- The Washington Times - Tuesday, December 7, 2004

An attorney for Virginia and California wineries yesterday told the Supreme Court that state laws barring wine sales directly to consumers in other states are unconstitutional.

“The state is engaged not in legitimate regulation, but in economic protectionism,” said Clint Bolick, attorney for the wineries who also is representing consumers in Michigan and New York.

Supreme Court justices yesterday listened to arguments for and against Michigan and New York state laws that bar out-of-state wine shipments directly to consumers.

If the court rules for winemakers, states would have to allow out-of-state producers to compete on the same terms as in-state operations. Michigan, New York and 22 other states restrict out-of-state wine shipments to consumers, often citing concerns that minors could buy wine or that companies would evade local taxes.

The final decision will impact the states and about 3,000 U.S. wineries. American wineries sold more than 250 million cases of wine worth about $21.8 billion in the United States last year, according to the Adams Beverage Group, a market research firm.

One such winery is Swedenburg Estate Vineyards in Middleburg, Va. Owner Juanita Swedenburg wanted to ship directly to customers in New York, but the state requires out-of-state wine to be sold through wholesalers, although New York wines may be sent directly to consumers. Mrs. Swedenburg, a winery in California and three New York consumers said the rule was discriminatory and sued.

New York won its case against the wineries in the 2nd U.S. Circuit Court of Appeals, but Michigan lost a similar case in the 6th Circuit, sending the dispute to the Supreme Court.

The states say the Constitution’s 21st Amendment allows them to regulate alcohol sales. The wineries cite a section of the Constitution that prohibits states from restricting interstate commerce.

“This case goes to the core of the 21st Amendment,” said Caitlin Halligan, New York’s solicitor general.

“It also goes to the core of the Commerce Clause,” responded Justice Anthony M. Kennedy.

The amendment repealed prohibition in 1933, but allows states to regulate the transportation or importation of intoxicating liquors. The Constitution also grants Congress the right to regulate commerce among the states, a tenet of the law that prohibits state legislatures from passing laws that discriminate against out-of-state companies.

Justices probed both sides, questioning the states’ rationale for allowing direct shipments from in-state wineries but restricting out-of-state producers, while also demanding that attorneys for wineries justify their demand for sweeping changes to the way wine is regulated and sold.

Twenty-six states allow direct shipping from out-of-state wineries to consumers, Mr. Bolick’s firm said. Virginia and the District have only modest restrictions on out-of-state wine sales direct to consumers, while Maryland makes such sales a felony, according to Mr. Bolick’s firm, the Institute for Justice.

Loosening the regulations would be a boon for consumers and many wineries, which could buy and sell via the Internet, according to a Federal Trade Commission (FTC) study released last year.

“State bans on direct shipping prevent consumers from saving as much as 21 percent on some wines and from conveniently purchasing many popular wines from suppliers around the country,” the FTC said in the study.

But New York and Michigan said their right to regulate wine sales should be protected. Ohio, 35 other states and the District concurred, citing concerns that rising Internet sales would undermine their ability to regulate alcohol.

“These evolving technologies threaten the states’ ability to maintain control over alcohol distribution and to ensure that alcohol does not end up in the hands of children. These same technologies also threaten the states’ ability to collect legitimate taxes on these consumer products,” attorneys general from the concurring states said.

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