Court Upholds Texas Laws Regulating Wine Sales

(CN) - The 5th Circuit restored Texas laws allowing in-state alcohol retailers to ship directly to a customer's door in their counties, something out-of-state retailers can't do.

The laws had been largely overturned by the district court, which ruled that they discriminated against out-of-state sellers.

The plaintiffs - California wine retailers and Texas imbibers - were not fully satisfied with the decision; they thought it went too far in leveling the playing field. Out-of-state retailers won the right to ship directly to Texas customers, but they also "won" regulations that had previously applied to in-state retailers only, including requirements to obtain a Texas permit and to buy all wine shipped to Texas from state-licensed wholesalers.

"Such a 'victory' was, if not pyrrhic, apparently of no benefit," Judge Leslie H. Southwick wrote.

Both parties appealed, seeking different remedies.

The plaintiffs relied on Granholm v. Heald, the Supreme Court's invalidation of two states' "direct shipping" laws, which allowed in-state wineries to ship directly to consumers but barred out-of-state producers from doing the same.

Texas argued that Granholm dealt with wine producers, not retailers. The 21st Amendment bars discrimination between in-state and out-of-state "products or producers," not retailers, the state argued.

The New Orleans-based panel sided with the state, agreeing that "the Granholm failure to mention retailers was significant, as distinctions favoring in-state retailers are inherently part of the three-tier system."

Under the three-tier system, producers sell alcohol to state-licensed wholesalers, who sell to state-licensed retailers. The Supreme Court has upheld such a system as "unquestionably legitimate."

"Granholm prohibited discrimination against out-of-state products or producers," Judge Southwick wrote. "Texas has not tripped over that bar by allowing in-state retailer deliveries. Yet it has also not discriminated against retailers.

He added, "We view local deliveries as a constitutionally benign incident of an acceptable three-tier system."

The court also pointed out that what the plaintiffs sought - the ability to ship wine directly to customers anywhere in Texas - would give them "dramatically greater rights" than their in-state counterparts, who can only deliver within their counties.

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