Courts Unplug the Wine Debate.Interstate trade in alcohol is soaked in controversy. Now the courts are getting involved. Law professor Alex Tanford and his friends enjoy fine wines. After reading the list of the top 100 wine values of the year in a magazine, they visited their local wine shop to buy some of the recommended vintages. But the store carried only three. And the biggest wine retailer in the state carried only five. So, as many consumers do today, they turned to the Internet where, Tanford says, "with the click of a button I can find cases of these wines for sale." When they tried to purchase them online, however, their order was denied. Why? Tanford lives in Indiana, a state that prohibits the direct shipment of wine to consumers from out-of-state wineries. So a couple years ago, they sued. Tanford and several other lawyers, on behalf of their wine-loving friends, filed a lawsuit in federal district court challenging the constitutionality of the Indiana law. The case also includes Russell Bridenbaugh, another vino buff who works as a wine critic. He says his inability to get rare wines affects his livelihood. Although the passage of the 21st Amendment gives control of alcoholic beverages
Policy of protecting domestic industries against foreign competition by means of tariffs, subsidies, import quotas, or other handicaps placed on imports. that is generally prohibited by the dormant Commerce Clause The "Dormant" Commerce Clause, also known as the "Negative" Commerce Clause, is a legal doctrine that courts in the United States have implied from the Commerce Clause of the United States Constitution. ." The law serves to protect instate in·state tr.v. in·stat·ed, in·stat·ing, in·states To establish in office; install. wineries who can sell directly to consumers, they argue, while the direct shipping prohibition imposed on out-of-state wineries interferes with interstate commerce interstate commerce In the U.S., any commercial transaction or traffic that crosses state boundaries or that involves more than one state. Government regulation of interstate commerce is founded on the commerce clause of the Constitution (Article I, section 8), which . STATES HOLD THE POWER The 21st Amendment, which repealed prohibition, gave states the authority to regulate the importation, distribution and sale of alcohol. Basically two types of regulatory schemes have developed: Thirty-two states license production, distribution and sales, 18 states themselves operate the wholesale, and, in many cases, retail outlets for the sale of alcohol. The license states have set up a hierarchical three-tier business licensing system. The state issues licenses to private producers or their agents, distributors and retailers. The state maintains control over this system through the approval of licenses, as well as the oversight of licensees' business practices. This has mainly benefited state governments in that it minimizes the amount of state resources needed to regulate industry practices, and it maximizes industry compliance. States have achieved efficient tax collection, prohibition against the sale of alcoholic beverages to teenagers and the assurance of an orderly marketplace. The system, whether in control or license jurisdictions, is applied in different ways. For example, 12 states allow consumers to order wine from wineries in other reciprocating states for direct shipment. The reciprocal agreement Reciprocal agreement is an agreement between two U.S. states to allow members of the Bar association from each state to practice in the other. Thus, lawyers who wish to practice in two states do not have to take the bar examination in both states. creates a two-way shipment right and applies only to states that enact similar legislation. Other states have enacted limited shipping and transporting for personal use exemptions or allow permits for limited shipments from out-of-state producers. No state allows unlimited direct shipment of alcohol to consumers or businesses from an out-of-state seller unless that seller is licensed by the state. THE CLAMOR FOR CHANGE A variety of factors is putting stress on the systems that regulate alcohol sales. As a result, many are asking for change. Internet access See how to access the Internet. to products, a proliferation proliferation /pro·lif·er·a·tion/ (pro-lif?er-a´shun) the reproduction or multiplication of similar forms, especially of cells.prolif´erativeprolif´erous pro·lif·er·a·tion n. of small wineries that produce very limited amounts of wine and more interest in wine has led to growth in direct-to-consumer alcoholic beverage alcoholic beverage Any fermented liquor, such as wine, beer, or