HB 6644 was introduced in response to a recent court decision in Michigan that, once again, found the state’s wine shipping laws out of compliance with the U.S. Constitution. Michigan improperly allowed its own wine merchants to ship wine to Michigan residents, but barred out of state retailers from doing the same. The State has appealed the case to the 6th Circuit Court of Appeals, but apparently has realized they have little chance of winning. So, instead of doing the proper thing for the people of Michigan and opening the state to will-regulated direct sales by out of state retailers, the Liquor Control Commission took the suggestion of wholesalers and went to work “leveling down” by barring its own wine retailers from shipping any wine.

The problem is that their explanations for why this is necessary have no basis in fact”

“if hundreds of thousands of unregulated out-of-state retailers are permitted to ship beer and wine to Michigan residents, there’s a likelihood that alcohol will be delivered to underage customers.”
Ken Wozniak, Director of Executive Services, Michigan Liquor control commission.

Mr. Wozniak is talking off the top of his head.

-Had he looked at other states that actually issue permits to out of state retailers and wineries to ship wine into a state he would have found that no more than 20% of all permits issued go to retailers, the rest go to wineries.

- Had Mr. Wozniak done a little research he would have found that no alcohol regulatory official in America and no law enforcement official in America has ever state they have a problems with underage customers obtaining alcohol from via direct shipment.

Then there is this:

” the state eventually could lose hundreds of millions of dollars in revenue that goes to school aid and other purposes. “
Ken Wozniak, Director of Executive Services, Michigan Liquor control commission.

Had Mr. Wozniak done his homework instead of passing off the wholesaler-provided talking points he would have known that in every state that begins issuing permits to out-of-state retailers to ship wine into the state, tax revenues in those states GO UP afterwards.

When businesses’ rights are taken away and when consumers’ rights to access the market are stripped, one would hope that all this is done on the basis of sound information. Not the case in Michigan.

Will Michigan officials actually look into these issues? Will the sponsors of HB 6644 ask the Liquor Control Commission to explain their misunderstandings?

Recently the Michigan Attorney General announced they would appeal the Michigan Federal District Court ruling in the case of Siesta Village Market v. Granholm. This was the case in which Judge Donna Page Hood declared that Michigan’s unequal treatment of in-state and out-of-state wine merchants where shipping wine directly to Michigan consumers is concerned violated the commerce clause of the U.S. Constitution. Why? Because the state could give the court no compelling reason why its blatant discrimination against out-of-state business was the only way to protect state interests. The judge noted that the Supreme Court of the United States had already rejected the reasons the State of Michigan had put forth for defending their discriminatory and anti-consumer regulations.

As was pointed out yesterday in a well argued announcement, one very simple, productive and pro-consumer way of dealing with the unconstitutional nature of the Michigan laws concerning out-of-state retailer shipping into Michigan would be to simply create licenses that out-of-state retailers could obtain from the state that required them to file reports with the state on what was shipped to consumers, to assure a signature of an adult was obtained at the point of delivery, to remit sales taxes to the state and to submit themselves to Michigan legal jurisdiction. Basically, the very same conditions under which out-of-state wineries are able to ship to Michigan residents.

The upside of this approach is obvious. Consumer demand is met, consumer rights are protected. the unconstitutional nature of the Michigan law is fixed and the state raises desperately needed tax revenue from a source quite willing to pay the taxes. But that won’t happen. Why?

According to the report in the Traverse City Record-Eagle, “Ken Wozniak, director of executive services for the Michigan Liquor Control Commission, said the state appealed because the ruling ‘undermines the LCC’s licensing system for retailers.

“We don’t know who these people are or what they had to go through to get licenses in other states,’ Wozniak said.”

I have a simple suggestion for Mr. Wosniak:…..ASK!

That’s right, Mr. Wozniak. Reach out to your peers at other state alcohol agencies and ask them what a businessperson must do to obtain a retail liquor license in those other states. One presumes that Michigan has a modicum of requirements that allows a person to obtain a liquor retailers license in that state. Wouldn’t it be both instructive and less expensive for the people of Michigan to have the Michigan Liquor Control Commission simply spend a day looking at the websites of other state liquor control commissions or making calls to ask questions or penning a letter requesting information about what a retail license holder must do to obtain that license in other states, rather than actually spending hundreds of thousands of Michigan tax payers dollars litigating an appeal they know they are likely to lose?

