The Real Meaning of the Tennessee Wine Supreme Court Decision

What’s absolutely clear from Wednesday’s Tennessee Wine v. Thomas Supreme Court decision is that the case was clearly originally taken by the Court for one reason and one reason only: To state clearly that the 2005 Granholm v Heald Supreme Court decision with its non-discrimination and anti-protectionism principles that altered the direct shipping landscape applies equally to retailers as it does to wineries.

One wonders how long the Court has been waiting for a case to make this point. As many observers have pointed out, the Tennessee Wine case in the 6th Circuit didn’t seem like a case the Court was likely to take. It was messy and there was little interest on the part of the State of Tennessee to even defend its durational residency laws at issue in the case. Yet, the Court took the case last year to the surprise of many.

W. Blake Grey, the member of the wine media who watched this case perhaps closer than anyone else and who attended the oral arguments in January and who has written extensively about the case agrees. In his latest article on the decision in Wine-Searcher Grey writes:

“The case itself was a terrible one. Tennessee’s residency law was so bad that its attorney general wrote two opinions saying it was unenforceable….All of the Supreme Court justices knew wine shipping is the actual issue in this Constitutional conflict and they spoke about it in oral arguments….the justices knew this conflict was bubbling up and they would have to rule, and enough of them wanted to make this exact ruling. So they chose this particular lousy case, for which a ruling the other way is really hard to defend.”

Almost from the moment Granholm was decided in 2005, it was the wholesale tier of the industry that advanced the miserly theory that the ruling striking down discriminatory wine shipping laws in New York and Michigan did not apply to retailers.

In June 2005, barely a month after the Granholm decision was rendered, California went about changing its direct shipment laws from reciprocal in nature to a permit system. The original bill that would make this change, SB 118, was written to allow out-of-state retailers to obtain the same wine shipping permit as wineries. However, in negotiations over the bill, California’s wholesalers put their foot down and demanded that retailers be excluded from the bill.

At the time, this blog had been up and running for about seven months. In a post on the California legislation, I wrote

I spoke with officials at the California Wine Institute, Family Winemakers of California, California Association of Winegrape Growers, as well as members of Senator Chesbro’s staff.

Interestingly, when I asked why retailer privileges had been stripped from the bill, they all said the same thing…using nearly the very same words: SB 118 brings California into compliance with the meaning of Granholm Vs. Heald. The Attorney General of California determined that the Supreme Court case only dealt with wineries so it was necessary only to deal with wineries in this legislation.

This seems an extraordinarily narrow reading of the recent Supreme Court case. Those supporting this reading make note that the term “retailer” was never mentioned in the Supreme Court opinion. And that’s true. But the principle behind the opinion seems clearly to apply not merely to wineries but to alcohol regulation in general. One could easily read the Granholm V. Heald decision and determine that it applied to alcohol regulation in general, rather than simply wine. The choice not to open California up to all retailers under the SB118 scheme seems to be a purely political choice rather than a legal decision.

From the very beginning, the Granholm decision stood for the proposition that “States may not enact laws that burden out-of-state producers or shippers simply to give a competitive advantage to in-state businesses.” This passage comes very early in the Granholm decision. Granholm ends with this powerful declaration:

States have broad power to regulate liquor under §2 of the Twenty-first Amendment. This power, however, does not allow States to ban, or severely limit, the direct shipment of out-of-state wine while simultaneously authorizing direct shipment by in-state producers. If a State chooses to allow direct shipment of wine, it must do so on evenhanded terms.”

From the beginning, there was a move to segregate the meaning of the 2005 landmark decision to the winery tier. It was a decision made by a fearful wholesale tier, supported by a giddy and indifferent producer tier, and agreed to by a retail tier that embraced the idea of protectionism as a core value.

As more and more states changed their laws in reaction to the Granholm decision, most followed California’s lead by only allowing out-of-state wineries to obtain shipping permits. Eventually, some courts began to adopt this narrow, miserly and tortured reading of Granholm by patching together unrelated phrases in the decision, pasting them on to other unrelated aspects of the Supreme Court’s analysis, waving their judicial wand and declaring “Voila”! It was a judicial farce.

