- The Washington Times - Friday, February 4, 2000

Two winery owners, one of them from Middleburg, Va., and three wine aficionados filed suit against New York liquor commissioners Thursday to overturn the state's laws banning shipment of wine directly to consumers.
The suit, the fifth of its kind in the last 18 months, is the latest in a fight between small wineries, electronic-commerce firms and consumers on one side and state attorneys general and alcohol wholesalers on the other. The issue gained new life in the past year, sparked by the potential of Internet wine sales.
The Institute for Justice, a libertarian public interest law firm, announced the suit Thursday at a press conference.
"When the facades are brushed aside, what we are left with is naked economic protectionism," said Clint Bolick, the institute's litigation director and an attorney representing the plaintiffs.
Direct shipment of wine to consumers is prohibited in the District of Columbia and 30 states, including Maryland and Virginia.
Twelve states have reciprocal agreements that allow shipment from one reciprocal state to another. Eight states have minimal shipment restrictions.
Lawsuits challenging direct-shipment bans have been filed in Virginia, Texas and Florida. An Indiana judge ruled for the plaintiffs in a similar case, but the decision is being appealed.
For Juanita Swedenburg, a 75-year-old, Middleburg winery owner whose family has farmed Virginia soil for 300 years, the direct-shipment laws are an impediment to business.
"We had some good customers [in New York], poor things," she said at the news conference. She has had to tell out-of-state customers that she cannot ship wine to them about a half-dozen a day during October, Swedenburg Winery's busy season.
New York is the country's second-largest wine-consuming state, behind California.
Regulators until two years ago didn't pay much attention to the issue because only some of the 2,000 U.S. wineries shipped a relatively small number of cases illegally per year. Now, because electronic commerce has opened the market, alcoholic-beverage-control boards are trying to crack down on violators.
The alcohol industry is structured in a mandated, three-tier system established just after the repeal of Prohibition to further temperance. Producers make the product, then sell it to wholesalers that sell it to retailers.
That's the way wholesalers like it. The Wine and Spirits Wholesalers of America has spearheaded an effort to keep the system in place.
M. Craig Wolf, general counsel for the trade association, said states have the right to regulate alcohol sales under the 21st Amendment. But for the wholesalers, as for small wineries, the issue isn't just about legalities it's about money.
"If the wholesalers are taken out of the loop, then they can lose business," Mr. Wolf said.
Mr. Bolick argues against direct-shipment bans on two fronts. He claims that the laws contradict the interstate commerce clause of the Constitution, which prohibits restrictions on state-to-state commerce.
In New York, out-of-state alcohol producers cannot advertise, which Mr. Bolick said violates the First Amendment right to commercial free speech.
One of the plaintiffs in the case has another argument. Dr. Patrick Fitzgerald, an emergency medical physician from Elmira, N.Y., thinks the state government should not be able to decide which products he can and cannot buy.
"The drafters of our Constitution had it right: the best government is a limited government," he said, noting he was participating in the suit for practical and philosophical reasons.
Congress has waded in on the side of the wholesalers and the state. Sen. Robert C. Byrd, West Virginia Democrat, introduced an amendment to the juvenile crime bill last year that would make it easier for state attorneys general to prosecute out-of-state entities shipping wine into the state. The bill passed the Senate.
On the House side, Rep. Joe Scarborough, Florida Republican, introduced a similar bill, which passed 310-112. David Stafford, his deputy chief of staff, said Mr. Scarborough was prompted by reports that minors were ordering alcohol over the Internet.
The House awaits either a conference on the Senate's juvenile justice bill or the reintroduction of the measure as a separate bill to resolve the issue.
Internet wine retailers have tried to work within the three-tiered system to sell their product. Wine.com, a site that sells about 2,000 wine brands, works through wholesalers who ship wine to consumers. But the company cannot operate in states where interstate shipment is illegal, said Laura Grams, Wine.com's spokeswoman.
"While it seemingly is a restriction, it's not one of the larger wine markets," she said of the states where the company cannot sell wine.
The association has endorsed another site, Wineshopper.com. The site is not yet up and running because the company must go through the painstaking process of working out agreements in each state to be able to distribute.
Wineshopper.com would work as a facilitator. After receiving a customer's request, the company connects the wine producer with a wholesaler in the customer's state. The wholesaler then sends it to a retailer, which, depending on the state's laws, ships it to the customer or the customer has to pick it up.
The site will offer service to one state a "wine-consuming state of note" this spring, then will add states every few weeks, said Suzanne Gannon, spokeswoman for the San Francisco company.

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