Spirited Fight Over Wine Sales
Visitors to the tasting room at Stag’s Leap Wine Cellars here in California’s Napa Valley are regularly welcomed with a friendly, “Hey, where are you folks from?”
But winery official Kurt Ammann says there is much more involved than a cheery hello. “Of course we are interested,” said Ammann, who directs the Stag’s Leap visitor center, “but it is also about business.”
The greeting is part of a “qualification” procedure used by Stag’s Leap and other winery workers to determine if customers are eligible to have wine delivered directly to their home. Someone from Oregon or Washington, which have reciprocal agreements with California, can order to their wallet’s capacity. Texans can ship wine if their Lone Star home is in a “wet” district.
Visitors from Florida, Massachusetts or New York, all of which have criminal statutes banning direct interstate shipment, are out of luck. State attorneys general in Florida and Massachusetts have even set up elaborate sting operations to keep wine from being shipped illegally across their borders.
California winemakers have contended for years that this labyrinth of state rules and protectionist policies amounts to an unfair restraint on interstate commerce. “Hardly a day goes by,” Ammann said, “when we don’t have to turn someone away because of where they live.”
Now the California vintners are nervously awaiting their day in the nation’s highest court. On Dec. 7, the U.S. Supreme Court is scheduled to hear arguments to resolve the bitter wine war between more than 3,000 smaller, mostly upscale, wine producers and national liquor wholesalers, who are not anxious to give up the control that they enjoy over liquor, wine and beer distribution.
The distributors, represented by the Washington, D.C.-based Wine & Spirits Wholesalers of America, want to maintain the system that was set up after the 1933 constitutional amendment that repealed prohibition. The 21st Amendment grants individual states the authority to restrict and regulate liquor traffic. Most states require that imported wine and spirits first pass through a licensed wholesaler.
“The wine industry has flourished under this system,” said Karen Gravois, the wholesalers’ vice president for public affairs. “Most Americans like it.”
But St. Helena, Calif., wine consultant Vic Motto said the system no longer serves the needs of the several thousand smaller, independent winemakers who have sprouted up in all 50 states. Most of these “boutique” producers, Motto argues, are too small to attract the attention of the shrinking number of major wholesalers, who prefer dealing with large-volume clients.
In order to survive, Motto said, the smaller winemakers need direct access to customers in other states.
“As it is now,” he said, “what we have is 50 different countries. It is exactly like doing business in 50 separate countries.”
Dennis Cakebread, vintner at Cakebread Cellars in Rutherford, Calif., operates a successful wine club, telephone and Internet sales operation. But if someone phones in an order from Florida or New York, he said, “all we can tell them is, ‘Write your senator, write your governor.’ ”
Interstate wine traffic is so complicated that it has spawned businesses in Napa Valley that specialize in negotiating the maze of rules and regulations. Texas liquor regulations, for example, take up 300 printed pages.
Karen Schumacher is a former senior executive with shipping firm DHL who three years ago founded New Vine Logistics, a high-tech Napa firm that handles direct shipping for about 100 wineries and several wholesalers.
“Wine is really the most complex commodity in the United States,” she said. “The only real comparison is international shipping of sensitive products like nuclear parts and high-speed computers.”
By investing millions of dollars into software programmed to decipher state regulations, tax codes and licensing procedures, Schumacher says, her firm can ship legally to 43 states, mainly by taking shortcuts through the web of regulations. Her computerized, automated warehouse in a Napa industrial park is set up so that individual bottles of wine can be sorted, packaged and shipped in a way that conforms to most state laws.
No matter what happens in the Supreme Court, Schumacher said, she is confident that there would still be a need for her services. “I feel that some regulation will remain,” Schumacher said. “I love wine, but it is alcohol. There will always be some kind of tax or product paper trail.”
