July 02, 2019
Last week, the Supreme Court issued its opinion in Tennessee Wine and Spirits Retailers Association v. Thomas, No. 18-96 (“Tennessee Retailers”). The full opinion can be read here, and our introduction to the case and issues can be found here. To recap, at issue in this case is the interplay between the Dormant Commerce Clause and the 21st Amendment. The Dormant Commerce Clause prohibits states from discriminating against interstate commerce, while the 21st Amendment grants to each state the authority to regulate alcohol within its borders. In Tennessee Retailers, the Court considered to what extent the 21st Amendment allows states to pass laws regulating the alcohol industry that would otherwise be prohibited by the Dormant Commerce Clause.
The Court last addressed this question in 2005, when the Court held in Granholm v. Heald that the 21st Amendment “does not immunize all [state alcohol] laws from Commerce Clause challenge.” In that case, the Court invalidated laws that favored in-state wineries over out-of-state wineries with respect to direct sales and shipments to consumers. Last week’s ruling in Tennessee Retailers confirmed a broad reading of the prior ruling in Granholm, as applied to a Tennessee law requiring applicants for retail liquor store licenses to live in the state for two years before being eligible for the license. The Court held that Tennessee’s discrimination against out-of-state individuals in the granting of retail licenses violates the Dormant Commerce Clause, and is not saved by the 21st Amendment. The Court ruled that the 21st Amendment “allows each State leeway to enact the measures that its citizens believe are appropriate to address the public health and safety effects of alcohol use and to serve other legitimate interests,” but that it does not “license the States to adopt protectionist measures with no demonstrable connection to those interests” in violation of the Dormant Commerce Clause. The Court also clarified that the prior ruling in Granholm was not limited to prohibiting discrimination against out-of-state products and producers, and that states are prohibited from discriminating against any out-of-state interests, including out-of-state individuals or retailers.
Much of the news coverage and discussion of this case has focused on the impact of the case on state laws that allow in-state retailers to ship alcohol directly to consumers, but prohibit out-of-state retailers from doing the same. Some coverage implied that such laws were automatically invalidated by the Court’s ruling, but the retailer direct shipping issue was not in front of the Court. While the ruling in Tennessee Retailers does confirm that the principles in Granholm apply to all out-of-state interests, rather than just out-of-state producers, the ruling does not categorically prohibit all state alcohol laws that do not treat in-state and out-of-state businesses equally. The ruling is instead a continuation of the Granholm conversation. The ruling confirms that states “‘remain free to pursue’ their legitimate interests in the health and safety risks posed by the alcohol trade,” and that the 21st Amendment does confer additional regulatory authority to the states. However, when a discriminatory state law is “purely protectionist” and cannot be “justified as a public health or safety measure” or on some other “legitimate non-protectionist ground,” then the law will be found unconstitutional. Thus, state laws that allow in-state retailers to ship alcohol directly to consumers, but prohibit out-of-state retailers from doing so, are not definitively unconstitutional following the ruling in Tennessee Retailers. These laws are only unconstitutional if the state cannot establish that the laws are necessary to advance a legitimate local purpose, such as protecting public health and safety, and that there are no reasonable nondiscriminatory alternatives that can adequately further that purpose.
So, what does this ruling really mean? First, the ruling is a victory for out-of-state individuals and entities that desire to apply for a retail liquor store license in Tennessee. Second, other states with burdensome retail residency requirements, such as Massachusetts and Maryland, are likely evaluating the legality of their laws in light of the ruling in Tennessee Retailers. Such states may opt to eliminate such requirements, or may decide to leave the residency requirements in place until challenged. Given the language in Tennessee Retailers analyzing the lack of connection between Tennessee’s residency requirements and advancing public health and safety interests, leaving burdensome residency requirements in place may be risky. But, the State of Tennessee did not attempt to defend its laws, and the public health and safety arguments put forth by the Tennessee Wine and Spirits Retailers Association were cursory, and thus other states may believe that they can do a better job defending their laws. If any states decide to leave retail residency requirements in place, it is likely that litigation will follow. Third, states with residency requirements for wholesaler licenses, such as Missouri, are also likely weighing whether to revise such laws or to leave the residency requirements in place until challenged. Missouri’s wholesaler residency requirements were upheld as constitutional by the 8th Circuit in 2013. However, the 8th Circuit ruling was based on a narrow reading of Granholm, and that interpretation was directly refuted by the Court in Tennessee Retailers. Accordingly, it would not be surprising to see litigation on this issue in the very near future, if such states do not remove wholesaler residency requirements. Finally, even less-burdensome residency requirements, such as requirements for licensees to have a resident manager, may be vulnerable to challenge.
