For The Love Of Port

January 26, 2010

**Alert**

5th Circuit Rules Against Out-of-State Retailers

Dear Client:

The 5th Circuit Court of Appeals issued a decision today that settles a confusing lower court ruling on the issue of out-of-state retailers shipping direct to consumers in Texas.

BACKGROUND. As you'll recall, a Texas District Court judge ruled that the 2005 Granholm v. Heald Supreme Court decision applied as much to retailers as it did to wineries, meaning a state may not allow in-state retailers to ship wine directly to consumers but ban out-of-state retailers from doing the same thing. However, the judge ruled that the state can require out-of-state retailers to purchase the wines they intend sell to Texas residents only from Texas wholesalers. In the past, the Specialty Wine Retailers Association (SWRA) said, "The scheme is not only economically unfeasible, but would amount to an unlawful transaction. Retailers may not purchase wine from out-of-state wholesalers." The plaintiffs, Siesta Village Market and some consumers, and the defendant, Texas ABC, both appealed the decision.

THE DECISION. The 5th Circuit ruled that Texas does not violate the Commerce Clause by allowing in-state retailers to ship direct to consumers but banning out-of-state retailers from doing the same. Here are some highlights from the decision:

"Because of Granholm and its approval of three-tier systems, we know that Texas may authorize its in-state, permit-holding retailers to make sales and may prohibit out-of-state retailers from doing the same."

"Our read of Granholm is that the Twenty-first Amendment still gives each State quite broad discretion to regulate alcoholic beverages. The dormant Commerce Clause applies, but it applies differently than it does to products whose regulation is not authorized by a specific constitutional amendment. Regulating alcoholic beverage retailing is largely a State's prerogative."

The court then turned briefly to a separate provision regarding personal importing. Like other states, Texas limits the quantity of alcohol that an individual can purchase out-of-state and then bring back into Texas. The court found that this law cannot "limit the number of alcoholic beverages consumers may buy at an out-of-state retailer...We conclude that the incidental effect on foreign retail sales resulting from limits on quantities to be brought into Texas is at worst an acceptable balancing. The interests of Texas consumers in purchasing alcoholic beverages outside of Texas are recognized, but the State validly insists that the vast majority of the alcoholic beverages consumed in Texas be obtained through its own retailers."

DECISION AGREES WITH 2ND CIRCUIT. Recall in July when the 2nd Circuit Court upheld the decision of the Southern District of New York by rejecting an attempt by out-of-state retailers to ship direct to consumers in the state. That court found that "because New York's three-tier system treats in-state and out-of-state liquor the same, and does not discriminate against out-of-state products or producers, we need not analyze the regulation further under Commerce Clause principles."

State wholesalers win again.

Worse -- this describes the path that wholesalers in other states will encourage their own states to follow.

Peter W. Meek wrote:State wholesalers win again.

Worse -- this describes the path that wholesalers in other states will encourage their own states to follow.

Just like the BS I was talking about in MA... Wholesalers and Distributers pull the strings.

Just screwy. Maybe I'll boycott Spec's, but they aren't the true villain. My parents would probably love for me to open a brewpub in Texas, but they just have some laws and court decisions that are small producer and consumer unfriendly.

Eric Menchen wrote: My parents would probably love for me to open a brewpub in Texas, but they just have some laws and court decisions that are small producer and consumer unfriendly.

You can't stop the Shiner Bock!

So this should go to the Supreme Court to be overturned. I read Granholm differently than the circuit court did. Of course Granholm v. Heald was a 5-4 decision, so who knows.

Remember ... if you want to put a face to the real villain, it is called WSWA, the Wine & Spirits Wholesalers of America. That is the lobbying group that pays for all the legal battles fought to keep the 3 tier system intact, protect their own revenues by maintaining the neo-Prohibitionist ways by fighting state by state to defeat groups like Free the Grapes and beverage producer groups that are far more splintered and cash poor.

