Wine, Consumers and the Court

There is no other category of consumer whose day to day commercial habits are more impacted by politics than wine consumers. Their product choices, the places they can purchase products, the age at which they may purchase wine products, and the way by which they may purchase wine are all dictated by politics.

The reason for this is the 21st Amendment to the Constitution, which dictated that in addition to ending 14 years of national prohibition of drinking, the Amendment also gave the individual states the power to regulate all facets of alcohol distribution and sales in their states. It created 50 different game boards on which the politics of alcohol could be played, rather than one federal gameboard.

Consumers Don’t Make These Rules

What’s interesting about these 50 sets of rules for alcohol is that the politics that govern the creation and alteration of alcohol-related rules almost never involve consumers, despite almost every rule created or condemned or altered impacting them the most. Instead, the game of alcohol politics is played almost exclusively by the players created by the state to control alcohol distribution and sales: producers, wholesalers and retailers.

Take the case of Tennessee. For many years in that state, in order for a person or group to obtain a license to sell alcohol at retail, they had to be a resident of the state for two years. Once one obtained that license they were required to renew it annually. However, the law stated that one had to be a resident of the state for 10 years before one could renew the permit.

I’ll let that sit with you for a while….

Such a law could never be passed by public referendum. It’s simply too stupid, even for the most distracted voters. No. That kind of law could only be passed by a legislature, by a set of lawmakers who had no fear their work would be watched by the public. And this is just about how every alcohol-related law is passed.

The purpose of the Tennessee law was to protect existing alcohol retailers from competition by limiting the entry of new retailers into the state. It also happened to deter consumers from benefiting from new, innovative retailers as well as receiving the benefits of more choice and more competition.

Or, take the example of a Michigan law that was recently overturned as unconstitutional. In this case, the state passed a law that put in place a circumstance where Michigan retailers were allowed to ship wine to Michigan consumers, but out-of-state retailers were banned from such commerce. This new law, passed in 2008, did not impact that fact that both Michigan and out-of-state wineries could ship to Michigan residents. Only out-of-state retailers were banned from doing so.

Again, no self-respecting polity would even consider approving such a law were it put to them in the form of a public referendum. The universal response would surely be, “why?” The consumer would immediately recognize that being banned from purchasing and receiving shipments from out-of-state wine retailers would reduce their choice of products and stop them from benefiting from the competition that a more open wine buying regime would foster.

This Michigan law could only be passed by lawmakers unburdened by input by the people the law would most impact: Michigan consumers.

What’s notable about both the Tennessee law and the Michigan law is that were it not for the 21st Amendment giving the right to regulate alcohol distribution and sale to the state, these laws couldn’t even be conceived of since even the greenest lawmaker would likely understand they would violate Article 1, Section 8 of the U.S. Constitution: the “Commerce Clause”. It gives the federal government alone the power to regulate interstate commerce. Both laws blatantly violate this key constitutional principle.

As you can see, by giving the individual states the right to regulate alcohol sales and distribution, each state created a platform upon which politics could be played that is not normally present in the states.

Pay To Play

The primary interest of the states where it comes to alcohol regulation and laws is taxes. Each state generally derives terrific sums of revenue form their tax on the beverage. It has always been this way and likely always will. But in creating and directly regulating the specific players that can sell and distribute alcohol, each state also created another means of raising revenue, except this revenue would be directed not at state coffers but at the pockets of the lawmakers.

Each year, lawmakers collect millions of dollars from alcohol producers, wholesalers and retailers who hand over campaign contributions to the state politicians who make the laws concerning the sale and distribution of alcohol. The state-mandated middlemen, the wholesalers, give the bulk of the contributions for obvious reasons. In nearly every state lawmakers have dictated that all alcohol produced in or outside of the state first must be sold to a middleman wholesaler, who then is the only entity that can sell alcohol to the retailers who supply the public. The wholesalers’ position is the true sweet spot. They know this. So do the lawmakers.

So, for more than 80 years, the vast majority of laws concerning alcohol distribution and sales have benefited wholesalers. State politicians have passed those laws after being convinced by wholesalers arguments and their campaign contributions that the laws are necessary.

