All eyes will turn to the Supreme Court in January
Interstate retail could become a little easier after a landmark decision in a US court this week.
By W. Blake Gray
The looming Supreme Court wine showdown became more likely to have sweeping national impact on direct shipping, thanks to an important ruling this week by a federal appeals court in Illinois.
That case was brought by an Indiana wine shop, Lebamoff Enterprises, that wants to ship wines to clients in Illinois, which is against Illinois state law. Lebamoff lost initially when the federal district court dismissed the case without even hearing it.
But the Seventh Circuit Court of Appeals ordered the case reopened Wednesday. Moreover, the wording of the appeal court’s ruling appeared to suggest exactly what wine lovers in Illinois want to read: that states should not be able to discriminate against out-of-state retailers when writing their liquor laws.
Meanwhile, the US Supreme Court scheduled a hearing on January 16 for the case that could decide the issue for everyone: Tennessee Wine & Spirits Association v. Blair (the defendant in the case has changed from Byrd to Blair because the head of Tennessee’s Alcoholic Beverage Commission has changed).
Tom Wark, executive director of the National Association of Wine Retailers, said that even though the Seventh Circuit is below the Supreme Court, its ruling this week in the Illinois case will be significant for the higher court.
In a similar case in nearby Michigan, a district court ruled earlier this fall completely the opposite of the Illinois district court – in favor of out-of-state retailers who want to ship Champagne to Detroit. But implementation of that ruling has been stayed as everyone waits for the Supremes.
“The issues in the (Tennessee) case are a lot of the same issues (as the Illinois case),” Wark told Wine-Searcher. “First, the Supreme Court sees that the Michigan court was stayed and they’re waiting. Now the Illinois court knows they’re going to be impacted by the Supreme Court. It’s more likely that the Supreme Court will rule more broadly.”
The issue is not whether retail shops can ship wine to customers. States are allowed to pass their own liquor laws based on the 21st Amendment, which repealed Prohibition. Some states, like California, are relatively open to direct shipping. Others do not want their residents to be able to buy wine and spirits online, and their state legislatures have the power to prevent it.
Instead, the issue is whether a state like Illinois can allow its stores to ship wine and spirits to customers, but prevent out-of-state stores from doing so. A landmark 2005 US Supreme Court ruling, Granholm v. Heald, said that states could not discriminate against out-of-state wineries that want to ship wine. But the question of whether that ruling applies to retail shops has not yet been definitively addressed.
Wednesday’s Seventh Circuit ruling, written by Chief Judge Diane Wood, strongly suggests that Granholm should apply to retailers.
“The interstate shipment provision decries ‘direct marketing’ of liquor as a ‘serious threat’ not only to the health of state residents, but also ‘to the economy of this State’. The first reason touches the core of the 21st Amendment, while the second smacks of protectionism,” Wood wrote.
“If Illinois can limit the dangers of mail-order sales through other requirements, why does it need to discriminate against interstate commerce and flatly bar out-of-state retailers from obtaining a license?” she continued.
Wark says that Wood’s decisive opinion will catch the attention of the Supreme Court.
“Diane Wood is the chief justice of the 7th Circuit Court of Appeals,” Wark said. “She is respected. Her opinion carries weight.”
But Chicago residents cannot immediately order old Bordeaux from New York auction houses. The immediate effect of the ruling is that the Illinois federal district court must reconsider the case, under the guideline provided by Wood that Granholm v. Heald does apply to retailers.
And that brings us back to the Tennessee case. The issue in that case is not direct shipping. Tennessee had a requirement that wine shop owners be local residents; Total Wine sued, claiming that requirement discriminates against out-of-state stores. It’s similar to the Illinois and Michigan cases, but not exactly the same, which means the Supreme Court could choose to rule very narrowly on the residency requirement itself.
“I think it’s more likely that this case means the Supreme Court will rule that the Blair case will address direct shipping,” Wark said.
Currently only 13 states and the District of Columbia allow out-of-state retailers to ship wine to their residents. In contrast, only five states absolutely prohibit wineries from shipping wine to their residents; another six have restrictions. But 39 states allow wineries to ship directly to their residents without restriction; that number has steadily increased since the Granholm decision.
January 16, wine lovers; one way or another, the date looms large.