While residency requirements will be most directly in the line of fire following Tennessee Retailers, the ruling has the potential to impact many other aspects of state alcohol regulation. Unlike Granholm, the Tennessee Retailers Court declined to describe the three-tier system as “unquestioningly legitimate.” The Court clarified that while the basic three-tier model may be sound, the 21st Amendment does not sanction “every discriminatory feature that a State may incorporate into its three-tiered scheme.” It is unclear to what extent Tennessee Retailers will spur states to act on their own to revise discriminatory aspects of the state’s alcohol regulatory scheme. We may see states make changes independently, but it may be that significant change will only be achieved through litigation. As the Court noted, “each variation [of three-tiered alcohol regulatory schemes] must be judged on its own features.” Because discriminatory alcohol laws are only unconstitutional if they are not reasonably necessary to advance a legitimate local purpose, states may leave discriminatory laws on the books in the hopes that they can justify those laws if challenged. Accordingly, the most direct outcome of Tennessee Retailers will likely be a considerable amount of litigation.
Which laws are the most likely targets of litigation? Any state alcohol laws that discriminate against “out-of-state economic interests” are vulnerable to challenge under Granholm and Tennessee Retailers. So, litigation could focus on laws that authorize only in-state retailers to deliver or ship to consumers, or it could target laws such as physical presence requirements, tied-house exceptions that allow only in-state producers to operate retail locations, laws that require retailers to purchase from in-state sources, laws that authorize only in-state suppliers to self-distribute products to retailers, at-rest laws, or franchise law exemptions that apply only to in-state suppliers. The recent ruling in Tennessee Retailers may also inspire further litigation and move the needle in the related area of alcohol laws that are facially neutral but potentially discriminatory in effect. For example, states such as New Jersey or Ohio with laws that have special privileges for certain “small” producers, where the definition of “small” may be designed to encompass most or all in-state producers while excluding many out-of-state producers.
While we noted above that some news coverage has overstated the immediate impact of Tennessee Retailers on out-of-state retailer direct to consumer shipping or delivery, the ruling will undoubtedly lead to more litigation regarding these laws. Some of that litigation may be successful in invalidating laws that allow in-state retailers to ship or deliver alcohol directly to consumers, but prohibit out-of-state retailers from doing so. However, each case will depend upon the specifics of the state’s regulatory scheme and the state’s public health and safety justifications for that scheme. While the justifications for Tennessee’s residency requirements were weak, states may have stronger public health and safety justifications for laws regulating delivery and direct shipping, such as preventing underage drinking or delivery of alcohol to intoxicated persons. Note, however, that this argument was held in Granholm to be insufficient justification for treating in-state and out-of-state wineries differently with respect to the shipment of wine to consumers. But, the strength of public health and safety justifications will likely be different in states that allow retailer hand delivery but not shipment by common carrier of alcohol, and these justifications may also be different with respect to beer or spirits as opposed to wine. Furthermore, states may have additional public health and safety justifications based on preventing counterfeit alcohol. An out-of-state retailer would not obtain its products from the same distribution system as an in-state retailer, and the state’s public health and safety justifications for its distribution system and requirements for alcohol sourcing may be persuasive. However, a state making this argument would likely also need to assert that there are no reasonable nondiscriminatory alternatives to accomplishing the goal of preventing counterfeit alcohol.
There are at least two cases already pending that challenge state laws with respect to alcohol shipping and delivery. In Missouri, Sarasota Wine Market v. Schmitt is on appeal to the 8th Circuit. The lower court held that Missouri’s laws permitting in-state retailers to ship wine directly to consumers, but prohibiting out-of-state retailers from doing the same, are valid under the 21st Amendment. However, this ruling was based on the 8th Circuit precedent mentioned above, which relied on a narrow interpretation of Granholm that was contradicted by the Court in Tennessee Retailers. Further, Lebamoff Enterprises v. Snyder, challenging Michigan’s wine shipping laws that treat in-state and out-of-state retailers differently, is pending before the 6th Circuit. In that case, the lower court held that Michigan’s laws are unconstitutional, as they impermissibly discriminate against out-of-state interests without sufficient justification in violation of the Dormant Commerce Clause. This ruling and appeal were stayed pending the outcome in Tennessee Retailers. These two cases will likely provide the earliest insight into how courts will apply the recent Supreme Court ruling.
