Direct-to-Consumer Wine Shipments Debated at Sixth Circuit

CINCINNATI (CN) – Michigan argued before the Sixth Circuit on Thursday that a law preventing out-of-state wine merchants from making direct shipments to its residents does not violate the U.S. Constitution’s commerce clause.

The state appealed a lower court decision that required it to amend Senate Bill 1088 and allow out-of-state merchants to apply for licenses that would let them to sell and ship wine directly to customers in Michigan.

(AP Photo/Kamil Zihnioglu)

Lebamoff Enterprises Inc., which operates 15 liquor stores in neighboring Indiana, and several individual consumers sued former Michigan Governor Rick Snyder in 2017, claiming the bill was an unconstitutional restraint of interstate commerce.

Senior U.S. District Judge Arthur Tarnow, an appointee of Bill Clinton, agreed with Lebamoff, and rejected all of the state’s arguments regarding legitimate purposes for the law, including that it would allow minors to more easily obtain alcohol.

“The point-of-enforcement,” Tarnow said in his opinion, “is on the delivery end. Michigan law provides that wine must be shipped in a specially marked package, and that only someone at least 21 years of age can accept delivery. Third party shippers must be approved by the MLCC and must keep records of their shipments for inspection.”

The judge continued, “Michigan does not advance any theory on how its wine retailing websites better screen out minors than their out-of-state rivals, and in fact both websites would be equally accessible to Michigan officials seeking to investigate underage sales.”

Attorney Mark Sands argued on behalf of the state Thursday, and told the Sixth Circuit panel the three-tier system of alcohol distribution in Michigan has the “predominant effect of protecting health and public safety.”

Senior U.S. Circuit Judge David McKeague, an appointee of George W. Bush, asked the attorney why so few wines are available in Michigan, and said it seems as though “the bottleneck is the wholesalers.”

U.S. Circuit Judge Jeffrey Sutton, also a Bush appointee, piggybacked on McKeague’s question and asked if price controls limit the number of wines sold in the state.

Sands admitted that price controls are one of several factors that regulate the number of wines, but told the panel that distribution of wine is ultimately left up to the producers.

The attorney said the three-tier system is also designed in a way that the state doesn’t “overstimulate consumption” of alcohol.

He pointed out one of the wealthy Koch brothers made the news when it was discovered a rare and expensive bottle of wine he purchased turned out to be fake, and said these types of situations can be prevented by the current Michigan system.

McKeague was dubious, telling the attorney he hoped he wasn’t pinning his arguments on the isolated experience of a Koch brother.

Sutton offered a blunt assessment of Sands’ arguments, saying that while the state claims it has concerns about adulteration of wine and sales to minors, the restraints on out-of-state retailers were most likely instituted because the products in other states tend to be cheaper.

Attorney Deborah Skakel argued on behalf of the Michigan Beer and Wine Wholesalers Association, an intervening party, and said the lower court’s ruling “turns on its head the three-tier system.”

Sutton continued his criticism, telling Skakel “it seems a little flimsy” to argue the system is primarily about health and safety.

“I think the heart of the matter is price,” he said.

Attorney James Tanford argued on behalf of Lebamoff Enterprises. He said the case boils down to the “frustration of consumers” who see the products they want advertised online but not available for purchase in their home state.

Tanford cited a lack of evidence provided by either the state or the wholesalers association to support concerns over adulterated or dangerous products being shipped into Michigan from out-of-state retailers.

The attorney said because Indiana already regulates the wine before it is shipped to Michigan, the health and safety concerns put forth by Michigan are baseless.

In his rebuttal, Sands told the panel that price controls are a legitimate reason for the three-tier system, and that even if the court agrees with Tarnow’s decision, the proper remedy is to eliminate direct shipping entirely.

None of the attorneys were available for comment after the arguments.

U.S. Circuit Judge Bernice Donald, a Barack Obama appointee, also sat on the panel.

No timetable has been set for the court’s decision.

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