I don't mean to upset anybody ... but if you really care about the core issues here (I've been involved in "the cause" since 1995) then you really need to understand where they are coming from and what their goals are. Although they talk about being "consumer friendly" we know that rhetoric is anything but. Make sure you've eaten and are sitting down if you even consider reading into this:
http://www.wswa.org/userfiles/2010-2014 ... ersion.pdf

Their annual meeting is in April. Please know that what I am about to include in this post is NOT what is in the link above! To show you that I am going to avoid the partisan politics and stick SOLELY to the issues facing wine loving consumers, I'll include this here ... without any further comment of the contents below:

Washington, D.C.—The Wine & Spirits Wholesalers of America (WSWA) has confirmed Sarah Palin, Governor of Alaska (2006-2009) and 2008 Republican Vice-Presidential Nominee, as the keynote speaker for the opening General Session at its 67th Annual Convention and Expositional, April 6-8, 2010, at Caesars Palace in Las Vegas.

“Governor Palin is a great supporter of America’s free enterprise system and understands that industries like the beverage alcohol industry play a key role in driving our national economy. We're proud and honored to welcome her as a speaker,” stated Craig Wolf, WSWA’s president and CEO. “We expect she will share with the convention attendees her analysis of the current political environment and her vision for America’s future,” Wolf added.
The addition of Governor Palin to the General Session will help kick off the convention with a program that also includes the annual presentation of the prestigious Sidney Frank Award and the address of WSWA’s incoming Chairman and National Wine & Spirits, Inc., COO, John Baker. The convention’s speaker roster also includes previously announced closing General Business Session speaker Robert Sands, president and CEO of Constellation Brands, Inc.

Responding to previous convention attendees’ feedback, WSWA has relocated its convention to Caesars Palace to offer attendees, exhibitors and sponsors an exceptional convention experience. With larger floor space and more suite options, the new location better accommodates convention participants and eliminates the need to travel back and forth between two separate hotels.

The event days have also changed to a Tuesday through Thursday format to build in an extra travel day for those who prefer to arrive after Easter Sunday, April 4.

In addition to WSWA’s traditional convention programs that include the Taste of the Industry, Hot Brand Awards, the General Business Session and a number of networking receptions, the Wine & Spirits Tasting Competition, introduced in 2009, has secured a spot on the agenda after drawing overwhelming response and favorable feedback during its debut.

For more information about the WSWA Annual Convention and Exposition, visit http://www.wswa2010.org or call 202-371-5682.

The Wine & Spirits Wholesalers of America (WSWA) is the national trade organization representing the wholesale tier of the wine and spirits industry. It is dedicated to advancing the interests and independence of wholesale distributors and/or brokers of wine and/or spirits.

As mentioned, I've been fighting this with support for the "opposition" which was a very small and disorganized band of grass roots naysayers, who have since grown in numbers, financial backing and initiatives; since 1995 when my mentor, the (late) journalist The Wine Trader ... aka, Jerry Mead was one of the very early voices in the fray and a loud opponent of the WSWA's PAC lobbying efforts and their anti-consumer tactics and devout support of anti-freedom of interstate (and intra-state) shipping legislation. I remember in the late 1990s, when Virginia was in the "hot seat" and someone from WSWA had rigged an underage teen to purchase wine over the internet (with a CC given lent to him) and had the police staking out the kid's home waiting for the wine delivery to arrive. They then bandied this about across the USA, saying that the real problem that they are out to protect against, is under-age minors ability to purchase wines from out-of-state retailers that don't do their diligence to check whether their clients are over 21 years old. Now we all knew this was a set up and used for political motivation and promotion of their cause. Nonetheless, it helped them (at the time) to squash VA's possibility to consider a more progressive interstate shipping law. Jerry called me and said, "Just follow the money, Roy. Things will NEVER change until this winds up before the U.S. Supreme Court." Sadly he passed away before it did make it to the U.S. Supreme court just shy of a decade ago (I forget what year actually) but even though it appeared that the Court's opinion would open things up a bit ... the narrow interpretation has possibly made things even worse.

I need to go sip some Port. This is so aggravating. I've only put articles and things here on about this topic for years, but have rarely if ever ranted like this before ... on this specific topic.