distilled liquor, that contains ethyl alcohol, or ethanol, as an intoxicating agent. When an alcoholic beverage is ingested, the alcohol is rapidly absorbed in the stomach and intestines because it does not shipments. The small U.S. wineries have expanded direct marketing and shipments to consumers because they feel locked out of the national wholesale distribution system. For efficiency and economic reasons, beverage wholesalers limit the number of products that they handle and sell in any one market. The expansion of direct shipping has generated conflict among states, small producers, wholesalers, retailers and consumers. Paul Kronenberg, executive director of Family Winemakers of California, says that of the 950 licensed vintners in California, 900 fall in the "small winery win·er·y n. pl. win·er·ies An establishment at which wine is made. Noun 1. winery - distillery where wine is made wine maker " category. It is hard for them to compete in the national marketplace because their limited production makes it difficult to find wholesalers to carry their products. His organization became very concerned when in the 1990s states began passing restrictive direct-to-consumer shipping laws that limit the wineries' ability to make sales. They weren't big enough to have a voice in all the states where the legislatures were considering changes. Out of this climate came the Coalition for Free Trade, a California-based group organized to develop a legal strategy to confront restrictive laws. The coalition advocates interstate trade in wine, but acknowledges that each state has the right to place reasonable regulations on that trade and to assess taxes. Both groups have watched Professor Tanford's Indiana litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. closely and have filed briefs at the appellate level. On the other hand, the Wine and Spirits Wholesalers of America, a national trade association for the wholesale branch of the wine and spirits industry, sees the issue very differently. David Sloane, senior vice president of the group, says the 21st Amendment has "not outlived its utility-alcohol is a different kind of product and special care should be taken in regulating it." The wholesalers oppose changes that flatten flatten - To remove structural information, especially to filter something with an implicit tree structure into a simple sequence of leaves; also tends to imply mapping to flat ASCII. "This code flattens an expression with parentheses into an equivalent canonical form." the three-tier system A Three-tier system is any system that has three distinct levels.
DILEMMAS WITH DIRECT DELIVERY Around the country, the growth of direct shipping has caused concern in some states because of the problems that can arise. Direct shippers can: * Avoid state sales and excise taxes excise taxes, governmental levies on specific goods produced and consumed inside a country. They differ from tariffs, which usually apply only to foreign-made goods, and from sales taxes, which typically apply to all commodities other than those specifically exempted. . * Bypass the state-sanctioned three-tier systems of production, wholesaling and retail sales. * Ship beverages illegally to "dry" jurisdictions and minors. * Create an unfair business environment in which only in-state businesses must comply with state regulations. * Reduce states' powers to regulate alcoholic beverages within their borders. Concern also has been brewing in the U.S. Congress. The 21st Amendment Enforcement Act, a new enforcement tool for violations of direct shipping laws, became federal law on Jan. 26 this year. It allows state attorneys general access to federal court to seek injunctions against the unlicensed or illegal shipment of alcohol across state lines. Sloane says Internet sales are "virtually impossible to regulate." Tanford says wholesalers and retailers have taken this position because they have "a vested interest Vested Interest A financial or personal stake one entity has in an asset, security, or transaction. Notes: For example, if you have a mortgage, your bank has a vested interest on the sale of your house. See also: Right in preventing direct shipping because they will lose money. THE COURTS DISTILL dis·till v. 1. To subject a substance to distillation. 2. To separate a distillate by distillation. 