Vintners Can’t Ship, but Supreme Court Might Take Up Cases

The Supreme Court is being asked this week to intervene in a long-fermenting wine war that pits the champions of small vineyards against state regulators and their licensed wholesalers.

The question is whether wine lovers should be able to make purchases through the mail from out-of-state vineyards. The answer requires the court to resolve a clash between two principles set out in the Constitution.

The first principle guarantees a free flow of goods across state lines. The other came in 1933, with the compromise that ended the nation’s failed experiment in Prohibition. It gave the states the power to bar “the transportation or importation into any state ... of intoxicating liquors.”

That led to a confusing array of state laws that regulate beer, wine and liquor sales. Usually, alcohol is sold through a network of state-licensed wholesalers and retailers -- not directly by producers to consumers.

But the growth of the wine industry, especially in California, has set off legal challenges to the post-Prohibition laws.

Potential customers “will say, ‘Can you ship us a case?’ When I say no, because it’s illegal, they say: ‘You’ve got to be kidding!’ ” said David Lucas, owner of California’s Lucas Winery near Lodi.

Californians can have wine shipped to them from California wineries. They can also buy from such states as Oregon and Washington, which have signed reciprocal deals with California’s regulators.

But they may not buy directly from wineries in New York, Michigan and about half of the other states. Nor may California wineries ship bottles to consumers in those states.

Lucas joined a lawsuit challenging New York’s law that requires alcohol to be sold exclusively through licensed wholesalers.

The system works fine for the big players -- the top 25 wineries account for more than 80% of the wine sold nationwide -- but small vintners say they don’t sell enough wine to make it worthwhile for wholesalers.

Most of the 2,700 wineries nationwide are family-owned, and their wines are not sold through national wholesalers, according to Free the Grapes, a Napa, Calif., group that promotes direct shipping.

“The vast majority of small wineries are shut out,” Lucas said.

The ban on interstate wine shipments to consumers has attracted more criticism as mail-order sales of other goods over the Internet have boomed. A Federal Trade Commission report last year found that consumers could save up to 21% if they could buy wine over the Internet instead of at retail stores.

The study also dismissed concerns that legalizing such sales would make it easier for minors to obtain alcohol.

“I understand the history of these laws, but I don’t understand how they make sense in today’s world,” Lucas said. “They always talk about the need to protect kids from alcohol, but kids don’t get a credit card and order $45 bottles of wine and wait three weeks for them to be delivered.”

Said Eleanor Heald, a wine critic from Troy, Mich.: “These are protectionist laws. They protect the monopoly held by wholesalers.”

Heald and her husband, Ray, sued to challenge Michigan’s law because it prevented them from ordering wine samples from vineyards outside Michigan. That state, like New York, permits home-state wineries to ship directly to consumers, but prohibits such direct shipments from out-of-state producers.

The lower courts are split on the issue. Last year, the U.S. Court of Appeals in Cincinnati sided with Eleanor Heald, striking down Michigan’s law because it discriminated against out-of-state producers. The judges said the Constitution’s protection for interstate commerce forbade a state from favoring its own products while excluding outside competitors.

A few months later, the U.S. Court of Appeals in New York rejected Lucas’ suit against New York’s ban on shipping California wine there, ruling that the 21st Amendment allowed a state to refuse alcohol imports. Besides, the court noted, Lucas could sell his wine there through a wholesaler, or open his own New York distribution office. But Lucas’ operation is small, and he cannot afford to open a New York office. “If I could ship 50 cases a year there, I’d be happy. This [direct shipping] is not a threat to them, but it allows me to be competitive,” he said.

The Supreme Court met privately Thursday to consider appeals in both cases. The state of Michigan and the Michigan Wine & Beer Wholesalers have urged the court to revive the state’s ban on out-of-state wine shipments. They have been joined by the National Beer Wholesalers, the National Alcohol Beverage Control Assn. and attorneys general from 36 states.

Their argument is that the structure of alcohol-control laws could collapse if consumers win the right to buy microbrews, spirits or wines over the Internet. Though the cases at hand deal with wine, a favorable ruling for winemakers would presumably also apply to beer and liquor.

“The real issue is the ability of states to effectively regulate alcohol,” said Michael Madigan, a Minneapolis lawyer who represents 22,000 beer wholesalers. “The right to control importation is central to the state’s power to regulate alcohol.”

The so-called “three-tiered system” of licensed wholesalers, retailers and consumers allows states to control the selling and buying of alcohol and the collection of taxes, he said.

“This is not the same as cheese and potato chips. To satisfy one wine consumer, are you going to deregulate alcohol and allow the 15-year-old to order grain alcohol over the Internet?” Madigan asked.

Meanwhile, lawyers for Lucas and for Juanita Swedenburg, owner of a small Virginia winery, have urged the Supreme Court to take up the New York case and to uphold the principle of free trade in wine.

“This issue presents the classic case for Supreme Court review. The lower courts are all over the map,” said Clint Bolick of the Institute for Justice, a libertarian law firm that specializes in “economic freedom” cases.

The Supreme Court may decide as soon as Monday whether to take up the appeals.