It was not an encouraging sign for supporters of House Resolution 5034, the bill that would give states stronger powers to restrict and possibly block direct shipping of wine. During a hearing yesterday before the House Judiciary Committee, Rep. Ed Towns (D-N.Y.) testified in support of the bill. In his closing remarks, he said, "Cheaper, more plentiful alcohol would be the result if we fail to act on this bill."
Committee Chairman John Conyers (D.-Mich.) asked Towns which way he should vote to get cheaper alcohol, as many in the audience chuckled. "I oppose cheaper alcohol," said Towns. Laughing, Conyers said, "You just slid into an invisible minority!"
Yesterday's hearing was a key test for H.R. 5034, or the Comprehensive Alcohol Regulatory Effectiveness (CARE) Act of 2010. The Judiciary Committee will decide whether the bill heads to the floor of Congress for a full vote. But time is running out in this session, and few members of the committee suggested they considered the bill an urgent priority. Direct shipping supporters, however, worry that the bill's biggest backers, alcohol wholesalers, will merely make a new concerted push for it next year.
The controversial bill, introduced in April and recently revised by Rep. William Delahunt (D.-Mass.), would give states the opportunity to reverse five years of winery-to-consumer direct shipping legislation dating back to the Supreme Court's landmark Granholm decision, which ruled that state alcohol distribution laws cannot discriminate between in- and out-of-state wineries. H.R. 5034 would put the Constitution's 21st Amendment, which gives states control over alcohol sales, above the Commerce Clause, which forbids restrictions on interstate trade.
During yesterday's hearing, supporters of the bill argued that Granholm had weakened states' ability to regulate alcohol sales and increased minors' access to alcohol. "I am not opposed to lower alcohol prices for consumers," said Rep. Gary Miller (R.-Calif.), then added, joking, "or for members of Congress." But Miller argued that recent wine sales litigation and legislation has facilitated underage drinking. "Minors on the Internet can order wine with the click of a mouse," he said.
"I authored this bill because I believe it is an issue that demands immediate attention, to prevent the unraveling of America's system of alcohol regulation," said Delahunt, a member of the Judiciary Committee. Utah Attorney General Mark Shurtleff also argued that Granholm has put states' regulatory powers under attack, commenting that there have been 35 lawsuits in 27 states since the Granholm decision.
Another of the bill's sponsors, Rep. Lamar Smith (R.-Texas), offered his support, but acknowledged that the bill may have some problems, expressing an interest in compromise language—something later echoed by other members of the committee. "As I've told many of the wineries in my home state, I recognize that the legislation perhaps went too far, and I am pleased that Mr. Delahunt is preparing a manager's amendment that addresses many of their complaints," Smith said. "What specific suggestions can those who oppose this bill make that will enable us to address their concerns without hampering this effort to preserve the three-tier system that has served us so well?" he asked.
But speakers opposed to H.R. 5034 did not consider compromise an option and argued that the three-tier system does not work as well as Smith suggested. "Passage of 5034 risks exposing a delicate balance to unintended consequences," said Richard Doyle, CEO of Harpoon Brewery, speaking on behalf of the Brewers Association. "State laws provide wholesalers with strong leverage: We are always the away team, playing in a state system that favors the home team—wholesalers. H.R. 5034 would undeniably make that situation worse. Not only would we be playing away, but the state-based referee would not have any concern about being tempered by federal oversight."
Anti-trust expert Prof. Einer Elhauge of Harvard Law School echoed Doyle's sentiments a few minutes later on behalf of the Beer Institute. "The act would greatly increase legal uncertainty and could be expected to spawn new legal conflict and litigation," he said.
Attorney Tracy Genesen, testifying on behalf of the Wine Institute, labeled H.R. 5034 a gift to wholesalers. (As reported in a previous Wine Spectator investigation, the National Beer Wholesalers of America and the Wine and Spirits Wholesalers of America have contributed heavily to members of Congress since the Granholm decision, and the bill's language closely matches a bill proposed by the NBWA.) "H.R. 5034 is a piece of special-interest legislation for the benefit of those wholesalers, at the expense of retailers, producers and consumers—literally everyone else," Genesen said. "Today's wine-distribution system is shaped like an hourglass, with thousands of producers at the top and millions of consumers at the bottom, but only a few wholesalers in between to distribute their products," she said. "Wholesalers have an interest in maintaining this exclusive grip on the bottleneck between producers, retailers and consumers." Conyers described her testimony as "very persuasive."
One witness at yesterday's hearing did not write his own testimony, it later emerged. The Salt Lake City Tribune reported that Utah Attorney General Shurtleff's testimony was partially written by Paul Pisano, general counsel for the NBWA. "He gave me some information," Shurtleff told the Tribune. "I was communicating with him, and he drafted it for me because I was coming straight [to Washington, D.C.]" Shurtleff explained that Pisano arranged for his trip to the nation's capital.
Time is running out for H.R. 5034's supporters to pass the bill this year. Shortly after the hearing, Congress voted to adjourn until the Nov. 2 elections have concluded, and H.R. 5034's only chance at a vote would come during what should be a very busy lame duck session.
"We were not seeing any engagement on the issue of underage access [from the Judiciary Committee members]— nobody was really buying that," Genesen told Wine Spectator after the hearing. "If this was some huge important deal you'd get more members [attending]. It was supposed to be a full committee."
The Wine Institute plans to conduct a poll of Judiciary Committee members and lobby those who are undecided. Even with the chances of passage looking slim in 2010, Genesen is certain this won't be the last they've heard of the CARE Act. A new version of the bill is expected to be introduced in the House in 2011, and perhaps on the other side of Capitol Hill. "There's a feeling that this might not go away," Genesen said, "And [wholesalers] might try their hand over there [in the Senate]."