SCOTUS To Hear Case That Could Make It Easier To Buy Wine From Out Of State

Tomorrow the Supreme Court will hear oral argument in a case that could make it easier to order and ship wine from out-of-state retailers.

Later this week, the Supreme Court will hear oral argument in a case involving interstate shipment of wine that could go a long way toward making it easier for Americans to order wines not generally available in their part of the country and have them shipped to their homes:

With just a few clicks on my computer or phone, I can order a rare book from San Francisco, a country ham from Kentucky or a dazzling box of chocolates from Vermont. I can track the shipments to the door of my New York apartment building, where I will receive them, marveling at our effortless access to almost anything we desire.

That modern convenience, however, is denied to wine lovers who live in the 36 states that prohibit interstate shipping from retail wine shops. A consumer in a rural community, for example, with few good wine shops within easy reach, is forbidden to order wine from an out-of-state source with great bottles galore.

This may change in the not-too-distant future. A case to be argued before the United States Supreme Court on Wednesday may decide whether states can prohibit retail wine shops from shipping to consumers in another state. A ruling might even affect access to small-production beers and spirits, although it’s not clear whether it would extend beyond wine.

The case, Tennessee Wine and Spirits Retailers Association v. Blair, does not hinge directly on the issue of interstate retail sales. It instead is focused on the effort of Total Wine & More, a national retail chain of almost 200 stores, to open an outlet in Tennessee. A group of retailers in the state sued in an effort to block the move, arguing that Tennessee law required the retail owners to be residents of the state.

Yet the court’s decision, many believe, will have major implications for interstate wine sales. It could open a wellspring of opportunities to consumers, allowing wine lovers to scour the country for hard-to-find bottles and the best retail deals. Or it could put to rest any further effort to broaden access to fine wine.

“We’re about 90 percent sure it will affect interstate shipping,” said Daniel Posner, the managing partner of Grapes the Wine Company, in White Plains, N.Y.

Mr. Posner is the president of the National Association of Wine Retailers, an advocacy group, which has filed a brief with the court in Blair arguing that the right of wine producers to sell and ship bottles to out-of-state consumers, granted in a 2005 case, Granholm v. Heald, should be extended to retailers.

The Granholm case struck down state laws that permitted wine producers to ship bottles directly to consumers in that state and barred out-of-state producers from the same practice. In-state and out-of-state producers must play by the same set of rules, the court said.

But the Granholm ruling was vague about whether it applied to retailers as well.

Before the early years of this century, ordering wine from out-of-state merchants was a minor part of the business, and drew little attention. Only the most committed collectors, who sought access to out-of-state wine catalogs, would go through the inconvenience and expense of such transactions.

High-speed internet changed everything. With easy access to retail websites, consumers anywhere in the country could order from specialty wine shops, purchasing bottles that might otherwise be unavailable in their own states.

Given the irrational patchwork of regulations that governs wine distribution, every state essentially offers consumers a different selection of wines. For people who live in areas rich with fine-wine retailers, internet shopping was an added bonus. For those in areas with few retail options, it was a savior.

As consumers became accustomed to shopping on their computers, interstate sales became a more significant part of the business for retailers, enough so to draw the attention of wine-and-spirits wholesalers, who felt themselves bypassed by such interstate sales.

Urged on by the wholesalers, who lobbied and contributed heavily to state political campaigns, states began to crack down on interstate retail shipping, and carriers like FedEx and United Parcel Service specifically. Those companies have told retailers in recent years that they would no longer accept out-of-state shipments of alcoholic beverages unless they were bound for one of 14 states (along with Washington, D.C.) that explicitly permit such interstate commerce. Interstate wine shopping effectively ended for many people.

(…)

The original ruling in the Blair case, by a federal district judge, was in favor of the Tennessee retailers association, which had defended the state residency requirement. But that was overturned in early 2018 by the United States Court of Appeals for the Sixth Circuit, which cited Granholm in ruling that in-state entities could not be favored over out-of-state entities.

The Tennessee retailers — who, unlike the national association, favor the residency requirement — argue that the Granholm decision applies only to wine producers, not to retailers. If the court accepts that argument, it will end immediate consumer hopes of regaining access to a wider selection of wines.

Richard L. Colbert, a lawyer for the Tennessee retailers, declined to comment on the case. But Mr. Clement, who served as United States solicitor general from 2005 through 2008, asserts that Granholm should logically extend to wine retailers.

“Your typical winery has a production function and a retail function, and Granholm’s focus was on the retail side,” Mr. Clement said. “The interstate activity protected by Granholm wasn’t production, it was sales.”

