Dropping the Second Shoe

Recent lawsuits in California, following the preliminary consent decree in Texas, bring home the second major implication of Granholm.

The Supreme Court opinion of May 2005 told us that a state may not allow its own wineries to sell directly to consumers if it excludes out-of-state wineries. Its first implication �that states allowing their own wineries to distribute directly to retailers may not deny out-of-state wineries access to those customers� is expressed in the November 2005 Costco ruling, which is part of the April 2006 judgment in that case.

Reports from the Central District of California, where one of the current suits is filed, indicate the state may respond like the Texas authorities, negotiating a preliminary injunction that would expand market access while the case is pending, but not definitively forfeit the state�s right to defend the suit by attempting to distinguish Granholm. Some concession seems necessary, because as the result of political maneuvering the current California statute incorporates reciprocity as a requirement for shipment by retailers, although the statute was passed primarily to eliminate that feature and the tax waiver for direct shipment by wineries. Most analysts agree reciprocity is inconsistent with Granholm.

The third shoe of the three-legged issue will be shipment by wholesalers across state lines. A suit championing that theory was rumored in Texas and appears to be a logical next step. Whether there or elsewhere, one can expect another thump soon.

Questions remain on the pivotal question whether states can make a case for discriminating against the more numerous and perhaps less stable out-of-state retail businesses in ways Granholm says they can�t against out-of-state wineries. In cases decided to date, no state has put together a coherent record supporting its approach. Opponents of freer trade read Granholm as a bad record case and hold out hope of state victory in a better-litigated suit.

On the other hand, Granholm states the principles of non-discrimination very broadly and defines the 21st Amendment very narrowly. Moreover, the new members of the Supreme Court replace Granholm dissenters and appear unlikely to affect the balance if another case reaches them under the Commerce Clause. My guess is that Granholm issues won�t be in the Supreme Court again any time soon, because the current spate of cases involves outright discrimination against interstate commerce and is likely to be settled in the circuit courts of appeals in favor of the plaintiffs. If the circuits do not split, the Supremes probably won�t hear appeals.

The following round of cases will challenge volume caps, high license fees, and other limitations the wholesalers have been able to pile on in state legislatures. If they are analyzed as direct discrimination, they are probably winners, but they may be decided as burdening cases, in which regulatory interests are balanced against effects on commerce, with far less certain outcomes.

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