Winemakers who want to ship directly to consumers across state lines got a sympathetic hearing at the Supreme Court yesterday, as the justices considered oral arguments in what could be the most significant test of states' constitutional power to regulate the alcohol trade since Prohibition.
At issue are New York and Michigan laws that require out-of-state wineries to sell through state-licensed wholesalers, while permitting in-state wineries to deal directly with individuals. The small Virginia winery challenging the New York law and the wine journalists, California winery and wine connoisseurs challenging the Michigan law say that the statutes are discriminatory and violate the Constitution's implicit ban on state trade protectionism.
The states, backed by wholesalers, say that the 21st Amendment, which repealed Prohibition in 1933, permits such laws. It bars importing alcohol into any state "in violation of the laws thereof."
But Justice Antonin Scalia seemed to reject that assertion when New York State Solicitor Caitlin J. Halligan raised it yesterday, telling her: "I don't think so. I think when you have facial discrimination, the bar's a little higher than that."
Justice Stephen G. Breyer told Michigan's solicitor general, Thomas L. Casey, "there's not a word" in the history of the 21st Amendment to suggest it was "intended to permit discrimination."
And Justice Ruth Bader Ginsburg cited a 1984 decision of the court that struck down a Hawaii tax that applied only to imported alcohol. "One thing is certain," Ginsburg read. "The central purpose of [the 21st Amendment] was not to empower states to favor local liquor industries by erecting barriers to competition."
Perhaps most encouraging for the winemakers and wine drinkers, Justice Sandra Day O'Connor, who dissented from the 1984 ruling, seemed willing to apply it to this case, telling the states' lawyers repeatedly that it "cuts against you."
The justices seemed especially skeptical of the states' assertions that they may treat out-of-state wine differently because it is easier to enforce drinking-age and tax laws against in-state companies -- and that those laws are crucial to limiting the harm caused by excessive drinking. Almost nothing the states' lawyers said in this regard seemed to convince the court.
"Michigan's laws do promote the state's interest in temperance," Casey said.
Justice David H. Souter cut him off, asking: "You say that -- but how?"
When Casey suggested that Michigan controls sellers of wine through licensing, Souter responded that the state could require out-of-state wineries to post their business records online, password-protected, where they could be monitored by the state.
New York does permit out-of-state wineries to sell directly to consumers if they establish an office in the state. But, to Scalia, that just proved the state's rationale for its law was insincere.
He asked Halligan how having an office would help prevent the wineries from selling wine to minors or evading taxes. But before she could finish her answer, he shot back, "It doesn't help them at all."
"Your honor, it's a deterrent," Halligan insisted.
The origins of the case lie in the rise of hundreds of new family-run wineries in recent years, coupled with the advent of the Internet. Too small to gain access to the distribution networks run by state-licensed wholesalers, some family wineries began selling online. Fearing the erosion of their market control, wholesalers lobbied state legislatures to toughen the rules against direct shipping.
All told, 24 states -- including New York and Florida, the second- and third-largest wine-consuming states, after California -- ban direct shipping from out of state. In five states, including Maryland and Florida, it is a felony.
Yesterday's argument was not entirely one-sided. Some justices, while sympathetic to the argument in favor of direct shipping, expressed concern that it might lead to a general erosion of state control over sales not only of wine but also beer and spirits.
"Your case is very narrow, but your rationale is very sweeping," Justice Anthony M. Kennedy told former Stanford law school dean Kathleen Sullivan, who was representing the group of wine journalists and connoisseurs challenging Michigan's law.
Sullivan replied that the states and wholesalers were the ones making a sweeping argument, because "they are saying that if you wanted to bar all California wines you could do that."
The cases are Granholm v. Heald, No. 03-1116, Michigan Beer & Wine Wholesalers Association v. Heald, No. 03-1120 and Swedenburg v. Kelly, No. 03-1274. A decision is expected by July.