My guess is a number of members of the current Supreme Court tired of seeing the Court’s and their earlier brethren’s work being so badly misinterpreted and abused. My guess is that for years they watched in dismay as various district courts and appeals courts adopted unsupported readings of their landmark case. And I suspect current members of the Court took note when other lower court justices declared in various opinions that, “in lieu of more guidance from the Supreme Court” they would adopt what became known as the “conservative” reading of Granholm and not extend its principles to retailers.

Well, after Wednesday, there is no more “in lieu of”.

“The Association and the dissent point out that Granholm repeatedly spoke of discrimination against out-of-state products and producers, but there is an obvious explanation: The state laws at issue in Granholm discriminated against out-of-state producers. And Granholm never said that its reading of history or its Commerce Clause analysis was limited to discrimination against products or producers. On the contrary, the Court stated that the Clause prohibits state discrimination against all “‘out-of-state economic interests,’” and noted that the direct-shipment laws in question “contradict[ed]” dormant Commerce Clause principles because they “deprive[d] citizens of their right to have access to the markets of other States on equal terms.”

Writing for the majority, Justice Samual Alito used just about as strongly worded language as he could without outright declaring, “you friggi’n numb nuts have abused this Court’s plain meaning, so get the hell outta here with your ridiculous ‘products and producers only’ claim. Be gone!”

The way I know the Tennessee Wine case was taken for the expressed purpose of members of the Court desiring to set the record straight concerning the real meaning of the Granholm decision, that it applies to retailers, is that there is practically nothing in the Tennessee Wine ruling that is new or different than the Granholm ruling. In fact, if you wanted to get the clearest reading of the most recent case, simply go back to the Granholm decision and re-read it. But every time you see the words “Wineries” or “Producers” substitute the word “retailers”.

Alito goes over the same history that was described in Granholm. Alito makes the same claims concerning protectionism as were made in Granholm. Alito does the same analysis of the Tennessee laws as was done of the NY and MI laws at issue in Granholm. He reiterates the same dormant commerce clause jurisprudence as was described in Granholm. And he places the same negative eye on protectionism as was witnessed in Granholm

What we have in the Tennessee Wine case is not a new “major precedent” as some have suggested. Rather, we have a strongly worded reiteration of a precedent delivered 14 years ago that has been ignored by too many judges, too many members of the bar, too many commentators and too many members of the alcohol industry.

It should be understood too that the consequences of this ignorance was not just the need for a new Supreme Court decision. As a result of denying retailers their constitutional right to protection from discrimination, millions of dollars of revenue that should have come from direct sales have been denied retailers. Millions of dollars worth of producers’ products that should have left retailers shelves and warehouses sat there instead. Millions of dollars in state sales tax that should have been collected for the benefit of states and their citizens went uncollected. And consumers in states like Illinois, Washington State, New York, Massachusetts, Texas, Colorado, New Jersey, Florida, North Carolina, South Carolina, Maine, Michigan and others where discriminatory law prevented them from accessing the wines from out-of-state retailers that were not available in their home state were left high and dry.

With Justice Alito’s strongly worded reiteration of what the Court said in 2005, the battle for retailer and consumer rights is now a political one. There are three cases currently in the courts that directly concern retailer wine shipping: in Illinois, Michigan and Missouri. Each of those states’ laws discriminates against out-of-state retailers for protectionist reasons. And each of those states is going to lose those cases. The question becomes what will the states do in response to their unconstitutional laws.

Undoubtedly, in some of those states wholesalers and retailers will ask the lawmakers to tell consumers to fuck off and try to shut down all shipping from both in-state an out-of-state retailers in order to make their laws non-discriminatory. Those efforts will be fought strenuously by a contingent of free trade retailers in those states, consumers in those states, the National Association of Wine Retailers and WineFreedom.org.

In other states, we will see permits put in place that out-of-state retailers will be able to obtain that allows them to ship wine into those states on the same terms as out-of-state wineries.

I would be shocked if the Supreme Court ever again heard a case concerning wine shipping. After Wednesday’s decision there can’t possibly be a state retailer or wholesaler association or a state attorney general so dumb as to think that the Supreme Court would uphold their discriminatory law barring retailer shipping.

