Liza B. Zimmerman
October 11, 2018
For the first time in more than a decade, the U.S. government has shown a willingness to reevaluate how wine and spirits are sold, both within and between various states in the country.
In fact, the case of Tennessee Wine and Spirits Retailers Association v. Clayton Byrd (Tenn. v. Byrd) represents only the second such move by the high court since the repeal of Prohibition in 1933.
When Prohibition was repealed, the U.S. government decided that the safest way to regulate alcohol sales was by giving each state the right to decide how wine and spirits were sold within its borders. That resulted in a fractured legal arrangement in which almost every state handled the sale and shipment of drinks differently.
Many states, such as Washington and Pennsylvania, set up control state monopolies in which the government was charged with selling alcoholic beverages. Many of these states, most notably Washington, have long since privatized their wine sales model.
“I didn’t expect the Supreme Court to take this case up,” the Chicago-based alcoholic beverage attorney Sean O’Leary, who goes by the moniker of The Irish Liquor Lawyer, said, reflecting the perspective of many in the business. In granting the case a writ of certiorari, which will allow the case to be heard in front of the court within a year, the court has taken hearing this case to the highest level, O’Leary added.
A Closer Look at the Case
The current case of Byrd v. Tennessee was prompted by the wine and spirits chain Total Wine & More’s desire to open a retail location in Tennessee. According to state legislation, the chain would not be permitted to do so unless its owners were residents of the state. Total decided to challenge the status quo.
The chain declined to comment for this article.
The biggest issue about the case is how the court may reevaluate the legal intricacies of interstate shipping. Retailers, with brick-and-mortar locations in distant states, had long been allowed to ship into other states. This was a right that most store owners thought had been set in stone by the 2005 Supreme Court case of Granholm v Heald.
However, as retailers in certain states and wholesalers began to worry losing a share of their revenue to out-of-state players, they put more pressure on shipping services such as UPS and FedEx to follow the letter of the law to the finest degree. As of a year ago, the bulk of major interstate shippers have been shipping into only 14 states and the District of Columbia.
Wineries are still legally allowed to ship into multiple states because of Granholm. However, a legal loophole that wholesalers and in-state retailers pursued closed the market to out-of-state stores, whose business prior to the internet era was never considered to be a factor when Prohibition was repealed.
The Wine & Spirits Wholesalers of America (WSWA), which represents 370 member companies in 50 states and the District of Columbia, declined to comment for this story. WSWA president and CEO Michelle Korsmo noted in a statement that “WSWA has always been a staunch supporter of state regulatory authority, we will examine the issues at question in this case and assess the potential for it to impact that authority. “
What the Attorneys and Analysts Say
It is questionable what the outcome of this case will be when it is heard by the Supreme Court, sometime likely in the next year. “Oral arguments will take place sometime next year before the U.S. Supreme Court. The court will then issue its written decision sometime in spring/summer 2019. There is no immediate impact for out-of-state retailers, but the Court’s decision could have implications that affect direct-to-consumer shipping rights for retailers,” said John Trinidad, senior consul in the Napa-based law office of law firm Dickenson, Peatman & Fogarty.
Whether major retailers will be able ship into adjoining states, or across the country, as a result of this case is the most important question that will be answered by the Court’s judgment. Its ruling will define consumer access to wine and potentially provide more competitive pricing.
Retailers may soon be able to ship into more states depending on how the court votes. This is all contingent on whether, “the case is upheld in the Supreme Court and if the states start to pass amendments to their direct shipping laws,” said John Hinman, a partner at the San Francisco law firm of Hinman & Carmichael.
“Retailers have long been saying this principle of nondiscrimination should apply to them as well as wineries. It seems to me impossible that the Court will not answer this question in the coming case. If the court applies the principles of Granholm to retailers, then many states will need to change their laws and decide if they want out-of-state retailers to ship to their residents,” said Tom Wark, the Napa-based executive director of the 60-member National Association of Wine Retailers.
“The question of whether this will result in bricks ‘n clicks taking share from winery DtC [direct to consumer] is open to debate. Consumer research shows that a lot of winery DtC is driven by the winery visit, whereas online purchases from retail is driven by a variety of factors more related to practical concerns,” stated Christian Miller, the Berkeley-based proprietor of Full Glass Research.
However, whatever changes the court case may bring will take some time to implement. “The change won’t be immediate. States would still need to adopt legislation and regulations to allow for shipping, delivery, and collection of taxes,” said Trinidad.
Hinman expects that “the wineries to be neutral but supportive in principal – that is their current position and I don’t see it changing.” He added that the wholesalers are likely to react with “force – this is a direct attack on the restrictive and mandatory three-tier system.” He concluded that this current case has the potential to be “more significant that Granholm because it has the potential to open the entire U.S. wine and spirits market to competition.”