The fact of the matter is, the ruling that the Mr. Wozniak believes “undermines the LCC licensing system for retailers” does nothing of the sort. What it does do is undermine a system that is easily altered in a way that would no longer punish consumers, drain the state of tax revenue, reduce consumer choice and all for the sake of protecting a regulatory system that for all intents and purposes is primarily responsible for enriching a small group of alcohol distributors and wholesalers who might not make a dollar or two on a wine shipped to a consumer from an out-of-state retailer.

It’s unlikely that the Michigan Attorney General’s office will actually do the sensible thing and start asking around to see if out-of-state retailer wine shipments are feasible; to see if other state’s standards for licensing retailers meet Michigan’s criteria. Michigan Attorney General Mike Cox was the man who, after the Granholm v. Heald Supreme Court decision in 2005, actually suggested, along with Nida Samona—the head of the Michigan Liquor Control Commission, that instead of passing a law allowing out of state wineries to ship into Michigan that instead the rights of Michigan wineries to ship wine to Michigan residents be revoked. That’s right. Their approach was to do what they could to destroy a growing wine industry in Michigan and rip consumers of the most basic right. Happily, they failed in this attempt.

And now it appears it will take hundreds of thousands of dollars of Michigan Tax Payers funds, the time and effort of Michigan staff attorneys and likely many months all to find out that they have again failed in their attempt to continue to offend Michigan tax payers and protect Michigan’s elected officials’ main source of campaign contributions: The Michigan wine and beer wholesalers.

 To address this difference, ShipCompliant, the wine shipping compliance company, will be holding a VIRTUAL SEMINAR FOR WINE RETAILERS on October 23rd.

What this means is you will not have to book an airline flight, hotel and car rental in order to attend. In fact, you can attend from the comfort of your easy chair as long as you have your computer in front of you and a phone line.

In addition to SWRA participating and presenting on the issue of “The Regulatory Environment” for retail wine shippers,  Jason Eckenroth, Jeff Carroll and Jim Agger of ShipCompliant will walk participants through the various aspects of compliance with state rules and regulations for wine retailers.

SWRA HIGH RECOMMENDS that any retailer currently shipping wine or considering entering the wine shipping channel attend this important conference.

To participate CLICK HERE TO SIGN UP.

Specialty Wine Retailers has issued a press release on the matter that can be found HERE.

Wine.com announced it will now begin shipping into Michigan in THIS press release.

Corbin Houchins covered the ruling for ShipCompliant in THIS blog post.

David Eggert of the Associated Press covered the ruling HERE

MichWine, the Consumer Michigan website, covered the story HERE

Joel Goldberg blogged about the important decision in THIS post

Wine & Spirits Daily covered the wine for consumers in THIS story.

Fermentation: The Daily Wine Blog had SOMETHING to say on the ruling.

Most folks are wondering if Michigan’s very active alcohol wholesalers will continue there anti-consumer march through the courts with an appeal or if the state of Michigan will take on consumers with the filing of an appeal. Frankly, the best thing Michigan could do for its consumers and its coffers would be to fashion rules that require out-of-state retailers to obtain a permit to ship into Michigan and require them to remit sales taxes, submit themselves to Michigan’s legal jurisdiction, require regular reporting and, in doing so, free up Michigan’s consumers to finally have access to the real American wine market.

Of course, this kind of ruling should sound familiar. It is essentially the same decision that the Supreme Court of the United States rendered in May 2005 when it ruled in Granholm v. Heald that the 21st Amendment does not give the state “the authority to pass non-uniform laws in order to discriminate against out-of-state goods.”

And this is exactly what the Michigan law did.

But Michigan is not alone. Among the other states that have similarly discriminatory and unconstitutional laws in place we find California, Washington, Texas, Illinois, New York and New Jersey, just to name a few.

This is the second time this year that a Federal District Court has leveled a stinging rebuke to states that ignore the desires and needs of consumers by instituting laws that discriminate against inter-state commerce. Both in his present case as well as the Texas lawsuit ruled on earlier this year, the courts leaned on the Granholm decision for authority.

