[Ed note, July 2008: I recently wrote an update analyzing the ongoing impacts of the Granholm v Heald decision on wineries that readers of this post might find interesting.]
With the issues surrounding wine direct shipping becoming more complicated (check out Free the Grapes or ShipCompliant's excellent blog) I have had lots of conversations with people around the industry concerning the implications of the Supreme Court's landmark Granholm v. Heald decision from 2005.
I speak each week with a surprising number of consumers who believe that after the Supreme Court ruling, we should be able to ship wine anywhere, and take it personally when I explain that we can't.
I thought it would be timely and interesting to republish the article I wrote for our Summer 2005 newsletter. The article is reprinted below. I'll be revisiting this issue over my next few posts, with an eye toward what has changed in the last 24 months:
We were thrilled that on Monday, May 16, 2005, the U.S. Supreme Court struck down laws that prohibit out-of-state wineries from shipping to consumers while allowing in-state wineries to do so. However, some of the hype surrounding the case gave consumers the mistaken impression that wineries can now ship wine to anyone, anywhere. Rather, this decision is a positive step in the direction of giving consumers access to more wines, but will have only limited immediate impact.
In order to know what impact the decision will have, it is important to understand the two cases under review. Michigan and in New York both have enacted laws or regulatory systems that in effect permit their in-state wineries to ship wine directly to consumers, but prohibit out of state wineries from doing so. The mechanisms were slightly different, but the effects were the same. In Michigan, wine writers Ray and Eleanor Heald, joined by San Luis Obispo winery Domaine Alfred, challenged the state’s laws on the grounds that they represented an unconstitutional favoritism of in-state producers over out-of-state producers. The Michigan Association of Wholesalers, fearing that direct shipping could erode their share of the wine market, intervened in favor of the state’s argument claiming that the 21st Amendment to the Constitution immunized states from prosecution for discrimination over alcohol. The district court upheld the state’s regulations, but the 6th Circuit Court of Appeals reversed it.
In New York, small winery owners Juanita Swedenburg (Swedenburg Estate Vineyard in Virginia) and David Lucas (Lucas Winery in California) brought suit against New York claiming that the state’s restrictions violated the Commerce Clause, and again New York wholesalers intervened in the state’s defense. A district court found for the plaintiffs, but the 2nd Circuit Court of Appeals reversed the decision, ruling in favor of the state. This led to the Supreme Court combining the two cases to review the question of whether the 21st Amendment permits states to enact regulatory schemes that discriminate in favor of in-state wine producers.
The commerce clause is actually a very short piece in Article 8 of the Constitution, giving congress “Power to regulate Commerce among the several States” . However, Supreme Court interpretation has concluded that there is a dormant commerce clause assumption implicit in the wording, best expressed in a ruling from 1949:
Our system, fostered by the Commerce Clause, is that every farmer and every craftsman shall be encouraged to produce by the certainty that he will have free access to every market in the Nation… Neither the power to tax nor the police power may be used by the state of destination with the aim and effect of establishing an economic barrier against competition with the products of another state or the labor of its residents. Restrictions so contrived are an unreasonable clog upon the mobility of commerce.
The 21st Amendment repealed Prohibition, while assuring that states or municipalities who wished to remain “dry” could do so:
The transportation or importation into any State, Territory, or possession of the United States for delivery or use therein of intoxicating liquors, in violation of the laws thereof, is hereby prohibited.
The states argued that the ban on out-of-state shipping was necessary for two reasons. First, to ensure that minors did not receive access to alcohol. Second, to ensure that states were able to collect the appropriate tax revenues. They further argued that it was reasonable to permit in-state wineries rights denied to those from other states because the remedies they had against local wineries who broke state laws were more easily enforced.
The plaintiffs in the case countered that there were remedies in place that addressed the states’ legitimate concerns. 26 states have enacted some sort of direct wine shipping, requiring an adult signature at delivery, and requiring wineries that ship into the state to remit the appropriate taxes.
The Supreme Court’s Decision
After reviewing case history, the Supreme Court, in a 5-4 decision, agreed that the 21st Amendment gave states broad powers to regulate alcohol in many ways, including the rights to assume all control over liquor distribution, or to funnel sales exclusively through distributors. However, as the court pointed out in its decision:
State policies are protected under the Twenty-first Amendment when they treat liquor produced out of state the same as its domestic equivalent. The instant cases, in contrast, involve straightforward attempts to discriminate in favor of local producers.
In conclusion, the court ruled that although states may control the distribution in many ways, they must do it equitably:
States have broad power to regulate liquor under §2 of the Twenty-first Amendment. This power, however, does not allow States to ban, or severely limit, the direct shipment of out-of-state wine while simultaneously authorizing direct shipment by in-state producers. If a State chooses to allow direct shipment of wine, it must do so on evenhanded terms.
The court affirmed the Michigan Decision, and reversed the New York decision, remanding the case back to the state legislatures to enact constitutional legislation.
The Decision’s Impact
There are currently only eight states that permit in-state wineries to ship to consumers but prohibit out-of-state wineries from doing the same thing (and who are therefore in violation of this recent ruling). These are New York, Michigan, Massachusetts, Connecticut, Ohio, Florida, Indiana, and Vermont. The regulations in those states will have to be re-written, and it is possible that the states will choose to prohibit direct shipping from everyone (including their own wineries) rather than opening the states’ borders to all. However, it appears unlikely that states with a significant winery presence (including New York, Michigan, and Connecticut) will take an action that would mean economic ruin for some of its small in-state wineries. States with a strong wholesaler lobbying presence and very few wineries (including Florida and Massachusetts) seem more likely to prohibit all direct shipping of wine.
[Ed note, April 2007: New York, Michigan, and Vermont passed legislative
solutions permitting direct shipping to both in- and out-of-state
wineries. The Ohio and Florida executive branches enacted rules
permitting in- and out-of-state shipping. Massachusetts and
Connecticut enacted legislation that theoretically permits wineries to
ship to consumers, but with so many restrictions and such high compliance costs that few wineries actually are shipping, and the Indiana Attorney
General clarified the state's laws to prohibit any wineries from
shipping wine to consumers.]
But, you do have power to affect the decisions state legislatures make. If you have an opinion, contact your legislator and let him or her know what you think. Resources online that can help you contact your legislator include the Wine Institute (www.wineinstitute.org) and Free the Grapes (www.freethegrapes.org).
[Ed note, April 2007: At Tablas Creek, we have since created and maintain a page of wine shipping news here on our blog where we post any news or other developments.]
We will be contacting our mailing list members who live in affected states as soon as we learn what any new regulations mean. We are also working with our common carriers (FedEx and UPS) to ensure that our customers are protected from questionable or unscrupulous shipping practices. We only ship to the states to which we are allowed by state law, and we mark our shipments clearly as wine. If you live in a non-shipping state, we're happy to help you find local retailers or wholesalers who carry our wine.