A Supreme Court decision may affect the three-tier system as we know it.
—Jeff Siegel
This week the U.S. Supreme Court could decide to take a first step in remaking how wine is sold at retail in the United States.
But it probably—emphasis on probably—won’t.
“You really can’t answer what the Supreme Court will do in any logical way,” says Jay Hack, a senior partner at Gallet Dreyer & Berkey in New York City, and the chair of the wine, spirits, and beer law committee for the New York State Bar Association. “It’s almost impossible to predict, because you don’t know how they’re thinking.”
But if Hack had to guess, he wagers it’s less than a fifty-fifty chance they take the case.
So why all the fuss about Sarasota Wine Market v. Schmitt? Because this case challenges a Missouri law that forbids out-of-state retailers from selling wine to Missouri residents. The law uses the same argument that succeeded in the landmark 2005 Granholm case, which allowed wineries to sell their product to people living in another state. Granholm is the basis for the $3.7 billion DtC wine market.
The court will decide this week whether to grant certiorari, which is legalese for agreeing to review a lower court ruling (known as cert, for short). This hearing could potentially settle the legal dispute that has been raging since Granholm: Do out-of-state retailers have the same rights as wineries to sell products to consumers in other states? Most court decisions since Granholm have said retailers don’t enjoy the same rights, and that it’s perfectly acceptable for a state to forbid those sales.
Several things could happen if the court accepts the case: A decision in favor of the Missouri law would end a series of lawsuits filed across the country over the past several years that challenge outlawing out-of-state retail sales. This, in effect, would make clear that Granholm applied only to wineries. Or, it could tell the appeals court that ruled in favor of Missouri to review its decision and the court would give the appellate judges specific instructions on what to look for in the review. Finally, a ruling in favor of Sarasota may make it possible—within limits—for out-of-state retailers to sell anywhere in the country. This would overturn a key part of the three-tier system that has dominated alcohol sales since the end of Prohibition, allowing a way around the second, wholesaler tier.
This would truly be stunning.
“Many people believe that if the court grants cert, we have the World Series of all cases,” says Sean O’Leary, a Chicago attorney and former chief legal counsel of the Illinois Liquor Control Commission. “This could be one [case] that will settle the decades-long issue, once and for all.”
“That may be true and it may not,” he adds. Because, of course, it’s the Supreme Court, O’Leary notes. No one knows exactly what it will do.
In one respect, the arguments in Sarasota are the same old “He said, she said” that have surrounded retail direct shipping laws and lawsuits since Granholm. Sarasota claims that out-of-state retailers are discriminated against in Missouri because they can’t sell across state lines, due to what’s known as the dormant commerce clause of the Constitution, which says states can’t discriminate like that. The Missouri stance is that no one is stopping out-of-state retailers from opening an in-state store; hence, no discrimination. Missouri also argues the 21st Amendment (which ended Prohibition) allows it to forbid out-of-state sales, and that this has been a settled legal point for 90 years.
In Granholm, the Supreme Court did rule that the dormant commerce clause trumped the 21st Amendment, says Alex Koral, senior regulatory counsel at SOVOS ShipCompliant, a wine shipping consultancy. The arguments in retail shipping cases since then have been whether that part of Granholm could be used to allow retail direct shipping—which is something the court has been reluctant to clear up.
And, he says, there is no reason to expect it to do anything differently this time. Allowing a retail direct-shipping exception would muddy the waters around the three-tier system even more than they’re already muddied. The court almost certainly doesn’t want to do that: a ruling in favor of Sarasota would redefine the relationship between producers, wholesalers, and retailers—which the court has never said needed to be redefined.
Still, several attorneys said there are slight differences in the direct shipping environment this time that might intrigue the court enough to grant cert. Foremost among them is its 2019 decision in Tennessee Wine Retailers, which overturned a state law that said non-residents couldn’t get a retail liquor license. Justice Samuel Alito, in his majority opinion, implied that any state that was going to discriminate against an out-of-state retailer better have a damn good reason for doing so. In this case, there wasn’t one.
Which raises the question: Did the federal appeals court that ruled in favor of Missouri do enough to take Tennessee into account? Or did it just rule for Missouri because that’s the way the law has always been?
It’s an intriguing point, says Koral—but he also points out that the court didn’t refute the entire three-tier system. Rather, it just made the states more accountable in how they use it.
*The United States Supreme Court will meet to consider whether to grant or deny certiorari to Missouri delivery laws at their conference on October 8. A decision to grant or deny the petition for certiorari may be announced on or around October 12.*
_______________________________________________________________________
Jeff Siegel is an award-winning wine writer, as well as the co-founder and former president of Drink Local Wine, the first locavore wine movement. He has taught wine, beer, spirits, and beverage management at El Centro College and the Cordon Bleu in Dallas. He has written seven books, including “The Wine Curmudgeon’s Guide to Cheap Wine.”