It’s unlikely that either of these decisions will convince many of those in the wine community and regulatory community that the principles of Granholm do indeed apply to retailers just as they apply to wineries. Since the Granholm decision came down in 2005 a very cynical, self serving, anti-consumer attitude has infect those that claim that Granholm was only about wineries. This akin to saying that Brown v. Board of Education was only about the rights of little African-American girls to not be discriminated against in school attendance, but didn’t apply to little Hispanic girls. It’s faulty reasoning that can’t be defended.

It should also be noted that Professor Alex Tanford of the University of Indiana School of Law, the lawyer who brought this case to Michigan, should be commended for his outstanding work here on behalf of consumers, retailers and U.S. Constitution. His work led to a straightforward decision by Judge Hood.

What comes next is likely to be an appeal by the State of Michigan as well as the Michigan Wholesalers who intervened in this case. They are likely to ask for a stay of the ruling that requires the State of Michigan from enforcing laws against purchase and shipping of wine from out-of-state retailers to Michiganers. It’s unknown if the stay would be granted. Professor Tanford is sure to argue strenuously against such a blatantly anti-consumer move.

Specialty Wine Retailers Association applauds this latest decision. We continue to work to educate legislators, consumers, courts and the media about the rash of anti-consumer and anti-Free Trade laws that exist across the country and serve to benefit a small clique of very powerful economic interests who use their privileged place within the alcohol distribution system to protect themselves from competition and bar consumers from accessing the full measure of wines in the American marketplace.

This November, Oklahoma residents will, again, vote on the issue of winery “self distribution”. “Self Distribution” refers to when a winery sells directly to a retailer or restaurant at a higher price than if they sold their wine to a distributor first, who would then sell it to the restaurant or retailer. When the winery sells direct to the retailer, the cost of the wine to the consumer is either the same as what it would be if the wholesaler sold it or potentially less.

For small wineries in particular (and that’s all Oklahoma has) self distribution is very important if only because it places the destiny of their business in their own hands, rather in the hands of distributors who may or may not distribute their brand and, if they choose to, may or may not actually sell it.

In 2000, OK voters agreed by a 2 to 1 margin to allow OK wineries to self distribute. Now, as you might imagine this didn’t sit well with OK wholesalers. Though the monetary loss they would suffer as a result of OK wineries not using them would be minuscule at best, it’s the principle of the matter: Free markets in wine just don’t sit well with wholesalers who have completely controlled wine distribution in OK for decades and liked it just the way it was.

So, upon passage of the self distribution law the OK distributors filed suit. Now get this:

They argued that the law DISCRIMINATED against out-of-state wineries that were not also allowed to self distribute into the state. And it was true. The law did discriminate against out-of-state wineries. They were not allowed, as OK wineries were, to sell direct to retailers and restaurants and bypass the wholesalers.

Before you start feeling all warm and fuzzy about OK distributors who appear to just be looking out for wineries, you need to keep in mind that this lawsuit was brought not to force the state to allow out of state wineries to self distribute, but rather to kill the new law altogether, making sure that OK wineries would be stripped of the right voters had just given them and would be forced, once again, to live under the thumb of distributors.

The irony of course is that distributors don’t care about fairness, the commerce clause or out-of-state wineries being able to access a freer market. So, give them points for creative duplicity.

Well, the voters of OK get vote again in November on the issue of self distribution for wineries. But if you look at this new potential law closely, I promise you’ll end up at the chiropractors office.

The new law would allow both in-state and out-of-state wineries making less than 4,200 cases of wine per year to self distribute to retailers and restaurants in OK. GREAT!!

However, the law says that they may only do so with vehicles that they own themselves. They may not use any other types of carriers.

In addition, the bill says that if any part of this law is deemed unconstitutional, the rest of the bill will be invalidated and wineries may no longer self distribute.

This potential new law is so clearly discriminatory against out of state wineries, and on a number of levels at that, that if challenged it should most certainly be invalidated by the courts.

So…Wait for it…..Do you think the OK distributors will challenged the law once the voters approve it?…And they will approve it!

