Courts in the US have delivered decisions that will frustrate those who want free trade in wine.
By W. Blake Gray | Posted Thursday, 18-Feb-2021
Wine lovers took a big legal setback on Tuesday, as a US federal appeals court ruled that a Florida wine shop cannot ship wine to customers in Missouri, even though Missouri stores can.
The case, Sarasota Wine Markets v Schmitt, seems to directly contradict a 2019 Supreme Court ruling that said states could not discriminate against out-of-state wine retailers. It is the second such setback in the last year. Michigan won a similar case against an out-of-state wine retail shop last April and has subsequently begun fining out-of-state stores that ship wine to Michigan residents.
In another anti-shipping development, the Tennessee legislature is considering a bill that would prevent wineries from using fulfillment houses to ship wine to its residents. Direct shipping by out-of-state wineries was specifically allowed by the US Supreme Court in the 2005 Granholm v Heald case. The proposed Tennessee law is a novel approach to restricting it, and if successful could be pursued in legislatures across the country.
All in all, this could be the worst week for wine shipping in the 16 years since the landmark Granholm decision. And it comes at a particularly bad time, as consumers nationwide during the pandemic are ordering more things online.
“There’s a move underway from the distributors to shut down every means of out-of-state shipping,” beverage alcohol attorney Sean O’Leary told Wine-Searcher. “[Wineries] have to ship from your own location, but 60 percent of the wine coming into Tennessee is coming from fulfillment houses.”
Supreme Court gets a bypass
The Sarasota case disappointed O’Leary because it involved precisely the kind of out-of-state discrimination that the US Supreme Court seemingly outlawed in 2019 in Tennessee Wine & Spirits Retailers Association v Thomas. In that case, Tennessee had a state residence requirement for wine retail shop owners; SCOTUS struck it down.
Missouri has a very similar law, requiring anyone seeking a liquor license to be a qualified voter and taxpaying citizen of the state. Sarasota Wine Market and two Missouri consumers sued, saying that the Missouri law violated the commerce clause of the US Constitution.
Surprisingly, US Eighth Circuit Appeals Court judge James B. Loken ruled against Sarasota Wine Market because Loken said the Florida store was not challenging the state’s residency requirement, but instead attacking the three-tier system. In effect, the Florida store was not required to buy its wines from Missouri wholesalers as Missouri stores are.
Loken called the three-tier system “unquestionably legitimate” in his ruling, citing a phrase used in the Granholm decision by Supreme Court justice Antonin Scalia. O’Leary said Loken uses the phrase nine times in his decision – but it does not appear in the Tennessee decision at all, and in Granholm, it is in a part of the decision known as the “dicta”, in which the judge writing the ruling editorializes at will, but does not address the issues at the heart of the ruling. O’Leary says the wholesaler groups that donate heavily to state-level politicians have been using the phrase “unquestionably legitimate” about the three-tier system ever since Scalia wrote it as a way to protect their turf.
“What this [Missouri] decision says is that the Supreme Court’s Tennessee Wine decision only applies where we deem something not essential to the three-tier system,” O’Leary said.
A cold house for wine
The decision allowing Missouri to have different shipping laws for in-state and out-of-state retailers now becomes the law in the Eighth Circuit, which has never been especially wine-friendly. The circuit includes Arkansas, Iowa, Minnesota, Missouri, Nebraska, North Dakota and South Dakota. Only Nebraska and North Dakota allow out-of-state retailers to ship to their residents.
The Michigan case from last year that allows states to similarly discriminate against out-of-state retailers, Lebamoff v. Whitmer, is now law in the Sixth Circuit, which includes Kentucky, Michigan, Ohio and Tennessee. None of them allow out-of-state retailers to ship to their residents. And in fact, a case filed by an Indiana retailer seeking to ship wine into Tennessee was dismissed this week by a federal district court judge who cited the Lebamoff decision as precedent.
“It’s very disappointing that a second federal judge misunderstood the (Supreme Court’s) Tennessee wine decision,” said Tom Wark, executive director of the National Association of Wine Retailers. “If Missouri were the only case that we were litigating at this moment, it would be worrisome. But it’s not. It’s worth remembering that in the path to Granholm, there were a number of setbacks in different courts.”
Wark said his organization is following through on seven other lawsuits against laws that discriminate against out-of-state retailers. Even though it does not yet have a win at the appeals court level, Wark remains confident. If an appeals court in a circuit like the Seventh Circuit, where a similar case is very far along, issues a decision that disagrees with the decisions in the Sixth and Eighth Circuits, it becomes more likely for the Supreme Court to take up the issue again.
“Granholm is the paradigm-shifting opinion and [the] Tennessee [case] said retailers, as well as wholesalers, are covered by Granholm,” Wark told Wine-Searcher. “All the wholesalers in so many courts said, Granholm said producers and products. We lost two or three cases with courts saying, no, Supreme Court said Granholm only applies to producers and products. And then Tennessee proved those cases wrong.”