Even if the outcome of these cases is that state laws are found invalid, it will not necessarily mean that these states will allow out-of-state retailer direct shipments. Upon a court ruling that a state’s laws are discriminatory and unconstitutional, the state could decide to rectify the issue by “leveling down” to prohibit all retailer alcohol shipments to consumers, from both in-state and out-of-state retailers. As such, the law would apply equally to all retailers regardless of location, so it would not be discriminatory. “Leveling down” to remove all retailer alcohol shipping privileges would likely be unpopular with consumers, but it may find support from some segments of the alcohol industry. Thus, this outcome remains a possibility even if litigation challenging laws prohibiting out-of-state retailer shipping is successful.
Overall, we will have to wait and see what the ruling in Tennessee Retailers will mean for the alcohol industry. But, if you have any questions regarding this ruling or how current laws affect your alcohol business, contact one of the attorneys at Strike & Techel.
January 08, 2018
Previously, we blogged about the 2017 changes to the landscape of interstate retailer direct to consumer (“DTC”) wine shipments. This past year did not see any changes with respect to the permissibility of interstate winery DTC shipments, but there is one change on the horizon in 2018. Currently, winery DTC shipments are permissible and available in 43 states (including Washington, DC). The following eight states have laws prohibiting interstate winery DTC shipments, or have laws or other circumstances that effectively prevent interstate winery DTC shipments in most situations (such as laws limiting winery DTC shipments to on-site sales, or common carriers not servicing the state, etc.):
In 2018, the list above will be narrowed to seven states and winery DTC shipments will be permissible and available in 44 states, as Oklahoma opens up to direct winery shipments. As part of Oklahoma’s sweeping alcohol reform that was passed in 2016, a Direct Wine Shipper’s Permit was created (effective October 1, 2018), which will allow shipments by out-of-state wineries to Oklahoma consumers.
Contact one of the attorneys at Strike & Techel if you have questions about your winery’s operations or direct to consumer wine shipments.
December 18, 2017
This year brought changes to the landscape of interstate retailer direct to consumer (“DTC”) wine shipments. In August 2017, Missouri repealed Mo. Rev. Stat. § 311.462, which allowed out-of-state retailers to ship wine to Missouri consumers, provided the retailer was located in a state that allowed Missouri retailers to ship into the state (“reciprocal states”). Thus, the list of states that allow out-of-state retailer DTC shipping is now as follows:
Bear in mind that California, Idaho, and New Mexico are reciprocal states, and only allow shipments from out-of-state retailers located in one of states listed above. Furthermore, in order for a retailer to ship wine to consumers in the following states, the retailer must obtain a license: Louisiana, Nebraska, Nevada, New Hampshire, North Dakota, Oregon, Virginia, West Virginia, and Wyoming. Many of the states with a DTC license requirement for retailers also require retailers to report shipments into the state and pay taxes.
If you have any questions about direct to consumer shipments of alcohol, contact one of the attorneys at Strike & Techel.
April 07, 2014
Massachusetts wine consumers will soon have equal access to Napa Cabs, Oregon Pinot Noirs, and New York Rieslings, as the commonwealth finally joins the ranks of direct shipping states with the passage of House Bill 294. Effective January 1, 2015, the bill will allow the Massachusetts Alcoholic Beverages Control Commission to issue licenses allowing out-of-state and in-state wineries to ship a limited amount of wine, by common carrier, directly to Massachusetts residents.
Prior to the passage of HB 294, out of state wineries were effectively shut out by the Massachusetts direct shipping law, which purported to allow direct shipping, but included so many restrictions and limitations that it was unworkable. Despite a successful court challenge to the existing law, in which the 1st Circuit Court of Appeals ruled that Massachusetts shipping law was discriminatory, the legislators have been unable until now to pass replacement legislation. In 2013, House Representative Theodore Speliotis introduced HB 294, and with the help of fellow lawmakers and a celebrity endorsement from New England Patriots quarterback-turned-Washington state vintner Drew Bledsoe, the measure was approved and has now been signed by the governor July 11th 2014. Under the new law, all U.S. wineries with a federal basic permit and home state winery license may obtain a license to ship up to 24 cases of wine per year to a Massachusetts resident 21 years of age or older. Like most direct shipper licenses, the Massachusetts license will also require the winery to submit a yearly report to the Commission and Department of Revenue detailing the total gallons of wine shipped, as well as require taxes be paid on all products shipped. The initial license fee will be $300.00 per winery, with a $150 annual renewal fee.
Common carriers delivering in the state are required to have a fleet permit and each vehicle transporting alcohol under the permit must have a certified copy of it in the vehicle, at a cost of $50 per certified copy.
