When Judges Tell the Truth About the Wine Industry

Posted by Tom Wark on Jan 19, 2012

Yesterday a federal court issued a decison in a wine related case. Consumers and Free Trade lost in this case, one that probably should never have been brought. However, within the final ruling by the three justices that heard the case is something you don't see to often: A justice acknowledged the anti-consumer nature of the alcohol regulatory system currently in place in most states.

First, the "Cap N. Cork" case challenged Indiana's ban on retailers using common carriers such as FedEx and UPS, to deliver wine to consumers. The court determined this was not a violation of INTER-state commerce, but rather a matter that effected INTRA-state commerce and therefore was not an impediment to commerce that would have been precluded by the U.S. Constitution.

Yet at the very end of a concurrence to the main opinion, Justice David Frank Hamilton wrote the following conclusion to his concurring opinion in the case. This written conclusion is slightly lengthy, but I urge you to read it to see what a well-schooled, objective observer has to say about today's wine regulatory system. It is instructive:

"The organization of the alcoholic beverage industry is a product of a legal structure from the earlier age that first adopted Prohibition and then repealed it with the Twenty-first Amendment. What has evolved is a collection of Balkanized state markets and legal systems that regulate an industry with enormous influence over the lawmakers who regulate it. The system can easily devolve into ossified protection of incumbent businesses, as with the protection of the three-tier distribution system — a model that may seem to have less and less value as the internet and e-commerce flatten the global marketplace. Yet the extraordinary constitutional status given to state alcoholic beverage laws in the Twenty-first Amendment was the compromise that allowed the repeal of Prohibition. Rather than asking courts to erode that compromise, those seeking a more progressive organization of the industry should turn to state-by-state political action on behalf of consumers who are hurt by these laws designed primarily to protect incumbents in the industry."

This comment by Justice Hamilton at the end of his opinion in the Cork N. Cap case was entirely unnecessary. It added nothing to his legal opinion. Rather, what this comment amounts to is an objective third-party observer admitting the absurdity and unfairness of a system of alcohol regulation that serves the purpose of protecting politically-connected businesses and ignoring consumers through laws that provide  no other value to speak of.

It is entirely coincidental that Justice Hamilton's admission of Indiana's fouled system of alcohol regulation comes directly after New Jersey passed a law that allows direct shipment of wine, but contains a provision that is related to the Indiana case. In the New Jersey shipping law, in-state and out-of-state wineries are allowed to sell wine directly to retailers and restaurants, without having to go through a wholesaler—something that is of TREMENDOUS help to small wineries and gives retailers and restaurants the opportunity to distinguish their own offerings with a wider variety of choices.

However, the NJ law also prohibits wineries from delivering wine to retailers and restaurants via FedEX or UPS. They must use their own trucks and drivers. This provision makes it practically impossible for out-of-state wineries to sell directly to retailers and restaurant—exactly what this provision was meant to do.

Finally, as an addendum to Justice Hamilton's criticism of how alcohol is regulated in the U.S., it is instructive to read this story about what went on behind the scenes in getting the NJ wine shipping law passed. In this article, NJ Senate President Sweeney, who heroically battled anti-consumer forces opposing the bill, notes that those who wanted to keep NJ in the stone age and keep NJ consumers from being able to access any wine except that which wholesalers provided, notes that more than $1 million dollars was spent by opponents of the bill. Sweeney describes the battle over direct shipping as "the bitterest fight he had been involved with in his legislative career."

Ending on a rather more positive note, there appear to be consequences coming for the wholesalers and retailers that battled so hard against Sweeney to defeat the NJ direct wine shipping bill. According to the same article:

"Sweeney said he may hold future hearings into whether the liquor industry overcharges state residents, saying, "If they have as much to spend over something like this, then they have way too much money."

It's not a matter of too much money. It's a matter of them having too much power that was not earned via hard work, but rather by receiving for so long protection from the state against competition that amounted to state-granted welfare for NJ wholesalers and retailers.