ALCOHOL LAW ADVISOR
ALCOHOL LAW ADVISOR
Regulatory and Distribution Law Updates for the Alcohol Industry
ALCOHOL LAW ADVISOR
Regulatory and Distribution Law Updates for the Alcohol Industry
Commerce Clause
Subscribe to Commerce Clause's Posts

Ohio Case Will Likely Determine Whether Other States Use 21st Amendment Enforcement Act

by | Jul 22, 2020 |

As was widely reported in the alcohol trade press, the state of Ohio filed suit against several online retail outlets a week ago after an investigation into direct-to-consumer shipments of wine and spirits into the state. The suit follows an investigation where employees of the Division of Liquor Control ordered wine and spirits online through retail outlets and received the alcohol at the Division’s headquarters. Ohio argues that the online retail outlets did not have a license to ship the alcohol directly to consumers in Ohio, and therefore violated Ohio law. The crux of the suit is that the only way to ship wine to consumers in the state of Ohio is by obtaining an “S Permit”.  Unfortunately for the online retail companies, an “S Permit” can only be obtained by wine manufacturers and importers who produce less than 250,000 gallons of wine per year. The lack of any other license essentially prevents the vast majority of manufacturers, wholesalers and online retail companies from shipping wine to consumers in the state of Ohio directly.

What makes this case special is it marks the first time the 21st Amendment Enforcement Act, passed in 2000 has been utilized by a state. The likely reason it hasn’t been utilized is that when going through Congress the Act was stripped of the ability for states to collect monetary damages and left them with only the ability to seek injunctive relief. That said, Ohio, as a control state for spirits, generates a massive amount of revenue through the sale of spirits and taxation of wine in the state. Online retailers and direct to consumer shipments puts that revenue in jeopardy. The case also hints that Ohio is protecting instate interests of wine retailers and wholesalers who stand to lose the most money with the expansion of direct to consumer shipments. Even though the state can’t seek monetary damages under the 21st Amendment Enforcement Act, this suit is on its face all about money as the state makes no argument regarding the need to protect the public health and safety of Ohio residents.

The interesting part will be if and how the online retailers companies defend their actions. The case seems to go against both the trend of loosening direct to consumer laws across the country (such as neighboring Kentucky’s recent expansion of direct to consumer rights) as well as successful retailer challenges to state laws that run afoul of the ”dormant” Commerce Clause of the U.S. Constitution. The online retailers could use this as an opportunity to test the recent Supreme Court’s holding in Tennessee Wine and Spirits Retailers Assn. v. Thomas reinforcing the “dormant” commerce clause. In the Tennessee Retailers case the Supreme Court held that the two-year residency law implemented by the state was not justified by the public health and safety measures raised and was unconstitutional under the Commerce Clause.  As a reminder the Commerce Clause limits states authorities to regulate economic activity in interstate commerce. Among other things, this has been [...]

Continue Reading



read more

Implications of the Supreme Court’s Tennessee Retailers Decision

by | Jul 8, 2019 | ,

As virtually everyone in the US alcohol beverage industry knows, last week the US Supreme Court handed down its opinion in Tennessee Wine and Spirits Retailers Assn. v. Thomas, S.Ct. No. 18-96 (June 26, 2019). Now that over a week has passed since the release of that decision, it’s time to reflect on what it means and what is coming next.  (more…)



read more

A New Supreme Court Case May Impact the Future of Spirits Direct Shipping

by | Dec 10, 2018 |

In late September 2018, the U.S. Supreme Court granted a petition for a writ of certiorari (i.e. the Court agreed to hear a case) brought before the Court by the Tennessee Wine and Spirits Retailers Association (Tennessee Retailers) in Tennessee Wine and Spirits Retailers Association v. Byrd. The petition requested that the Court review the lower court’s decision upholding a finding that Tennessee’s two-year residency requirement for retail license applicants is unconstitutional. Specifically, the question Tennessee Retailers posed to the Court is whether the 21st Amendment of the U.S. Constitution gives states that authority to, consistent with the so-called “dormant” Commerce Clause of the Constitution, regulate sales of alcohol beverages by imposing residency requirements on retail (or wholesale) license applicants.