In an effort to bypass the state restrictions, smaller wineries have turned to a number of underground shipping companies operating in the Napa Valley that are willing to push the legal envelope on wine shipments, sometimes by labeling the product “olive oil” or some other commodity to get by state regulators. At least three of these outfits operate in the Northern California wine region.
Other winemakers admit that they simply ignore the state regulations entirely, taking a chance that their operations are too small to catch the eye of state regulators.
“Ten years ago,” said Lodi, Calif., winemaker David Lucas, “I used to ship wine to whomever came in.”
Lucas said he stopped doing that after an ambitious Florida attorney general conducted a sting operation in 1995 that included ordering wine from California winemakers and prosecuting those who sent it.
Today, Lucas, 62, a former diplomat who bears a striking resemblance to actor Robert Duvall, is on the front line of the Supreme Court challenge to the state-regulated liquor system.
Lucas is something of a contrarian. The entry to his modest winery on the outskirts of Lodi, a San Joaquin Valley wine area known for its high-quality Zinfandels, features signs encouraging customers to “Please Park on the Lawn.” Lucas said he had to fight with county authorities over the issue. They wanted him to have a paved parking lot.
Lucas also has battled with local authorities on behalf of smaller wineries over portable toilet requirements and cumbersome environmental rules aimed at much larger agricultural operations. As a result of his efforts, the number of small-scale wineries has proliferated to more than 30 in Lodi, which also is home to the much larger 12-million case Robert Mondavi Woodbridge label.
With an established reputation as a battler, Lucas was approached in 2000 by the Napa-based wine producer lobbying organization Free the Grapes to represent California in a lawsuit in New York state.
Joining with Virginia vintner Juanita Swedenburg and three New York consumers, Lucas challenged New York rules that allow in-state wineries to directly ship their products intrastate but ban out-of-state companies from shipping their products to New York customers.
Lucas and Swedenburg won their case in a U.S. District Court in New York, which ruled that the ban on out-of-state shipping was unconstitutional and discriminatory. The ruling was later overturned by a federal appeals court, which concluded that the 21st Amendment allows a state to restrict alcohol imports.
A conflicting ruling by an Ohio federal appeals court in a Michigan case set the stage for the Supreme Court battle, which is expected to feature arguments by conservative legal lions Kenneth Starr, on behalf of the winemakers, and Robert Bork, representing the New York wholesalers.
A Federalist Society debate on the issue last year between Starr, dean of the Pepperdine Law School and special prosecutor in the Whitewater and Monica Lewinsky inquiries, and Bork, the former U.S. solicitor general whose nomination to the Supreme Court was blocked by the U.S. Senate in 1987, drew an overflow audience at the National Press Club.
A Supreme Court ruling in favor of the winemakers could produce a financial windfall for California wineries. Just opening the New York market alone could increase direct shipping business by 5%, said Napa winemaker Tom Shelton, president of the upscale Joseph Phelps Vineyards in St. Helena, Calif. Freeing up markets also would have a major effect on wine club and Internet sales business.
Lucas, however, sees the Supreme Court test more in the context of a cultural war that dates to the arrival of the pilgrims on American shores.
“The Mayflower was not full of Italians,” Lucas said. “Unfortunately, we ended up with a bunch of bloody puritans who have to tell you how to lead your life.”
Winemakers like Lucas envision a world that is a little more like Europe, where itinerant wine tasters can wander through wine regions and blithely order home bottles and cases as their palates dictate.
In France, they note wistfully, the local post office even provides special Styrofoam mailing boxes shaped to hold bottles of various sizes -- longer and slimmer for a Bordeaux, rounder and more squat for a Burgundy.
The Wine & Spirits Wholesalers of America, which has built its campaign against the winemakers around the argument that direct shipping will open the door to underage drinking, contends that the European example doesn’t work here.
“Europe sounds charming,” said spokeswoman Gravois. “But we are not Europe. Likewise, Napa Valley is very unique to America. But what is good for Napa Valley is not necessarily good for Alabama, New York or Florida.”