The statute violates the U.S. Constitution, judge panel says

By MATEUSZ PERKOWSKI

Capital Press

A group of California winemakers has prevailed in a legal battle over restrictions on direct-to-consumer wine shipping.

On Jan. 14, a federal appellate court ruled that a state law unconstitutionally hinders interstate commerce by restricting the ability of large wineries to sell directly to consumers.

Though the lawsuit was between winemakers in California and regulators in Massachusetts, the ruling has broader implications for the wine industry, said Paul Kronenberg, president of the Family Winemakers of California, plaintiff in the case.

"It affects wineries across California and the United States," said Kronenberg.

The Massachusetts attorney general's office is still reviewing the decision and can't comment on the possibility of an appeal, a spokesperson said.

Craig Wolf, president and CEO of the Wine and Spirits Wholesalers of America, an organization representing distributors, said he was disappointed by the ruling.

"Judges shouldn't be making the decisions about alcohol policy. States should," he said.

The Family Winemakers of California had successfully challenged the law in federal district court, but the Massachusetts Alcoholic Beverages Control Commission appealed that decision.

The statute prohibits wineries that produce more than 30,000 gallons a year from selling directly to consumers if they also market wine through wholesale distributors.

Under that law, only small wineries are allowed to sell directly to consumers and through wholesalers.

The statute violates the U.S. Constitution by shifting "the competitive balance between in-state and out-of-state wineries in a way that benefits Massachusetts wineries and significantly burdens out-of state competitors," according to a three-judge panel from the 1st U.S. Circuit Court of Appeals.

Most U.S. wine is produced by larger wineries that can't realistically stop marketing through wholesalers, whereas all of the wine producers in Massachusetts fall within the small-winery category specified in the law, the court said.

The law was initially passed in 2006, a year after the U.S. Supreme Court ruled that states can't prohibit out-of-state wineries from selling wine directly to consumers if they allow in-state wineries to do so.

Massachusetts and several other states passed laws that limit direct sales based on winery size to get around the Supreme Court decision, said Kronenberg.

The recent appellate court decision is important because Massachusetts is one of the top wine-importing states in the U.S., he said.

"There's a strong message that production cap restrictions in statute don't pass legal muster," Kronenberg said.

Protectionist impulses compel some states to craft such laws, which are supported by wholesalers that want to maintain control over the wine market through direct-shipping restrictions, he said.

Wolf disagreed with that characterization, saying the Massachusetts law was even-handed with in-state and out-of-state wineries. The statute was intended to give all small wineries a leg up, not just those in Massachusetts, he said.

"They opened the door to competition for wineries all over the country," Wolf said.

Federal courts have been unable to agree on the legality of production-based restrictions on direct-to-consumer wine sales.

Another federal district court upheld a comparable Arizona statute, but that decision has been appealed to the 9th Circuit Court of Appeals, he said.

A disagreement between federal appellate courts could potentially lead to another Supreme Court case, though it's too early to speculate about that outcome, Wolf said.

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