Here’s the problem. The part of the law that requires wineries use their own vehicles to get wines to retailers is impractical for out-of-state wineries at best and, therefore, discriminatory at worst. When challenged, the state will have to argue that there is no less discriminatory way for Oklahoma to regulate the sale of wine in the state and no less discriminatory way for them to collect taxes on the wine sold. They won’t be able to show this. And the law will be invalidated.

Add to this the fact that the 4,200 case limit on those that are allowed to self distribute under the law and you have another reason to challenged the law since the vast majority of OK wineries fall under this limit. A similar limitation is being challenged in MA.

But here’s the real kicker. If anyone doubts that the requirement that wineries must use their own trucks to to deliver their wine to retailers and restaurants is not in place for purely discriminatory reason, all they have to do is read the following:

“Brad Naifeh of Central Liquor cautioned lawmakers against the bill. Some large winemakers from other states, such as California’s E&J Gallo, sell wines under hundreds of labels that produce less than 5,000 gallons per year, said Naifeh, and could use the proposed law to flood the market in Oklahoma without using a wholesaler.

Morgan said the bill requires both in-state and out-of-state wineries who sell directly to retailers in Oklahoma to transport their wines in vehicles owned by the winery, and requires such deliveries to be transferred directly from the winery to the retailer. Such vehicles must obtain the necessary licensure and permits from the Oklahoma Alcoholic Beverage Laws Enforcement agency. Morgan questioned if it would be cost-effective for an out- of-state winery to drive a few thousand gallons of wine all the way to Oklahoma.”

Morgan is Rep. Danny Morgan, the Oklahoma State Representative who originally introduced the bill that will be considered by voters in November. Rep. Morgan comes straight out here in the article from the  Oklahoma City Journal Record and says that the bill will discourage out-of-state wineries from self distributing. The bill is clearly written specifically to deter out-of-state wineries from self distribution, even though on its face it allows it. If challenged, it’s going down…and everyone knows this.

Oklahoma wineries are generally supporting this new law and recommending its passage. And why shouldn’t they? It gives them the most basic right any producer of a product should have: the ability to control the sale and distribution of their own product. But they should know that they are heading for a surreal situation where once again the OK distributors end up stripping this basic right away from wineries on the premise that it is discriminatory against the very out-of-state wineries that distributors will do whatever it takes to discriminate against. Has anyone asked OK distributors if they plan to challenge this law in court if it passes? Someone should.

My neck hurts.

Last week Judge Easterbrook of the 7th Circuit Court of Appeals issued their ruling in a case that challenged Indiana’s requirements 1) wine be purchased in a face-to-face transaction before being shipped and 2) anyone licensed as a wholesaler in another state may not ship to a consumer in Indiana.

Judge Easterbrook upheld the face-to-face transaction statute but struck down the wholesaler-related requirement. But something very interesting came out of the decision that states covered by 7th Circuit decisions (including Illinois) should take note of. And that was this part of Judge Easterbrook’s ruling:

“once a state allows any direct shipment, it has agreed that the wholesaler may be bypassed.”

We think this is a significant statement on the part of the Judge.

We think it makes perfect sense.

We think it meshes with the Constitutional principles enunciated in Granholm  v. Heald

And we think it demonstrates the Constitutional invalidity of Illinois’ law that prohibits out of state retailers from shipping to Illinoisans, while allowing in-state retailers, in-state wineries and out-of-state wineries to ship to Illinoisans.

It’s an unfortunate occurrence however, that this will be the first Illinois Wine Month since the Illinois legislature decided to punish its most successful wineries. A law was passed in 2007 and took effect this past June that prohibits Illinois’ largest wineries from “Self Distributing” wine to retailers and restaurants. Up until this past June, Illinois’ most successful wineries, Galena and Lynfred, as well as every other winery in the state, had been able to choose to sell their wines to wholesalers for distribution to retailers and restaurants or they could have sold their wine directly to restaurants and retailers. House Bill 429 changed the law so that only wineries making less than 25,000 gallons  of wine per year would be allowed to bypass the wholesalers and sell directly to restaurants and retailers on their own. And even then, they can only sell 5,000 gallons per year in this manner.

Because states may not discriminate against out of state wineries, they too may sell directly to Illinois retailers and restaurants directly—if they make less than 25,000 gallons per year.

