By MARGARET TALEV
May 17, 2005
In a 5-4 decision that threw out anti-competitive laws in New York and Michigan, Justice Anthony Kennedy, writing for the majority, said it violates the Commerce Clause of the Constitution for states to bar direct shipment of out-of-state wines to customers while allowing direct shipments of in-state wines. Such laws "deprive citizens of their right to have access to the markets of other states on equal terms," Kennedy wrote.
"You don't happen to have any lead shoes I could put on?" said an elated David Lucas, owner of The Lucas Winery in Lodi, Calif., and one of the plaintiffs. "When you're a small player in a big pond you really need to be able to compete on a level playing field."
The ruling for the combined cases, Granholm v. Heald in Michigan, and Swedenburg v. Kelly in New York, comes as three trends converge - the widespread use of the Internet for consumer purchases, the proliferation of small and midsize U.S. winemakers and a consolidation of the wholesalers that control wine commerce in so many states.
California accounts for 90 percent of U.S. wine production, according to the Wine Institute, an industry trade association. Direct shipment now accounts for only 2 percent or less of California shipments, but some smaller vintners said it accounts for 10 percent or more of their sales, and that the proportion would only grow if more states opened their markets.
Under the court's decision, states either must decide to begin allowing out-of-state shipments directly to customers, as vintners are hopeful most will do, or ban direct sales of in-state wines as well, as some Michigan officials indicated they may recommend.
The decision was a blow to wholesalers in 23 states where such shipments are currently banned, and to some parent, school, highway safety and religious groups that had argued direct sales will make it easier for minors to illegally obtain alcohol.
Kennedy rejected that argument, as well as the states' assertion that direct shipping would increase tax evasion. He was joined by Justices Antonin Scalia, David Souter, Ruth Bader Ginsburg and Stephen Breyer. Justices Clarence Thomas, John Paul Stevens, Sandra Day O'Connor and Chief Justice William Rehnquist dissented.
Beyond New York and Michigan, which industry experts said are the third and 10th largest markets in the nation respectively, the ruling was expected to force legislatures to act in at least six other states - Florida, Ohio, Connecticut, Vermont, Massachusetts and Indiana - with similar laws.
The decision may have no impact on 15 states that already ban direct shipments altogether, although winemakers were hopeful it would signal a societal shift and spur grassroots campaigns in those states.
"This is not the worse case scenario - it could have been a much more devastating ruling," said Betty Mercer, director of an industry and social advocacy effort that called itself the Coalition for a Safe and Responsible Michigan. "The ruling could have said the whole system of alcohol regulation was discriminatory and that direct sales should be the law of the land," she said. Instead, states can react by banning direct shipping of their in-state wines.
Twenty-seven other states already allow direct shipment from out-of-state wineries to consumers. But several states have reciprocity laws that block such shipment to states that block direct shipment of their wines. Monday's ruling could eventually bring more wine from Michigan and New York into states with reciprocity rules.
While all 50 states now have wineries of their own, California, with its estimated $15 billion a year in domestic shipments, accounts for the largest state share of the nation's more then 3,000 wineries by far.
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