Supreme Court sides with winemakers in commerce case

The justices rule that some regulations on out-of-state shipments are discriminatory.

Winemakers from California and other states have moved one step closer in their bid to sell their products directly to consumers in Michigan, New York, and perhaps as many as 22 other states.

In a major victory for the alcoholic beverage industry, the US Supreme Court ruled Monday that while individual states retain the power to regulate liquor production, sales, and transportation within state borders, they do not possess the authority to regulate liquor in ways that frustrate the constitutional mandate of open interstate commerce within the nation as a whole.

The 5-to-4 ruling is significant for the US liquor industry because it opens the door to efforts to expand wine and other alcoholic beverage sales through direct-to-customer telephone and Internet marketing nationwide.

While the ruling preserves the patchwork regulatory scheme set up by each of the 50 states following the repeal of Prohibition in 1933, it makes clear that the states may not enact liquor regulations that favor local businesses over out-of-state businesses.

The ruling is significant in constitutional terms because the case forced the justices to confront and resolve a fundamental clash between two competing portions of the Constitution. It pit the commerce clause against state-by-state regulation of alcoholic beverages authorized under the 21st Amendment.

"States have broad power to regulate liquor under Section 2 of the 21st Amendment," says Justice Anthony Kennedy in the majority opinion. "This power, however, does not allow states to ban, or severely limit, the direct shipment of out-of-state wine while simultaneously authorizing direct shipment by in-state producers."

Justice Kennedy adds, "If a state chooses to allow direct shipment of wine, it must do so on evenhanded terms."

The decision, in three consolidated cases, runs counter to a trend at the high court under Chief Justice William Rehnquist that favors states' rights over assertions of federal power.

In a dissent, Justice Clarence Thomas accuses the majority justices of making "policy choices" that Congress and the 21st Amendment left entirely to the states. "Whatever the wisdom of that choice, the court does this nation no service by ignoring the textual commands of the Constitution and acts of Congress."

The commerce clause is aimed at facilitating the development of a national economy. As such, it bars states from enacting protectionist or other discriminatory trade measures that might favor local businesses over out-of-state businesses.

In contrast, the Constitution's 21st Amendment, which ended Prohibition, empowers each state government to regulate alcoholic beverages within their own borders.

Monday's decision stems from three lawsuits filed against the states of Michigan and New York by out-of-state wine producers complaining that both states enacted protectionist laws that favor in-state wineries.

Wineries in Michigan and New York are permitted to ship directly to consumers, but out-of-state wine producers are not. The out-of-state wineries wanted to sell their products directly to consumers in Michigan and New York - as well as in other states. But they were barred by state regulations.

Twenty-six states allow direct interstate shipment of wine to in-state consumers. But 24 states require that such sales take place only through the regulatory structure established under state law.

"The 21st Amendment's aim was to allow states to maintain an effective and uniform system for controlling liquor by regulating its transportation, importation, and use," Kennedy writes. "It did not give states the authority to pass nonuniform laws in order to discriminate against out-of-state goods, a privilege they never enjoyed."