CFT Announcement: Federal Magistrate Finds That Virginia's Ban on Interstate Wine Shipments is Discriminatory and Unconstitutional.

Business Editors/Legal & Wine Writers

SACRAMENTO, Calif.--(BUSINESS WIRE)--July 31, 2001

United States District Magistrate Judge Dennis W. Dohnal, in a 61 page recommendation to United States District Judge Richard L. Williams issued on July 27, 2001, has ruled that Virginia's decades-old ban on direct marketing of wine and beer from out-of-state wineries and breweries to Virginia consumers as well as statutes requiring Virginia's state-owned liquor stores to sell only Virginia farm winery-produced wine is unconstitutional under the dormant Commerce Clause of the United States Constitution.

The suit was filed in November, 1999 on behalf of consumers Clint Bolick and Robin Heatwole, both Virginia residents, and was joined by three wineries: Dry Comal Creek Winery of Texas, Oregon's Hood River Vineyards and Miura Vineyards in California.

In his well-reasoned comprehensive recommendation, which addressed issues and discusses arguments not previously considered by the federal courts in Indiana and Florida in upholding similar bans in those states, Judge Dohnal ruled that Virginia statutes that "specifically authorize the states to erect absolute barriers to other states to trade in alcohol" are unconstitutional. He thus found that Virginia's statutory scheme was based on "economic protectionism" designed to protect the interests of in-state wineries and alcoholic beverage sellers at the expense of out-of-state wineries. In doing so, Judge Dohnal declined to follow the rulings of the other federal courts because they were "inconsistent with the law as developed by the Supreme Court" and because he was required to follow the controlling law of the Fourth Circuit Court of Appeal (in which Virginia is located) and of the Supreme Court. "We are quite pleased that the constitutional rights of out-of-state wineries to directly sell wine to Virginia residents and of Virginia residents to receive it have finally been vindicated and protected," stated Matthew S. Hale, a Williamsburg, Virginia attorney representing the plaintiffs. His co-counsel, Daniel R. Ortiz, the John Allan Love Professor of Law, and Joseph C. Carter, Jr. Research Professor of Law at the University of Virginia Law School in Charlottesville, Virginia expressed a similar view: "While the fight to protect the constitutional rights of all Americans to engage in the interstate sale and purchase of wine continues unabated, I am heartened that the Federal Courts have finally recognized that States may not close their borders to direct sales of wine by out-of-state wineries under the dormant Commerce Clause and the Twenty-first Amendment of the United States Constitution."

In ruling on the law, Judge Dohnal agreed with plaintiffs and amicus curiae Coalition for Free Trade that the Twenty-first Amendment of the Constitution and other federal laws do not give the states unlimited authority over the importation of alcohol. Finding instead that the Twenty-first Amendment and federal law merely allow a "dry" state to remain "dry" by forbidding the importation of alcoholic beverages, Judge Dohnal ruled that "if a state, like Virginia, decided not to remain dry, it cannot `hide behind' legislative history to protect any discriminatory scheme." As Judge Dohnal stated: "Given the law and the stated policy, Virginia cannot claim with a `straight face' that its ban on direct shipment is for any reason than economic protectionism."

He also found that while Virginia did have a legitimate interest in temperance, collection of tax revenues from the sale of alcoholic beverages, and keeping wine out of the hands of minors, those "concerns are overshadowed by economic considerations" and that the State and Wine Wholesalers had failed to meet their burden of establishing "there exists no other means of promoting temperance, preventing diversion, and addressing the other legitimate public safety and health objectives involved" other than the complete ban on direct marketing by out of state wineries and breweries to Virginia residents.

The next step in the process is that the parties may appeal Magistrate Judge Dohnal's decision to Federal District Judge Williams by the filing of objections by August 29, 2001.