A Supreme Court tobacco ruling that may have implications on wine direct shipping: Rowe v. New Hampshire Motor Transport Association

I was intrigued by a story in the New York Times today on a unanimous ruling by the Supreme Court on a tobacco case.  This case, Rowe v. New Hampshire Motor Transport Association, was brought by the New Hampshire Motor Transport Association in challenge of a Maine law requiring shippers of tobacco products to identify and intercept packages from sellers unlicensed to ship tobacco, and to conduct age verification on delivery.  The law seems unexceptional, except that the federal government is given exclusive authority over common carriers under the 1994 Federal Aviation Administration Authorization Act.  The First US Circuit Court of Appeals overruled Maine's law, and the Supreme Court agreed that the 1994 act (which established the deregulation of trucking to put it on a level playing field with the newly-deregulated airline industry) superseded a state's desire to achieve specific public policy goals through regulating the distribution and delivery of a controlled substance.

Particularly interesting as the ruling might apply to wine is the Court's dismissal of a public health argument by states as a means of overriding the federal legislation.  From Justice Breyer's opinion:

"Despite the importance of the public health objective, we cannot agree with Maine that the federal law creates an exception on that basis, exempting state laws that it would otherwise pre-empt."

As the regulatory patchwork allowing direct shipping of wine has coalesced, it has become clear that the compliance costs for wineries will be enormous.  Each state has different regulations, requires different remittances and reports, and exacts different fees.  An industry has developed around knowing these regulations, with companies like Ship Compliant arriving to fill the growing needs of wineries to handle the regulations created by filling the orders of their customers.

It will be interesting to see whether the statutory authority of states to regulate the sale and distribution of alcohol within their borders (granted by the 21st amendment repealing prohibition) takes precedence over the Federal Aviation Administration Authorization Act.  All state regulations (and the model direct shipping bill drafted by the Wine Institute) include portions requiring shippers to verify age upon delivery.  This specific clause was singled out by the Supreme Court as:

"the very effect that the federal law sought to avoid, namely, a State’s direct substitution of its own governmental commands for 'competitive market forces'"

Certainly, the phrasing in the recent ruling suggests that the Supreme Court is not likely to look favorably on many of the "risk to public health" arguments put forth by the states and their distributor financiers.  Again, from Justice Breyer's ruling:

"Many products create “public health” risks of differing kind and degree. To accept Maine’s justification in respect to a rule regulating services would legitimate rules regulating routes or rates for similar public health reasons. And to allow Maine directly to regulate carrier services would permit other States to do the same. Given the number of States through which carriers travel, the number of products, the variety of potential adverse public health effects, the many different kinds of regulatory rules potentially available, and the difficulty of finding a legal criterion for separating permissible from impermissible public-health-oriented regulations, Congress is unlikely to have intended an implicit general “public health” exception broad enough to cover even the shipments at issue here."

Of course, there are constitutional debates involved in the debate on wine shipping, as the Granholm v. Heald ruling demonstrated. The Commerce Clause has its own contradictions with the 21st Amendment.  I don't know whether the Federal Aviation Administration Authorization Act would be viewed as bowing to the 21st Amendment as it impacts the common carriers who deliver wine shipments.  But, I am cheered by the Court's understanding of the difficult burden that various state regulations put on a business trying to deliver a product within the fifty different United States.  This recent ruling gives me additional hope that when the next direct shipping case reached the Supreme Court, wineries are likely to receive a sympathetic hearing.


Direct Shipping to Florida - A New Challenge

Wineries' privileges to ship to Florida are under attack.  As is happening in many states, the distributors' lobby has been working to reduce or eliminate the abilities of out-of-state wineries to ship directly to consumers, and there have been recent developments consumers in Florida - or wineries who ship to Florida - should be aware of.

Last week, in what sounds like a strange and contentious legislative session, Florida House Jobs & Entrepreneurship Council voted 7-6 against a direct shipping bill modeled after the legislation used in states around the country.  The Department of Business & Professional Regulation, which has allowed wine shipments by executive ruling since early 2006, has said that without approved legislation, it will revoke its ruling on May 5th.  The failure of the committee to forward a bill to the state Senate leaves this permission in limbo.

An good article describing the recent developments appeared in the Orlando Sentinel.

It appears to me that the distributors' lobby, in responding to state legislators' unwillingness to vote publicly against a consumer-friendly (and pro-business) measure like regulated direct shipments of wine, have offered legislators an out: by declaring that the amendment with a production cap had failed, they delivered a bill to the committee that a bare majority could vote against... uniting those legislators who believe that no direct shipping should be allowed with those who believe that it should be allowed only for smaller wineries.  In effect, they offered a "poison pill" provision into the direct shipping bill, allowing legislators to appear to vote against a part of the bill while actually voting against the entire bill.

It is too early to know what impact this will have.  The legislature has until May 5th to pass a workable bill before the state deadline passes.  Interested consumers should write to your state representatives, urging them to pass a workable wine shipping bill.  A sample letter, which can be modified to suit your desires, is available on the "Free the Grapes" Web site.

At Tablas Creek, we have always worked to open legal avenues of shipping, and we hope that Florida will not become the first state to remove shipping privileges granted after the Supreme Court ruling two years ago.


Direct Shipping of Wine: The Supreme Court's Granholm v. Heald Case Explained

[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:

Introduction

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.

Case Details

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.

Constitutional Arguments

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.