N.Y. direct shipping win

Wines & Vines, Jan, 2003

A string of legal moves may mean that the Supreme Court could be asked to rule on the issue of direct shipping of wine in as little as 18 months to two years. That would be faster than anyone thought possible a year ago.

The latest case was a ruling by a federal judge in Manhattan that a New York State law that prohibits out-of-state wineries from shipping wine directly to New York consumers while permitting New York wineries to make such shipment was unconstitutional.

On Dec. 10, Judge Richard Berman issued an injunction prohibiting New York from enforcing its current prohibition on interstate direct wine shipments to consumers in the state. The ruling is likely to be appealed by the state, and a stay is in force through the 30-day appeal window. The complete ruling is available at coalitionforfreetrade.org.

"From a market access perspective, this is the biggest victory in the Coalition for Free Trade's five-year campaign to level the playing field for all U.S. wineries," said Tracy Genesen, legal director of the coalition.

Earlier, courts in North Carolina, Virginia and Florida issued similar rulings, but there have been rulings that went the other way. It is this conflict in lower courts that may lead to fast action by the Supreme Court on the issue, according to those who are following the cases. The New York challenge was brought by a coalition of consumers and winemakers, who claimed they were deprived of their rights by the New York ban. The group was represented by lawyers from the Institute for Justice, a libertarian legal group in Washington, D.C.

At the heart of the argument is which amendment to the constitution should prevail: the sixth amendment which bans trade barriers between states, or the 21st amendment, which ended Prohibition and gave individual states the right to regulate alcohol.

The wine and spirits wholesale distributors, led by the Wine & Spirits Wholesalers of America, (WSWA) have come down hard on the side of the 21st amendment. They argue that states will lose excise taxes on wine (and spirits) if direct shipping over the Internet or from winery to consumer is allowed. That's the upfront argument. They also fear a loss of their income if wineries can bypass them to ship direct to consumers.

Distributors now control at least 90% of all wine and spirits shipments and see the challenge to the 21st amendment as a serious threat. The WSWA sends regular e-mail updates to the media and state legislators, arguing strongly against any concessions to direct shipping.

After the New York ruling, James Trezise, president of the New York Wine and Grape Foundation, told Frank Prial of The New York Times that the ruling "crystallizes the choices for the state government and the Legislature. Either there will be no direct shipping from any winery or there will be equal opportunity for wineries everywhere to ship into New York."

Trezise said that in the first case, New York state wineries would lose sales while under the second, the wineries stood to gain new markets, New York consumers would have a greater choice and the state would get more tax money.

Jeremy Benson, president of Benson Marketing Group in Napa, (bensonmarketing.com) is a specialist in Internet wine sales and has also been active in the fight to allow direct wine shipments. "The attorneys I talked to are optimistic about getting to the Supreme Court soon. Momentum is on our side."

Benson said that legal shipments can now be made to states that represent 40% of the U.S. wine market. If New York opens to direct shipping it would mean more than 50% of the market would be open to direct sales.

David Lucas, owner of Lucas Winery in Lodi, is one of the plaintiffs in the suit. He told the San Francisco Chronicle that he had been able to prove that his sales had been harmed by producing letters from potential New York customers who wanted to buy his wine. Lucas said that his business (3,000 cases a year) was too small to need a New York distributor. He has been warned that because he took part in the case, he's unlikely ever to find a distributor willing to work with him.