U.S. Supreme Court Decision May Open the Door (Or Slam it Shut!) On Direct to Consumer Shipping by Retailers

The Supreme Court of the United States has agreed to hear the appeal in a case that could drastically change the landscape for direct to consumer wine shipments by retailers in the United States.

On Thursday September 27, 2018, the Supreme Court granted the appeal in Tennessee Wine & Spirits Retailers Association v. Byrd. Specifically, the Court will consider whether Tennessee’s alcoholic beverage regulations, requiring in-state retail license applicants to satisfy minimum in-state residency requirements, discriminate against out-of-state residents and thus violate the Dormant Commerce Clause of the Constitution. (The Dormant Commerce Clause is a legal doctrine that prohibits states from discriminating against interstate commerce in favor of in-state commerce).

While not apparent on its face, the Court’s decision in this case has the potential to open the door to direct to consumer shipping by retailers, or slam it firmly shut.  This is because, in answering the question above, the Court will likely have to address whether its 2005 decision in Granholm v. Heald  (summarized below), which prohibited states from discriminating against out-of-state wineries, also prohibits discrimination against out-of-state retailers.

The Supreme Court held in Granholm that if a state allows in-state wineries to ship their wines directly to consumers within the state, the state must also permit out-of-state wineries to ship wines to consumers in the state on even handed terms.  While the decision did not require states to allow direct-to-consumer shipping by wineries, in practice, post-Granholm, most states decided to permit direct to consumer shipping by both in-state and out-of-state wineries.

Since 2005, the question of whether Granholm’s equal treatment holding applies to only alcohol beverage producers, or whether it should be applied more broadly to retailers and wholesalers, has been hotly contested with little consensus.  This has resulted in a type of stalemate for direct-to-consumer shipping by retailers, with only 13 states allowing such shipments.

If the Supreme Court does finally take up this question as part of its analysis (which, of course, it does not have to!), it paves the way for big changes for retailer direct-to-consumer shipping.  If the Court holds that Granholm is limited to alcohol producers, that would effectively kill the prospects for direct to consumer shipping by out-of-state retailers.  If, on the other hand, the Court holds that Granholm also prohibits laws which discriminate against out-of-state retailers (which, from a legal precedent standpoint, would make sense), the doors to direct-to-consumer shipping by retailers would swing wide open. Of course, as history has shown us with wineries, major work would still have to be done to enact legislation to give out-of-state retailers such rights, but the option would at least finally be there to do so.

We will be watching with interest to see where this goes, but the shipping landscape for wine could soon be changing!

For questions about the above case or about direct to consumer shipping, please contact Bahaneh Hobel at DP&F.