The District Court for the Eastern District of Michigan ruled that a Michigan law preventing out-of-state retailers from shipping DtC to Michigan retailers is unconstitutional on Friday, September 28. The case, Lebamoff Enterprises v. Snyder, is the second time in a decade that a court has ruled against a Michigan law of this type. (Read this post from the ShipCompliant archives.)
At issue was a law in Michigan permitting in-state retailers to ship alcohol directly to Michigan residents through common carriers, while preventing out-of-state retailers from doing the same (or more precisely, Michigan did not permit out-of-state retailers to get the license required to enable them to make direct-to-consumer (DtC) shipments).
Currently, only 13 states and the District of Columbia permit out-of-state retailers to ship DtC to their residents. This is a more narrow map than for wineries, who can now ship DtC to residents of 45 states and D.C.
Wineries have more expansive DtC rights due to both concerted lobbying efforts to change state rules, and a clearer jurisprudence: while the 2005 Supreme Court ruling Granholm v. Heald, which established the current legal basis for winery DtC shipping, clearly applied to beverage alcohol suppliers, its application to retailers and wholesalers has been the subject of debate. (This post talks about that debate.)
However, the District Court’s ruling in Lebamoff v. Snyder represents another win for retailers as they work to get Granholm applied to retailers. (The case also could have big implications for another current lawsuit, Tennessee Wine and Spirits Retailer Ass’n v. Byrd, which the Supreme Court recently granted certiorari to.)
Notably, this recent decision mimics a case from ten years ago, where a previous Michigan law preventing out-of-state retailers from shipping DtC while permitting in-state retailers to do so was invalidated. After that case, Michigan amended its rules to prohibit all DtC shipping from retailers (retailers were afterwards permitted to make DtC deliveries, but only using their own vehicles, which is a major blocker for out-of-state retailers).
Michigan amended its rules again last year to their current (discriminatory) state. Why the state thought the rule would pass muster this time is unknown, but apparently it is having no more luck now than it did back then.
Where this case will go is unclear. Michigan could appeal the ruling and hope that a higher court will be more favorable (but again, the Supreme Court could head this off in Byrd). The state could also cut its losses and repeal the rule, reverting to a situation where no retailer can ship DtC, as it did ten years ago. Or, the state could accept this ruling and come to grips with a world where retailers can ship DtC to Michigan residents.
Taking this last option might just be the easiest solution for the state. After all, there has been tremendous success in establishing licensing, tax, and reporting requirements for shipping DtC. While most states only allow wine producers to enter this market, in those 13 states, plus D.C., retailers have shown they can also comply with state rules. And this also reflects the broader economic reality too, where consumers want greater access to more products — even those not distributed in their state — and search for those products online.
How Michigan will react to this latest setback has yet to be seen. But there is the potential for the state to make a big change, and even possibly on the leading edge of a bigger wave of regulatory changes as retailers seek to gain the right to ship alcohol to residents of more states.
Update: On October 10, 2018, the District Court for the Eastern District of Michigan issued a stay pending appeal in Lebamoff v. Snyder, delaying enforcement of its ruling that the state’s retailer DtC shipping law was unconstitutional. The District Court reasoned that the legal environment was too uncertain following Supreme Court’s decision to hear Tennessee Wine and Retailer’s Ass’n v. Byrd. Since that case could preempt the ruling in Lebamoff, it would be inappropriate to force the state to undertake the regulatory change the District Court ruled was necessary. As such, no further action will take place with Lebamoff until after the Supreme Court has issued its ruling in Byrd.