War Between the Wine States

The 21st Amendment gives states a lot of license to control alcohol. Ostensibly the idea is to use that power for the benefit of public health and wellbeing, but in some cases, states’ choices have more to do with money and politics. I know, truly shocking. In wine-growing states, the government has an incentive to use its power to support its own producers, at the expense of out-of-state competition. They can’t place tariffs on out-of-state wine to change the economics, but they can control what can be sold and where, which accomplishes pretty much the same goal. That’s precisely what many have done: Washington, New York, Virginia, Texas, you name the state, if they produce wine, they’ve probably had (or have) laws on the books that limit the ability of non-native wineries to get into the market. A few examples:

  1. Coming out of Prohibition, the state of Washington threw up a barrier to out-of-state wine with the 1935 Steele Act, which let Washington wineries skip the state’s control system and sell direct to wholesalers.[i] That made it easier and cheaper to get Washington wine. The result was that the quality of Washington wine became, well, easy and cheap. After a few decades of dwindling numbers of wineries and Concord grape domination, the state finally decided that their strategy wasn’t working. In 1969, they passed House Bill 100, a.k.a. The California Bill, which let out-of-state wine merchants play by the same rules as the natives, forcing Washington producers to make better wine or go out of business.[ii] Score one for the free market.
  2. Similarly, while it might be hard to imagine if you’ve taken a trip through the Finger Lakes in recent years,[iii] back in the 80s New York’s wineries were struggling.[iv] To help give them a leg up, the state decided to simply ban out-of-state wine cooler sales in New York Stores. That wine coolers were their target market is a good indication of the state of New York wine at the time. As we just saw in the Washington example, it’s doubtful that banning California Cooler did the industry any favors.[v]
  3. Michigan and New York both had laws that allowed in-state wineries to ship directly to consumers—skipping two tiers of the three-tier system—while out-of-state wineries could not. This is really just another version of the Washington law above—a way to give an edge to the locals by setting up different rules for customer access. In New York’s law out-of-state wineries could direct ship if they set up shop within the state in some way—that is, an office, factory, or warehouse. This kind of “residency requirement” is pretty common.[vi]
Bit of a lopsided war, really. Image Source

“But wait,” you might say, “wouldn’t all those laws violate the dormant Commerce Clause?” What an insightful question!  Indeed, under that doctrine states are not allowed to pass laws that inhibit interstate commerce, and these would certainly appear to be doing just that. The courts have been wrestling with this question since the 1890s, but it got more complicated after Prohibition, since the 21st Amendment gives states such a high level of control over this one product.[vii] Cases about this stuff end up being a sort of battle between the Constitution’s 1st Article and its 21st Amendment.

For the most part, though, the courts have sided with the Commerce Clause. The most important case from recent years is 2005’s Granholm v. Heald, in which the Supreme Court looked at those Michigan and New York direct-shipping laws. The Court said the 21st Amendment did not protect the states from violating the Commerce Clause, and declared those laws and others like it unconstitutional.

And yet, they persist. New York, for example, may have changed its wine direct-shipping law, but soon thereafter, in 2012, they passed the farm brewery bill, which allows New York breweries with that license to sell direct to consumer. Plenty of current state laws buff up in-state booze at the expense of interstate commerce.

They are able to do so because the courts really haven’t been as clear as the rulings appear. The 2005 case was 5-4,[viii] with two dissents to go with the majority opinion. And that opinion, on its face, is really pretty damn narrow. Granholm just says that out-of-state wineries can’t be discriminated against when it comes to direct-shipping wine. Some lower courts have since read into the decision that other, similar laws are also unconstitutional. Others have not. If the Supreme Court makes a wider ruling on a similar case, it could have broad implications for a whole host of laws.

Future legal battles on the vine

[i] https://wineeconomist.com/2007/12/02/the-california-bill-and-the-birth-of-washington-state-wine/; https://www.seattletimes.com/pacific-nw-magazine/2-events-50-years-ago-poured-life-into-washingtons-now-thriving-wine-industry/

[ii] For the actual bill, see http://leg.wa.gov/CodeReviser/documents/sessionlaw/1969pam1.pdf, pp. 540-555. Side note: the searchable PDF is the greatest thing to happen to historical research since the interlibrary loan. In a scanned, 1,672-page 1969 legislative record organized by “chapter”, whatever that means, and not by bill number, I found what I was looking for in seconds. Just gotta take a minute to appreciate the nerds who figured that out.

[iii] Like pubs in Dublin, there are wineries freakin’ everywhere

[iv] https://www.forbes.com/sites/thomaspellechia/2016/08/08/no-matter-the-stated-trade-agreement-wine-protectionism-lives-on/#435762b44628

[v] I pulled this example from this article, written by a reputable wine authority, but haven’t been able to find it discussed anywhere else. But I didn’t, like, skip work to look for it, so it’s probably out there.

[vi] Knettel, Paul. “Constitutional Mixologists: Muddling the Analysis of Protectionist Alcoholic Beverage Laws After Granholm v. Heald.” Washington University Law Review, v. 93, issue 4: 2016, pp. 1083-1090. Link here

[vii] Clause two, in particular, which states: “The transportation or importation into any State, Territory, or possession of the United States for delivery or use therein of intoxicating liquors, in violation of the laws thereof, is hereby prohibited.”

[viii] And check out the split on this baby: Majority was Kennedy, Scalia, Souter, Ginsburg and Breyer; Minority was Rehnquist, O’Connor, Stevens and Thomas. I do love an issue that defies the usual left/right split. Kennedy wrote the opinion, Stevens and Thomas wrote dissents.

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