Tuesday, May 25, 2004

The Supreme Court agreed yesterday to referee a battle over consumers who can’t find their favorite merlot or chardonnay on local store shelves.

The high court will hear three appeals in the dispute among wineries, wholesalers and states over wine sales across state lines. The states and wholesalers, which control alcohol sales, are fighting producers who want to sell their bottles over the Internet and by phone.

Small brands “can’t be everywhere like bread” and don’t get as much attention from distributors, actor Fess Parker, 79, told Bloomberg News.

Mr. Parker portrayed Davy Crockett on television during the 1950s and runs a California vintner that sells Fess Parker wine. Big producers such as Robert Mondavi Corp. and Beringer Wine Estates Holdings “basically are available in almost any outlet,” he said.

About half the states — including Maryland and the District of Columbia — prohibit direct interstate shipment of wine to consumers, while others allow it with some restrictions.

Prohibition plays a major part in the battle: The wineries and wholesalers say the Constitution gives them a right to sell to anyone who can reach them by Internet or telephone because the federal government regulates interstate commerce. The states say that the 21st Amendment repealing Prohibition in 1933 gives them the right to control alcohol sales and that interstate purchases violate that right.

Both sides say recent federal court rulings support their positions.

The fight is a response to a growing trend among the nation’s estimated 3,000 independent wineries — more than twice as many as 30 years ago — to ship their product directly to consumers nationwide.

The U.S. wine market totaled $21.6 billion in 2003 with 627 million gallons shipped, according to the Web site of the Wine Institute, a San Francisco association of California wineries. California wines made up 67 percent of the U.S. wine market, wines from overseas had 26 percent, and wines from other U.S. states had 7 percent.

Many wineries have tasting rooms or winery tours for tourists. In California, about 11 million people visit wineries every year. Winemakers typically try to sell visitors wine right then, but they also want visitors to order the same wine back home.

That’s where the problem comes in.

One of the cases involves a challenge to New York’s ban on the interstate shipments by free trade groups and wineries. The 2nd U.S. Circuit Court of Appeals ruled for New York in a Feb. 12 opinion.

A plaintiff is Swedenburg Winery of Middleburg, Va.

Lawyers for Juanita Swedenburg, the winery’s owner, told the Supreme Court that it is unfair that out-of-state wineries must go through an expensive bureaucracy of wholesalers and retailers to sell in New York, while in-state wineries can ship products directly to buyers.

“It’s protectionist, and it’s discriminatory,” Clint Bolick, who represents the winery, told the Associated Press.

The Commerce Clause should guarantee that wineries “will have non-discriminatory access to every market in the nation for the wine they produce,” lawyers for WineAmerica, a trade group for wineries, argued in a lower court brief.

In the Michigan case going before the Supreme Court, the 6th U.S. Circuit Court of Appeals ruled for the wineries.

New York and Michigan say requiring wine to be sold through distributors and retailers aids tax enforcement and helps prevent sales to minors.

The District and Maryland prohibit shipping or receiving all but small amounts of wine across state borders to consumers. Maryland also forbids the shipments within the state.

Instead, wine must be shipped to licensed wholesalers, who then provide it to licensed retailers, who make the sale to consumers.

“This results in a thriving retail industry in the District, which would be undercut by permitting direct sales to consumers from out-of-state wineries in any appreciable quantity,” said Tarifah Coaxum, spokeswoman for the D.C. Corporation Counsel.

Officials in Maryland Comptroller William Donald Schaefer’s office say the state would lose tax revenue and endanger children if the ban were lifted.

“First, we cannot be certain that the person ordering the alcohol is 21 years of age or older,” said Dan Adams, assistant director of the Alcohol and Tobacco Tax Bureau. “Second, there is the problem of the state alcoholic beverage tax on wine not being paid.”

Licensed wholesalers must pay 40 cents per gallon.

Virginia had similar regulations until the General Assembly changed the law last year.

The new law allows wineries and retailers in any state to obtain a Virginia shipper’s permit for $50 per year and allows adult consumers to order and receive up to two cases of wine per month from anyone who has a license.

The Virginia General Assembly changed the law because federal courts looked as if they were about to change it if state lawmakers did not, said Tim Murtaugh, spokesman for Virginia Attorney General Jerry W. Kilgore.

“It just seemed like the right path,” Mr. Murtaugh said.

Congress held a hearing on the issue in October, but has not tried to resolve the dispute.

• This article is based on wire service reports.

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