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Out-of-state wine retailer pushes for direct-to-customer sales in Ohio

Liquor licensing laws that prevent direct sales to Ohioans are unconstitutional, according to arguments made Friday by an out-of-state retailer and one oenophile of the Buckeye State.

CINCINNATI (CN) — State laws that allow only Ohio-based wine retailers to ship directly to customers are discriminatory and anticompetitive, an Illinois wine seller told a Sixth Circuit panel.

House of Glunz, alongside Kenneth Miller, an Ohioan who wants to buy wine online and have it shipped directly to his home, sued the state of Ohio in federal court and claimed it cannot regulate interstate commerce by prohibiting direct-to-customer wine sales by foreign retailers.

The state employs a "three-tier" regulatory system, consisting of manufacturers, distributors, and retailers, all of whom must obtain permits, while retailers must also maintain a physical presence in the state.

Ohio residents are also limited by a criminal statute that restricts the transport of more than 4.5 liters of wine from outside of the state in any 30-day period.

U.S. District Judge Sarah Morrison, a Donald Trump appointee, granted the state's motion for summary judgment in September 2022 and relied primarily on the Sixth Circuit's 2020 decision in Lebamoff Enterprises Inc. v. Whitmer, in which a panel found the state's interests in control the distribution of alcohol rendered a nearly identical law constitutional.

"What is, and what is not, a legitimate state interest in the context of alcohol regulation is not a difficult question to answer," Morrison said. "As the Lebamoff court explained, curbing over-consumption and controlling distribution of alcohol are themselves sufficient."

"Allowing out-of-state retailers to ship wine directly to Ohio consumers would all but topple the scheme that the Ohio General Assembly has established," she continued, "with prices easily undercut and enforcement agencies easily neutered. ... In short and sum, Ohio's Direct Ship Restrictions can be justified on legitimate nonprotectionist grounds, and their predominant effect is not protectionism."

In their appeal to the Sixth Circuit, House of Glunz and Miller argued Ohio's restrictions make it exceedingly difficult to obtain top-tier wines, the majority of which are either not approved for sale in the state or available at any retailers.

Specifically, their brief claims that of 60 wines recommended by the New York Times, Wine Enthusiast, and Wine Spectator in 2021, "only seven are approved for sale in Ohio, and only one was actually on the shelves of Cincinnati wine retailers."

States without restrictions on direct-to-consumer wine shipping do not suffer from higher rates of problems associated with alcohol consumption or an increase in underage alcohol sales, according to the brief.

"Ohio's ban on direct wine shipment cannot survive the narrow-tailoring test," the wine retailer concluded. "It is discriminatory and protectionist because in-state retailers are given the exclusive privilege to sell wine online and deliver it to consumers' homes, which gives them a huge advantage over their out-of-state competitors."

In its brief, the state of Ohio argued if the plaintiffs got their way, its entire regulatory system would be upended and it would be unable to adequately inspect and control the products shipped to its residents.

Additionally, the state would be unable to control and increase prices on alcohol to prevent overconsumption, which would likely lead to an increase in criminal activity.

Attorney James Tanford of the Indianapolis firm Epstein, Seif, Porter, and Beutel LLP argued Friday on behalf of Glunz Inc. and emphasized differences between his clients' case and the court's previous ruling in Lebamoff.

Tanford told the panel more than 20 documents had been submitted in his federal case to prove the state of Ohio's concerns over public safety were unfounded.

"There is no pattern in states that allow direct shipping to show any increase in social problems," he said.

"Ohio allows all sorts of sales of alcohol," the attorney continued. "This is the one instance where they try to prevent it because it protects the interests of [in-state] retailers."

Tanford elaborated further on differences between Michigan and Ohio and pointed out the Buckeye State does not currently employ a three-tier distribution system, but uses a licensing system.

He said manufacturers of alcohol — including wineries — can obtain one of six licenses to distribute their products directly to consumers.

U.S. Circuit Judge Karen Moore, a Clinton appointee, sought clarification and asked the attorney if there are any statutory differences between Michigan and Ohio laws.

"Not in any meaningful way," Tanford answered. "The major difference is the historical context ... [where] Michigan had allowed unlicensed and unregulated shipping, but Ohio had not."

Attorney Melissa Palumbo argued on behalf of the state of Ohio and urged the panel to affirm the lower court ruling on the basis of Lebamoff.

"Alcohol is different," she said, in reference to the 21st Amendment.

U.S. Circuit Judge Andrew Mathis, an appointee of President Joe Biden, asked about whether the three-tier system is truly based on health and safety concerns for Ohio's citizens.

"There is a robust record [that the system] promotes temperance and prevents a race to the bottom," Palumbo said. "[It will be] directly undermined if out-of-state retailers could flood the Ohio market."

U.S. Circuit Judge Eric Clay, another Clinton appointee, asked if specific health and safety data could refute her opposing counsel's claims about societal problems.

The state's attorney claimed there is "plenty of data" in the record and cited a study conducted after a 2009 alcohol tax increase in Illinois that showed a marked decrease in the number of automobile fatalities involving alcohol.

Palumbo also emphasized that allowing out-of-state retailers to ship directly to Ohio consumers would make it increasingly difficult for the state to track products and deal with any regulatory or contamination issues.

In his rebuttal, Tanford disputed the study cited by Palumbo and pointed out it was not included in the record before the district court.

"They have speculation by their experts that problems might arise," he told the court. "They're being disingenuous when they say 600,000 retailers [could apply for licenses] ... most of those are convenience stores that don't ship."

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

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Categories / Appeals, Business, Consumers, Law

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