25,000 gallons amounts to a little over 10,000 cases of wine annually. The 5,000 gallons of wine wineries under this production cap may sell amounts to a little over 2,000 cases.

It is of course true that there is no legitimate public policy justification for shutting out Illinois’ largest wineries from the self distribution channel and forcing them to use very expensive wholesalers to distribute their wine. None. The only reason this provision is in place today is to serve to protect Illinois’ obscenely politically well connected alcohol wholesalers from competition.  Illinois wholesalers have been able to purchase a near monopoly on distribution of wine in Illinois to the detriment of Illinois wineries, Illinois retailers, Illinois restaurants and Illinois consumers.

How could this be possible?

In 2007 alone Illinois alcohol wholesalers contributed nearly $700,000 to state political campaigns—more than $1,900 per day in political payoffs contributions. The Associated Beer Distributors of Illinois alone contributed $460,000 of the $700,000, making them the single largest individual contributor in Illinois in 2007.  Between 2000 and 2006, Illinois alcohol wholesalers contributed more than $5.7 million dollars to state political campaigns.

This is how a completely unjustified new law with no visible public policy benefits gets enacted and how Illinois’ most successful wineries get punished. All it takes is money.

Were the state of Illinois not a Payoffocracy and instead a real democracy, Illinois wholesalers would not be protected from competition and would be forced to demonstrate their usefulness to the very wineries that are now forced by law to use their “services”. It should also be noted that were the services of Illinois wholesalers in anyway an absolute necessity to Illinois wineries or to out-of-state wineries and if Illinois wholesalers were capable of competing without economic protection from the state, they would never have forced this repugnant law on the state.

It’s worth noting how the Illinois Beer Wholesalers Association and other supporters of HB 429 justified this legal abortion of a law. Donna Spagnola, chairman of the Board of Directors of Associated Beer Distributors of Illinois said, It’s a safety issue. What happens when you ship things direct is you lose that ability to trace it. It (distribution) addresses quality and freshness issues. It ensures the product is rotated, ensures you don’t have tainted products.”

You know what Ms. Spagnola is talking about when she discusses things like “the ability” to trace wine don’t you? She’s talking about the filing of a piece of paper with the state. Thank God we have alcohol wholesalers to carry out the complex task of filling out paperwork and putting it in an envelope, stamping it and carrying it to the mail box.

So, as Illinoisans and Illinois wineries enjoy their well deserved recognition via Illinois Wine Month in September, they also might take a moment to appreciate the price the state pays and its residents pay in integrity and honesty in order to get wines to market.

Specialty Wine Retailers Association attended the Conference and the “Granholm” session in order to meet those people who find themselves interested both in the issue of direct sales of wine as well as legislation.

The panel consisted of  Tracy Genesen of Kirkland & Ellis and one of the leading wine lawyers in America, Steve Gross from the California Wine Institute , Stephen  Diamond of the University of Miami School of Law and Associate General Counsel Karin Moore of the Wine and Spirits Wholesalers of America. The panel was moderated by New Mexico Senate Majority Leader Michael Sanchez.

Of late, the rhetoric of those opposed to adults ordering wine from retailers outside the state has hardened into a fairly simple and predictable refrain: “they want to tear down the system that has worked for more than 75 years.” This idea was repeated, again, by the WSWA’s Moore and Professor Diamond.

It is, and always has been, telling that opponents of access to wine and consumer rights tend not to make a positive argument for denying these things, but rather try to cast retailers and direct shippers in the light of barbarians at the gate, wanting only to tear something down. It’s usually necessary to explain that barbarians rarely ask to be taxed, to be subjected to legal and regulatory jurisdiction and to be required to file reports with the state at who’s gates they stand. 

The debate over direct shipment of wine to consumers will now move down another road and stop at another venue where the benefits of commonsense and reason will be again be unfurled for another audience.

“I wish you would also publish information on how consumers can fight against this kind of industry abuse. Where can we donate money? Who are the politicians in Texas supporting this anti-competitive thrust?”

The fact is, no organization in America besides Specialty Wine Retailers Association is actively standing up for adult consumers who wish to access wines their local wholesalers won’t bring into the market and provide to retailers for resale. Specialty Wine Retailers Association is the only organization in the United States, let alone Texas, that is working on behalf of adult consumers and fine wine retailers to overcome the discriminatory laws that alcohol wholesalers spend millions of dollars to keep in place.