The real irony to consider is this: For the past 14 years wholesalers primarily and many retailers too have continually argued that “Granholm only applies to producers and products”. Now their last-ditch defense will be, “Granholm only applies to producers and retailers, but not too wholesalers.” Well, we’ll see about that. Take some time and think about what Wednesday’s Tennessee Wine ruling means for both Franchise laws as well as prohibitions on retailers purchasing wine from out-of-state producers and importers.

Finally, one other observation. Did anyone notice that nowhere in the decision did the Court mention anything about the Three Tier System being “Unquestionably Legitimate”? I did. This is not to say that the Three Tier System isn’t legitimate. I only mention this to note that the court clearly understood that this phrase, used as dictum in the Granholm ruling, has been abused by lazy and calculating judges and defenders of protectionism for fourteen years. Instead, Justice Alito used this latest decision to make a clear statement of what the Three Tier System is for judicial purposes. Alito, commenting on the Three Tier System, notes that opposition to retailers being covered by Granholm:

“reads far too much into Granholm’s discussion of the three-tiered model….Although Granholm spoke approvingly of that basic model, it did not suggest that [the 21st Amemdment] sanctions every discriminatory feature that a State may incorporate into its three-tiered scheme. At issue in the present case is not the basic three-tiered model of separating producers, wholesalers, and retailers”

For judicial purposes going forward, the Three Tier System does not include residency requirements, tied house laws, nor in-state requirements. It merely refers to the separation of the tiers.

It is not a new day in American alcohol. There is no precedent-setting decision before us after Wednesday. There is no sweeping decision. What we have is a strongly worded rebuke of those who spent 14 years twisting the words of the Supreme Court to advance their own interests and to screw an entire tier along with their customers.




13 Responses

  1. Clark Smith - June 28, 2019

    Thanks Tom for this cogent summary. It feels like that moment in the Wizard Of Oz when Glenda tells Dorothy “You had the power all along.” Now we can just click our heels together three times and recite “There no place like internet retail.” Time for those of us small wineries struggling to obtain and administer State DTC licenses to seek an easier path. A brand new day for small brands.

  2. VVP - June 28, 2019

    Tom:

    1. Not wine shipments, but shipments of any alcohol for nonindustrial use. Supreme Court said alcohol. It didn’t say wine.

    2. Not all wholesalers, but only three (2) market behemoths, who already distribute in all states, and their WSWA. Over 3000 family size wholesalers more than happy when retailers ship their products out-of-state. What else do these behemoths want? Block products of these 3000? Sell directly to consumers?

    3. Direct shipping from one state to another is still prohibited and it is subject to suspension or revocation of the basic permit. It concerns all sellers with basic permit.

    4. Requiring out-of-state, but not in-state retailers to obtain shipping permit is a competitive advantage to in-state businesses and again state discrimination against out-of-state economic interests. Winery is required to obtain direct-to-consumer shipper permit in their states in addition to their wine maker license. Retailer already licensed by its state to sell to consumers.

    5. Retailers do not produce any alcohol to ship directly. Retailers ship to consumers through their states’ regulatory systems.

  3. Walter - June 28, 2019

    Direct selling refers to selling products directly to the consumer in a non-retail environment.
    In the tiered systems such as alcohol distribution every tier bypasses other tiers when sells directly. There is no tier left to bypass for retailer. It is incorrect to use direct shipment or retail direct shipping terms for retail transactions.

  4. Tom Wark - June 28, 2019

    Clark….There MUST be an easier way. And it must be easier than fighting so hard and spending so much just to sell something to someone who wants it.

  5. Tony Caffrey - June 29, 2019

    On the issue of state legislatures now considering banning in-state shipping in order to prevent out of state shipping, a point I’ve referred to previously from Granholm, and was specifically identified by Justice Alito, but seems to have been overlooked by all commentators, is the unconstitutional effect on consumers of such action.