In this article, Mar Sorini and Bethany Hatef discuss the legal background of the dormant Commerce Clause, as well as the Byrd case. Particularly, they examined the Sixth Circuit’s opinion in February 2018 which affirmed the district court decision that invalidated Tennessee’s residency requirements, held that “a three-tier system can still function” without the two-year durational residency restriction imposed by the state. This article examines the potential impacts of Byrd, and how the Supreme Court’s review will address the constitutional validity of the Tennessee law imposing residency requirements on retail alcohol beverage license applicants.

Access the full article.

Originally published in Artisan Spirit: Winter 2018.



read more

What’s New in US Constitutional Law Developments

by | Oct 9, 2018 | ,

During the International Wine Association’s 2018 Conference, Marc Sorini presented on the latest law developments, including the Commerce Clause and First Amendment.

The topic was made particularly timely by the Supreme Court’s September 27 decision to grant certiorari review of the Byrd v. Tennessee Wine and Spirits Retailers Association decision.

View the full presentation.



read more

Recent Retailer Direct Shipping Opinion Illustrates Stakes in Upcoming Supreme Court Review

by | Oct 1, 2018 | ,

The recent US District Court for the Eastern District of Michigan opinion strikes down a Michigan statue and authorizes out-of-state retailers to sell and ship wine directly to Michigan consumers. Lebamoff Enterprises v. Snyder, E.D. Mich. Case No. 17-10191 (Sept. 28, 2018). More fundamentally, the Lebamoff decision underscores the stakes in the upcoming (as of September 27) Supreme Court review of the Sixth Circuit’s decision in Byrd v. Tenn. Wine and Spirits Retailers Ass’n.

The Lebamoff case involves 2016 legislation that amended Michigan law to: (1) make it easier for in-state retailers to ship directly to consumers by employing third-party carriers and (2) prohibit completely the sale and shipment of alcohol beverages to Michigan consumers by out-of-state retailers. The plaintiffs include an Indiana retail chain, its owner and several Michigan wine consumers.

The Lebamoff opinion first recaps the familiar dormant Commerce Clause analysis that: (a) asks whether the challenged law discriminates against interstate commerce or favors in-state interests over out-of-state interests; and (b) examines the state’s justifications for the law to see if they advance a legitimate local purpose that reasonable alternatives cannot adequately advance. Not surprisingly, the district court had little trouble concluding that the challenged law—which facially discriminates between in-state and out-of-state retailers—favors in-state interests and discriminates against interstate commerce. (more…)



read more

Son of Granholm Inches Closer

by | Jul 2, 2018 | ,

Two recent developments reinforce my expectation that the Supreme Court will need to clarify the scope of its 2005 Granholm v. Heald decision within the next few years.

Granholm struck down state restrictions on the interstate sale and shipment of wine by wineries, where the state permitted in-state wineries to engage in such direct-to-consumer sales activities but withheld that privilege from out-of-state wineries. According to that decision, such facially-discriminatory laws are virtually per se unconstitutional under the so-called “dormant” Commerce Clause, and are not saved by the additional power that states have over alcohol sales under the 21st Amendment. The Granholm court also referred to the three-tier system as “unquestionably legitimate.”

In the years since Granholm, lower federal courts have wrestled with the question of whether or not the Commerce Clause’s non-discrimination principle is limited to state laws imposing different rules on in-state versus out-of-state producers and products. Decisions by several Circuit Courts of Appeal, including the US Court of Appeals for the Second Circuit (Arnold’s Wines, 2009) and the Eighth Circuit (Southern Wine, 2013), have concluded that only those state laws discriminating against out-of-state producers or products face the high level of scrutiny mandated by Granholm. Others, including the Fifth Circuit (Cooper II, 2016) and the Sixth Circuit (Byrd, 2018), have concluded that state laws regulating the wholesale- and retail-tiers remain subject to vigorous Commerce Clause scrutiny. Notably, however, the Fifth and Sixth Circuit opinions also suggest that the outcome of a challenge to a state law regulating the wholesale- or retail-tier may depend on the type of law challenged, and both involved residency requirements for licensees, not laws directly regulating the sale and shipment of alcohol. (more…)



read more

Five Issues That Impact Craft Brewers

by | May 31, 2018 | , , , ,

In an article published by The New Brewer, Marc Sorini discusses five issues most likely to have a meaningful impact on craft brewers in the coming years, including:

  1. The Craft Beverage Modernization and Tax Reform Act’s (CBMTRA) new tiered excise tax rate structure, its extending benefits to foreign producers, and its authorization for brewers to transfer beer in bond between breweries of different ownership.
  2. The Sixth Circuit’s published opinion in Byrd v. Tennessee Wine and Spirits Retailers Association, affirming a decision finding that the “durational-residency” requirements imposed by Tennessee law for alcohol beverage retail licensees are unconstitutional under the “dormant” Commerce Clause.
  3. The TTB’s creation of a new unit within its Trade Investigations Division to focus on trade practice enforcement.
  4. The opinion in Mission Beverage Co. v. Pabst Brewing Co. from the California Court of Appeals, which found that “an existing distributor’s receipt of the ‘fair market value of the affected distribution rights’ under [the California statute] does not necessarily make that distributor whole.”
  5. The US District Court for the Northern District of California’s decision in a putative class action alleging that the labeling and marketing of a successful California-based craft brewery was false and deceptive.

Access the full article.

Originally published in The New Brewer, May/June 2018.



read more

Durational-Residency Requirements for Alcohol Beverage Retail Licensees Held Unconstitutional

by | Mar 6, 2018 | ,

On February 21, 2018, the US Court of Appeals for the Sixth Circuit published its opinion in Byrd v. Tennessee Wine and Spirits Retailers Association, No. 17-5552. The decision, which includes a partial dissent, affirms a Middle District of Tennessee decision finding that the “durational-residency” (residency) requirements imposed by Tennessee law for alcohol beverage retail licensees are unconstitutional under the “dormant” Commerce Clause.

Tennessee law requires an applicant for a retail license to have been a resident of Tennessee for at least the two-year period immediately preceding the submission of the license application. For corporate license applicants, the two-year requirement applies to any officer, director or stockholder of the corporation. Moreover, to renew such a license the law requires Tennessee residency for at least ten consecutive years.

Two prospective retail applicants that did not meet the two-year residency requirement, notably including the Tennessee affiliate of Total Wine Spirits & Beer, sought licenses. Expecting litigation, the Tennessee Attorney General filed a declaratory judgement action in state court seeking to have the residency requirements declared constitutional. The action was removed to federal court, and the Middle District of Tennessee found the requirements unconstitutional.

(more…)



read more

Approaches to Spirits Direct Shipping

by | Jul 6, 2017 | , , ,

Direct-to-consumer (DTC) sales of alcohol beverages have been a hot topic in the alcohol industry for the last two decades. The wine direct-shipping landscape has changed greatly over the past 15 or so years, most dramatically by the US Supreme Court’s decision in Granholm v. Heald. Today nearly evert state—plus the District of Columbia—allows wineries to ship wine across state lines directly to in-state consumers. The same cannot be said for spirits.

There are, however, a few avenues distillers may consider to get their products delivered to consumers around the country. Further, an initiative is underway to pursue litigation to secure DTC rights for spirits. Although it is far too early to speculate about the outcome of any such litigation, the current effort suggests the potential for interstate distiller-to-consumer sales in the coming years. Of course, lingering ambivalence toward spirits (as opposed to wine) by the public, lawmakers, and alcohol regulators makes the prospect for any legal change uncertain.

Read the full article.

Originally published in Artisan Spirit, July 2017.



read more

BLOG EDITOR

Alva C. Mather

STAY CONNECTED

Subscribe

TOPICS

ARCHIVES

RankedInChambersUSA 2022