BAY AREA WINERIES CELEBRATE AS SUPREME COURT LIFTS BAN ON OUT-OF-STATE SHIPMENTS
By Jim Puzzanghera
Mercury News Washington Bureau
WASHINGTON – California vintners toasted a U.S. Supreme Court decision Monday that went down as smooth as a fine cabernet: States must allow consumers to buy wine directly from out-of-state wineries if they allow such sales from in-state wineries.
The 5-4 decision in a hard-fought case that pitted the wine industry against the powerful alcohol beverage wholesalers and retailers could be a boon to California’s $15 billion-a-year wine industry. It especially could benefit small local wineries from Santa Cruz to Napa, where out-of-state visitors make up a large proportion of potential clients.
“Please raise your glasses,” Robert Koch, head of the Wine Institute, the California industry’s trade group, told the 80 people gathered for a luncheon at a Washington hotel Monday kicking off their annual lobbying trip. “I would like to toast the United States Supreme Court.”
The court’s decision does not immediately open access to consumers in the 23 states that still prohibit direct shipment of wine — ordered on the Internet, over the phone or while visiting wine-tasting rooms. But it specifically prohibits laws in eight of those states — Connecticut, Florida, Indiana, Massachusetts, Michigan, New York, Ohio and Vermont — that treat out-of-state wineries differently from in-state ones.
Legislators in those states now will have to decide whether to allow their residents to receive direct shipments from any winery in the country or shut them off from all wineries, even the ones in their state. Fifteen states now do that.
The current laws that treat out-of-state wineries differently are discriminatory, said Justice Anthony Kennedy, writing for the court’s majority in a case that specifically challenged New York and Michigan laws. Kennedy was joined by fellow justices Antonin Scalia, David Souter, Ruth Bader Ginsburg and Stephen Breyer.
“If a state chooses to allow direct shipment of wine,” Kennedy wrote, “it must do so on evenhanded terms.”
Gloria Taylor, owner of Retz-laff Vineyards in Livermore, was among those hoisting a glass of California wine in Washington on Monday. Her small winery ships about 3 percent of its wine out of state, a figure she hopes will grow after Monday’s court ruling.
“We have people all over the country that call and want to order our wine, and it’s a sad thing to have to tell them we can’t ship to them,” she said. “It sort of levels the playing field for us.”
Bill Garrod, owner of Cooper-Garrod, a small Saratoga winery, says half his visitors are from out of state. He expects his Internet sales to at least double, to about 5 percent to 10 percent of total sales.
But alcoholic beverage wholesalers and retailers said Monday they were not giving up their fight against direct wine shipments, which undercut their business.
The court decision upheld the rights of states to regulate alcohol sales and the Wine & Spirits Wholesalers of America will urge Michigan, New York and other states to simply prohibit all direct shipment of wine to consumers to avoid discriminatory treatment, said Karen Gravois Elliott, a spokeswoman for the group.
Nida Samona, chair of the Michigan Liquor Control Commission, told reporters in a conference call Monday that she will urge her state legislature to do exactly that. A spokeswoman for Michigan Gov. Jennifer Granholm said she also supports stopping all direct wine sales. New York officials did not comment on the decision.
Michigan had argued it had more power over in-state wineries to physically check if they were selling to minors over the Internet and to shut them down if they were.
“We’re not telling people they can’t purchase alcohol. . . . we’re just saying you have to go through an agency and get regulated and have a license to do that,” Samona said. “That way, it gives us some power control and authority.”
But in the court’s majority decision, Kennedy said the states provided “little evidence for their claim that purchasing wine over the Internet by minors is a problem.”
Although the 21st Amendment to the Constitution, which repealed Prohibition in 1933, gives states “broad power” to regulate alcohol sales, the so-called “commerce clause” in the main body of the Constitution prohibits states from discriminating against products from out of state, Kennedy wrote.
Justice Clarence Thomas was among the dissenters, arguing that earlier laws and the 21st Amendment clearly established the rights of states to prohibit direct shipments of wine from out of state. The other dissenters were Chief Justice William Rehnquist, Sandra Day O’Connor and John Paul Stevens.
George Garrick, chief executive of Wine.com, an online wine retailer, said direct wine sales account for less than 1 percent of business. The biggest wineries, such as Robert Mondavi, already have distribution networks set up in most states to facilitate sales legally in the states where wine sales are legal. The real impact, he said, will be at the small wineries that must use mail shipments to get their wines into other states.
Many of Santa Clara County’s wineries fit that description, including Cooper-Garrod.
But even more established wineries will benefit, says Paul Draper, winemaker and chief executive of the respected Ridge Vineyards in Cupertino. He said the ruling would allow Ridge to ship its limited but well-known premium estate wine, Montebello, for early tasting to customers at a 40 percent savings.
Ridge is established enough to have set up distributors in most states where shipping is possible. But distributors and retailers haven’t allowed it to set its own terms.
“It’s been a major injustice to limit the consumer in this way,” Draper said. “This is incredible news,” he said of the ruling.