Amy Howe previewed this week’s oral argument for SCOTUSBlog:

The Constitution’s 21st Amendment gives states the power to regulate the distribution of alcohol into and within a state, while a doctrine known as the dormant commerce clause (derived from the Constitution’s commerce clause) bars states from discriminating against interstate commerce. Next week the Supreme Court will hear oral argument in a challenge to a Tennessee law that requires anyone who wants a retail license to sell alcohol in Tennessee to have lived there for at least two years. A federal appeals court ruled that the law violates the Constitution by discriminating against out-of-state residents. Defending the law, a trade association representing the state’s liquor retailers argues that the Constitution treats alcohol differently from other products, giving states broad powers to regulate it.

The case now before the Supreme Court arose when Total Wine – whose website describes it as “the country’s largest independent retailer of fine wine,” committed to both offering “the nation’s best wine selection” and “having the lowest prices” – applied for a license to run a store in Nashville, but couldn’t satisfy the residency requirement because its owners are residents of Maryland

(…)

In their brief in the Supreme Court, the retailers emphasize that the 21st Amendment gives states “broad latitude” to regulate retail sales of alcohol without violating the dormant commerce clause. They add that the amendment was also intended to give back the powers that states had before Prohibition, including to allow the “states to pursue policies that best fit local values and conditions, and to experiment with different approaches to the difficult problems inherent in regulating the distribution and use of alcohol.”

The retailers argue that the Supreme Court has distinguished between “core” state powers, which are protected by the 21st Amendment against suggestions that they violate the dormant commerce clause, and “non-core” powers, which are not protected. “Core” powers, the retailers explain, include the power to directly regulate sale or use of liquor within the state, while “non-core” powers try to regulate activity outside the state – for example, a ban on alcohol-related TV ads that are broadcast into the state from another state or laws that regulate prices in the state by comparison to prices at which alcohol is sold in other states.

The two-year residency requirement at issue in this case, the retailers stress, is a core power: It directly regulates the sale of liquor within Tennessee, treating out-of-state liquor the same as domestic liquor.

As a practical matter, the retailers continue, the requirement makes sense in several different ways. First, it gives state and local officials enough time to determine whether an applicant has the right character to have a liquor license. Second, it makes it more likely that the applicant will understand the needs of the community in which he plans to sell liquor. “The long-time resident who attends football games on Fridays is less likely to be duped by the drum major’s fake ID on Saturdays,” the retailers suggest. And more broadly, the retailers add, rules that make it harder to open a liquor store are generally good, because less liquor may help to reduce alcohol abuse.

In its brief on the merits, Total Wine begins by stressing that Tennessee effectively has a 10-year residency requirement for people who want to own a liquor store in Tennessee: A first-time applicant must have lived in Tennessee for at least two years, but the one-year license “cannot be renewed unless the individual has been a Tennessee resident for ten years.” Total Wine takes it as a given that the residency requirement violates the dormant commerce clause: As Tennessee itself has acknowledged, the residency requirement prevents out-of-state residents from getting liquor licenses to protect Tennessee sellers from competition. The requirement, Total Wine says, is “so manifestly protectionist” that the state hasn’t enforced it for six years and has only filed a letter in the Supreme Court agreeing with the retailers. Instead, Total Wine observes, the group that is actively defending the residency requirement in the Supreme Court is the retailers themselves, who acknowledge that their right to sue comes from their interest in not having to compete with Total Wine and the Ketchums.

Total Wine questions the rationales that the retailers have offered in defense of the residency requirement. Applicants are not actually required to have any local ties to the community where they will open a store, Total Wine observes; it is enough that they live in Tennessee. “The notion that someone living in Memphis is more in touch with Knoxville than someone living in Asheville, North Carolina, which is 250 miles closer, is silly,” Total Wine posits. And in any event, the store’s general manager and employees who will “actually check IDs and make point-of-sale decisions” will live in the community, Total Wine emphasizes.

Total Wine also points out that Tennessee does not have a similar residency requirement for bars, hotels and restaurants – which, it argues, “forecloses any argument that Tennessee is genuinely concerned about nonresidents’ suitability to own retail alcohol businesses.”

Total Wine and the Ketchums argue that the 21st Amendment doesn’t make the residency requirement constitutional. A primary goal of the dormant commerce clause, they say, is to prevent the states from protecting their own citizens and businesses at the expense of others, and the Supreme Court “has made clear that the Twenty-first Amendment was not intended to save laws that have no purpose other than protecting in-state businesses.”

