WASHINGTON – The Supreme Court is considering whether states may bar people from buying wine directly from out-of-state suppliers, a big-money question that could lead to sweeping changes in how alcoholic beverages are regulated and sold.
Justices were hearing arguments Tuesday in three appeals involving bans in Michigan and New York on direct shipments that cross state borders. The dispute pits regulators and wholesalers against out-of-state wineries that want to sell alcohol to consumers, mostly over the Internet or by phone.
"It seems to be restraint of trade," said Juanita Swedenburg, owner of a family run winery in Virginia who is challenging New York's regulations.
The case involves a clash between two parts of the Constitution, with lower courts divided over which section should rule.
On one side is the 21st Amendment (search), which ended Prohibition (search) in 1933 and explicitly granted states authority to regulate alcohol sales. Twenty-four states have laws that generally require outside wineries to sell their products through licensed wholesalers in the state. Michigan and New York allow instate Internet or telephone sales of alcoholic beverages. Some other states allow such sales, others do not.
The Constitution also implicitly prohibits states from passing laws that discriminate against out-of-state businesses. That provision has been embraced by wine makers who hope to reach faraway Internet customers looking for favorite U.S. vintages unavailable in their home states.
While the 2nd U.S. Circuit Court of Appeals sided with New York in upholding the state restrictions, the 6th Circuit, based in Cincinnati, Ohio, struck down Michigan's laws as unconstitutionally protectionist.
"Michigan wineries enjoy both greater access to consumers who wish to have wine delivered to their homes and greater profit," the 6th Circuit stated, in ruling for wine consumers Ray and Eleanor Heald of Troy, Mich. "Out-of-state wineries, on the other hand ... may be shut out of the Michigan market altogether if unable to obtain a wholesaler."
The stakes are high in the $21.6 billion wine industry. States collect millions of dollars in alcohol taxes and claim the established system helps stem fraud and underage drinking. They argue they have less enforcement power over out-of-state sellers who aren't licensed.
"Allowing Internet sales of a highly dangerous and highly regulated product, such as alcohol or tobacco, is a genuine concern for state regulators," attorneys general from Ohio and 32 other states argue in a friend-of-the-court brief backing Michigan.
"The question is, `Do you think alcohol is a socially sensitive product that should be regulated by states and monitored by parents?' For more than 50 years, it has been," adds Georgetown law professor Viet Dinh, who is helping represent wholesalers.
Owners of family owned wineries such as Swedenburg disagree. They say there are other, less-restrictive ways to control underage drinking, such as requiring shipping companies to verify recipients are 21 or older, that don't burden wineries with hefty middlemen's fees.
Since 1980, the number of wineries has quadrupled nationally to more than 3,700 this year, and their survival depends on state laws that give them a fair shake, the National Association of American Wineries argues in a friend-of-the-court filing.
"There is great and growing demand for the products of America's small wineries, which are eager to meet it, but discriminatory laws in many states prevent most wineries from selling to willing consumers," said the group, which represents more than 3,000 small wineries.
Tuesday's case only involves wine sales, but industry groups representing distributors for beer and other alcohol also have asked the high court to rule for continued state regulation, believing that the justices' decision eventually could apply to them.
The Washington-based Institute for Justice says the 24 states that ban direct interstate shipments are Alabama, Arizona, Arkansas, Connecticut, Delaware, Florida, Indiana, Kansas, Kentucky, Maine, Maryland, Massachusetts, Michigan, Mississippi, Montana, Ohio, Oklahoma, Pennsylvania, New Jersey, New York, South Dakota, Tennessee, Utah and Vermont.
The cases are Granholm v. Heald, 03-1116; Michigan Beer & Wine Wholesalers Association v. Heald, 03-1120; and Swedenburg v. Kelly, 03-1274.