Family Wineries, Consumers Triumph in U.S. Supreme Court Ruling Supporting Wine Direct Shipping Coalition for Free Trade Calls Win Historic
5/16/2005 - San Francisco, Calif. - In a ruling that will thrill wine lovers and America's wineries, the United States Supreme Court ruled today to support interstate wine shipments directly from wineries to consumers. The High Court reasoned that state laws banning such shipments are discriminatory and, therefore, unconstitutional. The finding affirms the plaintiffs' argument that bans violate the enduring concept established in the Commerce Clause, and reinforced by subsequent jurisprudence, that the United States is a national economic union and discrimination is not tolerated.
"In this David versus Goliath battle, the ruling is a triumph for America's family wine farmers," said W. Reed Foster, president of the Coalition for Free Trade and chairman emeritus of Ravenswood Winery. The Coalition for Free Trade is a non-profit organization seeking judicial relief from laws prohibiting direct-to-consumer shipments of wine, and helped coordinate lawsuits in seven states. The Michigan and New York cases were combined and considered by the Supreme Court on December 7, 2004. www.coalitionforfreetrade.org
According to the Coalition for Free Trade, the ruling will help wineries satisfy growing consumer demand for their wines, rather than being shackled by discriminatory state laws that shut them out of important wine markets. "It is an historic day for the U.S. wine industry," said Paul Kronenberg, president of Family Winemakers of California (www.familywinemakers.org). "The only way that most small wineries can survive economically is to open up new markets and that means shipping directly to consumers," he added.
"Today, there are no losers," said Fred Reno, president of the Henry Wine Group, a wine wholesaler operating in five states and the District of Columbia. (www.henrywinegroup.com) "The nation's wineries will be better able to satisfy consumer demand, wine lovers will have access to a broader selection of wines, and retailers and wholesalers will ultimately grow their business as a result of this ruling," he added.
Principle of National Economic Union Defended
"An important principle was defended-states are part of a national economic union where discrimination is not tolerated," said Dean Kenneth W. Starr, counsel to the Coalition for Free Trade and dean of Pepperdine Law School. Dean Starr served as co-counsel with Kathleen Sullivan, professor of law at Stanford University, who represented the Michigan plaintiffs at December's arguments.
"The 21st Amendment is alive and well, and continues to be a useful tool for states to reasonably regulate the interstate sale of wine. But according to the Court's ruling, the 21st Amendment can no longer be used as a pretext for economic protectionism," said Tracy Genesen, legal director of the Coalition for Free Trade and of counsel with Kirkland & Ellis LLP in San Francisco (www.kirkland.com).
Wine Wars Now Focus on Implementing Proven Legislative Solution
The ruling does not immediately affect the remaining 24 states that ban shipments from out-of-state wineries to consumers. The next step is for legislators in the affected states to pass the existing model direct shipping bill, which was recommended for adoption by the National Conference of State Legislatures' Task Force on the Wine Industry in 1997. The model bill has been working successfully in states from Nevada to Virginia; its provisions require an out-of-state winery to purchase a direct shipping license from the state, pay both excise and sales taxes, limit shipments, mark boxes, and consent to the jurisdiction of the state issuing the license.
States passing the model bill have substantive enforcement mechanisms. The "21st Amendment Enforcement Act" was signed into law in October 2000 and allows state Attorneys General to access federal courts to pursue litigation for alleged violations of alcohol shipping into a state, although not a single case has been brought forward. Additionally, alleged violations of state laws governing direct shipments can be reported by any state to the Tax & Trade Bureau (TTB, formerly known as ATF) for investigation. Penalties for infractions can include revocation of a winery's basic permit to produce wine, although the TTB has never revoked a winery's basic license for a direct shipping infraction. Finally, the model direct shipping bill requires wineries licensed to direct ship to consent to the state's courts concerning enforcement.
"Once passed, enabling legislation in the remaining states will open consumer access to wine within a legal, regulated structure with a track record of industry compliance with tax payment provisions, timely filings, and other regulations," said Genesen.
What the Ruling Means for the Wine Industry
The Supreme Court's decision is final on this issue and caps an eight year legal wine war that has pitted wine consumers-who want to purchase wines directly from wineries-against the $32 billion wine wholesaler cartel, who want all shipments to flow through them.
The Supreme Court ruling provides another major milestone in the 20-year trend toward opening states to legal, regulated direct shipping. Twenty years ago, no states allowed direct shipments from out-of-state wineries to adult consumers. By late 2004, 26 states allowed such shipments, including four states that changed in 2003. North Carolina, South Carolina and Virginia were opened through legislative changes, and Texas' ban on shipments was ruled unconstitutional by the 5th U.S. Circuit Court of Appeals.
While it is clear that the ruling will help individual wineries, it is more difficult to project the effect on the aggregate wine market. There are now more than 3,500 wineries in the U.S., according to WineAmerica, a trade association based in Washington, D.C. (www.wineamerica.org) But the largest 50 wineries produce over 87% of all U.S. wine and many of these large wineries rely almost exclusively on wholesaler sales rather than direct-to-consumer sales. The retail value of all U.S. wine sales-including imported wines-sold through restaurants, retailers and state-run wine shops is estimated at more than $22 billion in 2004, according to the Wine Institute (www.wineinstitute.org). The San Francisco-based public policy trade association of California wineries estimates that 1 percent to 2 percent of that wine is sold by wineries directly to consumers visiting wineries and through the Internet and telephone.
The Supreme Court heard three cases on December 7, 2004: Granholm v. Heald, No. 03-1116, Michigan Beer & Wine Wholesalers Association v. Heald, No. 03-1120 and Swedenburg v. Kelly, No. 03-1274. The Court considered whether or not the 21st Amendment permits states like New York and Michigan to allow intra-state shipments from its wineries to consumers, but deny that same privilege to out-of-state wineries. The High Court ruled that states with this type of statutory scheme are violating the dormant Commerce Clause, which is an unwritten but well understand part of the law that prohibits states from legislating in areas where Congress could legislate, but has decided not to.
Tracy Genesen, legal director, Coalition for Free Trade, (415) 439-1826
Jeremy Benson, Benson Marketing Group (707) 254-1107
Paul Kronenberg, Family Winemakers of California (916) 498-7500
David Sloane, WineAmerica (800) 879-4637
Plaintiff's Attorneys: Michigan: Robert Epstein (317) 639-1326, Alex J. Tanford (812) 855-4846. New York: Clint Bolick (602) 468-0900.
Nancy Light, Wine Institute, (415) 512-0151
Tori Wilder, Napa Valley Vintners, (707) 968-4217