The new law has drawn some criticism because it permits shipments only from U.S. wineries, effectively prohibiting direct shipment of imported wines to Massachusetts consumers. The Massachusetts law is not alone in this restriction; importers and retailers are excluded by the direct shipping laws of some other states, as well. But the law nonetheless represents another step forward in direct to consumer wine sales. Only eight states continue to have a complete ban on winery shipments direct to consumer. If you are interested in learning more about direct shipping law in Massachusetts or elsewhere, contact one of the attorneys at Strike & Techel.
Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2013 · All Rights Reserved ·
March 05, 2014
Almost three years ago now, as reported on Imbiblog here, the TTB accepted its largest set of offers in compromise ever, for trade practices violations. Some of the biggest names in the business agreed to pay hundreds of thousands of dollars to the TTB even though they denied violating any laws or regulations. The allegations of trade practice violations came from participation by the companies in the 2008-2009 Harrah’s Nationwide Beverage Program. Unlike notable earlier trade practice investigations by the TTB, where there was state participation and a parallel investigation, there were no allegations made against retailers involved in the program, and no fines or penalties assessed against retailers (see for example the 2004-2009 joint investigation by Illinois and TTB into payments made by suppliers and wholesalers to Sam’s Wine & Spirits, Inc., then the largest wine retailer in the country, and its captive third party marketing organization Skyline Marketing, Inc.). The 2011 settlement by TTB was acknowledged to result from a retailer-initiated promotional program. Given that the TTB has extremely limited jurisdiction over alcohol retailers, however, the agency was unable to enforce any allegations against Harrah’s for the promotion. Had the State of Nevada participated in the investigation, it is more likely that charges could have been brought.
Now, the Office of the Attorney-General in Nevada has come out with an open letter to retailers, wholesalers and suppliers of liquor in Nevada in what appears to signal an intention to focus more attention on trade practice issues in the State. The advice contained in the letter is phrased as a “reminder” to the industry of prohibited and restricted activities. It covers the following issues:
- No loans from wholesalers to retailers of money or other thing of value, no investments by a wholesaler in a retailer, no complimentary furnishing of premises or equipment, and no joint operation of a retail business;
- Adherence to strict payment terms, with no preference accorded by wholesalers to certain retailers, and with a cessation of sales and monthly service charges in case of delinquency;
- No substitution of brands without consent, and no delivery of unwanted or unnecessary inventory;
- No required boycotts of other suppliers;
- No price fixing down the supply chain by suppliers imposing resale prices on wholesalers, and no profit splitting with the supplier getting a specified portion of the wholesaler’s profit margin;
- No excessive marketing contributions being required by suppliers of their wholesalers, for promotions outside the wholesaler’s market or beyond the terms agreed by the parties;
- Strict adherence to the quoted price from suppliers to wholesalers;
- No discrimination by suppliers among wholesalers (note that Nevada has a franchise law meaning that this refers to discrimination between wholesalers in different parts of the state as only one wholesaler can be appointed in any given market); and,
- No deceptive trade practices.
The letter refers to concerns with illegal terms or incentives by industry members looking for a competitive edge in the market. It notes that the Attorney General has jurisdiction over these issues and is required by law to take appropriate legal action to enforce the provisions of law setting forth the restrictions above. The Attorney General’s office recognizes in the letter its duty to investigate and prosecute deceptive trade practices in Nevada. Should the type of circumstances in the TTB’s investigation in 2011 arise again, it will be very interesting to see what action is taken by the state in light of this clear signal that it is unlikely to sit by if unlawful trade practices occur in Nevada.
If you have any questions about trade practice issues, in Nevada or elsewhere, contact one of the attorneys at Strike & Techel.
Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2014 · All Rights Reserved ·
May 24, 2012
As the U.S. government looks for ways to save the U.S. Postal Service, a recent bill passed the senate that includes provisions allowing the USPS to ship wine, beer, and spirits. Private carriers have been shipping wine for decades, but the USPS has been banned from doing so for over one hundred years. 18 U.S.C. § 1716(f), the 1909 law that prohibits the USPS from shipping “all spirituous, vinous, malted, fermented or other intoxicating liquors of any kind” remains on the books. That law pre-dates prohibition by ten years, and has never been repealed. That would change if Senate Bill 1789 becomes law. The bill was passed in the senate on April 25, 2012, and Section 405 provides that wine, beer, and distilled spirits are considered “mailable” by the USPS as long as a) it is consistent with the laws of the states where the shipment is initiated and where delivery is to be made, b) the addressee is at least 21 years of age, and c) the addressee provides a signature and a valid government-issued photo identification upon delivery.
