Direct Shipping: Discounting the Next Case
The case is Wine Country Gift Baskets vs. Steen. It’s a follow-up to the landmark Granholm vs. Heald, which decided that states could not discriminate against producers of wine. That is, if a state allowed in-state wineries to ship directly to consumers, the state could not prohibit out-of-state wineries from shipping directly to consumers.
Wine Country, which is based largely on Granholm, asserts that states can’t discriminate against retailers of alcoholic beverages and must allow out-of-state retailers equal access to in-state markets. If the courts buy that argument, it will be a dramatic expansion of previous interpretations of the Commerce Clause — and, it’s fair to say, a big boon to wine drinkers in constricted markets like, for example, Kentucky.
As the case sits now, the Fifth Circuit Court of Appeals has decided that it is not discriminatory for Texas to require all alcoholic beverage retailers — whether in-state or out-of-state — to be licensed by the state and to buy their merchandise from Texas-licensed wholesalers. The decision did not question the “unquestionably legitimate” three-tiered distribution system.
According to a press release by interested bystander the Specialty Wine Retailers:
If this view is upheld, millions of wine consumers across the country will fall victim to protectionist state laws and hundreds of thousands of wine retailers will see their protection from state based discrimination promised by the Commerce Clause of the Constitution stripped from them.
Not to be an old poo or anything, but the status quo is that retailers can’t, generally, sell and ship across state lines. Upholding that status quo will not strip anyone of anything. It will merely perpetuate a system that decreases consumer choice.
The plaintiffs — “a group of out-of-state wine retailers and Texas wine consumers” – are seeking a reversal of the Fifth District’s ruling. They contend that the permissible goals (under the Commerce Clause) of state alcohol regulation — the promotion of temperance, collection of taxes, and establishment of an orderly market — can be accomplished through less burdensome means.
They may be right about that, but if I were betting I’d bet that they’re going to get creamed.
Keep in mind, however, that great fortunes have been amassed betting the opposite of whatever I think is likely to happen.
December 2nd, 2010 at 9:29 AM
Everyone I have talked to says they will get creamed, so maybe you’re right, Tom. One attorney said he would be very, very surprised if the retailers appealed, given how poor their case is.
December 2nd, 2010 at 7:15 PM
I’ve learned over the years, often the hard way, that it is often imprudent to attempt to comment authoritatively or even semi-authoritatively on issues of medicine and the law, unless you have some sort of expertise in those matters.
That said, and assuming you have expertise in 21st Amendment/Commerce Clause jurisprudence,…I’ll bite:
What is it about the retailer’s case that leads you to believe they will be creamed if the Court accepts their case? And how is arguing that retailers have the same commerce clause protections as wineries, manufacturers of chairs, book sellers and contractors a “dramatic expansion of previous interpretations of the Commerce Clause”?
Put another way, where in the 21st Amendment, the Webb-Kenyon Act, the Wilson act or in any other act of Congress or in the Constitution does it say that wine stores have no right to the Commerce Clause protections against state-based discrimination?
As for the wine curmudgeon, perhaps he can ask his attorney friend exactly why the retailer’s case is so poor.
December 2nd, 2010 at 8:52 PM
Wine Country is a very complicated case because there are so many issues, so you’d have to be a fool — as a layman — to offer a legal opinion. The Curmudgeon can speak for himself, but here’s my foolish legal opinion:
1. The current Supreme Court has a tilt toward states rights, and the 21st Amendment is pretty clear that control of liquor distribution rests with the states.
2. A decision that out-of-state retailers can ship into any state they like would cause a massive disruption of commerce, another thing the current Supreme Court doesn’t like to do.
3. You can make a pretty good case that opening all states to all retailers would, in fact, create a disorderly market — and maintaining a well-regulated alcoholic beverage market is one of the things the court has always deemed justification for supporting the 21st Amendment over the Commerce Clause.
4. Most importantly: the Texas law isn’t particularly discriminatory.(It was when the suit was first filed, but in the intervening years the Texas Legislature re-wrote the law governing home delivery of alcoholic beverages, severely restricting deliveries even by in-state stores.) The remedy offered by the lower court — that anyone can sell in Texas as long as they’re licensed and buy their inventory from a Texas-licensed wholesaler — was, its safe to say, exactly the opposite of what the plaintiffs were hoping for.