3. To increase the concentration of, separate, or purify a substance by distillation. THE ISSUE How do the courts view this disagreement? The Indiana wine connoisseurs found a sympathetic ear in the trial court judge. In a decision issued Dec. 10, 1999, the judge said the law was unconstitutional and that the 21st Amendment does not give states the authority to interfere with interstate commerce. It didn't end there. The Indiana attorney general appealed the decision, and, as the case progressed, it gained attention. The Wine and Spirits Wholesalers of America filed a brief in support of the state. Numerous alcoholic beverage associations and organizations promoting traditional values Traditional values refer to those beliefs, moral codes, and mores that are passed down from generation to generation within a culture, subculture or community. Since the late 1970s in the U.S. joined with them. The National Alcohol Beverage Control Association The National Alcohol Beverage Control Association [NABCA] was established in 1937 as the nationwide organization representing the interests of alcoholic beverage control states or monopoly sale states in the United States. and the National Conference of State Liquor administrators, which together represent alcohol regulators in all 50 states, also argued in favor of the law. Support for the connoisseurs came from the Coalition for Free Trade and the Family Winemakers of California. The 7th Circuit Court of Appeals disagreed with the judgement of the trial court and reversed it last September. The court said the law merely requires out-of-state sellers without permits to channel their sales through Indiana permit-holders, enabling the state to collect its excise tax Excise Tax 1. An indirect tax charged on the sale of a particular good. 2. A penalty tax applied to ineligible transactions in retirement accounts. This penalty is assessed by and paid to the IRS. Notes: 1. equally from in-state and out-of-state sellers. That, the court said, is consistent with the 21st Amendment, which prohibits the transportation or importation of intoxicating in·tox·i·cate v. in·tox·i·cat·ed, in·tox·i·cat·ing, in·tox·i·cates v.tr. 1. To stupefy or excite by the action of a chemical substance such as alcohol. 2. liquors into a state if its laws prohibit it. James Goldberg, counsel to the National Alcohol Beverage Control Association, says the ruling is "on target legally" and reflects Congress' explicit delegation to the state of authority to regulate this small segment of interstate commerce. Similar lawsuits have now been filed in Florida, Michigan, North Carolina North Carolina, state in the SE United States. It is bordered by the Atlantic Ocean (E), South Carolina and Georgia (S), Tennessee (W), and Virginia (N). Facts and Figures Area, 52,586 sq mi (136,198 sq km). Pop. , New York, Texas New York is a hamlet in Henderson County, Texas, USA, about 11 miles east of Athens. Geography New York lies at the intersection of FM 804 and FM 607 in a stereotypically flat portion of East Texas, surrounded mostly by farm land. and Virginia. These cases all challenge the constitutionality of the state laws that prohibit direct shipping from out-of-state wineries. Again the power of the 21st Amendment in contrast to the Commerce Clause has been placed at issue. The lawyers from Indiana are involved in the Michigan, North Carolina and Florida cases. Goldberg sees Texas, New York Texas is a hamlet in Oswego County, New York, USA, near the southeastern corner of Lake Ontario. It is officially part of the town of Mexico. Geography Texas lies on Little Salmon Creek, about one-half mile above the mouth of that stream on Lake Ontario, on an east-west and Florida as the "big battlegrounds" because the markets there are so large. These cases have not progressed as far as the Indiana lawsuit. In the Texas litigation, the federal district judge issued an opinion in February 2000 that struck down the law, but no final judgment has been entered. A motion for reconsideration of the decision has been filed and it all appears to be on hold at this point. Wineries are joining in the lawsuits and claim that their businesses are hurt by their inability to ship to consumers in other states. The courtroom dramas are spilling over into legislatures. In Texas, for example, Senator Frank Madla introduced a bill this year to allow direct shipments with a special permit. He says the litigation in Texas may have come out of a failed attempt at such legislation in the 1999 session. He wants to address the issue legislatively rather than depend on the courts. A big reason for his interest in changing the law is the fact that Texas vineyards are hurting because they can't get into any distribution system, and they don't have a reciprocal relationship with other states to ship wine. They can't even ship to the many tourists who come and visit their wineries. "Texas could become a bigger contender in the wine industry," he says. The status of the litigation has