The Top Legal and Political Wine Stories of 2010

Posted by Tom Wark on Nov 11, 2010

This year has been one of the most active and consequential for wine-related politics and legal issues. Below is my list of top Political and Legal Stories of 2010.

1. HR 5034
Written, promoted and paid for by America's beer and wine distributors, HR 5034 is an attempt to change the legal rules of the alcohol game by a group of players that don't like the current set of rules. Introduced in mid year, the bill was given a hearing in the House Judiciary Committee in September. America's wine, beer and spirit producers, its importers, retailers and consumers have all condemned the bill as an obscene power grab by wholesalers not content with playing by the rules of commerce set up by our founding fathers. After the November Election, the 151 co-sponsors in the House was reduced by 40 and there is currently no sponsor in the Senate, perhaps because the wholesalers can't find a Senator willing to sponsors such a blatantly anti-consumer, protectionist bill. HR 5034 is anticipated to be back in play after the new Congress is seated in January. If passed, HR 5034 would represent the most radical change to Constitutional foundation of alcohol sales and distribution since the end of Prohibition.

2. Washington State Privatization Effort Via Initiative 1100
Anticipating moves in other states to get the government out of the business of selling and distributing wine, beer and spirits, Initiative 1100 would have reformed and modernized Washington State's three-tier system and gotten the state out of the business of selling liquor. The initiative failed by a slim margin in the November Elections, due in large part to huge sums of money delivered to the Anti-1100 effort by out of state wholesalers who worried the effort to cut into their state-mandated monopoly would spread to other states. If passed it would have meant a fundamental change to the Washington system through the embrace of free market principles over monopoly/Special Interest economics.

3. Wine in Grocery Stores
Though difficult for many folks in other states to believe, New York does not allow consumers to purchase wine in grocery stores when they purchase their pasta, beef, cheese and paper towels. An effort by Governor Patterson to change this anti-consumer set of circumstances was met by heavy opposition by the state's retailers and wholesalers. In the end, the move to allow Grocery Store sales of wine in New York did not make it into the State's budget. We believe this fight is not over.

4. InBev Sues Illinois Over Self Distribution
In Illinois, local brewers had the right to sell directly to retailers and restaurants, going around the distributors. Yet, when InBev (owner of Anheuser-Busch) wanted to do the same, the state's Liquor Control Commission turned them down, saying it would disrupt the state's three tier system. InBev sued, saying the 2005 Granholm v. Heald Supreme Court Decision dictated that such state discrimination against an out-of-state producer violated the Commerce Clause of the Constitution that gives the federal government, not the states, the right to regulate inter-state commerce. They won. The importance of this decision is that it was one more confirmation that self distribution by producers, just like direct-to-consumer sales, when it involves interstate commerce is subject to the Constitution's requirement that in-state and out of state producers must be treated on equal terms.

5. Maryland Direct Shipping and Consumers
For what must be the third or fourth year in a row, Maryland wine consumers were denied in their attempt to see direct shipment of wine allowed in their state. Though hardly the first time that powerful local interests stood between consumers and capitalism, the attempt in Maryland to open up direct shipping did feature significant consumer action, led by Marylanders For Better Beer and Wine Laws, an association of consumers that headed up the effort to give Maryland consumers choice in wine. The result of the effort was to force the Comptroller to do a fairly significant study looking at the potential affect of allowing in-state and out-of-state wineries and retailers to ship directly to consumers. We expect this study to be released in 2011.

6. Family Winemakers v. Jenkins: Massachusetts Fails at Discrimination
In an important decision, a Federal Appeals Court in Massachusetts ruled in the case of Family Winemakes of California v. Jenkins that the states direct shipping law that discriminated in effect was unconstitutional. MA only allowed wineries that made less than a specific amount of wine to ship directly to state residents. It just so happened that this limit included all MA wineries. In addition, there was evidence that the law was set up specifically to help in-state wineries a the expense of out-of-state wineries. Wholesalers fought to maintain the non-facially discriminatory law saying that it was not unconstitutional because it did not "facially" discriminate (both in-state and out-of-state wineries were subject to the prohibition on shipping wine if they made more than a certain amount of wine annually). Still the Court made the significant decision that when a law discriminates, it rarely matters if that law treats in-state and out-of-state wineries equal on its face. It is discrimination nonetheless. Wholesalers have decried this ruling for obvious reasons, it continues the string of court decisions that treat wholesaler-supported anti-consumer legislation for what is is: simple protectionism.

7. Retailers and the Commerce Clause: 5th Circuit
In the Fifth Circuit a panel of judges ruled in the case of Wine Country Gift Baskets v. Steen that American retailers were stripped of their Commerce Clause protections when the 21st Amendment was passed. Retailers had argued that Texas' law prohibiting out-of-state retailers from shipping to Texas consumers while Texas retailers were allowed to was an unconstitutional violation of the Commerce Clause that gives the federal government, not the states, the right to regulate inter-state commerce. The Court ruled that because the "Three tier System" is, according to the Supreme Court, "unquestionably legitimate" a state's three tier system may include discriminatory bans on interstate commerce…as long as those bans apply only to retailers and not to wineries. How that distinction was made was something that was not included in the decision since there is no record of Congress taking positive action to strip retailers of their Commerce Clause protections nor is there any mention in the U.S. Constitution that retailers alone are to be deprived of their right to protection against state-based discrimination. The import of this decision and a similar and earlier one in the 2nd Circuit Court of Appeals can't be understated: if allowed to stand it would represent only the second time in the history of the United States that a single industry has been stripped of its Commerce Clause protection. Further, it would be the only time an industry saw that protection stripped away by court order, rather than by Congressional action.

8. Sonoma County Given Imminent Domain Over Wine Labels
Through an act of the California Legislature, it became California law that any wine produced with grapes grown in Sonoma County must carry the term "Sonoma County" on the label—even though that term is less descriptive than terms like "Russian River Valley", "Dry Creek Valley", "Green Valley" and other Sonoma County appellations that wineries previously were allowed to place on their label without reference to the broader description of place, "Sonoma County". This will lead to some wines being labeled "Sonoma Valley, Sonoma County" and "Sonoma Mountain, Sonoma County" and "Sonoma Coast, Sonoma County". Futher, there are wineries that know that adding the term "Sonoma County" to their label does nothing to enhance the value of their wine or brand. Still, due to this new "Conjunctive Labeling" law pushed by the Sonoma County Vintners Association and Sonoma County Grape Growers Association to help promote "Sonoma County", all wineries making wine from grapes produced in Sonoma Valley and any other county-located appellation will be forced to change their labels and potentially damage their brand by placing the term "Sonoma County" on their labels.

9.Sarah Palin Speak to the  Wine & Spirit Wholesalers Association
The Wine & Spirit Wholesalers hired former Governor Sarah Palin to speak at their annual convention in Las Vegas where the former Alaska Governor gave a speech clearly indicating she had no grasp of the issues that concerned American wine and spirit wholesalers. She even went so far as to make the case for deregulation of industry, something the wholesalers don't like to hear, by saying regulations end up "chipping away at people's innovation and entrepreneurial spirit". By all accounts, her appearance was aesthetic failure.

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For extensive commentary on how all these issues relate and how the American alcohol sales and distribution system can and should be reformed, read "The Manifesto For Change In the Wine Industry"…a somewhat long, but comprehensive look at the American system of