The Stakes Are High in the Next Supreme Court Wine Case

Retailers, wineries and consumers have a great deal at state in this possible case.

It is possible, though by no means guaranteed, that the United States Supreme Court will take up a case that will determine if it is constitutional for a state to ban wine shipments from out-of-state retailers. The implications are profound, given the benefits that come with legal interstate retailer wine shipping.

First, the case in question.

The state of Arizona was sued by consumers there because it discriminates against out-of-state retailers when it allows its own retailers to ship wine to consumers but bans out-of-state retailers from shipping wine to Arizonans. The 9th Circuit Court of Appeals ruled, in a 2-1 decision, that this kind of discriminatory law is allowed because requiring a retailer to have a physical presence in the state is an “essential feature” of the three-tier system, and the Supreme Court said in the 2005 Granholm v Heald case that the three-tier system is “unquestionably legitimate”.

The majority opinion in this case went on to hold that if a discriminatory law such as Arizona’s is an essential feature of the three-tier system, then states need not prove that the law upholds health and safety concerns or that those important health concerns cannot be protected without discriminating. Three other courts have agreed with this approach to evaluating discriminatory retailer wine shipping laws.

Meanwhile, three other separate Courts of Appeal have ruled that if the retailer ban is discriminatory, whether it is an “essential feature” of a state’s three-tier system is of no importance. The state must justify the discrimination against out-of-state retailers by demonstrating that the law protects citizens’ health and safety and that there is no alternative way of protecting their health and safety but a discriminatory ban on shipping.

There is a significant disagreement among various Courts of Appeal here that only the U.S. Supreme Court can settle. Such disagreements among Courts of Appeal are one of the primary reasons the Supreme Court might choose to take a case.

The case that the Supreme Court will decide whether or not to hear is entitled DAY v HENRY. This is the petition before the court asking them to hear the case.

This petition is being supported by amicus briefs from “Wine Consumers”, from The National Association of Wine Retailers, and from The Manhattan Institute and the Reason Foundation.

WHY THIS CASE IS SO IMPORTANT TO THE WINE INDUSTRY

SHIPPING COSTS DECREASE: Because so few states (only 13) permit out-of-state retailers to ship wine, the cost of shipping for consumers in states that can receive shipments is much higher than it would be otherwise. We know that the cost of wine is one important reason many people don’t purchase the product.

CONSUMER ACCESS TO PRODUCTS INCREASES: More importantly, in states that don’t allow wine shipments from out-of-state wine retailers, consumers simply don’t have access to the majority of wines that are available in the United States. For example, it is only retailers that sell imported wines. When a consumer is banned from receiving wine shipments from out-of-state retailers, they only have access to those imported wines that wholesalers in their state provide to retailers there.

If all consumers everywhere could receive shipments of wine from out-of-state retailers, the true market for a product would be served instead of it being so perverted by artificial restrictions.

RARE WINE MARKETS FLOURISH: Rare and collectible wines are almost exclusively sold by retailers, many of whom purchase them at auction or from collectors. These include domestic wines as well as imported wines. Older vintages of Napa Cabernet, Oregon Pinot Noirs, and Washington blends that are not the current vintage are usually only available from specialty wine retailers But consumers don’t have access to these wines if they are not allowed to receive shipments from out-of-state retailers.

AMERICAN WINERIES FIND WIDER DISTRIBUTION: Domestic wineries also benefit significantly from retailer-to-consumer shipping. Consider California, Oregon, and Washington, where it is legal for wineries to bypass the wholesaler and sell directly to retailers. For the small, limited production wineries that often have a difficult time finding wholesaler representation in other states, they could sell directly to a retailer in one of these states, who could then expose, promote, and ship their wines to a vast number of consumers across the country. This serves the winery, the retailer, and the consumer. And, again, it balances supply with demand in a way that simply can’t be done today when wholesalers control which wineries can be sold in a state and where retailer-to-consumer shipping is illegal.

RETAILER SPECIALIZATION: Of course, retailers who are able to ship across the country all of a sudden have the opportunity to specialize. While difficult to make a living as the retailer specializing in Italian wine in Austin, Texas, it is very realistic to become that retailer when your market is the entire United States.

SMALL LOCAL RETAILERS SURVIVE AND THRIVE: As big box stores capture more and more of wine retail sales in a municipality, being able to cultivate a clientele across the country allows local retailers to survive without having to engage in a race to the bottom on price.

Billions of dollars and the development of a rational and efficient American wine marketplace are at stake in this case.

An opponent of retailer wine shipments recently admitted their frustration with the petition before the Supreme Court, writing:

“The underlying problem [described in the petition] is in stark contrast with reality as reflected in repeated public opinion polls that continue to show that 85% of Americans are satisfied with alcohol regulation in their state.”

This is probably true if you give weight to the fact that the public opinion poll referenced is a push poll that does not address any of the issues of justice outlined in this case. It’s also worth noting that opinion polls are not always the best measure of what is constitutional and what is unconstitutional. Before the Brown v Board of Education Supreme Court decision that outlawed the “separate but equal” doctrine in public schools, less than 50% of Americans in a National Opinion Research Center poll approved of integrating public schools.

American alcohol wholesalers, retailers, state attorneys general, and the anti-alcohol prevention community have all opposed lawsuits that ask courts to rule discriminatory retailer wine shipping laws unconstitutional. And there is no doubt these same protectionists will weigh in on the petition before the Supreme Court before it decides on whether to take this case.

They argue that states just can’t regulate out-of-state retailers. They argue that bans on retailer shipping are the only way to stop counterfeit wines. They argue that the health and welfare of minors are at stake and require bans on retailer shipping. They argue that states will lose tax revenue. They argue that allowing retailer wine shipments will destroy the three-tier system.

No one believes these arguments. Not even the people making them. Rather, they are a pretense for avoiding the creation of a safe and competitive wine marketplace for consumers that would require wholesalers to compete fairly instead of behind a protective, walled-off marketplace they control.

If the court accepts this case, it will likely be argued sometime between October and December.

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By Tom Wark

Tom Wark is the publisher of Fermentation, a source of commentary on the wine business that he has written since 2004. He is also the publisher of THE SPILL, a free, daily newsletter that curates the best wine content on the web.