Assuming the Supreme Court takes the case, and assuming that the Supremes disagree with my astute legal reasoning and declare the Texas law egregiously discriminatory, I’d go double-or-nothing that the Texas Legislature’s reaction will be to ban all home delivery. That gets the regulation out of the realm of the Commerce Clause and places it firmly within the established jurisdiction of the 21st Amendment. So, the best-case outcome of this appeal a tightening rather than loosening of regulation.
Which doesn’t strike me as a victory worth all the trouble.
December 2nd, 2010 at 9:12 PM
Tom,
1. This case is not about states rights. It’s about the the competing constitutional provisions and the degree to which the Commerce Clause can be overridden by other parts of the Constitution. Furthermore, the folks that have left the court since Granholm was argued tended to side against Granholm. With the exception of Sotomayor, the others seem to have similar judicial philosophies on these issues as those that voted in favor of Granholm.
2. The Retailers have never argued they should be able to ship into any state they want. They argue that they ought to have access to direct shipment as long as in-state retailers have access. Furthermore, I don’t think any argument can be made that out-of-state retailers shipping into a state would cause any disruption, let alone a massive one. In those states where retailers may ship there is no disruption at all. Tax receipts are up in that state, there are no instances of minors using shipping to obtain alcohol, and regulators have successfully regulate the retailers. Out of state wineries ship into states in a number far greater than the retailers that would ship into any state and their presence in the market has caused no disruption.
3. No one is or ever has asked that any states be opened to retailer to consumer shipping, let alone all states. The retailers argue that a state can shut down all direct shipping if it pleases. They only argue that states must adhere to the basic provision of the Commerce Clause, which says the Federal Government, not the States, regulate interstate shipment. Also, what is disorderly about issuing permits to out of state retailers, getting regular reports from them on what they shipped in and receiving taxes from them?
4. The law doesn’t see a distinction in terms of the distance a wine can be shipped. The Texas Attorney General, the Fifth Circuit Court of Appeals and the Texas ABC all admit that even with the new change in the law, the law remains discriminatory. As for the remedy, it was clearly one that also discriminates against out of state retailers.
You may be right about Texas. However, do you think retailers in New York, Ohio, Illinois and other states, where many of them depend on direct shipment of wine, would sit back and see their right to ship just be taken away? I work with these folks. Not in a million years.
December 2nd, 2010 at 9:13 PM
I have a feeling the Wine Curmudgeon won’t be speaking for himself.
December 3rd, 2010 at 7:31 AM
Didn’t realize my presence was so crucial. I thought Tom, expert that he is, had everything covered.
I don’t pretend to be an expert. I’m a reporter, and I report. I call people who know more than I do, and I ask them their opinions. In this case, I talked to three people with intimate knowledge of Wine Country, two of whom were attorneys, and they all said the same thing. The Supremes probably won’t take the case, let alone rule in favor of the retailers. I wrote this at the time.
And I live in Texas, where I like to think I pay reasonable attention to what goes on here and understand how the Texas legislature works. Or doesn’t work, as the case may be. The retailers’ lobby is hugely influential here, and the state’s liquor law framework was written by the retailers and passed by the legislature in 1971 when Texas passed liquor by the drink. So the legislature’s first priority is to protect Texas retailers, not to participate in some sort of the world will be a better place if we have direct shipping scenario.
But what do I know? I’m not an expert.
December 3rd, 2010 at 8:09 AM
Okay, by the numbers, and then a serious question:
1. How one strikes a balance between the 21st Amendment, which gives regulatory powers to the states, and the Commerce Clause, which prohibits states from exercising regulatory powers, is influenced by one’s beliefs about the relative power of state and federal government. How could it not be?
2. You’re right: they haven’t argued to ship anywhere they want. They’re arguing that they should be able to ship into Texas. Legal precedent being what it is, I expand the outcome to a national rather than regional scale. Perhaps that’s ridiculous. If so, I’m sorry and ignore the argument.
