A Review of 11 Lawsuits Challenging Discriminatory State Alcohol laws

Self-distribution and alcohol shipping cases abound

Challenges to discriminatory state alcohol laws are a constant. You can trace them all the way back into the 19th century—even those that challenge restrictive alcohol shipping laws. These legal challenges are important because their resolution can significantly change the way both consumers and members of the alcohol trade buy and sell.

With this in mind, I thought it a good time to review where we are with a number of challenges to state alcohol laws. And I’ve created this handy map to help:

There are currently two types of lawsuits working their way through federal courts. One type challenges discriminatory self-distribution laws.

SELF DISTRIBUTION CASES
Self-distribution describes laws that allow producers of alcohol to sell directly to retailers and restaurants in a state instead of having to use a middleman wholesaler. State laws of this type that are being challenged allow in-state wineries, distillers, or breweries to sell directly to a retailer or restaurant but ban out-of-state producers from doing the same.

These are important exceptions because they offer producers an important path to the consumers that often provides higher margins for them. But they are also important to retailers and restaurants because provide them with access to additional sources of inventory, thereby allowing them to diversify their offerings beyond the usually limited choice wholesalers offer them and every other retailer in a state.

Discriminatory state self-distribution laws are straightforward dormant commerce clause cases akin to the Granholm v Heald case that came before the Supreme Court in 2005. In that case, out-of-state wineries were also discriminated against. The court found that the 21st Amendment did not authorize discriminatory laws of this sort nor did the laws serve a legitimate state interest that could not be pursued with non-discriminatory alternative laws. The laws were found unconstitutional.

Two Federal District Courts have considered discriminatory self-distribution cases since Granholm v Heald was issued. In 2009 a Washington District Court used Granholm to determine that Washington’s discriminatory wine self-distribution law was unconstitutional. A year later, an Illinois District Court found that state’s discriminatory beer self-distribution law was unconstitutional. Notably, earlier this year Oregon, upon being sued for its discriminatory beer self-distribution law, chose to settle the case rather than fight a sure losing battle. It strikes this observer that states choosing to fight these lawsuits rather than settle like Oregon are acting irresponsibly and wasting state budgetary resources.

Self-distribution challenges are underway in three states:

IDAHO
In Idaho, state law allows breweries in the state to sell directly to retailers. However, the state does not provide the same privilege to out-of-state breweries. In this case, a brewery in Washington State is challenging this discriminatory law in the U.S. District Court for the District of Idaho. The case, Roberts v Gripton, was filed in August. This case is in its earliest stages where both sides will be asking the Court for a summary judgment

IOWA
In Iowa, state law allows in-state wineries to sell wine directly to Iowa retailers, thereby going around the wholesaler. However, the law prohibits out-of-state wineries from doing the same. In this case, a small, Oregon winery is challenging the discriminatory law. Pheasant Court Winery v Mosiman was filed in June in the United States District Court for the Southern District of Ioway Central Division. The case is currently in its discovery phase where parties will provide evidence to support their claims and defense.

NEW YORK
Filed on September 13th, Alba Vineyards v New York State Liquor Authority challenges this state’s law that allows in-state wineries to sell directly to New York retailers but bars out-of-state wineries from doing the same. Alba Vineyards is a winery located next door in New Jersey. The state of New York has yet to answer the complaint.

ALCOHOL SHIPPING CASES
There are currently eight different direct-to-consumer alcohol shipping cases being pursued across the United States. The outcome of these cases is important to consumers, retailers, and both domestic and foreign producers. These cases range from winery, brewer, and distiller direct shipping to retailer shipping.

As noted above, the Granholm v Heald Supreme Court case decided the fate of laws that discriminate against out-of-state wineries that were barred from shipping into states while in-state wineries were allowed to ship. There is no good reason to believe that the non-discrimination principles laid out, in that case, ought not also apply to brewers and distillers who face discriminatory shipping laws. They are essentially identical cases. The retailer cases are only slightly different as they apply to the tier located two rungs down from producers. The retailer cases are particularly important to consumers, imported brands, and retailers. If these cases can establish that discrimination against out-of-state retailers is unconstitutional, retailers will have access to nearly the entire American wine marketplaces. Consumers will have access to exponentially more wines than they currently may find locally and via winery direct shipment. Finally, import brands, which may not ship to the U.S. from their foreign premises, are sold in the U.S. only by retailers. Retailers being able to ship across state lines means import brands will much more efficiently be made available across the country via direct shipment.

Alcohol direct-to-consumer shipping cases are underway in the following states

ARIZONA
This case, Reed Day v Henry, challenges Arizona’s set of laws that allow Arizona wine retailers to ship wine directly to Arizona consumers but bars out-of-state retailers from doing the same. The District Court of Arizona’s decision found for the state by saying there was no discrimination involved. In its reasoning, the Court said that out-of-state retailers were just as eligible to obtain an Arizona retail license (which would require them to open a store in Arizona from which they could ship wine to consumers) as in-state retailers). Moreover, the court took the position that the Granholm v Heald decision did not determine this case since that case was about wineries, not retailers. This position was explicitly countered by the Supreme Court in its 2019 Tennessee Wine v Thomas. Case. This case is currently on appeal to the Ninth Circuit Court of Appeals.

