Could The Supreme Court Strike Down Bans On Wine Retailer Direct Shipping?

Posted: Oct 13, 2018

Restaurants are also getting into Direct to Consumer Game. How will the ruling below affect them?

While the nation's eyes were focused on Senate hearings on a nominee to the U.S. Supreme Court yesterday, a few blocks away, the eight current justices were deciding to hear a case that could potentially change how consumers buy wine. The Supreme Court announced that it will hear the case of Tennessee Wine & Spirits Retailers Association v. Byrd during its next session. The justices will decide whether the 21st Amendment allows states to have a residency requirement for alcohol retailers and wholesalers, preventing out-of-state retailers and wholesalers from obtaining a license if the owner or company has not been a resident for a certain amount of time.

But while the residency requirement is the crux of this case, some believe the court could also decide whether state bans on shipping by out-of-state retailers are unconstitutional. That has wineries, retailers and wholesalers around the country paying close attention.

It has been 13 years since the Supreme Court's decision in Granholm v. Heald, which ruled that, because of the Constitution's Commerce Clause, states could not allow in-state wineries to ship wine directly to consumers while prohibiting out-of-state wineries from doing the same. The landmark decision made it easier for wine lovers to access their desired bottlings and for wineries to expand their business.

But restrictions against out-of-state retailers went untouched. Bitter fights in courts and legislatures have ensued, with retailers arguing they should have the same protections as wineries under the Commerce Clause. Retailer direct-shipping advocates have been hoping that a case similar to Granholm, but with a retailer plaintiff, would make it up to the highest court.

In 2016, alcohol retail giant Total Wine & More applied for a license in Tennessee. The Tennessee Wine & Spirits Retailers Association (TWSRA), a trade organization representing local retailers, pointed out that state law requires retailers to be residents for two years before being granted such a license.

The constitutionality of the law came into question: Does a state have the right to restrict the allocation of its licenses exclusively to its residents? Clayton Byrd, the executive director of the Tennessee Alcoholic Beverage Commission, was unsure of the answer and asked the courts. A federal district judge ruled that Tennessee's law was indeed unconstitutional. The Sixth Circuit Court of Appeals upheld the ruling. The ruling has a wider potential impact too—21 other states have similar laws.

Wider Implications
And here's the key: The Sixth Circuit cited Granholm as one of the bases for its ruling, stating that because there was an attempt to discriminate in favor of in-state businesses, the law violated the Commerce Clause. The Sixth Circuit's decision stated: "Does scrutiny under the dormant Commerce Clause apply only when an alcoholic-beverages law regulates producers or products? And does the 21st Amendment automatically immunize a state law regarding retailers and wholesalers of alcoholic beverages?" The judgment was no. The TWSRA disagreed and petitioned the Supreme Court to hear the case. (TWSRA representatives could not be reached for comment.)

"[The Supreme Court] almost [has] to answer the question, to what extent does Granholm and the protections it provides for wineries also apply to retailers, in addition to answering the residency question," said Tom Wark, executive director of the National Association of Wine Retailers, a group that has advocated for direct-shipping rights for retailers. "It's not guaranteed, but I'd be hard-pressed to figure out how they wouldn't do that."

But it is possible that the court will rule narrowly, focusing solely on the residency requirement issue.

The Wine and Spirits Wholesalers of America (WSWA), which opposes retailer direct-shipping, released the following statement from president and CEO Michelle Korsmo: "WSWA has always been a staunch supporter of state regulatory authority, we will examine the issues at question in this case and assess the potential for it to impact that authority."

It may seem odd that the TWSRA, a retailers association, is the plaintiff in a case that would legalize shipping for retailers if they lose. "Local retailers simply don't want the competition," said Wark. "The vast majority of wine retailers in this country don't ship wine. It's a relatively small core of retailers who serve this sort of national market, and they deal in rare and fine wines."

For consumers, anyone who has ever searched for a specific bottle of wine on a retailer's website and been unable to order it because of where they live, the case will be one to watch. At press time, a date for arguments had not been set.

By Emma Balter
September 28, 2018

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