Wine distribution battle opens state-court phase
Posted on Wednesday, August 16, 2006
URL: http://www.nwanews.com/adg/News/163620/
In May last year, the U. S. Supreme Court seemed to clear the way for Arkansas consumers to buy wine from California’s Napa Valley as easily as they do from Franklin County.
In Granholm v. Heald, the court held that Michigan and New York statutes that allowed in-state wineries, but not outof-state wineries, to sell directly to consumers were unconstitutional because the laws violated the Commerce Clause of the U. S. Constitution, which forbids discrimination in interstate commerce.
That, everyone agrees, would make Arkansas law, which affords in-state wineries the same preference, clearly unconstitutional. But, 15 months later, the boutique wines of California remain out of reach.
On Tuesday, finally, the issue reached an Arkansas courtroom.
Not much happened.
But f irst, a little background:
A month after the Supreme Court decision, a Little Rock oenophile filed suit in federal court, asking that he be allowed to order directly from out-ofstate wineries.
That threatened the hold that the three companies licensed to distribute alcohol in Arkansas have had on the marketplace. Two of the companies are owned by Stan Hastings of Little Rock; the other is part of a national firm.
So, in January, distributors and Arkansas’ package-store owners filed suit in state court, asking that in-state wineries lose their preferential treatment — and that their distribution system remain intact.
U. S. District Judge Susan Webber Wright has put the federal case on hold until the state case is decided.
Tuesday was the state case’s first day in court.
No one talked about the issues.
Instead, for about an hour and a half, Pulaski County Circuit Judge Jay Moody listened to attorneys argue about whether the distributors and retailers have legal standing to pursue their case in state court. He promised to decide by Friday.
It may have been the tiniest step forward, but Arkansas is not the only state taking tiny steps. The simple reason: Each state’s liquor regulations are unique.
Attorneys on both sides note that the Supreme Court ruling simply remanded the matter back to New York and Michigan for those states to fix in their own ways. Attorneys say it would be hard to come up with a blanket remedy because only certain sections of some state’s laws are unconstitutional. Each state legislature could approach the issue differently.
In Arkansas, the special treatment now afforded in-state wineries is “severable from the remaining provisions of the statute,” which establish the three-tier, winery-wholesalerretailer system, says a court filing by attorney Allan Gates, who represents the distributors and retailers. He argues that cutting out the special treatment for in-state wineries would be the simplest remedy.
The reason behind the patchwork approaches to alcohol regulation across the country can be found in the 21 st Amendment to the U. S. Constitution, which ended Prohibition in 1933 and gave states broad power to control alcohol sales within their borders. Arkansas’ system favoring in-state wineries followed in 1935, and has been in place for 71 years. Because alcohol has long been a social concern, state alcohol regulations were largely viewed differently from other economic transactions that would typically fall under interstate commerce provisions. Then came the Supreme Court ruling.
NATIONWIDE DEBATE Now, “there’s litigation going on all across the country,” attorney Will Bond of Jacksonville, who represents Arkansas’ Post Winerie, said Tuesday. Post is an intervenor in the state case and is asking that the lawsuit be thrown out.
Also asking that the state case be thrown out are Phil Kaplan and Robert Epstein of Indianapolis, attorneys for Little Rock cardiologist Scott Beau and Wyncroft LLC, a Michigan winery, who filed the federal suit.
Epstein, who filed the Michigan and New York suits that led to the Supreme Court’s ruling, said that he has had to file suits in 20 states to force compliance with the ruling.
He blamed distributors and retailers, out to protect their business interests, for preventing the Supreme Court ruling from having an immediate impact.
U. S. District Judge Wright has ruled that Arkansas’ distributors and retailers do not have legal standing to intervene in the federal case, because they could not show how their property rights would be affected if outof-state wineries were allowed to ship directly to Arkansas consumers.
Distributors and retailers say they want to protect the threetier system that, as in some other states, requires producers to sell and ship only to wholesale distributors, and the distributors to sell and ship only to the retailers. Under the three-tier system, retailers may in turn sell only to consumers.
WHAT’S AT STAKE Stan Hastings, whose family owns Moon and Central distributors, two of the three distributors in Arkansas, believes alcohol, like prescription drugs, needs to stay regulated, “just because of what it is.” “ We’re not talking about bubble gum or car parts, ” he said last week. “We’re talking about something that needs to be regulated from a social standpoint.” A father of three, he said his biggest concern is keeping alcohol out of the hands of minors.
He noted that in Maryland, the buyer has to pick up the purchase at a retailer to ensure the buyer is at least 21 years old. He’d like to see that requirement be part of Arkansas’ ultimate solution.
“But we can’t get there until we get to the Legislature,” which doesn’t meet again until January.
Kaplan, representing consumers such as Beau, says that distributors want to keep their middleman position, as well as their monopoly in deciding which wines will be for sale. He suggested that they don’t want to mess with small wineries.
Hastings responded that he often tries to buy from small wineries to appease people who make special requests, but that frequently those wineries don’t have enough product to make shipping economical. If they do, they often aren’t interested in Arkansas as a marketplace.
Post Winerie, near Altus, is one of 11 licensed native wineries in Arkansas. Only one of them — Wiederkehr, also near Altus — is on the inventory of an Arkansas distributor.
John Post, whose greatgrandfather started Post Winerie in 1880, said the retailers and distributors’ lawsuit scares him, because it would prohibit Post from selling directly to retail stores.
“We’d go out of business overnight,” he said.
Meanwhile, the standoff continues.
Circuit Judge Moody said Tuesday that he had hoped to rule from the bench on whether to dismiss the state case, but needed to study the matter first. If he allows the case to proceed, he will then listen to attorneys ’ arguments on the merits of the case. Then he will decide if it should proceed to trial.