WASHINGTON STATE
In Washington State, distillers may ship spirits directly to Washington consumers, but out-of-state distillers may not. This is a producer shipping case along the lines of the 2005 Granholm v Heald case. Responding to the state’s motion to dismiss Shady Knoll Orchards v Postman, the U.S. District Court of the Eastern District of Washington declined to do so. In fact, the Court’s ruling on the motion to dismiss seemed to indicate the state argument was weak and likely to fail at summary judgment. Following the motion to dismiss, the state and the Plaintiffs are preparing briefs on the question of Summary Judgment.

ILLINOIS
The Illinois case is long and winding and dates to 2015. Originally this case was known as Lebamoff v Rauner. It challenges Illinois’ discriminatory ban on wine shipments from out-of-state retailers. The case went up to the Seventh Circuit Court of Appeals where Chief Judge Wood issued a decision in 2018 remanding the case back to the District Court with instructions to consider the case in light of her determination that the Granholm v Heald Supreme Court controlled this case and that Granholm, though about winery shipping, applied equally to retailer shipping. The state of Illinois had argued that the non-discrimination principle in Granholm only applied to producers of wine, but not to retailers. This important decision was undermined by two events: 1) Lebamoff, the plaintiffs, sold their business, making their litigation moot. Then, upon the case being refiled, the judge in the case, an octogenarian, died while on the bench. Today, this case, carrying the Freehan v Berg moniker, is in the District Court for the Northern District of Illinois-Eastern Division. The parties have largely finished with discovery and will be submitting briefs supporting their request for summary judgment.

INDIANA
Indiana law allows its retailers to deliver wine to Indian residents, but bars out-of-state retailers, including the plaintiff located in Illinois, to do so. The District Court in Chicago Wine Company v Holcomb upheld the Indiana law in a 2021 decision that claimed the differential treatment was not discriminatory at all. Why? Because both in-state and out-of-state retailers are first required to obtain their inventory to be shipped from in-state Indiana wholesalers and out-of-state retailers are free to obtain an Indiana wine retailer permit, open a store and buy from Indiana wholesalers before delivering that wine to Indiana consumers. This decision was swiftly appealed to the Seventh Circuit Court of Appeals where oral arguments occurred on December 10, 2021. On June 16, 2022, without any judgment being yet rendered, Judge Michael Kanne, part of the three-judge panel that heard this case, died. There has been no word from the court on the disposition of this case since the date of the oral arguments almost two years ago.

OHIO
Filed in July 2020, Block v Canepa challenges Ohio’s law that allows in-state retailers to ship wine to Ohio consumers but bars out-of-state retailers from doing the same. On summary judgment, the District Court ruled that Ohio demonstrated that the discriminatory law could be justified as furthering state interests that were not protectionist and this ended the case in favor of the state. The case was immediately appealed to the 6th Circuit Court of Appeals and on July 17, 2023, the Court of Appeals remanded the case back to the District Court saying that the court had failed to weigh the evidence presented by both plaintiffs and defendants on whether the Ohio law “can be justified as a public health or safety measure or on some other legitimate nonprotectionist ground,” and if the law’s “predominant effect” is “the protection of public health or safety,” rather than “protectionism.” The case is now back before the District Court where the evidence on these questions will be taken into account based on the Circuit Court of Appeals direction. Interestingly, the Ohio Attorney General had subsequently alerted the Appeals Court that it intended to appeal its decision to the U.S. Supreme Court, but a week ago announced it would not do so.

RHODE ISLAND
This case too is a wine retailer shipping case. Rhode Island allows its wineries to deliver wine to Rhode Islanders but prohibits the same from out-of-state retailers. When Anvar v Dwyer was heard in the Rhode Island Federal District Court, the judge ruled the discriminatory law was constitutional, explaining that since the three-tier system is “unquestionably legitimate” and since allowing out-of-state retailers to deliver wine into the state would “dismantle” that system, it must be upheld. This ruling was immediately appealed to the 1st Circuit Court of Appeals which ruled on September 7, 2023. In its decision, the Appeals Court determined the lower court in Rhode Island, like the lower court in Ohio (above) failed to consider any “concrete evidence” as to how Rhode Island’s in-state presence requirement for retailers “furthers the legitimate aims of the twenty-first amendment”. The first circuit, again like the 5th Circuit in the Ohio case, remanded the case back to the district court for a full consideration of evidence provided by the plaintiffs and the state.

NEW JERSEY
In Weg v Graziano, a New York retailer is challenging New Jersey’s law that bans out-of-state retailers from shipping wine to New Jersey residents while allowing New Jersey retailers to ship to in-state consumers. On August 22, 2023, the New York District Court of New Jersey upheld the discriminatory law as constitutional. The Court reasoned that because New Jersey cannot inspect the premises of an out-of-state retailer, would be unable to uncover connections to organized crime by the out-of-state retailer, and could not determine if illegal sales to minors were occurring at the out-of-state retailer and could not expect to get any help from New York authorities in doing any of this, and because controlling all these things are a legitimate means of pursuing the health and safety of New Jersey residents, there is no way to allow out-of-state residents to ship in a non-discriminatory manner. The case has been appealed to the Third Circuit Court of Appeals.

For the sake of disclosure, I should note that I have been involved in each of the cases noted above in one form or another including as an expert witness.