Federal Court Tells Out-of-State Wine Stores to Stay Out of New York

Federal Court Tells Out-of-State Wine Stores to Stay Out of New York
Appellate decision affirms state's right to ban shipments from stores in other states

Mitch Frank
Posted: Thursday, July 02, 2009

New Yorkers who order wine online from retailers in other states are breaking the law, according to a decision handed down Wednesday by a federal appeals court. The ruling is the latest salvo in the war over wine shipping, and only promises to spark further legal fights.

A three-judge panel on the Second Circuit Court of Appeals ruled unanimously that New York's law permitting in-state retailers to ship wine directly to consumers but forbidding out-of-state retailers from doing the same is constitutional and within the state's rights under the 21st Amendment. The ruling upheld a 2007 district court decision, Arnold's Wines, Inc. v. Boyle. An Indiana store and two New York consumers sued to overturn New York's law, arguing that the Supreme Court's 2005 Granholm v. Heald decision, which forbids states from discriminating between in-state and out-of-state wineries, also applies to wine retailers. The district judge dismissed the case and the appellate court has now concurred.

The case is just one of several in the battle between retailers and wholesalers. Since the Supreme Court handed down the Granholm decision, many retailers have argued that the decision covers their attempts to sell across state lines as well. In Texas last year, a federal judge agreed with their argument. That decision is being appealed, however, because the judge's suggested remedy appears impractical. A federal judge in Michigan struck down that state's ban on out-of-state retailer sales too, but the state government responded by passing a law banning both in- and out-of-state retailers from shipping wine to consumers.

After Wednesday's decision, both sides responded predictably. "This unanimous opinion clearly and forcefully reinforces the Wines & Spirits Wholesalers of America's view that the landmark 2005 Supreme Court decision in Granholm v. Heald preserved a state's right to control the distribution of alcohol. States not only have the right under the 21st Amendment, but also the responsibility, to require all alcohol be distributed through a controlled and regulated system designed to prevent underage access and ensure product integrity," WSWA president and CEO Craig Wolf said in a statement. "This decision out of the Court of Appeals is a strong affirmation of state power and will cast a long shadow over other pending cases, particularly the Texas Siesta Village case currently before the Fifth Circuit."

"Very simply, this court got it very wrong in their decision," said Tom Wark, executive director of the Specialty Wine Retailers Association. "It's not a surprising decision. This is the same circuit court that was overturned by the Granholm decision. What we have here in the 2nd Circuit's decision is something that squarely ignores the commands of the United States Supreme Court."

The debate centers on different interpretations of the Granholm ruling. On one hand, the court reaffirmed states' rights under the 21st Amendment to regulate alcohol sales and importation. On the other hand, it stressed that the Constitution's Commerce Clause forbids states from discriminating against businesses in other states.

Justice Anthony Kennedy wrote in the majority opinion, "Time and again this Court has held that, in all but the narrowest circumstances, state laws violate the Commerce Clause if they mandate 'differential treatment of in-state and out-of-state economic interests.' This rule is essential to the foundations of the Union. States may not enact laws that burden out-of-state producers or shippers simply to give a competitive advantage to in-state businesses. We have viewed with particular suspicion state statutes requiring business operations to be performed in the home state that could more efficiently be performed elsewhere."

"If we are victorious in our Texas case, you'd have disagreement at two different appeals courts, the kind of thing that tends to lead to the Supreme Court taking a case," said Wark.

For New York wine lovers, however, Wednesday's ruling may mean very little. Many out-of-state retailers continue to ship to consumers despite the law, which has proved hard to enforce.