervening defendant and argued in answer to the complaint that Granholm “makes clear that Michigan may structure its retailer tier free of Commerce Clause restrictions …. Nothing in the Granholm decision calls into question Michigan’s right to allow in-state retailers to direct-ship to Michigan consumers, while prohibiting sales and shipments to Michigan consumers by the many thousands of out-of-state wine retailers.”

In Illinois, Lebamoff Enterprises, Inc. et al v. Rauner et al challenges that state’s ban on retailer shipping, but District Court Judge Samuel Der-Yeghiayan granted the defense’s motion to dismiss the complaint on June 8, 2017, with the judge writing, “Plaintiffs’ allegations indicate that [Cap n’ Cork proprietor Joseph] Doust is seeking to deal directly with Illinois consumers without proceeding through the three-tier regulatory system in place to protect the public welfare. Under Illinois law, no individual in Illinois or outside of Illinois possesses such a right.”

Epstein’s team responded with an appeal in the Seventh Circuit Court of Appeals on technical grounds that Der-Yeghiayan did not allow the plaintiffs to amend their complaint after the defense filed its motion to dismiss. Each side will make its arguments on Feb. 16.

The most recent complaint, Sarasota Wine Market LLC et al vs. Greitens et al was filed in the District Court for Eastern Missouri on Nov. 29, 2017. On Jan. 16, 2018, the state filed a motion to dismiss the case, arguing the plaintiffs lacked standing, and lawyers for the plaintiffs filed a rebuttal six days later. “Stay tuned,” Epstein said. “There may be some more filings in the next year.”

Eventually, Epstein would like to see his cases get their day in the Supreme Court, so the legality of applying Granholm to retailer direct-shipping “can be decided once and for all.”

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