However, it is the case with almost every alcohol-related law passed in nearly every state that consumers, who are most impacted by the laws, are not consulted and don’t offer their opinion on the laws. It is also why almost no alcohol-related referendums are put in front of the public for their approval: consumers wouldn’t vote to protect a very small group of very special interests who almost always seek legal protection from competition. It should also be noted that in the case of a public referendum, alcohol interests have no reason to give campaign contributions to lawmakers in order to win protection from having to operate under normal rules of commerce and competition. It’s not the lawmakers in charge of the law when you have public referendums.

It should be no surprise that over the years, the wholesalers’ political power and their control over the alcohol marketplace has increased as they’ve orchestrated passage of more and more laws that strengthen their hand. Lawmakers didn’t complain. They kept getting their campaign funds. And for many years, consumers didn’t notice either. However, consumers relatively recently started to notice the laws wholesalers engineered over all those years were restricting their ability to access the increasing number of products that exploded on to the market beginning in the 1990s. Around the year 2000, you heard wine consumers, who noticed laws preventing them from accessing these new wines, issue a collective, “Whaattt!!??!”

Of course, the problem of engaged wine consumers not being able to access the exploding number of wines on the market wasn’t exactly a national emergency for politicians. The number of consumers who noticed their choices were cut off was relatively small. Only a few million. While some of these wine lovers took part in political activities to try to change laws, like writing their lawmakers, not much changed. They didn’t couple their pleas for fairness with campaign contributions. Big mistake. Plus, they’d soon find out that lawmakers were always more than happy to repeat the party line of the wholesalers, large producers and most retailers: consumers just don’t understand the dangers of allowing them to have easy access to legal products. Put another way, “Wine is a socially sensitive product that can’t be sold willy-nilly like any other product, plus allowing this would disrupt the finely tuned three-tier system we’ve constructed over all these years.”

Consumers responded thusly: “What the hell are you talking about? Give me my wine.”

In Step The Courts

It has always been the case in the United States that the court system played the role of levelling

the playing field for those that had been neglected, oppressed, shoved aside, and disregarded, almost always for the benefit of others. Think of the fight against child labor, the civil rights movement, union representation and gay rights. Think also of wine sales and distribution.

The 2005 Granholm v Heald Supreme Court decision was a forced play. Having pushed back against the consumers, small wine producers and progressive retailers who saw the future and noticed the wine market had been gamed against their interests, lawmakers and wholesalers nonetheless successfully held the line against a more fair and equitable system that would provide consumer access to this explosion of new wines. Courts were the only option.

The Granholm v. Heald Supreme Court decision forced the states to accommodate a modern wine marketplace or play the politically untenable role of the destroyer of markets. The Granholm decision was much more a pushback against lawmakers than the politically powerful wholesalers. The Court told lawmakers that if they really want to maintain their restrictive state systems by blocking out of state wine shippers from delivering wine from outside the state straight to consumers and not giving the wholesalers their cut, they’d have to level the playing field by now also forbidding their own wineries from continuing to enjoy the privilege of shipping wine to their fans in their home state.

Lawmakers would have happily ignored the modern direct-to-consumer economy to keep protecting their wholesaler patrons. However, this meant ignoring the needs of their own wine producers who local wholesalers themselves had completely ignored over the years. These were local wine producers who desperately needed to keep their right to ship wine to consumers in their state in order to bring their wines to market. Few lawmakers were willing to take away this shipping right from their local and growing number of wineries in order to ban shipments from out-of-state (read Californian) wineries—a requirement under the Granholm decision that called for a level playing field. But the cost of harming small, family wineries who also happened to be farmers, for the sake of protecting multi-million dollar wholesalers and local retailers from competition was simply too much. It smacked too much of pay to play because it was and always had been pay to play.

But now, after Granholm, if lawmakers played and the wholesalers paid, someone else—a very sympathetic constituency of farmers and vintners—would get very publicly rogered and rogered but good. Under these circumstances, most lawmakers were unwilling to continue to bend over the consumer and doink the local vintners from a few thousand more dollars each election cycle. It wasn’t worth it politically.

The Court changed the political equation.

Wine Retailers and the Courts

The political equation for retailers and retailer shipping interstate is somewhat different. Retailers are not nearly as sympathetic as small, local winemakers who create something and get dirty in the vineyards. Lawmakers decided they could still continue to ban shipments from out-of-state wine retailers and let in-state retailers ship—something the Court never sanctioned in Granholm but also forgot to explicitly prohibit. Yes, consumers were screwed by the out-of-state wine retailer shipping ban, but consumers had been screwed for decades by the blanket wine shipping bans that kept both wineries and retailers from shipping into the state. And with the shipment of wine from out-of-state wineries now allowed in many states after Granholm, the new or continued bans against out-of-state wine retailer shipments wasn’t noticed. The added benefit was lawmakers could continue to go back to wholesalers and remind them they were protecting their asses and deserved to be compensated for the effort.

