US Supreme Court Favors Wine Retailers

The US Supreme Court kicked down a major barrier to interstate wine shipping on Wednesday in a historic ruling that could change state alcohol laws across the country.

By a 7-2 decision – a surprisingly large majority – the Court affirmed a lower court in striking down a Tennessee law that required anyone seeking a liquor license to be a resident of the state for two years.

Most importantly, the ruling in Tennessee Wine & Spirits Retailers Association v Thomas was not narrow, as wine shipping advocates feared it might be. Instead, Justice Samuel Alito, who wrote it, specifically says that the 2005 Supreme Court decision in Granholm v Heald that opened the country to direct shipping by wineries was not limited to "products". Alito wrote: "The (Commerce) Clause prohibits state discrimination against all 'out-of-state economic interests'."

"We interpret this as the best possible scenario for us," Daniel Posner, president of the National Association of Wine Retailers (NAWR), told Wine-Searcher. "This ruling says Granholm applies to retailers. This means that every state that allows in-state wine retailers and auction houses and wine clubs to ship to consumers in their home state, but does not allow out-of-state retailers to ship, is now in violation of the Supreme Court decision."

The ruling – which does not specifically mention interstate wine shipping – does not immediately mean that customers in Colorado can order from wine shops in California. What it does is shift the battle over interstate wine shipping to state legislatures.

At least 16 states currently have laws allowing in-state stores to ship to residents while prohibiting out-of-state retailers, according to Tom Wark, executive director of NAWR. Those states are: New York, New Jersey, Texas, Illinois, Michigan, Ohio, Massachusetts, Washington, Arizona, Colorado, Missouri, Minnesota, Indiana, North Carolina, South Carolina and Maine.

Those state laws should now be considered unconstitutional. Each state will have to either rewrite its law or see it struck down when NAWR or a similar organization takes it to court.

But – and this is important – states do not have to allow any retailers to ship wine to consumers. What they must do is treat in-state and out-of-state stores the same.

After the 2005 Granholm v Heald ruling, which was heavily cited in the Tennessee decision, New York immediately allowed both its own wineries and wineries outside the state to ship to residents. Michigan went the other way, immediately prohibiting any wineries from shipping. Both approaches are constitutional; the same will probably happen after this ruling.

"I think wholesalers will go to legislatures and say, you can't let any stores ship," Wark told Wine-Searcher. "I think that's going to happen in Texas and that will probably happen in Illinois and in Michigan. In-state wholesalers and in-state retailers are going to argue to shut it down. Consumers will argue for opening up retailers shipping. It would be a big mistake to underestimate the power of consumers."

But it would also be a big mistake to underestimate the money and political clout that liquor distributors will spend to defend their businesses against out-of-state competition.

The Tennessee Wine & Spirits Retailers Association showed where the next battle line will be drawn in its public statement after its defeat in court.

"The majority opinion clearly recognized that liquor is a unique commodity in our nation's history and affirmed the right of states under the 21st Amendment to enact liquor-related regulations for the health and safety of residents, even if those regulations might be impermissible in other industries under the dormant Commerce Clause," the TWSRA wrote. "The guideposts provided by the decision will be helpful to state legislatures throughout the country as they continue to refine their regulation of liquor."

The ruling is a huge event for the liquor industry, with implications we haven't foreseen yet. Beverage alcohol lawyer John Hinman said Alito's choice to use the word "alcohol", instead of "wine" or "wine and spirits", made sure that its impact is as broad as possible. Hinman said other state alcohol laws, such as those that give different wholesale rights to large and small suppliers, may also be vulnerable.

But from the perspective of Supreme Court watchers, it was a mere amuse bouche before tomorrow's widely anticipated ruling on whether or not a question about citizenship can be added to the 2020 Census. CNN, covering the day at the Court, said: "Some minor cases played out inside the court today."

As is often the case with alcohol cases, the lineup of justices broke away from conservative-liberal labels. Alito was joined on the opinion by the entire liberal wing, and also conservatives Chief Justice John Roberts and noted beer lover Brett Kavanaugh. Lately the Court has seen a profusion of concurring opinions, in which justices agree on the verdict but not the reasoning. A confusing verdict like this could have made it more difficult for lower courts and state legislatures to act on the Supreme Court's guidance. In this case, all seven justices in the majority signed on to Alito's whole opinion.

