Supreme Court Decision is a Victory for Alcohol Beverage Retailers
Alcohol beverage retailers won a significant victory before the U.S. Supreme Court this morning. The Court held in Tennessee Wine & Spirits Retailers Association v. Thomas that Tennessee’s two-year durational-residency requirement applicable to retail liquor store license applicants violates the Commerce Clause and is not saved by the Twenty-First Amendment. In doing so, the Court stated that the 2005 decision in Granholm vs. Heald, which prohibited discrimination against out of state alcohol beverage producers, applied with equal force to discrimination against retailers, settling a long dispute in the courts on the applicability of Granholm to retailers. The end result is that states must now defend any discriminatory or protectionist alcohol beverage laws without the luxury of relying on the Twenty-First Amendment, giving retailers wishing to ship across state lines a leg-up in future legal challenges. Today’s decision, however, does not mean that retailers can begin shipping across state boundaries legally. Additional court challenges or legislative changes are needed to fully open the door to retailer direct-to-consumer shipping.
The question of alcohol beverage retailer direct-to-consumer shipping was not directly at issue in the case. Instead, the case centered on the constitutionality of Tennessee’s residency requirements on state licensed alcohol beverage retailers. Petitioner, a Tennessee retail trade association, argued that the residency requirement must be upheld because the 21st Amendment grants states broad authority to regulate alcohol within their borders. The Court rejected that argument and concluded that:
“[Section 2 of the 21st Amendment] allows each State leeway to enact the measures that its citizens believe are appropriate to address the public health and safety effects of alcohol use and to serve other legitimate interests, but it does not license the States to adopt protectionist measures with no demonstrable connection to those interests.”
Leading up to today’s decision, many hoped the Court would issue a ruling that would not only address the residency requirement question, but also adopt a reading of the 21st Amendment that would open the door to retailer direct-to-consumer shipping. Given the Court’s reading and application of Granholm, they may have gotten their wish. States that allow in-state retailers to ship to consumers but prohibit out-of-state retailers from doing so will find such laws difficult to defend in the face of today’s decision. To avoid legal challenges, states may choose to adopt statutes that allow all retailers, regardless of where they are located, the right to ship directly to consumers, or prohibit retailers from doing so altogether.
Attention will now shift to other cases directly challenging laws that prohibit out-of-state retailers from shipping to in-state consumers, such as the appeal in Lebamoff Enterprises v. Snyder before the Sixth Circuit Court of Appeals. The federal district court in that case ruled that, under the precedent set in Granholm, a Michigan state law that permits in-state wine retailers to ship direct to consumers must also grant the same privilege to out-of-state retailers. Case No. 17-10191, (E.D. Mich. Sept. 28, 2018). The appeals court stayed the appeal pending the outcome of the Tennessee Wine & Spirits Retailers case. Retailers now will have significant support for their argument that such state laws are nothing more than protectionist measures that discriminate against out-of-state retailers. States, on the other hand, will need to defend those laws as necessary in order to protect the health and welfare of their citizens. However, given that today’s ruling strips states of any defense under the Twenty-First Amendment for any discriminatory or protectionist laws, retailers have gained a clear upper hand in the legal challenges to come.
The Court’s decision is available through the following link: https://www.supremecourt.gov/opinions/18pdf/18-96_5i36.pdf .
A Bridge too Far for Granholm? Florida Importer Challenges California Three-Tier System
A Florida-based wine importer is hoping to shake up the California three-tier system. If successful, any importer or wholesaler in the U.S. may be permitted to sell directly to California retailers.
Earlier this year, Orion Wine Imports, LLC filed a lawsuit against the director of the California Department of Alcoholic Beverage Control arguing that licensed wine importers and wholesalers in California and in other states must be given the same right to sell and deliver wine directly to California-licensed retailers. Orion Wine Imports, LLC v. Applesmith, Case No. 2:18-cv-01721-KJM-DB (E.D. Cal.). Orion argues that, under the U.S. Supreme Court’s decision in Granholm v. Heald, state laws that discriminate against out-of-state importers and wholesalers are unconstitutional.
This argument may sound familiar. In Granholm, the Court invalidated state direct-to-consumer shipping laws that discriminated against out-of-state producers. Since then, a number of lawsuits have been filed arguing that the Granholm holding should also apply to laws that discriminate against out-of-state retailers. As we reported a few weeks ago, the Supreme Court will be hearing a case that may answer that question.
Defendant in the Orion case is likely to argue that applying Granholm to the wholesale tier is a bridge too far. Plaintiff’s are looking to invalidate long-standing provisions of the state’s three-tier licensing structure. The challenged statutes, adopted by the California legislature in 1953 as part of the state’s post-Prohibition codification of the Alcoholic Beverage Control Act, are core to the establishment of the state’s three-tier system.
Orion is also facing opposition from its fellow wholesalers. Two industry trade associations, California Beer and Beverage Distributors and the Wine and Spirits Wholesalers of California, have filed an amicus brief in support of defendant’s position.
The court has scheduled a December 21, 2018 hearing in Sacramento on defendant’s motion to dismiss.
For more information regarding the three-tier system, please contact John Trinidad.
Federal Court Rules in Favor of Wine Retailer DTC Shipments
Wine retailers received a double dose of good news last week.
