MI Theodore Levin U.S. Courthouse

Judge Arthur Turnow of the U.S. District Court for the Eastern District of Michigan, which is based out of the Theodore Levin U.S. Courthouse in Detroit, ruled recently that the state of Michigan can't ban out-of-state shipments by wine retailers.

In what some are toasting as a victory over protectionist policies, a federal court has struck down a Michigan law banning out-of-state retailers from shipping wine to Michigan consumers.

But the ultimate arbiter of how states can go about regulating the sales of alcohol within their borders will be the U.S. Supreme Court, which is scheduled to render a decision on another case involving wine retailers by June of next year.

“The governing question … is whether Michigan is permitted to enforce a statute that explicitly denies out-of-state retailers a privilege available to their in-state competitors,” Judge Arthur Turnow of the U.S. District Court for the Eastern District of Michigan said in the Sept. 28 decision. “The answer at this stage must be no.”

Michigan's three-tiered system of regulating alcoholic beverages, which assigns separate roles to retailers, wholesalers and wine producers, does not give the state the right to discriminate between in-state and out-of-state retailers, according the Turnow's ruling.

“Michigan departed from a hermetically sealed three-tier system when it chose to permit its wine retailers to join the digital marketplace and engage in direct shipping to customers,” the judge said.

The National Association of Wine Retailers (NAWR) called the court decision a victory for consumer choice and an important check on states that overreach their powers under the 21st Amendment, which ended prohibition.

“We think that kind of protectionism harms the national wine marketplace and it harms consumers … and free trade,” Tom Wark, the NAWR's executive director, told Watchdog.org. “Our efforts are aimed at changing laws so consumers and retailers can do business no matter where they are.”

Michigan is not the only state that attempts to protect in-state wholesalers and local retailers from out-of-state competition, according to Wark. Only 14 states allow out-of-state retailers to ship wine to their consumers, he said, and other lawsuits have been filed in states such as Illinois and Missouri.

NAWR's main argument is that wine consumers should be able to get wines they can't find locally shipped directly to them from any retailer in the United States, Wark said.

Supporters and critics of the Michigan law take different views of a 2005 U.S. Supreme Court decision, Granholm v. Heald. In that case, the high court ruled that states cannot discriminate between in-state and out-of-state wineries when it comes to consumer shipments, but the NAWR argues that the Granholm ruling should apply to wine retailers as well as wineries.

“The state basically said the Supreme Court decision was about winery shipping, not retailer shipping,” Wark said.

The Michigan Beer and Wine Wholesalers Association supports the state law and disagrees with the latest federal court ruling.

“We're disappointed with the decision,” Spencer Nevins, association president, told Watchdog.org. “We didn't think it was the correct ruling.”

The association is conferring with state officials about a possible appeal, according to Nevins, who says the latest ruling might not be very significant in the long run.

“I'm not convinced it's a very important opinion anymore,” he said, adding that a case involving the Tennessee Wine and Spirits Association that is now before the Supreme Court should ultimately clarify what states can and cannot do in regard to alcohol-related regulations.

“That case is probably going to be the case that determines everything,” Nevins said. “I think we're all going to have our answer after 13 years of fighting about it.”

It's also possible that the September federal court decision will be bad news for Michigan consumers because that state could end up simply banning direct shipments by all wine retailers, which would serve to limit Michigan wine consumers' options.

Nevins' association argues that the 2005 Granholm ruling applies to wineries, not retailers. If Michigan allows out-of-state retailers to ship to its consumers, the result would essentially be a marketplace involving 49 other states that can't be adequately regulated by the Michigan Liquor Control Commission, he said.

It would be difficult to prevent minors from taking deliveries at the door in such an unregulated marketplace, according to Nevins, and there would be problems with overall enforcement and the possibility of counterfeit alcohol being sold to consumers.

Robert Epstein, the attorney for the out-of-state plaintiffs in the Michigan federal court case, said the ruling was a major victory for e-commerce and Michigan consumers, thousands of whom are serious wine collectors and connoisseurs.

“If (the market) is opened up, the special wine retailers around the country would be able to ship to consumers in Michigan,” Epstein told Watchdog.org.

He said he would like the see the Supreme Court provide more clarity on the issue when it rules in the Tennessee case next year.

 

Watchdog.org Contributor

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