3. True enough, but I assumed that the support of the Specialty Wine Retailers implied that the goal was to liberalize shipping laws rather than having them tightened.
4. The distinction of distance is bogus. What’s important and, I think, supportable, is the distinction of delivery method. A delivery in an automobile by an employee of the liquor store is a whole different level of accountability than delivery by common carrier.
In #2 you jump on my assertion that commerce would be disrupted, and I admit I overstated. It is not so much “commerce” that would be disrupted as it is the commercial status quo. And, as we all see every day, getting any branch of government to disrupt entrenched business interests is difficult.
But here’s where the hairball of commercial disruption and orderly markets come together: out-of-state retailers are more difficult and more expensive to regulate than in-state retailers. It’s harder to inspect stores and audit inventory, for example, if a state has to send inspectors half-way across the country. There are issues of legal jurisdiction as well. If a store in Oklahoma is causing a problem under Texas law, what law enforcement agency conducts the raid? Can you imagine how thrilled Oklahoma would be to expend money enforcing Texas liquor laws? Do you think a reasonable case can be made that those conflicts would contribute to a disorderly market?
That’s the nut of this: regulation of state law is more easily accomplished if the business being regulated is in the state. And while in other areas states might just have to accept regulatory difficulty, the 21st Amendment gives states unique power to regulate alcoholic beverages.
I assume you and your organization are smart people, well advised, and thus I assume you’re supporting this case because you’re in favor of the likely outcome. Going back to my earlier comment, the end-game on this lawsuit is almost inevitably greater restriction.
Which makes me curious: why would you back a case that will likely set a precedent restricting markets and solidifying state control over shipping laws? Clearly, I’m missing something. What is the outcome you guys expect, and why is it good for your members?
December 3rd, 2010 at 11:06 AM
Tom:
RE: 2..
It is the belief of the retailers that a state may choose to ban direct shipment of wine altogether or they may allow it. Retailers understand that direct shipment into as many states as possible is good for the consumer, for retailers and for the industry. But they do not believe that if the court rules that all states will be required to allow shipping.
RE: 4:
Texas law now allows Texas retailers to ship via common carrier, not just by a car owned by the store.
Regarding your question about the disorderly market, these exact same issues came up in Granholm, when the states argued they could not do all these things with out of state wineries. The court rightly understood that the states could easily audit another state’s books. But they also discovered what we all know, the state RARELY audits their in-state wineries and retailers. And in some cases, where texas is concerned, traveling across the state is going further than going out of state. The distance issue in today’s world doesn’t fly now and it didn’t fly in 2005 because the argument was a ruse put up by the state and wholesalers.
As for police powers, the wholesalers, in 2000, pushed the 21st Amendment Enforcement Act through congress. It gives State attorney generals the right to prosecute out of state shippers in federal court. In addition, Texas can revoke the wine shipping license that an out of state winery had to get to be able to ship into texas. Texas can require that out of state retailers submit to Texas’ legal jurisdiction in order to obtain a permit. Texas can create any many of penalty for not complying with the shipping law. The issue is not that Texas has not enforcement mechanism.
After granholm, the option states had was to level down and stop all direct shipping. Wholesalers in some states attempted this. It failed. The instate wineries didn’t want their shipping rights taken away and realized that their success didn’t depend on discriminating against out of state wineries. Same for retailers. If the Retailers win, I rather doubt that retailers will happily give up their shipping rights in places like NY, FL, NJ, MI, IL, etc. They understand their success never did depend on discriminating against out of state retailers.
In Texas, the state opened shipping for all wineries, in state and out. Why not just restrict it for all as you suggest should have happened.
Finally, maybe the Wine Curmudgeon can ask around Texas, particularly among Package Stores. He should ask if they are happy with the current restrictions on shipping within the country. I did. I think he’ll find the package stores have come to hat this law and want it back to where it was.
Finally, if you want to really think about this case, then you have to thin about this: Exactly where, exactly in what legal document, did the Federal government act to strip retailers of their Commerce Clause protection against state-based discrimination? Where was it written that RETAILERS don’t have this basic protection, but WINERIES Do? Realize that in over 223 years, only one industry has seen its Commerce Clause protections stripped from them: The insurance industry in 1945. Wine Retailers never have had this protection affirmatively taken from them, as only Congress can do.
