Consumers Get Screwed Again!

WINE TALK
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I hope you all write your policitians and spread the gospel…this is a major case, most likely headed to the Supreme Court…

Wine & Spirits Daily

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.”

And there you have it…

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This can’t last long. The defies the Supreme Court ruling, no?

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Glad I live in California. For lots of reasons. Those Texas politicians (the supreme court is elected) sure are libertarian when it comes to …nothing.

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This is potentially terrible news.

Ugh.

Chris

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http://www.ca5.uscourts.gov/opinions\pub\08/08-10146-CV0.wpd.pdf" onclick="window.open(this.href);return false;

Link. Looking at it now.

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A few quick and random observations.

I highly doubt this case is headed for the Supreme Court, but that is not to say that this issue may not be before the Supreme Court in the next 3-4 years. The issue comes down to this. The 2nd Circuit and 5th Circuits essentially reached the same conclusions with respect to Granholm. That is, they agreed that the Three Tier System is still viable and that the Supreme Court still views, at least certain aspects, of liquor consumption, retailing, etc., to be of a discrete state concern – in other words, individual states can regulate up to a certain point before running afoul with Granholm. One of the permissible regulations is favoring local retailers over out of state retailers (in contrast to in state producers). So the long and short is this – in order for the Supreme Court to consider this issue again and the Three Tier System as a whole, there will need to be a circuit “split” – so if the 4th, 7th and 9th Circuits come down with different interpretations of Granholm, the Court would be more likely to consider the issue. Without a circuit split, I would be absolutely shocked if the Supreme Court took the case on review. The only saving point may be that largely the same Supreme Court that decided Granholm looks at the 2nd and 5th Circuit decisions and says hey, that is not what we meant. But again, that is really unlikely. Indeed, I actually think that Granholm will be the Supreme Court’s last word on this issue for a while and we are stuck with the Three Tier System and this ever shifting quicksand system of state laws.

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There you have it. The US has fair trade policies with a fair number of countries, but there is no fair trade agreement between the states. Moreover, certain states pass laws to regulate interstate commerce with the intent of protecting their state’s three tier system, not the consumer, whom they often tout as the beneficiary of this protection. Now the distributors in Texas can technically jack the prices for profit, passing it on to the end user who has no other “legal” source of competitive prices. This type of legislation, court cases and appeals will eventually reach the federal Supreme Court with enough arguements that the Federal Government will have to assume control for “uniformity and fairness.”

In the end, the Federal Government will probably take control of interstate commerce “for uniformity and fairness” initiating an “interstate” sales tax to “cover the cost of oversight.” The question is whether they will allow the individual states to attempt to tax interstate sales or just cut them out. The end consumer will not be a consideration nor benefactor in any of the decisions made.

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Randy, I hear what you are saying (and certainly agree) but the problem is the 21st Amendment, which is from where the Three Tier System derived. The Amendment specifically addresses alcoholic beverages and grants the authority to regulate alcohol to the states (in as many words. It is going to take a massive groundswell of support and a lot money from the industry to influence states to change their laws, etc. Unfortunately, this does not look like a sphere in which the Federal Government will ever have “full authority” due to the 21st Amendment.

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Chris - email sent regarding this issue.

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Industry Reaction to 5th Circuit Ruling


Dear Client:

You’ll recall that the 5th Circuit Court released a very important decision yesterday that said the state of Texas is not in violation of the Commerce Clause by allowing in-state retailers to ship direct to consumers, but banning out-of-state retailers from doing the same. You can view our coverage of the ruling here. Here’s what some of the industry trade groups had to say:

SPECIALTY WINE RETAILERS ASSOCIATION: “We are very disappointed that this panel of the 5th Circuit Court of Appeals chose to limit Texas consumers’ ability to access the wines they want, but which they cannot find in the state’s wholesaler-controlled marketplace. We are carefully reviewing the decision and considering our next steps.”

WINE & SPIRITS WHOLESALERS OF AMERICA: “This unanimous opinion from one of the most respected circuits in the country clearly and forcefully reinforces WSWA’s view that the landmark 2005 Supreme Court decision in Granholm v. Heald preserved a state’s right to control the distribution of alcohol. This decision is a very strong affirmation of state authority under the 21st Amendment to regulate the distribution of beverage alcohol…The Fifth Circuit’s affirmation of the three-tier system and its recognition that Granholm is limited to products and producers mirrors earlier rulings by the Second and Fourth Circuits…”

NATIONAL BEER WHOLESALERS ASSOCIATION: “NBWA is pleased to see that the Court recognizes the broad authority of the 21st Amendment and acknowledges that alcohol is different than other products. It is unfortunate, however, that there are numerous other cases in the courts where plaintiffs are trying to break down state alcohol laws including those designed to keep alcohol out of the hands of minors and those that work to ensure choice and variety for America’s consumers.”

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I saw the same quotes in an e-mail from WineSpiritsDaily. The Beer folks are, once again, blatantly declaring the absurd basis the wholesalers always push out there as if it were actually true.

NATIONAL BEER WHOLESALERS ASSOCIATION: “NBWA is pleased to see that the Court recognizes the broad authority of the 21st Amendment and acknowledges that alcohol is different than other products. It is unfortunate, however, that there are numerous other cases in the courts where plaintiffs are trying to break down state alcohol laws including those designed to keep alcohol out of the hands of minors and those that work to ensure choice and variety for America’s consumers.”

Give me a break!!! How much BS can you pack into two short phrases?

[bullshit.gif]

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I think the Beer position is silly but they are technically correct about the 21st Amendment – the 21st Amendment singles out alcohol as a unique product subject to state regulation. That’s a massive hurdle to overcome.

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Joshua, you ought to be [smileyvault-ban.gif] ned!

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the State validly insists that the vast majority of the
alcoholic beverages consumed in Texas be obtained through its own retailers

I don’t recall reading this in any Supreme Court case. The entire purpose of striking down other laws was to prevent exactly that preference for in-state retailers.

Granholm held that the states could regulate the sale of alcohol, but had to do it in the way least offensive to the Commerce Clause. So these guys essentially just said that they were allowing discrimination but that was OK because as far as they were concerned, doing exactly the opposite of what the SC ruled was not such a big deal.

It’s some of the most convoluted reasoning I’ve seen in a while.