Arizona’s out-of-state wine restrictions don't discriminate, Ninth Circuit says

PHOENIX (CN) — The Ninth Circuit upheld a ruling Tuesday that finds Arizona’s requirement for direct-shipping wine to customers doesn’t violate the U.S. Constitution’s commerce clause.

Two wine enthusiasts, Albert Jacobs and Reed Day, sued the state and the Wine and Spirits Wholesalers Association of Arizona in 2021 after they were barred from ordering rare bottles of wine from a California retailer because Arizona law requires an in-state, physical store for a retailer to earn a license to ship wine directly to customers.

A federal judge ruled in 2023 that the law doesn’t violate the commerce clause, which prohibits burdening or discriminating against interstate commerce, because it serves the state’s interests in regulating quality, protecting minors and generating revenue through excise taxes.

A three-judge Ninth Circuit panel agreed, siding with the trial judge in a 20-page opinion released Tuesday morning.

“Arizona’s laws apply even-handedly to all wine retailers, no matter whether that retailer is headquartered, incorporated, or otherwise based in another state,” U.S. Circuit Judge Milan Smith Jr. wrote in the opinion. “While the plaintiffs claim that Arizona directly discriminates against out-of-state retailers, this argument distorts the issue. There is no clear-cut in-state and out-of-state divide.”

Plaintiff attorney Bob Epstein of Epstein, Cohen, Donahue & Mendes said he is considering filing a petition for the Ninth Circuit to rehear the appeal en banc.

The plaintiffs told the Ninth Circuit in October that the law, which also requires retailers to source their wine from an Arizona wholesaler, discourages interstate commerce and gives an unfair advantage to large corporations with the resources necessary to build new storefronts across the states.

Because Arizona wine stores carry only about 15% of the wine available in the U.S. market, the plaintiffs argued that Arizona’s law deprives citizens of the right to access the markets in other states.

“It stymies the commerce clause,” Epstein said in a phone interview. The majority didn’t address that argument in its opinion.

The plaintiffs relied heavily on precedent set by a 2005 U.S. Supreme Court in [Granholm v Heald ](https://en.wikipedia.org/wiki/Granholm_v._Heald#:~:text=Heald%2C%20544%20U.S.%20460%20(2005,doing%20the%20same%20were%20unconstitutional.), in which the court found that New York’s requirement that wine retailers have physical location in-state to ship to customers creates inequality between retailers.

“The Supreme Court struck that down as economic discrimination,” Epstein said. “That’s what we think is the case here.”

But the panel ruled that Granholm applied specifically to a discriminatory exception to New York’s laws and that the precedent can’t be applied in a broader context.

The plaintiffs also cited a 2019 ruling in Tennessee Wine v Thomas , in which the Supreme Court ruled that Tennessee’s two-year residency requirement violated the commerce clause. Because Arizona has no such durational requirement in place, Smith wrote, that precedent doesn’t apply.

The state pointed the court to companies like Walmart and Total Wine to show that out-of-state retailers have been successful in gaining licenses.

“Indeed, the fact that out-of-state businesses possess Arizona retail licenses and have obtained direct shipping privileges supports the conclusion that Arizona’s laws do not have a discriminatory effect in practice,” Smith, a George W. Bush appointee, wrote. “As the defendants observe, setting up a physical storefront in Arizona is not a per se burden on out-of-state companies and per se benefit to in-state companies because a retailer’s ability to comply with the physical premise requirement is based in large part on a company’s resources and business model, not its citizenship or residency.”

Epstein countered that unlike large corporations like Walmart, most businesses don’t have the economic means to open stores across state lines.

“Even if they have the ability financially,” he said, “I argue that there shouldn’t be a requirement for them to.”

U.S. Circuit Judge Bridget Bade, a Donald Trump appointee, sided with Smith’s opinion, but fellow Trump appointee U.S. Circuit Judge Danielle Forrest dissented, suggesting that the case be remanded to the trial court for an evidentiary hearing to decide whether the law is discriminatory.

She called the in-state presence requirement an “easy workaround” to the commerce clause’s anti-discrimination directive by characterizing it as a licensing issue rather than a location issue.

“If I said I would only hire clerks who had studied in my alma mater’s law library, I could not maintain that I have no hiring preference for University of Idaho students,” Forrest analogized. “Sure, a Harvard student could fly to Spokane, drive to Moscow, read a few cases in the library, and then apply. Likewise, there is no guarantee that any given University of Idaho student has studied in the law library. But that is not the point. I have plainly adopted a preference for University of Idaho students and discriminated against all others.”

The Wine and Spirits Wholesalers Association of Arizona didn’t respond to a request for comment by press time.

Follow @JournalistJoeAZ