Posted: Thursday, April 22, 2010 9:00 AM
Circuit court rulings appear to be in conflict, experts say
A recent decision by the 9th U.S. Circuit Court of Appeals is expected to intensify the debate over direct-to-consumer wine shipments.
The appellate court has upheld an Arizona law that permits only small wineries to sell directly to consumers, ruling that the statute doesn't hinder interstate trade in violation of the U.S. Constitution.
Legal experts say the 9th Circuit's decision conflicts with a ruling issued by the 1st Circuit earlier this year, potentially opening the door to a U.S. Supreme Court challenge.
"You have one circuit saying it's constitutional and the other saying it's not," said Karin Moore, an attorney for the Wine & Spirits Wholesalers of America.
In 2005, the Massachusetts legislature prohibited large wineries -- those producing more than 30,000 gallons a year -- from marketing directly to consumers in the state if they also sell through wholesalers.
Small wineries, on the other hand, were allowed to sell directly to consumers and through wholesalers.
In January, the 1st Circuit struck down the law because it helped the vast majority of Massachusetts wineries while harming out-of-state producers, unconstitutionally restricting interstate trade, according to the ruling.
Arizona created a similar exemption, allowing small wineries -- those producing fewer than 20,000 gallons per year -- to ship wine directly to consumers in the state.
Black Star Farms, a winery in Michigan, challenged the law's legality in 2005.
The winery produces about 35,000 gallons a year, making it too small for wholesale distribution but too large for direct shipments into Arizona, according to court documents.
A federal judge rejected the company's arguments in 2008. On April 13, a three-judge panel from the 9th Circuit affirmed that decision.
The Arizona law is evenhanded with in-state and out-of-state wineries, so the production limit doesn't illegally constrain interstate trade, according to the 9th Circuit ruling.
Bob Epstein, an attorney for Black Star Farms, said the company hasn't decided whether to appeal the 9th Circuit decision, but he thinks there is a conflict with the 1st Circuit opinion.
"Our overriding effort is to help wineries ship wherever they want," Epstein said. "Free trade, that's our goal."
The Wine & Spirits Wholesalers of America is pleased by the 9th Circuit decision because the group believes such restrictions are a matter of states' rights, Moore said.
However, she agreed that a conflict exists between the appellate courts.
"We're ripe for another Supreme Court decision, certainly," Moore said.
The recent 9th Circuit decision may contain another wrinkle, said Corbin Houchins, an attorney in Seattle who tracks wine laws.
The Arizona law permits out-of-state wineries to ship directly to consumers in the state, as long as the customer physically places the order at the winery.
The 9th Circuit found that provision to be constitutional, finding that the advantage it provides to in-state wineries is basically an "accident of geography," Houchins said.
However, in 2008, the 6th Circuit struck down a similar Kentucky law that required wines to be ordered on-site.
In that case, Cherry Hill Vineyards, an Oregon winery, argued the statute effectively hindered interstate commerce. A federal judge agreed with the argument and the ruling was upheld on appeal.
"We now have what is arguably a conflict between the 9th Circuit and the 6th," Houchins said. "They're different approaches."
The U.S. Supreme Court only hears about one case out of 100 each year, so it's not certain the conflict will be resolved by the nation's highest court even if Black Star Farms does appeal.
However, it's clear that the Supreme Court's 2005 decision banning direct regulatory preferences for in-state wineries -- Granholm v. Heald -- has left several issues unsettled, Moore said.
"A lot of folks thought Granholm was going to solve everything, but it didn't," she said.
Wine & Spirits Wholesalers of America: www.wswa.org
Black Star Farms: www.blackstarfarms.com
U.S. Supreme Court: http://www.supremecourt.gov/