come up in testimony about the bill. So, is the Indiana case over? Tanford says they are now taking it to the U.S. Supreme Court. He is not convinced they will agree to hear the case given that six other states are involved in litigation. He predicts the Court will wait for the next cluster of cases because the "lawyers in the second and third cases will spend time thinking about why the first opinion is wrong and come up with new arguments to further their cause." By waiting, the high court will end up with better research and arguments. Kronenberg wants to see the cases get to the Supreme Court so they can have a ruling that clarifies the issues. And he believes that the Court will "deal fairly with the wineries." The cases in the other states are probably years away from the appellate level. Even then, the Supreme Court might not choose to hear the cases at all. As David Sloane says, "It will be a long struggle." Jan Goehring tracks wine industry issues for NCSL NCSL National Conference of State Legislatures NCSL National College for School Leadership NCSL National Conference of Standards Laboratories NCSL National Council of State Legislators NCSL National Computer Systems Laboratory (NIST) . WHO ALLOWS WHAT IN INTERSTATE WINE SHIPMENTS Allow Shipments from Reciprocal States California Colorado Idaho Illinois Iowa Minnesota Missouri New Mexico New Mexico, state in the SW United States. At its northwestern corner are the so-called Four Corners, where Colorado, New Mexico, Arizona, and Utah meet at right angles; New Mexico is also bordered by Oklahoma (NE), Texas (E, S), and Mexico (S). Oregon Washington Wisconsin West Virginia West Virginia, E central state of the United States. It is bordered by Pennsylvania and Maryland (N), Virginia (E and S), and Kentucky and, across the Ohio R., Ohio (W). Facts and Figures Area, 24,181 sq mi (62,629 sq km). Pop. Direct Shipment Considered a Felony Florida Georgia [*] Kentucky Maryland Tennessee Shipment Without a Permit is a Felony Indiana North Carolina Allow Limited Direct Shipping Georgia [*] Louisiana Nebraska Nevada New Hampshire New Hampshire, one of the New England states of the NE United States. It is bordered by Massachusetts (S), Vermont, with the Connecticut R. forming the boundary (W), the Canadian province of Quebec (NW), and Maine and a short strip of the Atlantic Ocean (E). North Dakota North Dakota, state in the N central United States. It is bordered by Minnesota, across the Red River of the North (E), South Dakota (S), Montana (W), and the Canadian provinces of Saskatchewan and Manitoba (N). Prohibit Direct Shipments via Common Carrier Alabama Arizona Arkansas Delaware Hawaii Kansas Maine Massachusetts Michigan Mississippi Montana New Jersey New York New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of Ohio Oklahoma Pennsylvania South Carolina South Carolina, state of the SE United States. It is bordered by North Carolina (N), the Atlantic Ocean (SE), and Georgia (SW). Facts and Figures Area, 31,055 sq mi (80,432 sq km). Pop. (2000) 4,012,012, a 15. South Dakota South Dakota (dəkō`tə), state in the N central United States. It is bordered by North Dakota (N), Minnesota and Iowa (E), Nebraska (S), and Wyoming and Montana (W). Texas Utah Vermont Virginia Wyoming Attorneys General Interpretation or Regulatory Allowance of Limited Shipments Alaska Connecticut Rhode Island Rhode Island, island, United States Rhode Island, island, 15 mi (24 km) long and 5 mi (8 km) wide, S R.I., at the entrance to Narragansett Bay. It is the largest island in the state, with steep cliffs and excellent beaches. Washington D.C. Note: (*.) Felony does not apply if in compliance with permitting process. Source: Wine Institute LAWMAKERS SHIFT GEARS ON WINE RESTRICTIONS In the last decade, the legislative trend seemed to flow toward more restrictions on direct shipments of alcoholic beverages, including the imposition of felony sanctions in some states. But now legislatures seem to be shifting gears in the other direction. Last year, Georgia, which considers direct shipping of wine a felony, eased up on its restrictions. A "special order" shipping license is now available to wineries not represented by a wholesaler in the state. Holders of the license may ship up to a total of 50 cases a year into the state, not more than five cases to any one individual. This year, several states are considering opening the doors to consumers who want to buy wine over the Internet or ship it home from winery visits. Wyoming enacted a law that allows limited direct-to-consumer shipments of alcoholic beverages for out-of-state shippers. |
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