California Wine Gods Proven Wrong

California changed its direct shipping rules last year following the Supreme Court’s Granholm v Heald decision calling NY and MI’s discrimination of out-of-state wineries unconstitutional. The reason the change to California’s shipping laws became necessary was not because they discriminated against out-of-state wineries a la NY and MI. Rather, it was due to a comment in the decision written by Justice Kennedy that the "Reciprocity" framework that California and other states worked under was in all likelihood unconstitutional itself. (Reciprocity was a framework by which a group of states essentially said to each other, "you let our wineries ship to your state and your wineries can ship to our state’s residents.)

So, California did the right thing. The Legislature rescinded the reciprocity and basically opened up California to shipping from anywhere.

But they screwed up along the way.

In the wake of pressure from California’s wholesalers, California left it’s Reciprocity framework in place as it applied to retailers. Basically, only retailers in those states that had previous reciprocity agreements with California were now allowed to ship to California residents.

When the Bill was moving through Legislature I spoke with both the office of the Bill’s sponsor, Rep. Wes Chesbro, with the California Wine Institute and the Family Winemakers of California, two organizations that took part in the negotiations on the Bill with Rep. Chesbro.

I asked them all, why exclude Retailers? Why leave Reciprocity in place just for retailers.

All three told me the same thing: The California Attorney General’s office concluded that the Supreme Court Decision only applied to wineries, and not to retailers.

The Attorney General of California was giving them cover for the fact that the California Wholesalers were demanding that out of state retailers be kept out of the agreement. And it’s understandable why. Who wants the competition. In fact, the wholesalers wanted nothing to do with the idea that the Supreme Court Decision was applicable to any entity other than wineries because nearly any implication of that view didn’t bode well for the wholesale tier of the wine, beer and liquor industry. The winery representatives caved and left out the retailers from the opening up of the new shipping structure. They used the Attorney General’s conclusions on the scope of the Supreme Court decision as cover.

These are smart guys and gals at the various winery associations in California. They live and breath legislation and they have been working on the judicial theory behind direct shipping for a decade or more. I think they new that the Attorney General’s analysis of the Supreme Court decisions was woefully inadequate in the way it accepted a narrow scope to its applicability. I’m not a lawyer. I don’t work on these issues night and day. But even I knew the Attorney General was wrong. So did the lead lawyer for the California Alcoholic Beverage Commission, who said the way the new law was written to keep retailers under their old Reciprocity arrangement was probably unconstitutional.

This view was confirmed on December 21 when a Federal Judge in Washington State applied the Granholm v. Heald decision to a case involving retailers and wholesalers. Essentially the judge said that a state may not allow retailers to buy directly from in-state wineries, but prohibit them from buying directly from out of state wineries. All of a sudden, it turns out, the retail tier is covered by the Supreme Court decision.

It’s possible the State will argue that even the WA State decision deals only with whom wineries can sell to. But once they think about that, they’ll drop the idea.

The question is whether the State of California will change the law it just wrote and really make California a state devoted to Free Trade. I don’t think they will even though the current system in place is clearly unconstitutional. It will stay in place until a retailer in another state decides to sue the State of California.

Posted In: Shipping Wine


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