In order to become law, Senate Bill 1789 still needs to pass through the House of Representatives. The bill was designed to address the moratorium on post office closures that expired on May 15, 2012, which had already been delayed from an original deadline of last December. Since no law was passed by the May 15 deadline, the USPS is moving forward with a modified plan for post office closures. 48 post offices are currently scheduled to close in August, 2012, 92 in 2013, and another 89 in 2014. The impending August closures put pressure on the House to pass a bill as soon as possible if they are going to save those post offices. We’ll keep you posted on their progress and whether permitting the USPS to ship alcohol remains a part of the proposed legislation.
January 11, 2012
Late Monday night, on the last day of New Jersey’s legislative session, the state Assembly voted 51-18-4 in favor of Bill A-4336, New Jersey’s wine direct shipping bill. The companion bill, S-3172, passed the New Jersey Senate last month, and now only the governor’s approval stands in the way of New Jersey becoming the 39th state to allow some form of direct shipping. Under the bill, New Jersey Farm Wineries, New Jersey Plenary Wineries that produce 250,000 gallons or less of wine a year, and out-of-state wineries that produce 250,000 gallons of wine or less each year and that obtain an out-of-state shipping license will be able to ship up to 12 cases of wine per year to any New Jersey consumer. If the bill is signed by New Jersey Governor Christie as expected, the law will go into effect in May, 2012. To see our earlier posts on this topic, check here and here.
Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2012 · All Rights Reserved ·
December 19, 2011
Updating our post of late last week, the New Jersey Senate last Thursday voted 23 to 13 in favor of Bill S-3172, permitting wineries to ship directly to New Jersey consumers. Now that it has passed the Senate, the New Jersey Assembly has to vote on the bill by January 9, 2012, the last day of the legislative session. Under the bill, New Jersey Farm Wineries, New Jersey Plenary Wineries that produce 250,000 gallons or less of wine a year, and out-of-state wineries that produce 250,000 gallons of wine or less each year and that obtain an out-of-state shipping license would be able to ship up to 12 cases of wine per year to any New Jersey consumer. If passed, New Jersey would become the 39th state to allow direct shipping. Check back in early 2012 for an update!
Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2011 · All Rights Reserved ·
October 19, 2011
Beginning January 1, 2012, a new license will be available for direct-to-consumer wine sales. The new license is the result of approval of Assembly Bill No. 623, which revises California’s Business and Professions code to add Section 23393.5 authorizing the license. Sales may only be made to consumers. All sales must occur through direct mail, telephone or Internet; they may not be conducted from a location that is open to the public. The licensee must take possession and title to all wine sold. All wine must be delivered to the consumer from the licensee’s premises or a licensed public warehouse. The application and annual fee are the same as those applicable to a Type 20 off-sale beer and wine license. The key differences between the new limited off-sale retail license and a type 20 license are that the type 20 requires a brick and mortar store that is open to the public and a type 20 license also allows the sale of beer for consumption away from the licensed premises. If you would like more information about the license, please feel free to contact any of the attorneys at Strike & Techel.
June 07, 2011
The Texas Alcoholic Beverage Commission (TABC) issued a press release on Friday, June 3rd advising that it has entered into agreements with FedEx and UPS to halt the shipment of wine by out of state retailers to Texas consumers.
The direct shipping situation in Texas has been in a state of flux for years following the seminal Granholm v. Heald decision, which opened up many states to direct shipment of wine by wineries in 2005. Following Granholm, plaintiffs in a number of states have filed lawsuits to determine the scope of the court’s ruling, particularly whether it applied to retailers or only wineries.
Lawsuits filed in Texas alleged that Texas laws preventing direct to consumer sales by out of state retailers violated the commerce clause of the U.S. Constitution because retailers within Texas were permitted to make such shipments. The cases were decided last year on appeal to the Fifth Circuit Court of Appeals, which ruled that Texas was not required to allow out of state retailers to ship wine to Texas consumers, but could continue to permit in-state retailers to do so.
Following the Court of Appeals’ ruling, the TABC began notifying retailers that shipments to consumers in Texas were not legal. More recently, the TABC has provided FedEx and UPS with the names of out of state retailers who have recently shipped wine to Texas consumers (TABC has not said how it came to identify such retailers.) FedEx and UPS in turn have agreed to notify the listed retailers that such shipments violate the retailers’ shipping agreements with the companies and may lead the shippers to refuse to ship packages for the involved retailers. For its part, TABC says it will contact the retailers directly and may also contact the alcoholic beverage control agencies in the retailers’ home states in cases where the retailers fail to comply with the TABC’s requests.
Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2010-2011 · All Rights Reserved ·
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