Ordinarily, the idea that out-of-state retailers can be blocked from shipping to certain states would be an easy question to answer. This, after all, seems to be a clear example of the kind of transaction that the Interstate Commerce Clause was placed in the Constitution to prevent. In the years before the Constitution was ratified, it wasn’t uncommon for states to place restrictions and tariffs on goods originating in other states, something that made commerce between and among the individual states difficult and caused difficulties for any kind of national government under the Articles of Confederation. This is why Congress was given exclusive control over interstate commerce and the courts, acting under what has since come to be called the Dormant Commerce Clause, have interpreted the clause to include a bar against state legislation regulating interstate or international commerce. If this were the only provision of the law involved, then state laws barring the interstate sale, purchase, or shipment of alcohol would obviously be unconstitutional.

What makes this case different, though is the 21st Amendment, which repealed the 18th Amendment that authorized national legislation banning alcohol. The impact of the Amendment, though, was to return to the states the question of how to regulate alcohol, specifically via Section Two of the Amendment which bars “the transportation or importation into any State, Territory, or possession of the United States for delivery or use therein of intoxicating liquors, in violation of the laws thereof.” It’s because of this provision of the 21st Amendment that we have the patchwork of alcohol laws that we do where states regulate the sale of alcoholic beverages inside their own borders, with some states being far more restrictive than other and, indeed, in some cases where we have localities where the sale of alcohol is banned completely. All of that is made possible by Section Two of the 21st Amendment.

Notwithstanding the language of the 21st Amendment, though, there has been some legal pushback against overly restrictive state regulation, especially when it comes to provisions barring the interstate sale and shipment of wine and some other alcohol to individual consumers. In Granholm v. Heald 544 U.S. 460 (2005), for example, the Supreme Court struck down a Michigan law that permitted in-state wineries to ship to in-state customers but barred out-of-state wineries from doing so in a decision that relied on the Commerce Clause to rule that, notwithstanding the authority granted by the 21st Amendment, the Dormant Commerce Clause prohibited states from discriminating against out-of-state wineries. One result of this has been a vast expansion of the interstate market available to wineries around the country, although the decision did not have a universal impact because the court did not rule that all states must allow wineries to sell and ship wine to customers in their states, but instead provided that states could not discriminate against out-of-state wineries. This means that it is still illegal for wineries in California to ship to states where the law provides that no winery can ship directly to consumers. Another case, Lebamoff v. Rauner, which was handed down just last year by the 7th Circuit Court of Appeals rejected the argument that Granholm’s precedent should not equally apply to retailers such as wine retailers. However, the actual impact of that decision will depend significantly on how the Supreme Court decides the Tennessee case that will be heard tomorrow.

As things stand, it’s hard to say exactly what to expect from the Court in this case because it defies the typical left-right political division that most people pay attention to with respect to the Court. In the Granholm case, for example, the Supreme Court split 5-4 but it was most decidedly not on ideological grounds. The majority opinion was written by Justice Kennedy, and he was joined by Justice Scalia, Justice Souter, Justice Ginsburg, and Justice Breyer. The primary dissent in the case was authored by Justice Thomas, who was joined by Justices Stevens and O’Connor along with Chief Justice Rehnquist. Of the nine members of the Court for that case only three — Thomas, Breyer, and Ginsburg — remain and its entirely unclear where the Justices who have taken the bench since then will come down on the issue and how broad any opinion might be. We’ll get some clues about that after Wednesday oral argument, of course, but we won’t know for sure until the decision itself is handed down. In the meantime you can learn more about the case at the SCOTUSBlog information page and, of course, there will be coverage of the oral argument later this week.

FILED UNDER: Economics and Business, Law and the Courts, Supreme Court, U.S. Constitution, , ,
Doug Mataconis
About Doug Mataconis
Doug holds a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May 2010. Before joining OTB, he wrote at Below The BeltwayThe Liberty Papers, and United Liberty Follow Doug on Twitter | Facebook

Comments

  1. Hal_10000 says:

    Really hope they side against the state liquor laws here. In PA, you can’t get good wine without paying through the nose through the state liquor stores. And a few years ago, when the legislature wanted to liberalize the laws, the union representing the liquor store employees ran one of the most disgusting ads I’ve ever seen. To hell with their monopoly.

  2. @Hal_10000:

    Yea I am well aware of the liquor laws in Pennsylvania. One time I was staying overnight in Somerset County and really just interested in buying a bottle of wine to have with dinner in my hotel room. That wasn’t as easy as I thought it would be.

  3. Daryl and his brother Darryl says:

    So I’ll be able to order pot from Oregon?

