Appeals Court Calls for More Facts in Challenge to Tennessee On-site Law

The October 24th decision of the Sixth Circuit Court of Appeals in Jelovsek v. Bredesen has been widely reported as upholding face-to-face on-site purchase requirements for winery sales to consumers. There is, however, an interesting disconnect between what the district court said when it dismissed the complaint and what the appellate court said in partly affirming the dismissal.

In March 2007 the district court judge upheld a statutory scheme he understood as an exception to the otherwise mandatory three-tier system, allowing Tennessee residents to buy wine at a Tennessee winery that used a certain proportion of Tennessee fruit and to transport the purchase in quantities of up to three gallons, while limiting transportation of out-of-state wine purchases to one gallon. The circuit judge, speaking for a three-judge appellate court, clearly upheld laws requiring both in-state and out-of-state wineries to use Tennessee’s three-tier system and clearly reversed the district court’s upholding the exception. The appellate opinion does not, however, say that Tennessee may continue allowing Tennessee wineries to sell at their premises to consumers so long as the transportation quantities are equalized.

What the opinion appears to leave open is the fundamental question in the lawsuit: whether Tennessee can prohibit direct shipment to its residents by out-of-state wineries while allowing in-state wineries to sell out of their tasting rooms. The first line of attack on that proposition is that on-premises sale requirements, though literally neutral, so obviously favor nearby wineries over more distant ones that they should be analyzed as facially discriminatory against interstate commerce, putting the burden on the state to demonstrate that the differential is indispensable for carrying out a legitimate state objective. The second line is that, even if we read on-site requirements as facially neutral, the harm to interstate commerce from the difference in access to the market outweighs any benefit the differential may confer on the state; under that analysis, the plaintiffs, rather than the state, have the burden of factual proof. The main line of defense is that the differential is a mere “accident of geography” without Commerce Clause significance. Lower courts in other cases have disagreed on which view is correct.

The Sixth Circuit held that discrimination in favor of Tennessee wineries would have to end and noted that good arguments in principle exist for leveling up and for leveling down. In the absence of a sufficient record for choosing one or the other, it remanded the case to the district court for further proceedings. The opinion provides no instructions on how much change would be required to achieve a level playing field if the district court decides to extend equivalent benefits to out-of-state wineries, rather than reduce privileges of in-state wineries. Thus, it looks as if the plaintiffs have an opportunity on remand to provide support for their proposition that leveling up requires allowing direct shipment.

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