SWRA litigates, lobbies and educates on this issue in states across the country, including Texas.

Consumers who want to join the effort to put an end to blatantly protective and discriminatory laws that block retailers and adult consumers from doing business can DONATE to Specialty Wine Retailers in in amount BY SIMPLY CLICKING HERE.

SWRA is largely funded by retailers of all stripes from across the country. They include brick and mortar retailers, Internet wine retailers, wine clubs and auction houses. But this organization has also seen numerous consumers who are fed up with “protection politics” step up and donate to this cause.

Yet while SWRA is outspent by wholesalers at ever turn and while this battle is enormously expensive to fight, consumers do have one tool at their disposal that costs them nothing and that does make a difference: Their Pens.

If you live in a state that prevents you from purchasing wine from an out-of-state wine retailer and if you are fed up with wholesalers telling you to sit down, shut up, and like the pitiful selection of wines they provide you with, then pick up your pen and write your state legislators and tell them your thoughts. Finding their email o the Internet is simple. Writing an email is simple. Telephoning them is simple. The more people they hear from on this matter, the more likely they will be to listen when the issue comes before them. And the issue will eventually come before them.

As for Josh’s question concerning which legislators in Texas support anti-competitive laws in Texas, the best indication is to look at which legislators voted for Senate Bill 1229 in 2007.

This bill was passed at the behest of Texas alcohol wholesalers who thought that by implementing a law that restricts Texas retailers from shipping wine anywhere outside the county in which their store resides they would be able to thwart a lawsuit that SWRA had brought against the state for its unconstitutional discrimination against out-of-state retailers. The judge in our Texas lawsuit correctly noted that this desperate attempt by wholesalers and their protectors in the Texas legislature did nothing to overcome the discriminatory nature of the Texas law.

Those members of the Texas Assembly that voted for this anti-consumer bill include:

Allen; Alonzo; Anchia; Anderson; Bailey; Berman; Bolton;
Bonnen; Branch; Brown, F.; Burnam; Callegari; Chavez; Cohen; Coleman; Cook,
B.; Cook, R.; Crownover; Davis, J.; Davis, Y.; Delisi; Deshotel; Driver; Dukes;
Dunnam; Eiland; Eissler; Elkins; England; Escobar; Farabee; Farias; Farrar;
Flores; Flynn; Frost; Garcia; Geren; Giddings; Gonzales; Gonzalez Toureilles;
Goolsby; Guillen; Haggerty; Hamilton; Hardcastle; Harless; Harper-Brown;
Hartnett; Heflin; Hernandez; Herrero; Hilderbran; Hill; Hochberg; Hodge;
Homer; Hopson; Howard, C.; Howard, D.; Hughes; Isett; Jackson; Jones; Keffer;
King, P.; King, S.; King, T.; Krusee; Kuempel; Latham; Laubenberg; Leibowitz;
Macias; Madden; Mallory Caraway; Martinez; Martinez Fischer; McCall;
McClendon; McReynolds; Menendez; Merritt; Miles; Miller; Morrison; Murphy;
Naishtat; Noriega; O D’ ay; Oliveira; Olivo; Orr; Ortiz; Otto; Parker; Patrick;
Paxton; Pen˜ a; Pickett; Pitts; Puente; Quintanilla; Raymond; Riddle; Ritter;
Rodriguez; Rose; Smith, T.; Smith, W.; Solomons; Strama; Straus; Swinford;
Taylor; Thompson; Truitt; Turner; Van Arsdale; Vaught; Villarreal; Vo; West;
Woolley; Zedler; Zerwas.

In the Texas Senate, every member voted YES to this anti-consumer bill, save for Senator Estes.

So to answer Josh’s question about who supports anti-competitive and anti-consumer legislation concerning wine shipping: JUST ABOUT EVERYONE!

How could this be the case? Since the year 2000, Texas alcohol wholesalers have given more than $7.5 million in contributions to Texas political campaigns, an amount that dwarfs the contributions by wholesalers in every state in the Union for that same time frame.