Finally, if the state can legislate as it wants where wine stores are concerned due to the 21st amendment, does this mean that the 21st Amendment also overrides the 14th Amendment? What about the 1st Amendment? If they can override the Commerce Clause with the 21st Amendment, what legal principle says that they may not override all other Constitutional provisions with the 21st?
December 3rd, 2010 at 11:08 AM
Wine Curmudgeon:
Please, by all means report. What exactly did your lawyer friends say was the problem with the Retailers lawsuit?
And while your at it, what is the current feeling among Package Stores concerning the restrictions that are placed on them with regard to direct shipping?
December 3rd, 2010 at 12:57 PM
Great reading, guys.
Keeps proving how the mealy Congress of the 1930s truly screwed up with the wording of the 21st Amendment.
I propose that every legislation and every Constitutional Amendment must be passed through a computer program that digests and then spits back its version of the intent of the new laws for the writers of those laws to sign off. Maybe that would put an end to generations of haggling over intent–or maybe not!
December 3rd, 2010 at 3:04 PM
Wow, I haven’t dusted off my hobbyhorse in a while.
Mr.Wark. The issue will always be tax revenue. The Supremes declared that out-of-state shippers must be treated no differently(back-up singers sing – “NO DIFFERENTLY”) than in-state retailers. The fact remains that most of the people involved in wine shipping pay neither fees nor taxes to the states they ship into. As it stands now, consumers get a good deal through direct shipping. They are able to get wines that are not available in their neighborhood and they get it tax free. Shipper and consumer both win. The local retailer is the one being burdened in this scenario. He must pay the state fees, he is required to keep a yearly-inspected, brick and board structure and he damn sure better pay his taxes. In this instance he loses a sale he has paid the state for the right to make and the state loses tax revenue. Notwithstanding the few examples you invariably trot out, your claim that shippers pay state taxes and fees is pure fiction.
The perhaps weirdest thing is that I’m on your side and so is Tom. We both think people should be able to buy any darn wine they want from anybody they want. But using bullshit arguments to try and persuade people isn’t going to make it happen. And that pesky 21st Amendment isn’t going to go away. Alcohol has always been a “special case.”
Come up with some good arguments to help the cause or better yet, design and implement an ASCAP-like distribution system for the collection and distribution of state taxes on ALL internet/out-of-state sales. This will have the benefit of getting you to stop saying things that you know are patently untrue (ie shippers pay taxes) and B) it will make you wealthy beyond your wildest dreams as yo collect .0000000001% of every dollar sold on the interwebs.
Then- Consumers get to buy what they want from whom they want. Sellers get to sell. Local retailers are on a level taxation playing field with out-of -state entities and the state coffers get their due (and that’s ok because people buy wine on the internet because it’s not available locally, not because they didn’t want to pay tax on it, right?)
Everybody wins. But make no mistake; this is about tax revenue. Solve that and you open the door for direct shipping. Even the bible belt understands tax dollars.
December 3rd, 2010 at 6:47 PM
Wally,
Yous posted: “The Supremes declared that out-of-state shippers must be treated no differently(back-up singers sing – “NO DIFFERENTLY”) than in-state retailers.”
Have the Supremes made a ruling concerning retailer out-of-state shipping?
I’ve been under the impression that the Granholm ruling covered wineries only.
December 3rd, 2010 at 6:56 PM
Wally,
If this issue were purely about taxes, then it would have been settled many years ago. Here’s why.
Retailers do indeed pay the taxes that they are required to pay.
For the first year and a half of this lawsuit, an agreed injunction was put in place that allowed out of state retailers to ship into Texas. However, they were required to pay taxes to the state on the wines they shipped in. And it turns out they did just that.
The state of Texas, the Texas ABC, the Texas Wholesalers and, of course, the retailers all agree that during this time they paid taxes…LOTS of them.
But consider too other states where retailers are allowed to ship. Consider, say, New Hampshire, Nevada, Nebraska or any other state where retailers are allowed to ship. In these states they are required to pay taxes. And guess what…they do. This is confirmed by these states.