  4. Slugger says:

    @Daryl and his brother Darryl: You got cash? I can hook you up.
    The relationship between legal and illegal production of intoxicants is interesting. Tennessee is a center of moonshine making. I suspect that the restrictive laws referenced in the article are intended to be anticompetitive at least as much as protecting citizens from abuse. When Oregon was debating legalization of marijuana, many anti arguments came from the southern part of the state where illegal growth has been going on for 50 years. I thought that the antis were protecting their markets.

  5. MarkedMan says:

    Nothing was as bizarre as the 1980’s era liquor laws in Utah, due to the endless dance between ski resort operators and the Mormon church. I arrived in the SLC airport and stopped in for a drink at a terminal bar while awaiting friends to arrive on a different flight. I sat down and asked the amazingly perky waitress for a gin and tonic. A few minutes later she plopped down a glass of ice with a jaunty lime wedge, an unopened mini-bottle of Schweppes tonic water, and a reasonably hefty bill. I smiled and said “Didn’t you forget something?” Sounding truly puzzled, she said, “What?”
    “The gin!”
    “Oh, didn’t you see it when you came in? It’s on the left hand side as you are entering.” And with that, she was off on her perky way.
    I walked in that direction but there was obviously nothing inside the bar on either side. So I finally walked out, turned around and saw a man sitting on stool inside a small closet. It had a Dutch door, with the top open so you could see him in there and I realized the walls of the closet were covered from floor to ceiling with narrow shelves full of airline bottles of liquor. I thought, “My god, if the tonic water cost that much, how much is the gin going to cost?”, but it turns out that certain venues such as hotels (and, I guess, airport bars) were allowed to have liquor licenses, but only to sell unopened bottles. They had to sell at cost, no profit, but were allowed to charge a 75 cent handling fee. So all in all, I think my gin was just over a dollar. The final drink ended up closer to NYC prices then a typical airport bar, but not as bad as it could have been.

  6. gVOR08 says:

    @Slugger: Almost certainly. My old home town had a fixed number of liquor licenses. To open a newe establishment, you had to buy one from a license holder. They were quite valuable. Change was opposed, unsuccessfully, by a coalition of preachers and bar owners. I lived in Dallas in 1970. Most stores were not allowed to be open on Sunday. The preachers wanted to observe the Sabbath and the local store owners were keeping K-Mart out. Grocery stores could be open, so my first Sunday I went to stock up my new apartment. Grabbed a six pack, although I expected they wouldn’t sell it to me. Also grabbed some water glasses. They wouldn’t sell me the glasses. Beer and wine were groceries, glasses were hardware.

  7. Gustopher says:

    That modern convenience, however, is denied to wine lovers who live in the 36 states that prohibit interstate shipping from retail wine shops. A consumer in a rural community, for example, with few good wine shops within easy reach, is forbidden to order wine from an out-of-state source with great bottles galore.

    There are only so many bottles of good wine — you can’t just ramp up the production line and churn out more. The basic laws of supply and demand would suggest that if we increase the demand, we will increase the prices. Or we might run out of my favorites.

    Let those people in rural areas drink their sad rotgut out of a plastic jug with a bottle cap (decanted into a Pringle’s can if that is their tradition). Better than raising prices for me. It’s a sacrifice that I am willing for them to make.

  8. Tyrell says:

    @gVOR08: The town that I live near does not allow sales of any alcoholic beverages. This has been on the ballot time and again and always goes down. Residents who want a drink have a twenty minute or so drive up the road to the next county.

  9. KM says:

    I was at Cleveland Clinic recently for a family member and was amazed to discover Aldi’s sells wine. Like, as soon as you walk in the door it’s right there, shelves of it. The cashier laughed when I commented on this and noted it’s limited to a few states.

    I managed to snag a couple bottles of halfway decent stuff for the remainder of the trip. I was mildly disappointed to note I couldn’t get it in my home state. It certainly made waiting on the doctors a lot better for the price….

  10. DrDaveT says:

    Virginia’s supreme court ruled a few years back that it was unacceptable for Virginia to permit Virginia wineries to direct-mail to Virginia residents, but to prohibit direct-mailing from out of state. (The argument that goes “…but we can’t be sure that children aren’t receiving the package!” kind of breaks down when the only difference is where the package originates.)

    Virginia solved the problem in typical Virginia fashion — they passed a law saying that wine could be shipped to a Virginia resident by absolutely anyone at all…who is a licensed Virginia importer.

    VA wineries all buy licenses, and ship in-state. Those out-of-state wineries and distributors who do enough volume business in Virginia to make it worth their while will pay the few thousand bucks a year to keep a VA importer’s license. For boutiques and snooty wines, forget it.

  11. DrDaveT says:

    BTW, some of us have been tracking this for a long time.