Where wine shipping is concerned, a big battle was recently won. But the war continues.
On June 26, the U.S. Supreme Court issued its long-awaited decision in the Tennessee Wine v. Thomas case. Though not a case that dealt directly with direct wine shipments, it was anticipated that the case’s outcome could have a very big impact on state laws governing interstate wine shipments by wine stores. The decision didn’t disappoint.
The case itself dealt with “durational residency” requirements. The state of Tennessee required those applying for a license to operate a wine store to be a resident of the state for two years before being eligible for such a license. The state had been ignoring this law and granted Total Wine its license in 2016, despite the retail chain not being a resident of the state for one year (let alone two). That didn’t sit well with the Tennessee Wine & Spirit Retailers Association, which sued to stop issuance of the license to keep the retailing giant out of the state.
The Federal District Court that heard the case ruled the residency law unconstitutional because it interfered with interstate commerce—a “no no,” according to the 2005 Granholm v. Heald Supreme Court decision that spoke to winery direct shipping and declared that, despite a state’s power to regulate alcohol, it could not pass laws that discriminate against out of state businesses.
When the Tennessee retailers association appealed to a higher court, it got the same result. That’s when it appealed to the Supreme Court, which took the case and heard oral arguments in January 2019.
A narrow interpretation of Granholm
After the 2005 Granholm v. Heald decision that banned states from discriminating against out-of-state winery shipments, most subsequent courts—and most industry watchers—interpreted Granholm as only applying to wineries (not retailers). As a result, since 2005, state authorities have readily banned out of state retailers from shipping into the states via protectionist and discriminatory laws.
The Supreme Court ruled in June that the non-discrimination and anti-protectionist principles embedded in the 2005 Granholm decision, which applied to out-of-state wineries, also applies to wine stores. Not only did the Supreme Court declare Tennessee’s durational residency requirement unconstitutional, it opened the door for America’s wine retailers to challenge all state laws barring them from shipping wine across state lines.
Justice Samuel Alito, who wrote the Tennessee Wine decision for a 7-2 majority (Justices Clarence Thomas and Neil Gorsuch were in the dissent) put it this way:
“The [Tennessee Retailers] Association and the dissent point out that Granholm repeatedly spoke of discrimination against out-of-state products and producers, but there is an obvious explanation: The state laws at issue in Granholm discriminated against out-of-state producers. And Granholm never said that its reading of history or its Commerce Clause analysis was limited to discrimination against products or producers. On the contrary, the Court stated that the Clause prohibits state discrimination against all “‘out-of-state economic interests.’”
A small contingent of fine wine retailers and activist attorneys had been filing lawsuits against various states for more than a decade in an attempt to elicit such a ruling. Until the Supreme Court declared its non-discrimination principle applied to retailers as well as wineries, states could continue to bar shipments from out of state retailers.
Open up or level down?
In light of this Supreme Court decision, roughly 20 states—including Illinois, Pennsylvania, New York, New Jersey, Washington, Michigan, and Ohio—now find their laws in violation of the Constitution. This was a big win for fine wine retailers that want to ship across state lines, and for consumers who want the ability to source wine from out of state. However, it’s not the whole war. Now, states must change their laws to adhere to the new ruling.
Here’s where it gets tricky.
After the 2005 Granholm decision, some states addressed the Supreme Court decision by attempting to “level down” (prohibit shipping from both in-state and out-of-state wineries) to continue their discriminatory practices while still protecting in-state interests from competition. That meant stripping their in-state wineries of the right to ship wine to in-state consumers. There’s good reason to believe that, today, some states will try to take this path with retailer shipping.
As the executive director of the National Association of Wine Retailers and a longtime advocate for wine consumers, I’ll be one of those working in the various state legislatures to pass retailer- and consumer-friendly laws as states make changes in response to this important Supreme Court ruling. In addition, active wine consumers have shown a willingness to make their voices heard on legal wine issues and can be expected to advance their own interests on the coming battles across the states.
It seems that many Supreme Court rulings come with unforeseen consequences. That will likely be the case with Tennessee Wine v. Thomas. For example, while we know the impact this decision will have on wine retailers and their shipping ambitions, it’s unclear what impact it will have on America’s wine and spirits middlemen. The industry currently is buzzing about the prospects of this new ruling on state franchise laws, as well as the ability of restaurants and retailers to bypass wholesalers altogether and buy their inventories directly from producers and importers.
It took wineries many years to change wine shipping laws in various states after the 2005 Granholm v. Heald decision. Though, this new Supreme Court ruling is surely important and consequential, it will likely take a good deal of time to get laws changed in the 20-plus states currently discriminating against wine retailer shipping.
The free trade war in wine continues, only now on different terrain.
Tom Wark has provided public and media relations to the wine industry for more than 25 years. The founder of Wark Communications, he serves small- and medium-sized wineries and businesses with media outreach, DTC planning, and marketing communications. He’s also executive director of the National Association of Wine Retailers and a longtime advocate for wine consumers.