Justices May Favor Direct Wine Sales

Small producers of fine wines may have made a sale in the U.S. Supreme Court on Tuesday, as the justices signaled that they were inclined to strike down state laws prohibiting people from buying wines directly from out-of-state vineyards.

That would not only give boutique wineries in California and around the country a way to expand their markets, but might also unravel decades-old laws that regulate the marketing of beer, wine and liquor in the United States.

“This is great news,” said Tom Shelton, chief executive of Joseph Phelps Vineyards in St. Helena, Calif. “At the end of the day, our goal is to ship unimpeded to consumers.... Let’s stop using Prohibition-era laws in the age of e-commerce and overnight shipping.”

When Prohibition was repealed in 1933 with the 21st Amendment to the Constitution, states were given the power to regulate the sale of alcohol. They adopted an array of rules, with most saying only licensed wholesalers could import beer, wine or spirits. That has vexed small vintners that have trouble making deals with the major wholesalers that prefer contracting with large-volume clients.

The system of state control came under attack Tuesday by lawyers for one small winery in Lodi, Calif., and another in Virginia. They argued to the high court that the Constitution’s protection for the free flow of interstate commerce gave those wineries a right to ship directly to customers in states such as New York and Michigan.

Clint Bolick, representing a family-owned winery in Virginia, said the Constitution forbade states from discriminating in favor of their own businesses and industries.

“The state here is engaged in economic protectionism,” said Bolick, counsel for the libertarian Institute for Justice, a Washington public interest law firm.

The states that restrict direct sales have argued that prohibiting out-of-state shipments limits drinking by minors. But Stanford University law professor Kathleen Sullivan pointed out that although Michigan and New York barred out-of-state vineyards from doing business directly with their residents, they permitted in-state vineyards to ship wine directly to people’s homes.

That double standard “belies the notion that protecting underage drinkers” is the true reason behind their laws, said Sullivan, who represented Lodi winemaker David Lucas.

According to statistics compiled by the Wine Institute, a San Francisco-based association of California vintners that supports direct shipping, U.S. consumers purchased $21.6 billion worth of wine in 2003, with California wines accounting for about two-thirds of bottles sold. Many of those came from large wine makers, such as Robert Mondavi Corp. and E. & J. Gallo Winery. Over the last decade, the California wine industry has led a move to break down state barriers to direct sales. Alcohol regulators in California have made agreements with their counterparts in about half the states to permit wine sales.

At least 24 states don’t permit their residents to buy wine directly from out-of-state vineyards. They include Arizona, Florida, Michigan, New York, New Jersey, Ohio and Pennsylvania.

Defending their state bans, lawyers for Michigan and New York said the strict regulations were needed to protect minors and to ensure that taxes were collected. They also argued that the 21st Amendment, by its own words, allowed states to block the importing of all “intoxicating liquors.”

“Mere protectionism is permitted” for this one product, he said. Added Caitlin J. Halligan, New York’s solicitor general: “The very core of the 21st Amendment is that states can decide who can sell alcohol to their citizens.”

Most of the justices sounded surprisingly skeptical of the states’ defense.

“In this case, you have a very substantial burden to prove this discrimination was justified,” Justice Anthony M. Kennedy told the Michigan lawyer. Kennedy said it was hard to see how the state was truly interested in protecting minors from alcohol if it allowed Michigan’s vintners to ship wine directly to homes in Michigan.

Justices Antonin Scalia and Ruth Bader Ginsburg, a native New Yorker, pointed out that New York allowed out-of-state wineries to sell directly to its residents if the vintners opened offices somewhere in New York.

“How can opening an office in New York prevent wineries from shipping wine to minors?” Scalia asked.

The New York lawyer responded that this requirement gave the state some control over the out-of-state company. “It would not be feasible to send inspectors to California” to make sure the vineyard wasn’t selling wine to minors, Halligan said.

Ginsburg commented that the New York law seemed less about protecting minors than protecting “local farmers” from out-of-state competition.

Last week, when the issue before the high court was medical marijuana, the justices sounded unsympathetic to the claims of the patients who said they needed the drug to relieve their pain or suffering.

This week, by contrast, they sounded enthusiastic about the notion of buying fine wines over the phone or the Internet, laughing knowingly when one of the justices mentioned counting bottles in a personal wine collection.

The major wholesalers of beer, wine and liquor joined in support of the states. But large-scale retailers such as Costco Wholesale Corp. would like to win the right to buy alcohol directly from producers so they could bypass the licensed wholesalers and sell it to their customers.

Although the justices seemed unswayed by the states’ arguments, it wasn’t clear whether they would rule narrowly or broadly on the issues raised.

A narrow ruling would knock down only the state laws that give special protection to in-state wineries. A broad opinion endorsing a free interstate market in alcohol could have a “sweeping” effect, Kennedy said, and lead to major changes in the marketing of alcohol.

The three cases that were heard together Tuesday are Granholm vs. Heald, Michigan Beer and Wine Wholesalers vs. Heald, and Swedenburg vs. Kelly. The court’s decision is expected next year.

Times staff writer Melinda Fulmer contributed to this report.