There is no difficulty with retailers paying taxes. It’s a simple procedure. Texas could easily put in a system they have for wineries: Out of State retailers would need to apply and pay for an annual permit to ship into the state. A condition of that permit is that 1) the send regular reports on their shipments to the state, 2) they print “Alcohol Inside” on the box, 3) they are required to have a signature by an adult before delivery, 4) they are required to submit to the state’s legal and regulatory jurisdiction and 5) they pay taxes to the state.
This system works just fine for wineries in Texas and it would work just fine for retailers. In fact, similar systems are in place in a number of states such as Oregon and Virginia.
If a retailer is not paying any taxes now, it’s because they are not required to because they are not allowed to ship into a state.
The tax issue has been solved for years and been demonstrated to work where out of state shippers are concerned. In every state where out of state retailers are prohibited from shipping and in-state retailers may ship, it’s the in-state wholesalers who convince legislatures to put in place these discriminatory circumstances. Sometimes, in-state retailers object to it. And 95% of the time this happens, there is no debate on the issue. Most certainly consumers are not consulted. And rarely are retailers.
There are two issues here: 1) should consumers be allowed to buy from out of state retailers? Clearly you and I agree they should be. 2) Is the discrimination that is in place in Texas and many other states constitutional? I don’t know how you stand on this latter issue.
There are no bogus arguments being made here. If I’ve made any arguments concerning the case you find “bogus” please enlighten us.
December 3rd, 2010 at 6:59 PM
Thomas,
The court never said that Granholm only applied to wineries. They never gave a rationale as to why it might only apply to wineries.
That retailers have been discriminated against where shipping is concerned is not an issue. Everyone agrees they are. The discrimination has been put in place because the legislatures have been willing to buy the wholesalers’ arguments that retailers dont’ have commerce clause protection and states are willing to risk the lawsuits.
December 3rd, 2010 at 7:07 PM
So, Tom. Is this what you are trying to address in your upcoming challenge?
“The discrimination has been put in place because the legislatures have been willing to buy the wholesalers’ arguments that retailers dont’ have commerce clause protection and states are willing to risk the lawsuits.”
If Granholm never excluded retailers, then it seems almost like a slam dunk case against wholesalers.
I’m getting confused.
December 3rd, 2010 at 7:24 PM
Thomas:
The plaintiffs in Granholm were wineries. It is upon this basis that some say the principles laid down in the Granholm case only apply to wineries. However, the Court never said anywhere in granholm that their reasoning concerning the Commerce Clause and the 21st Amendment only apply to wineries and retailers don’t have the same protections.
So, essentially, our case is a re-run of granholm, but with retailers at the helm.
Two Federal District Courts have said the bans are unconstitutional. Two Appeals Courts have said they are not unconstitutional. In the Appeals Court cases, the justices ruling against us have written that it would be nice to have some guidance from the Supreme Court, but in lieu of that, they won’t expand granholm.
December 3rd, 2010 at 9:19 PM
Ah, yes.
It’s been my understanding that when the Supremes come down with a decision without expressly expanding its reach, that decision is narrowly interpreted and has no reach. So, if they don’t mention retailers at all, then retailers have nothing to do with wine shipping in the minds of the Supremes–not until someone brings a case that includes retailers.
Maybe the next case brought to the Supremes ought to ask the court to clarify definitively who’s protected and who isn’t under the 21st Amendment and its relationship to the Dormant Commerce Clause.
December 4th, 2010 at 11:35 AM
Toms,
My confusion of retailer/winery issue reflects my ignorance of the details of Granholm, though it looks as if Tom W feels that is a non-issue in this case.
I have revisited some of the major shippers on the web this morning. Instead of crowing triumphantly that they will ship anywhere(like I planned) I found that most have changed their checkout process to block shipment to Iowa and other similarly prohibited states. I stand corrected on all but my brilliant idea for a tax clearinghouse. Thanks for the great discussion and education.
December 4th, 2010 at 2:30 PM
I’m looking forward to seeing this comment thread published as a book…
December 4th, 2010 at 3:05 PM
I think it would serve better as an audio file before bedtime, if you get my meaning…;)