As we reported earlier, on Thursday, the U.S. Supreme Court agreed to hear an appeal by the Tennessee Wine and Spirits Retailer Association in a case challenging Tennessee’s state residency requirement for persons or entities that hold a state alcohol beverage retail license. Tennessee Wine & Spirits Retailers Ass’n v. Byrd, No. 18-96 (6th Cir., 883 F. 3d 608; cert. granted Sept. 27, 2018). In determining the constitutionality of the state’s residency requirement, the Court may also weigh in on a key question that could have a big impact on direct-to-consumer shipping by wine retailers: does the Supreme Court’s 2005 decision in Granholm v. Heald, which prohibited state from discriminate against out of state wine producers, also prohibit state laws that discriminate against out-of-state retailers.
On Friday, a federal district court in Michigan answered that very question in favor of retailers, and concluded that if the state permits in-state wine retailers to ship direct to consumers, it must also grant the same privilege to out-of-state retailers. Lebamoff Enterprises v. Snyder, Case No. 17-10191, (E.D. Mich. Sept. 28, 2018). The Michigan law in question allowed in-state wine retailers that held a “specially designated merchant license” to ship to Michigan consumers, but prohibited out-of-state retailers from so doing. The court held that the law was not protected by the the 21st Amendment and unconstitutional in light of the Supreme Court’s holding in Granholm. In granting plaintiff retailer’s motion for summary judgment, the court concluded:
“Michigan is … operating an unjustifiable protectionist regime in its consumer wine market, a privilege unsanctioned by the Twenty-first Amendment and forbidden by the dormant Commerce Clause.”
As a remedy, the court opted not to nullify the offending law, but instead extended its shipping privileges to out-of-state retailers. Unless the state legislature repeals the law, then out-of-state wine retailers will be allowed to either apply for the state’s specially designated merchant license or a comparable out-of-state license.
21st Amendment Litigation: NY Wine Retailer Sues NYSLA
Nine years ago, the U.S. Supreme Court held that a New York law that discriminated against out of state wineries violated the Commerce Clause, and rejected arguments that the 21st Amendment protected such laws from constitutional scrutiny.
New York now finds itself at the center of yet another Commerce Clause/ 21st Amendment controversy pitting Empire Wine & Spirits LLC, a New York-based alcohol beverage retailer, against the New York State Liquor Authority (SLA).
The dispute began in August, when the SLA commenced disciplinary proceedings against Empire under 9 NYCRR 53.1(n), a code provision that gives the SLA the ability to suspend, cancel or revoke a license for “improper conduct by the licensee or permittee….” The SLA has previously used its authority under Sec. 53.1(n) in cases where the owners, officers, or directors of a licensee were charged with either a drug-related felony (Miracle Pub v. New York State Liquor Auth.,210 A.D.2d 229 (N.Y. App. Div. 2d Dep’t 1994); see also Edto Foods, Ltd. v. New York State Liquor Authority,113 A.D.2d 787 (N.Y. App. Div. 2d Dep’t 1985)) or serious misdemeanors, such as reckless endangerment and obstruction (See Order of Suspension of New Rat LLC). Here, however, the alleged “improper conduct” is Empire’s shipment of wine to consumers in the following states: Alabama, Arizona, Arkansas, California, Delaware, Georgia, Illinois, Maine, Massachusetts, Mississippi, Ohio, Louisiana, Pennsylvania, Vermont, Virginia, and Washington. Some of those states prohibit out of state retailers from ship to in-state consumers; others allow such shipments so long as the retailer obtains a permit; and others have “reciprocal” privileges (i.e., if retailer’s home state allows direct to consumer shipping from state x, then state x will allow such shipments).
On September 23, Empire filed suit in state court in Albany County. In its complaint, Empire notes that there is no New York statute or regulation that expressly prohibits a licensed retailer from shipping wine to customers in other states. The SLA apparently concedes this point, as it failed to cite 9 NYCRR 53.1(a) in its Notice of Pleading. 53.1(a) gives the SLA the ability to cancel, revoke, or suspend a licensee when the licensee has violated any provision of the New York State Alcoholic Beverage Control Law or of any SLA rule or regulation.
Empire seeks a court order declaring that the SLA’s disciplinary action attempts to regulate the sale and distribution of alcohol beyond New York’s borders, violates the 21st Amendment, and constitutes an impermissible interference with interstate commerce in violation of the Commerce Clause. Empire further claims that the SLA does not have the statutory authority to regulate such shipments since, under ABC Law Sec. 2, SLA’s sole function is “to regulate and control the manufacture, sale and distribution within the state of alcoholic beverages for the purpose of fostering and promoting temperance in their consumption and respect for and obedience to law” (emphasis added). Finally, Empire claims that 9 NYCRR 53.1(n) is unconstitutionally vague, as it fails to provide licensees with any warning that out of state shipments could be deemed “improper conduct” such as to warrant suspension, cancellation, or revocation of their alcoholic beverage license.
The case is Empire Wine & Spirits LLC v. New York State Liquor Authority (Case No 004915/2014). Click on the link below for a PDF of the complaint.
For more information related to direct to consumer shipping laws, please contact John Trinidad at [email protected]