BOSTON (CN) — In a case that may impact wine sellers across the U.S., the First Circuit heard arguments Wednesday on whether Rhode Island can prohibit out-of-state retailers from shipping wine to in-state consumers.
Some 38 states prohibit or severely limit out-of-state wine shipments. These laws have been upheld by the Fourth, Sixth and Eighth Circuits in cases brought by attorney James Tanford of Epstein Cohen Seif & Porter in Indianapolis. Tanford tried again before the Boston panel in an effort to obtain a circuit split and persuade the Supreme Court to take up the issue — and he found a sympathetic audience.
Ordinarily, a state can’t discriminate against out-of-state businesses under the Constitution’s commerce clause. But the 21st Amendment, which ended Prohibition, gives the states broad latitude to regulate liquor sales. So the rule is that if a state’s law has a discriminatory effect, the state must show that it’s necessary for public health and safety.
“You can’t seriously dispute there’s a discriminatory effect,” U.S. Circuit Judge Bruce Selya admonished Assistant Attorney General Michael Field. “It’s clear that the law treats out-of-state retailers differently.”
Field argued that the state’s rules were necessary to prevent tainted products and to keep minors from accessing them. But “there’s no evidence that any of these things has ever actually happened,” Tanford told the court. “The state said those problems might arise in the future, but speculations are not adequate. There must be evidence that there’s an actual problem. And if it were, you’d see it in other states.”
The suit was brought in October 2019 by four Rhode Island wine drinkers who complained that thousands of “rare, unusual, and heavily allocated wines” are unavailable in state liquor stores and they can’t easily access them. This is especially true since, even if they travel out-of-state, another law prohibits them from bringing back more than 15 bottles of wine at a time.
The suit was rejected by U.S. District Court Judge John McConnell Jr. in September 2022.
Bans on out-of-state wine shipments exist in every state except Alaska, Connecticut, Florida, Louisiana, Nebraska, Nevada, New Hampshire, North Dakota, Oregon, Virginia, West Virginia and Wyoming.
Rhode Island has a general law prohibiting out-of-state direct sales, but it also has separate laws requiring out-of-state producers to sell to wholesalers and require all wine deliveries to be made by liquor company employees rather than by a “common carrier” such as UPS or FedEx.
Field said the general law is necessary because “Rhode Island doesn’t have the resources or the authority to inspect producers in 49 other states.”
“We’re not talking about rum-runners in the Caribbean,” Tanford replied. “All these other states regulate and license the wineries.”
Representing a state wholesalers’ group, Deborah Skakel told the court that requiring shipments to wholesalers is important so that wholesalers can make sure that the products aren’t tainted.
“Do they test the wines?” Selya asked.
“No, but they could get word from the manufacturer,” said Skakel, who practices with Blank Rome in New York and represents the Rhode Island Responsible Beverage Alcohol Coalition.
“So why is the wholesaler essential in this?” Selya, a Reagan appointee, shot back. “I don’t mean to be rude … but I don’t see any concrete evidence that this causes any problems. There are some theoretical problems but no evidence in the other states that there was a problem.”
Field defended the prohibition on common carriers by noting that one of the plaintiffs had illegally ordered wine via FedEx and acknowledged that she wasn’t asked for proof of her age when it was delivered.
“The plaintiff is 70 years old,” Tanford explained. “No responsible delivery driver would have needed to see her ID.”
U.S. Circuit Judge O. Rogeriee Thompson, an Obama appointee, noted that Rhode Island has an exception that permits common-carrier shipping for people who order wine in person at an out-of-state winery.
That’s different, Field said, because there’s a face-to-face transaction at the winery. But it’s no different at the point of delivery, Thompson challenged him. “How do you distinguish that?”
“You’re right,” he conceded. He quickly changed the subject and suggested that eliminating the wholesaler requirement could allow shippers to avoid paying taxes.
Selya pointed out that Rhode Island could easily change its tax system to what the 12 states that allow direct shipments have. “That’s what other states do.”
“A minority,” Field said.
“But a substantial minority,” Selya replied. “That’s proof” that it’s not a problem, he continued.
Selya did seem concerned that more evidence might be needed on how much the common-carrier rule disadvantaged out-of-state sellers.
“How do we know what is too far” for a liquor store to deliver, he asked. “Isn’t that an evidentiary question? Is Springfield, Massachusetts, too far? Is Albany, New York, too far? I guess we can assume that Napa Valley is too far, but there are a lot of other areas where I wouldn’t know if it’s practical or not for retailers to use their own vehicles.”
“I think you could take judicial notice that a retailer in New York City can’t put four bottles of wine in a car and drive it to Rhode Island,” Tanford replied. “There’s not a shred of contrary evidence … I acknowledge that there are weaknesses in our evidence, but they have no evidence to the contrary.”
U.S. Circuit Judge Lara Montecalvo, a Biden appointee, rounded out the panel.
Rhode Island Democratic state senator Adam Satchell has been sponsoring bills for years to overturn the state’s ban on out-of-state wine shipments but has faced heavy opposition from the local liquor industry.
“The distributors have a stranglehold,” Satchell complained to the Providence Journal. “We're hamstringing the consumers.”
A group of Rhode Island liquor stores filed an amicus brief opposing Tanford’s lawsuit, but Satchell said the local stores have little to fear because people who order wine online will be looking for specialty items.
“Quite frankly, it's going to be stuff the liquor stores don’t carry,” Satchell said to the Providence newspaper. “If this bill passes, people aren’t going to be buying big shipments of Sutter Home.”
Subscribe to Closing Arguments
Sign up for new weekly newsletter Closing Arguments to get the latest about ongoing trials, major litigation and hot cases and rulings in courthouses around the U.S. and the world.
