High Court to Hear Wine Shipping Case

U.S. Supreme Court likely to hear case in December. Compiled by staff

Published on: May 31, 2004

The U.S. Supreme Court will consider both the 2nd and 6th Circuit U.S. Court of Appeals cases which challenged New York's and Michigan's discriminatory bans on interstate, direct-to-consumer wine shipments.

The Supreme Court has usefully narrowed the cases to one core question: does the 21st Amendment permit states to discriminate against out-of-state wineries? In legal terms the high court will consider whether states with this type of statutory scheme are violating the dormant Commerce Clause. It is expected that arguments for the case will be held in December.

The only vocal opponents to the direct shipping provisions working in many states are wine wholesaler middlemen who want all sales to flow through them. The wholesaler’s have aggressively supported legislation creating state-sanctioned monopolies in wine distribution in many states, triggering a Federal Trade Commission study in 2003. The FTC concluded, "State bans on interstate direct shipping represent the single largest regulatory barrier to expanded e-commerce in wine." Additionally, "state bans on direct shipping prevent consumers from saving as much as 21% on some wines and from conveniently purchasing many popular wines from suppliers around the country."

States that have passed favorable direct shipping legislation have procedural safeguards against shipments to minors, and the FTC's survey of regulators in 11 of these states found "no evidence suggesting direct shipping increases underage access."

"We welcome the opportunity to challenge laws whose sole purpose is economic protectionism," says Judge Kenneth W. Starr, counsel to the Coalition for Free Trade (CFFT), a non-profit organization seeking judicial relief from laws prohibiting direct-to-consumer shipments of wine.

Paul Kronenberg, president of Family Winemakers of California, says that many of his 570 members simply can't meet consumer demand for their wines because they don't have access to consumers in many states. According to Kronenberg, "the only way that most small wineries can survive economically is to open up new markets and that means shipping directly to consumers. New and small wineries, trying the build their brands, are of little interest to large wholesalers who like to truck pallets of wine, not a case or two."

At issue is whether states can allow intra-state, direct-to-consumer wine shipments but deny that same privilege to out-of-state wineries. "States should regulate, not discriminate," says Tracy Genesen, legal director of CFFT and Of Counsel with Nossaman Guthner Knox & Elliott LLP in Sacramento. "We will energetically argue in support of states' rights to regulate wine shipments -- this is after all, a state issue. But we will argue with equal conviction that states cannot discriminate against out-of-state wineries by banning interstate shipments, when they grant in-state wineries shipping privileges," she adds.

The 6th Circuit U.S. Court of Appeals ruled last August that Michigan's ban on direct, interstate shipments was unconstitutional, overturning a lower court ruling. The state's petition for a rehearing en banc (from the full panel of Circuit Court judges) was not granted, but Michigan Attorney General Mike Cox petitioned the state's case to the high court. Despite the 6th Circuit ruling, the state's existing prohibition on direct shipping remains in effect during the appeal process.

The 2nd Circuit U.S. Court of Appeals ruled in February to uphold New York's current legal scheme, under which in-state wineries are allowed to ship directly to New York consumers, but out-of-state wineries are required to establish a "physical presence" in New York before being allowed to do so. In March, the Institute for Justice, which represents the consumer and winery plaintiffs, petitioned the case to the U.S. Supreme Court.

In June 2003 the 5th Circuit U.S. Court of Appeals ruled that Texas' ban on interstate wine shipping was unconstitutional. But the Texas Attorney General did not petition the ruling to the U.S. Supreme Court. Common carriers and the state are working on regulations to comply with the ruling. In North Carolina and Virginia, state legislatures passed the wine industry's model-shipping bill last year after the 4th Circuit Court of Appeals ruled in favor of the plaintiffs.

Eighteen years ago, no states allowed direct shipments from out-of-state wineries to consumers over 21 years old. Now, that number has increased to 26 states -- four states just changed in 2003.

CFFT is a non-profit organization seeking judicial relief from laws prohibiting direct-to-consumer shipments of wine. The legal foundation is assisting winery and consumer plaintiffs with active lawsuits in Florida, Michigan, New York, New Jersey and Ohio.