    Specifically, on P.28 Alito writes:

    And Granholm never said that its reading of history or its Commerce Clause analysis was limited to discrimi- nation against products or producers. On the contrary, the Court stated that the Clause prohibits state discrimi- nation against all “‘out-of-state economic interests,’” Granholm, 544 U. S., at 472 (emphasis added), and noted that the direct-shipment laws in question “contradict[ed]” dormant Commerce Clause principles because they “de- prive[d] citizens of their right to have access to the mar- kets of other States on equal terms.” Id., at 473 (emphasis added).

    Thus, I believe any state that bans all shipping will be acting unconstitutionally because they deprive their citizens of access to the markets of other states. E.G. if California decided to ban all shipping, they would deprive Californians of equal access to the Oregon market, because Californians would be denied equal access to Oregon wine not carried by Californian wholesalers, in a way not applicable to Oregonians, on the assumption that in-state shipping remained legal in Oregon.

  6. John Trinidad - June 29, 2019

    Tom – I’ve been outlining an article on how the SCOTUS decision upends 14 years worth of legal arguments from the wholesale tier, and you beat me to it! Of particular note, as you pointed out in your post, is the language in the majority opinion that defines the three tier system. For many years, anytime anyone questions any aspect of state alcohol beverage laws (such as protectionist shipping laws and franchise laws), defenders of those laws simply throw out dicta from the Granholm decision as a defense. That’s no longer a valid defense.

  7. Chuck - July 1, 2019

    Tom, you’re the best!
    Many wine retailers think a huge current problem is the common carriers and as we all know that the wholesalers have pushed states to push Ups and Fedex (especially the past 2 years) to enforce the 12 retailer states and not allow any interstate shipping beyond this.

    Ups and Fedex will need to be forced from either the wine retailers or Consumers. Wont be easy, but we cant wait.

    Retailers can immediately ship to 16 additional states based on the precedents of this case decision. Plus Florida! With this Retailers are around 30 states to access markets on. Not as quite as wineries freedom, but getting there!

    Ups and Fedex are denying access to retailers constitutional right to access the market by waiting years for retailers permits to be issued. (some of the 16 states may take 5 plus years to probably offer a permit)

    Something has to be done with Ups and Fedex. They have the ultimate super power on wine retailers on where they can do business and where they cant. Unfortunately we are at the mercy of their own corporate “interpretation” of the laws. Not good.

  8. Jeremiah S. - July 1, 2019

    Chuck,

    Tom could be the best when he finally understands that open for general public retail establishment does not need any additional license to ship liquor it sold to a consumer wherever state this consumer is located either permanently or temporarily.

    No one in either UPS or FedEx is required to interpret the laws that regulate other businesses.

  9. Beverly H. - July 2, 2019

    Which are the 16 states that you refer to, please?

  10. Tom Wark - July 2, 2019

    Beverly,

    WA, AZ, CO, MO, IL, IN, MN, MI, OH, NY, NJ, MA, FL, NC, SC, PA, ME

  11. VVP - July 3, 2019

    Beverly,

    Nothing in WA, AZ, CO, MN, OH, NJ, MA, NC, SC, ME, MO and NY codes attempts to regulate retailers in other states or interstate commerce.

    IN prohibits in-state retailers to use common carriers for delivery. Nothing in law attempts to regulate retailers in other states or interstate commerce.

    PA held unconstitutional. Over 10 years still in Court.

    MI defeated in court and nonenforceable.

    FL defeated in court and nonenforceable.

    IL in Court. Nothing in law attempts to regulate retailers in other states or interstate commerce. Nothing to defeat.

    Incorrect complaint initially filed to District Court stating that IN retailer wants to sell wine in IL bypassing IL’s mandatory requirement to purchase alcohol strictly from in-state wholesale distributors, but IL doesn’t allow him to do so.

  12. VVP - July 3, 2019

    Forgot to add- MO statutes that attempted to regulate retailers in other states are removed from MO code. At least two statutes in MO alcohol code still attempt to regulate motor carrier route and service, which is direct attempt of MO Liquor Control Commission to regulate interstate commerce, so out of its jurisdiction and unconstitutional.

  13. Bill Tobey - July 6, 2019

    Please stop using the “” word. It doesn’t become you . Thanks


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