Justice Neil Gorsuch wrote a dissent, joined by Justice Clarence Thomas, who voted against Granholm in 2005 and napped through oral arguments in this case in January. Gorsuch wrote that one purpose of the 21st Amendment that repealed Prohibition was to allow states to regulate alcohol as they saw fit, and that one reason was to allow laws that would encourage lower alcohol consumption.

"Does reducing competition in the liquor market, raising prices, and thus reducing demand still count as a public health benefit, as many States have long supposed?" Gorsuch wrote.

In the majority opinion, which is now the law of the land, Alito forcefully rejected Gorsuch's argument. Justices have the chance to read each others' opinions and modify their own, which is how a case argued in January was not resolved until the end of June.

"The Association and the dissent's overly broad understanding of (section 2 of the 21st Amendment) is unpersuasive," Alito wrote. "They claim that, while (section 2) does not give the States the power to discriminate against out-of-state alcohol products and producers, a different rule applies to state laws regulating in-state alcohol distribution. There is no sound basis for this distinction.

"Section 2 allows each State leeway to enact measures to address the public health and safety effects of alcohol use and other legitimate interests, but it does not license the States to adopt protectionist measures with no demonstrable connection to those interests," the opinion reads. "As for the dormant Commerce Clause, the developments leading to the adoption of the Twenty-first Amendment have convinced us that the aim of (section 2) was not to give States a free hand to restrict the importation of alcohol for purely protectionist purposes."

Beverage law experts spent the day discussing the ruling with their clients and each other, speculating on how wide the impact will be.

Liz Holtzclaw, who helps companies comply with state alcohol laws, predicted some surprising winners from this ruling. She pointed out that most wine clubs have been prevented from shipping, along with retail stores and auction houses, and that subscription-based services have taken off for products other than wine.

"Canned wine is going to benefit hugely," Holtzclaw said.

Wark says that his job will be harder now, because he will have to visit state legislatures across the country and fight well-funded opposition to try to ensure that any wine retailers, in-state or not, can ship to customers.

"My guess is the vast majority of the laws will change in the next two to three years," Wark told Wine-Searcher. "I'll tell you what pisses me off. It's 15 years since Granholm was decided. That's 15 years that retailer shipping could have happened. That's 15 years that consumers didn't have access to a lot of wines they wanted. When retailers can't ship, that means imported wines can't be shipped, because only retailers can sell imported wines. Look at how many regions outside the US have really exploded over the last 15 years."

Posner was more cheerful than Wark. He said his nine-year-old son, who has been following the case, will be delighted to learn of NAWR's triumph.

"We're going to have to go state-by-state now, but we clearly have the upper hand at this moment," Posner told Wine-Searcher. "And so do wine consumers who believe they should be able to buy wine from any retailer in any state. Which is what we have been working for since 2005.

"Maybe you go to Italy on your honeymoon," Posner said. "Or you go to Australia and you find an obscure wine, and you come back, and you say, I want to buy that wine. For years we've said, if it's not in the local market, you can't buy it. That's not really fair. I spoke at a conference in Arkansas where the retailers said shops in New York are hurting their business. I said, the Burgundy they're ordering from us is not the Burgundy you have in Arkansas. If a Little Rock businessman wants a case of Puligny-Montrachet that's not sold in Arkansas for whatever reason, why shouldn't he be able to buy it? Why should he have to settle for a California Chardonnay?"

The happiest people of all are Doug and Mary Ketchum, the couple that moved from Utah to Memphis three years ago and purchased a wine shop. Along with Total Wine, which opened a shop in Knoxville, they were granted a liquor license by the state of Tennessee. The Tennessee retailers' association lawsuit was intended to take those licenses away.

The Ketchums moved to Memphis on the advice of their doctor to get a healthier climate for their daughter Stacie, who suffers from cerebral palsy and had difficulty breathing in winter. They sank $500,000 into their store, Kimbrough Towers Fine Wine & Spirits. A ruling against them could have put in jeopardy not only their business, but also their home, to which they added an elevator as an accommodation for Stacie.

Doug and Mary called me on their way home from their shop.

"We were so excited," Doug Ketchum said. "It's just a huge relief. A big weight off our shoulders."

"We opened a bottle of Dom Pérignon and toasted with everyone in the store," Mary Ketchum said. "Three years is a long time. We thought we deserved it."