Panelists at NBWA/Brewers Legislative conference discuss three-tier threats

Modern Brewery Age, April 25, 2005

The recent NBWA/Brewers Legislative Conference in Washington, D.C. included a panel discussion on current and future threats to the integrity of the three-tier system. The panel discussion was moderated by Philip Terry , president and CEo of the Monarch Beverage Co. and chair of NBWA legal review committee. Panelists included Steve Diamond, NBWA counsel and professor of law at the University of Miami, Mike Madigan, president of the Minnesota Beer Wholesalers Association, Craig Purser, vice president of the Natinal Beer Wholesalers Association (NBWA) Victoria Horton, president of the Califrnia Beer and Beverage Distributors and president of the Wholesale Beer Executives Association and Phil Wayt executive director of the Washington Beer and Wine Wholesalers Association. This transcript represents excerpts of the panel discussion. Unfortunately, some of Mr. Diamond's comments did not reproduce on tape due to microphone problems.

Moderator Philip Terry: Today, we're going to have a panel discussion on promoting the value of the three tier system, and how we can disarm the critics. What are we faced with? We are facing challenges to the three-tier structure from a number of different sources. The one we've been hearing a lot about, is the Supreme Court challenge now pending, regarding direct shipping. We've also had significant challenges from retailers, challenging the three tier sector. Now we're also have state challenges inside the legislatures in our states. Who is making these challenges? The direct shipping litigation is primarily being brought by manufacturers. In the case before the Supreme Court, it is wine manufacturers. But manufacturers generically are challenging the system, hoping to allow a change to allow them to ship direct to consumers. The other challenges are coming from retailers. We've all heard of the litigation brought in the state of Washington by Costco. They are attempting to change the system so that they can deal directly with the manufacturer. Then we have market critics. You can pick up the New York Times or Wall Street Journal, and read the criticism of the system, and the wholesalers role in that system. All these challengers have economic interests in the changes they support.

What they are attempting to accomplish? They seek to weaken the 21st Amendment. The 21st Amendment is the Constitutional amendment that ensures our role in the distribution of alcohol. They want to make that amendment ineffective, and eliminate protections for the wholesaler and the distribution system. They want to limit the state's ability to regulate. They want to take the state out of the business of protecting public from the unwise distribution of alcohol. They want to destroy the three-tier system. They want to make the distribution of alcohol just like the distribution of potato chips and cheese.

How? They are making commerce clause challenges, pitting the commerce clause in the Constitution, which provides for free commerce between the states, against the 21st Amendment.

Three-tier opponents are making antitrust challenges. They are suing states, alleging that the states are allowing wholesalers to conspire among themselves to fix prices, fix territories and allocate markets.

They are making state legislative challenges. This is new. This is an area where they have generally recognized the strength of the industry, and have avoided challenging us, but that has begun. In Nevada, the opponents of the three-tier system are asking state regulators to dismantle the system.

And we having challenges in the court of public opinion, in the editorial pages of the New York Times and Wall Street Journal.

So, what do we do? When you want to address a problem, you get together the best team you can, the best and the brightest, and help solve the problem. That is what we have done today.

First, Mike, you've been one of the leading defenders of the three-tier system. In the case before the Supreme Court, what do you think will be decided, and when will it be?

Mike Madigan: The thing to keep in mind is that the decision will likely be a narrow and somewhat ambiguous. The language of the opinion must be agreed to by a plurality of the justice. It is easier for justices to reach agreement on narrow grounds than broad grounds.

It is also often necessary for the author of an opinion to soften the language of certain legal principles or soften the statement of the law to get other justices to agree to that opinion.

That could result in ambiguity. And finally, the opinion will be narrowly drafted with respect to the underlying facts of the direct shipping case. When we do get a decision, it may not be readily apparent how that holding on those facts applies to other statutes.

Having said that, there are four broad possible outcomes.

The first would be a decision similar to the second circuit in New York. In that case, the court upheld the right of New York to differentiate between in-state and out-of-state suppliers under the 21st Amendment. The issue is whether a state may impose a direct shipping prohibition on an out-of-state winery, but exempt in-state wineries from that prohibition.