Sixth Circuit OKs Michigan Limits on Out-of-State Wine Retailers

The court found the constitutional amendment repealing prohibition allows states to implement their own regulatory systems for alcohol sales.

(AP Photo/Daniel Cole)

CINCINNATI (CN) — The “restless specter” of the 21st Amendment allows Michigan to impose separate regulations on out-of-state alcohol retailers, including a ban on direct wine shipments to consumers, the Sixth Circuit ruled Tuesday.

A three-judge panel of the Cincinnati-based appeals court overturned a decision that had ordered state lawmakers to amend Senate Bill 1088 and allow out-of-state wine retailers to apply for direct shipment licenses.

The case was argued last month by state attorney Mark Sands, who said Michigan’s main interest in upholding the current three-tier system is protecting the health and safety of its citizens.

The system – implemented after the repeal of prohibition through the 21st Amendment in 1933 – does not allow alcohol producers to sell directly to retailers or consumers. Instead, producers sell and ship their alcoholic beverages to in-state wholesalers who, in turn, sell exclusively to in-state retailers that supply the general public with alcohol.

Michigan amended its liquor laws in 2016 and allowed in-state retailers to provide direct delivery to consumers, which prompted a lawsuit by Lebamoff Enterprises, a wine retailer from neighboring Indiana.

Senior U.S. District Judge Arthur Tarnow, a Bill Clinton appointee, rejected all of the state’s arguments regarding health and safety and agreed with Lebamoff that a restriction on out-of-state retailers violated the U.S. Constitution’s commerce clause.

But U.S. Circuit Judge Jeffrey Sutton, a George W. Bush appointee, disagreed with Tarnow and wrote for a unanimous panel Tuesday that while out-of-state entities are treated differently than those in Michigan, there is no discrimination that would violate the commerce clause.

“True, they both sell the same product to consumers. True also, retailers in northern Indiana and southern Michigan presumably compete with each other for those consumers,” Sutton wrote. “But they also operate in distinct regulatory environments, the most notable distinction being that Michigan-based retailers may purchase only from Michigan wholesalers and must operate within its three-tier system and comply with its other regulations.”

Even if the court conceded the Indiana retailers were similarly situated, Lebamoff still could not escape the “restless specter of the Twenty-First Amendment,” according to Sutton.

“Due to the Amendment, Commerce Clause challenges to alcohol regulation face a ‘different’ test. We ask only whether the law ‘can be justified as a public health or safety measure or on some other legitimate nonprotectionist ground,’” the judge wrote, citing U.S. Supreme Court precedent. “Michigan’s law promotes plenty of legitimate state interests, and any limits on a free market of alcohol distribution flow from the kinds of traditional regulations that characterize this market, not state protectionism.”

Sutton cited the 2000 Seventh Circuit decision in Bridenbaugh v. Freeman-Wilson, in which the court upheld an Indiana statute that prohibited the same type of out-of-state, direct deliveries at issue in the Michigan dispute.

“In view of the Seventh Circuit’s decision,” he wrote, “consider the inequities that would arise if we invalidated the Michigan law. It would mean that Indiana retailers could make direct deliveries within Michigan, but Michigan retailers could not do the same in Indiana. That’s no way to run a railroad – or manage cross-border trade.”

Lebamoff also argued that Michigan consumers are disadvantaged by the current system because they cannot obtain all the varieties of wine they want, but the panel was unconvinced.

“There are over 44,000 brands of wine available in Michigan, the vast majority of them from out-of-state producers. To be sure, some brands are not available. But the extent of the state’s responsibility for that gap is not clear,” the ruling states. “As Lebamoff’s expert admits, fewer than 50,000 of the roughly 200,000 wines sold in the country are available nationwide. That’s not Michigan’s fault.”

Senior U.S. Circuit Judge David McKeague, also a George W. Bush appointee, agreed with Sutton’s opinion, but wrote a short concurrence in which he expressed reservations regarding online wine purchases.

While Michigan residents can buy online directly from producers, they are prohibited from buying from retailers outside the state.

“A consumer looking to buy wine for a special occasion can go online, research different varieties of wine, read reviews from aficionados, and select a bottle or two for purchase, only to be told at checkout: ‘Sorry, you live in Michigan,’” McKeague wrote. “What a frustration that must be considering this is how we all buy things nowadays. We live in a global economy and we shop in virtual marketplaces for everything from luxuries to necessities. And we now rely even more on online shopping in the recent pandemic.”

While McKeague admitted the court is “bound by the Supreme Court’s protection of a traditional three-tier system,” he argued that the new system established by online shopping may require future analysis of the interplay between the commerce clause and the 21st Amendment.

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

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