A decision by the Supreme Court in “Byrd vs Tennessee” this past June has the potential to resurrect interstate shipping opportunities for wine stores across the country. The question is whether the support of the Court can be fully realized by stores wishing to ship across state lines, and how much resistance retailers can expect as they seek to expand their access to markets.
Back in 2005 the Family Winemakers of California won a historic ruling at the Supreme Court that opened the way for wineries across the country to extend their reach by selling direct to consumers in more than 30 states. Referred to as the Granholm ruling, it favored the Commerce Clause over the 21st Amendment, and prohibited state discrimination against “out-of-state economic interests”. Initially retailers assumed this ruling afforded them the same privileges as producers, but while wineries have been working to convert state laws to comply with Granholm and afford them access to more markets, a campaign by the wholesaler lobby was successful in convincing many state legislators that the ruling’s impact should be limited to wineries. As a result, retailers were written out of most of the new shipping laws.
This summer the Supreme Court directly contradicted the interpretation adopted by states where shipping by out-of-state retailers is restricted. As Justice Alito wrote in the Tennessee Wine opinion, “Granholm never said that its reading of history or its Commerce Clause analysis was limited to discrimination against products or producers.” As Sean O’Leary, of O’Leary Law and Policy Group, says on his authoritative blog, “with these words the Court settled a long debate festering for nearly 15 years.” On the surface, it would appear the matter is settled and that retailers should expect state legislatures to make modifications to their shipping laws to afford them the same privileges as wineries. However, there are indications that the interstate road for retailers could still present some challenges.
Before states will be willing to open their borders to deliveries from out of state stores, many will need to create a framework for these stores to be permitted and remit taxes that replace those paid by in-state retailers and wholesalers. For stores willing to push the envelope, there is the question of how soon the carriers will recognize the new legal landscape. The main carriers now require that licensees demonstrate they are permitted to ship into each state. Will this change, since a state’s ban on out-of-state shipments may not be defensible? Or will states continue to use the carriers to enforce their permitting requirements?
This ruling also puts pressure on the wholesale tier. Mark Brown is a careful reader of trends affecting the Three Tier System in the US which he surveys while accumulating the many articles for his daily email “Industry News Update”. Brown sees Tennessee Wine contributing to a diminished wholesaler influence in state legislatures. This concerns him having seen the once-powerful wholesale tier diminished in his native UK. A contributing factor in their decline was the growth of retail chains in that country during the 1960s and ‘70s which led suppliers to bypass the wholesale tier and sell direct to chain stores and restaurants. If US wholesalers are no longer responsible for all alcohol sales in their home state, it is easy to see how this could diminish their influence at the state house. Another possible source of pressure on the wholesale tier is pointed out by O’Leary who posits that a broad interpretation of the Granholm decision suggests that states also may not be permitted to discriminate against out-of-state distributors, who also qualify as “out-of-state economic interests”. How long will it take for this to be tested in the courts?
Since Tennessee Wine there have only been a few major courts that have had a chance to analyze the Supreme Court’s decision while reviewing 21st Amendment cases. However, it does seem clear there are no blanket prescriptions that can be applied, instead rulings will be made on the merits of each state law. As O’Leary points out in a review of a recent 5th circuit decision, while states may not violate the nondiscrimination principle, they remain free to pursue their legitimate interests. Before they can fully realize the support of the Court, retailers can expect those “legitimate interests” to be hotly contested in state courts and legislatures by a wholesaler lobby that may fear an existential threat.
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