“Michigan departed from a hermetically-sealed three-tier system when it chose to permit its wine retailers to join the digital marketplace and engage in direct shipping to customers.”
by Cyril Penn
October 01, 2018
In a ruling issued Friday, the United States District Court Eastern District Of Michigan Southern Division directed the state to allow out-of-state retailers to ship wine to Michigan consumers, and said the state can create a permit to do so that’s similar to what wineries must obtain in Michigan.
The ruling comes on the heels of last week’s news that the U.S. Supreme Court will consider Tennessee Wine & Spirits vs. Byrd Clayton, involving residency requirements for wine retailers.
The Michigan opinon and order cites the 2005 Granholm Supreme Court decision that found Michigan and New York laws permitting direct shipment of wine from in-state wineries, but forbidding the same from out-of-state wineries, violated the dormant Commerce Clause of the Constitution.
The ruling is a victory for fair and free trade, Tom Wark, executive director of the National Associaton of Wine Retailers said. “Closing off markets to satisfy the protectionist demands of a small group of well-heeled wholesaler middlemen and anti-competitive local retailers creates an inefficient, distorted marketplace.”
The suit was filed by attorneys Alex Tanford and Robert Epstein on behalf of Joseph Doust and Lebamoff Enterprises, which operates fifteen retail wine and liquor stores-called Cap n’ Cork-in the Fort Wayne, Indiana area. Doust is one of the co-owners.
The state and Michigan wholesalers argued that a ruling for the plaintiffs would allow Lebamoff to do what no Michigan retailer may do: ship wine to Michigan consumers that has not passed through the Michigan three-tier system.
But the judge said plaintiffs “met their burden of proving that the regulatory system created by 2016 PA 520 discriminates against interstate Commerce, as the new statute permits only those who hold a specially designated merchant license located in Michistate” to use a common carrier to ship to consumers in Michigan.”
Senior United States District Judge Arthur Tarnow wrote:
Michigan departed from a hermetically-sealed three-tier system when it chose to permit its wine retailers to join the digital marketplace and engage in direct shipping to customers. The State created a market for Michigan consumers that implicated interstate commerce in a manner above-and-beyond that of a traditional three-tier system. These same laws then closed off this Michigan-sized portion of American interstate commerce to out-of-state competition. State laws that so favor in-state business presumptively violate the dormant Commerce Clause because they undermine “strong federal interests in preventing economic Balkanization.”
Lebamoff is also the plaintiff in an Illinois retail-shipping case and in a Missouri case. There is also an importer/wholesaler case pending in California. Missouri (district court) and Illinois (7th Circuit) were fully briefed and are awaiting decisions.
In each case, an out-of-state business is complaining it is not being allowed to sell/distribute wine on the same terms as in-state businesses. The state is claiming in each case that it is allowed to discriminate against nonresidents because it has an inherent right (under the 21st Amendment) to require wholesalers and retailers to be residents in the interest of ease of regulation.
Attorney Alex Tanford said he isn’t sure if the courts will go ahead and issue their opinions, which must be substantially done at this point, or will withhold them until spring.
“The lower courts are in chaos on the question of whether the principle announced in Granholm — that the Commerce Clause’s nondiscrimination principle applies to state liquor laws like it would apply to other products moving in interstate commerce — applies to laws regulating retailers and wholesalers,” Tanford said.
“No two opinions have reached the same result. The (Supreme) Court needs to clean up the mess.”