Now the Supreme Court has the chance to correct the record, fix the oversight in Granholm that provided a loophole that prompted state bans on out-of-state wine retailer shipments, and once again deliver state lawmakers the bad news that a fair and level playing field in the sale and shipment of wine is required.

That Tennessee law I noted above that requires a two years residency in the state before a retail permit could be issued to a person was ruled unconstitutional by the Sixth Circuit Court of Appeals. However, the Tennessee retailers, who really like the protection from competition (in this case, from Total Wine), appealed the case to the Supreme Court in the hopes the Court will tell them, “sure…there’s nothing wrong with using the 21st amendment to game the system and restrict interstate competition…knock yourself out.”

But here’s the really interesting thing. There is a very good chance that when the court instead tells the Tennessee retailers that their legal protection racket is unconstitutional under the Commerce Clause (and under its partner the “Dormant Commerce Clause) they will also take the opportunity at the same time to remind states that bans on retailer shipping while allowing in-state retailers to ship is just as unconstitutional as the bans on out-of-state winery shipping that were ruled unconstitutional in the Granholm case thirteen years ago.

This prospect has a lot of people excited…and concerned. The excited ones are the consumers who of late have been told that, sure, they can buy that rare Burgundy from that fine wine store in New York…they just can’t have it shipped to their home in Texas, Illinois, Minnesota, Massachusetts, Washington State or numerous other states across the country. The ones who are concerned, you know who they are.

If this nod to fairness and anti-corruption comes to pass in the wake of a Supreme Court ruling next year in the case of Byrd v Tennessee Wine & Spirit Retailers, we will once again find it is the Court that is required to impose a fair, normal and effective commercial regime upon state lawmakers who seem always to see alcohol laws as a means to a paycheck.

This is why courts exist; to undue cynical imbalances of power meant to enrich one group at the expense of another; to remove the boot from the necks of one group that has been applied by another for the sake standing a little taller; to bring a little fairness to human relations, to commercial systems, and to civic arrangements.

After the Courts, It’s Consumers’ Turn

Even if the Supreme Court rules in Byrd v Tennessee next year that discriminatory and protectionist bans on interstate retailer wine shipments are unconstitutional and can’t stand, there will still be required a political effort to overturn the laws that institute those bans and put in their place a more consumer-friendly, more modern set of laws that recognize the way of the 21st century consumer operates. And politicians will do the political math: will it cost them too much politically if they choose to ban shipments to their state residents from both in-state and out-of-state retailers in order to continue to invoice their state’s wholesalers?

It’s not as clear-cut an equation as it was for winery shipping where it was a too costly a political move to ban local wineries from shipping to state residents in order to create a constitutionally-required level playing field while they kept out-of-state wineries from shipping into the state. Most retailers in a given state don’t’ engage in wine shipping. Moreover, those few in-state retailers who do ship wine to residents in the state aren’t nearly as sympathetic a bunch in their storefronts and suits as are the local wineries with their dirty shoes, tractors, and vineyards.

So, it will fall largely to consumers if this political game comes to be played. It will be consumers who, if the court decides fairness and not protectionism ought to rule wine commerce, will need to step up and assure state lawmakers understand there will be a cost for transactional political games.

The great hope is that the Supreme Court provides this opportunity to consumers and, if it does, consumers step up and explain to the lawmakers and wholesalers that, given all that will have passed, they are now paying attention.

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Full disclosure: For a decade now I’ve worked in the role as the executive director of the National Association of Wine Retailers, an organization that has advocated for more liberal shipping rights for wine retailers.

 

 

 

 

 


One Response

  1. VVP (veux, veux-pas) - November 5, 2018

    Please meet John Foust and what is taught in law schools.
    https://lawdigitalcommons.bc.edu/cgi/viewcontent.cgi?article=2152&context=bclr

    No a single word that retailer ships directly. Not a single word that a state has power to regulate out-of-state retailer. Clear evidence that unconstitutional state laws are unenforceable.


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