How wine business law is shifting amid coronavirus pandemic allowances for virtual tastings, direct sales
Even 15 years after a landmark U.S. Supreme Court decision started opening up the country to direct-to-consumer shipments from wineries, the law is still evolving on direct sales. And the need for wineries to be able to legally sell wine more freely amid coronavirus-related shutdowns of tasting rooms and restaurants is even more paramount.
The Business Journal asked the following wine law experts in the region about these trends: Bahaneh Hobel of Dickenson Peatman & Fogarty, Phillip H. Kalsched of Carle Mackie Power & Ross, Michael Brill Newman of Holland & Knight, and Don L. Winkle of Spaulding McCullough & Tansil.
In the June 2019 Supreme Court ruling on Tennessee Wine and Spirits Retailers Association v. Russell F. Thomas, how has the striking down of Tennessee's durational residency requirement for alcohol retailers changed the landscape of shipping wines across state lines? What barriers remain regarding shipping California wine across state lines?
Bahaneh Hobel: The Tennessee case has not yet changed the landscape of wine shipping in the U.S., and its impact remains to be seen. In fact, a recent U.S. Court of Appeals case related to direct shipping by retailers (Lebamoff Enterprises, Inc., v. Whitmer, opinion issued April 21) essentially ignored the precedent set by Tennessee in making its decision, which was shocking to many of us reading that opinion.
In order for retailer direct to consumer shipping to become more widespread, in most cases, each state will have to decide (on a state by state basis) whether they want to make these rights and privileges available to both in state and out of state retailers, and if so, enact rules and regulations to allow such activity.
Thus, there is a long road ahead for retailer shipping. It took winery direct shipping 15 years to get to the place it is now, but since wineries paved the way, to the extent retailer shipping is permitted, it likely won’t take quite as long.
Philip Kalsched: Thanks in large part to the Supreme Court’s (2005) decision in Granholm, there are now approximately 44 states (Kentucky coming this summer) that allow wineries to ship wine direct to consumers.
However, approximately only 13 states allow out-of-state retailers to ship wine direct to consumers. While it may not be the panacea the wine industry was hoping for, the Supreme Court’s decision in Tennessee Wine certainly provides valuable tools for future arguments against existing shipping restrictions.
In Tennessee Wine, the Supreme Court reviewed and struck down a Tennessee law providing that only residents who had lived in the state for at least two years could obtain a retail liquor license and that a corporation can obtain a license only if all of its stockholders are residents.
The Supreme Court found that the Tennessee law violated the “dormant” commerce clause which “prevents the states from adopting protectionist measures and thus preserves a national market for goods and services.”
Additionally, the Supreme Court overcame Section 2 of the 21st Amendment by providing that the purpose of Section 2 “was not to give states a free hand to restrict the importation of alcohol for purely protectionist purposes.”
Further, “[W]here the predominant effect of a law is protectionism, not the protection of public health or safety, it is not shielded by §2.”
Rather, in determining whether states properly exercised their authority to address alcohol-related public health and safety issues, courts must ask “whether the challenged requirement can be justified as a public health or safety measure or some other legitimate no protectionist ground.”
Additionally, “‘mere speculation’ or ‘unsupported assertions’ are insufficient to sustain a law that would otherwise violate the commerce clause.” In this case, the court found that the discrimination against non-residents “has at best a highly attenuated relationship to public health or safety.”
These arguments will certainly be used by opponents of strict, protectionist shipping laws, including those against the “reciprocity” states which support seemingly anti-competitive and protectionist behavior. The ability to withstand continued judicial scrutiny under what appears to be a wave of anti-protectionism will be challenging for the states supporting restrictive shipping rules and regulations.
Notwithstanding the implications arising from the Tennessee Wine case, real change will still require states’ legislative bodies to make bold moves to undo the existing structure, as well as continued legal challenges.
Michael Brill Newman: The TWSRA ruling has not yet changed the landscape of shipping wines across state lines. In sum, very little has actually changed as far as the legality of wine retailers shipping wine interstate direct to consumers. There merely is a somewhat industry-wide perception that the laws will change in the next few years.