Denying out-of-state retailers called unconstitutional
What’s good for the wine maker is good for the wine merchant.That’s what a Texas judge ruled Tuesday in a closely watched case that could have wide-ranging implications for wine retailers and consumers across the nation.

U.S. District Court Judge Sidney Fitzwater found that state laws allowing Texas retailers to ship wine directly to state residents but denying that right to out-of-state wine retailers are unconstitutional.

The judge agreed with wine merchants in California and Florida who argued that a landmark 2005 U.S. Supreme Court ruling should apply not only to wineries but to retailers as well.

“This is a big deal because the court said the state cannot discriminate against out-of-state retailers,” said Tom Wark, spokesman for the Sacramento-based Specialty Wine Retailers Association.

The ruling could help local wine merchants by opening up more states to direct shipments of wine. Currently a retailer in California can only ship directly to about 14 states.

Wark’s group helped finance the lawsuit against Texas by Wine Country Gift Baskets, a California company based in Fullerton that sought the right to ship to Texas residents. The case was combined with a suit brought by wine retailer Siesta Village Market of Florida.

Both retailers argued that the Supreme Court’s 2005 decision in the Granholm v. Heald case, which struck down Michigan’s prohibition on shipments of out-of-state wine, applied not just to wineries but to “shippers” of wine. They argued that laws like those in Texas discriminate against certain states in violation of the Commerce Clause of the U.S. Constitution aimed at preventing economic protectionism by states.

The state of Texas and alcohol wholesalers, however, argued that Granholm makes no mention of retailers and should not be extended to them. The wholesalers claimed the 21st Amendment that repealed Prohibition gives Texas the right to exclude retailers that do not go through the so-called “three-tiered” system of separating alcohol producers from distributors from retailers.

The judge agreed with the retailers that Texas law unfairly discriminates against them. But in a significant setback, he also ruled that the state is allowed to require out-of-state retailers to purchase wine from Texas wholesalers.

“It’s a mixed bag of a decision,” said Susan C. Cagann, special counsel with Farella Braun + Martel in San Francisco. “I don’t think either side can claim victory, but I’m sure both will.”

It’s an important decision because ever since Granholm, wholesalers have been claiming that the decision did not apply to retailers, Cagann said.

Now a judge has ruled that it does, eroding a key toe-hold in wholesalers’ legal strategy.

“I think that this is a very troubling decision for wholesaler nationally, even though they would claim partial victory,” Cagann said.

Wark acknowledged that the ruling was a moral victory for retailers but a practical setback for their efforts to open up the Texas market. The group probably will appeal that portion of the ruling requiring wine purchases to go through Texas wholesalers, Wark said.

Complying with it would mean that a California retailer like Wine Country Gift Baskets would have to buy wine from a Texas wholesaler, ship it back to California and repackage it in baskets, and then ship it back to Texas, Wark said.

“That’s silly enough on its face,” he said.

That ruling, however, does give ammunition to retailers, who can now use it in their fight to convince other states to open up their borders to free trade in wine.

“Our message to the state legislatures from this case is going to be you cannot discriminate,” Wark said.

SOURCE: The Press Democrat

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This entry was posted on Thursday, January 17th, 2008 at 6:53 pm and is filed under Distribution Laws. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.

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