In a one hour hearing last Tuesday the Supreme Court listened to an appeal from the State of Michigan, the Michigan Beer & Wine Wholesalers Association (MB&WWA) and the New York State Liquor Authority against lower court rulings that allow direct shipping of wine into their respective states.
The original rulings were won in both states earlier this year by collections of wine consumers, wine journalists and small vineyard owners who argued that allowing in-state direct shipping but not inter-state direct shipping was unconstitutional. The commerce clause of the US constitution ensures that businesses have unrestricted access to markets in every American state.
The restrictions hail from the system put in place in 1933 that granted each state the authority to regulate its own alcohol sales. After the chaos of Prohibition, individual state power was seen as the only way of keeping control of who produced what and how. Twenty-four states still uphold these laws, allowing alcohol from other states to be sold within their boundaries, but only through a licensed wholesaler.
The legislation means that it can be easier to sell produce abroad than in the next town, if that town happens to be in another state. Wine cannot be bought over the phone or Internet if it is to be sent to another state by post and customers cannot drive across state boundaries with wine from an out of state vineyard they have visited.
At Tuesday's hearing, attorneys for Michigan and New York states argued for the right to monitor what they say is a potentially dangerous product. State regulators would be unable to conduct on-site inspections of wineries and ensure product quality, they claim.
"The state draws on local enforcement extensively, and this can't be done out of state," said Caitlin Halligan, New York's solicitor general. Thomas Casey, the solicitor general for Michigan said "If minors can order wine or any other alcohol over the Internet, they will."
Of course, they already can - but only that produced in Michigan. Although Dennis Hybarger of the MB&WWA told BeverageDaily.com that he was not aware that any Michigan winery currently offered this service, a quick browse on MichiganWines.com reveals at least ten that do.
Justice Antonin Scalia was also sceptical about the arguments voiced. He noted that a clause in New York state law actually allows outside wineries to make direct shipments if they open a distribution office in the state. He questioned whether the motivation here was the protection of minors and product quality or that of ensuring that taxes are collected.
Kathleen Sullivan, a Stanford University law professor, contradicted this assumption, telling the justices that the 26 states that do permit direct shipping had in fact "shown ways to collect taxes", including issuing purchase permits for out of state shippers.
Jeremy Benson, who represents the 'Free the Grapes!' lobby group, went further. He said that the states would collect more tax. "New York's controller estimated that legal direct shipping in NY would generate at least $3 million per year in additional tax collections," he said.
Of these 26 states, many require a reciprocal agreement with the state of the wine's origin. Peter Saltonstall, a board member of the New York Wine and Grape Foundation and owner of a small vineyard, is only actually able to sell his wine in two states outside New York without using a wholesaler.
Consolidation has meant that there are relatively few wholesalers and those that there are are uninterested in exporting small quantities of wine. In addition to the MB&WWA's presence in the Supreme Court case, wholesalers and wholesaler associations across the US have invested in costly legal campaigns in lower courts to prevent direct shipping. "They've hit us hard." said Saltonstall.
To allow direct sipping would restructure the domestic wine market and, ultimately, give the small producer a chance to build his business.
A decision is expected before the court adjourns in June.