March 30, 2009

THIS WEEK THE BOTTOM LINE IS:

KEY RETAILER WINE SHIPPING CASE TO BE HEARD TOMORROW IN THE FIFTH CIRCUIT COURT OF APPEALS IN NEW ORLEANS

Tomorrow oral arguments will be heard in the 5th Circuit Court of Appeals in New Orleans on the most important wine shipping-related case currently moving through the federal Courts system. Siesta Village Market v. Perry challenges a complicated ruling in the lower Federal District Court of Texas over the issue of retailer-to-consumer wine shipments by out-of-state retailers to Texas residents.

THE ORIGINS OF SIESTA VILLAGE MARKET V. PERRY

Specialty Wine Retailers Association originally filed suit against the state of Texas arguing that it unconstitutionally discriminated against out-of-state retailers by not allowing them to ship wine directly to Texas residents while allowing its own retailers to do so. Our case was based on the 2005 Supreme Court decision Granholm v. Heald. In that groundbreaking case the Court announced that while a state has broad latitude in terms of how it may regulate the sale and distribution of wine within its borders due to the 21st Amendment, that authority does not trump the Commerce Clause of the Constitution that gives the duty to regulate interstate commerce to the federal government.

The Supreme Court went on to clearly say that a state may prohibit or allow direct shipment of wine, but it must do so on an even handed basis for both in-state and out-of-state business.

The case move very slowly through the Federal District Court after the Texas wine wholesalers were allowed to intervene in the case as defendants along with the State. There was even a piece of legislation promoted by Texas wine wholesalers and eventually passed in Texas prior to the decision in the District Court that was supposed to diminish the degree of discrimination that SWRA was challenging.

DISTRICT COURT DECISION SUPPORTS RETAILER SHIPPING

In January of 2008, after numerous briefs had been filed and oral arguments made in District Court, Judge Sidney Fitzwater rendered his decison. It was a decision that followed the guidance of Granholm v. Heald, but instituted a remedy to fix the discrimination that SWRA believes maintains the very discrimination and became the basis of our appeal to the Fifth Circuit Court of Appeals.

Judge Fitzwater agreed that the state of Texas acted unconstitutionally by banning out-of-state retailers from shipping wine to Texas residents while allowing its own retailers to do so. Within the 55-page decision Judge Fitzwater concludes, "that defendants [The State and the Wholesalers] have failed to establish that Texas' discriminatory direct-shipping laws are necessary to achieve a legitimate state interest."

This part of the decision alone was of great importance as it put to rest the claim not only by the State of Texas and its wholesalers but by state Attorneys General and others across the country that the 2005 Granholm v. Heald decision did not apply to retailers, but only to wineries. It was a victory for wine retailers, wine consumers and free trade.

THE REASON SWRA APPEALED THE CASE TO THE 5TH CIRCUIT

However, Judge Fitzwater in his decision then went on to offer his own remedy to the unconstitutional Texas direct shipping scheme, rather let the Texas Legislature handle the remedy. This judicial remedy is where SWRA parted company with the Judge's view of the case and led to our appeal.

Judge Fitzwater went on to argue that the state of Texas, though it could not prohibit out-of-state retailers from shipping to Texas as long as in-state retailers were allowed, could force out-of-state retailers to first purchase the wines it shipped into the state from Texas wholesalers. SWRA finds this "remedy" to the discrimination problematic on a number of levels.

First, it's logistically impossible. It would mean a New York-based wine store would first need to have wine ordered by a Texas customer sent to New York by a Texas wholesaler, pay for that shipment from the wholesaler, then turn around and send the wine back to the Texas customer. Not only does the expense of the transaction make this impossible, it also gives Texas consumers access to no more wines than it already has access to by virtue of only being able to order wines that Texas wholesalers themselves are able to procure and offer.

Second, the very act of doing this is illegal. There is no state in the U.S. that allows its retailers to purchase wine from out-of-state wholesalers. So in order to fulfill the requirement set down by Judge Fitzwater, the out-of-state retailer would have to break the law, making it practically impossible for out-of-state retailers to ship into Texas and leaving the discrimination in place.

Third, the state of Texas could not issue the necessary permit to out-of-state retailers allowing them to buy wine from a Texas wholesaler because by doing so it would be granting a permit to a business it knew was not in good legal standing--the retailer applying for the permit would be breaking the laws of its own state. Texas may not issue a license or permit to companies it knows is not in good legal standing.

Finally, it is rarely the job of the judiciary or courts to legislate in place of elected officials. By issuing his own remedy to the discrimination he found in Texas law concerning direct shipment by out-of-state retailers, Judge Fitzwater essentially acted as a legislator, making law himself.

SWRA appealed the lower court decision to the 5th Circuit Court of Appeals on all these grounds.

The state of Texas as well as Texas wholesalers also appealed the case to the Fifth Circuit Court of Appeals, arguing that Judge Fitzwater was mistaken in his analysis of the state's rights to regulate the sale and distribution of alcohol. They will argue in front of the Fifth Circuit that Judge Fitzwater got it wrong when he ruled the Texas law unconstitutional under the principles laid down by the Supreme Court's Granholm v. Heald decision. They will further argue, however, that if the Judge did rule correctly on the merits of the case, then his remedy should be upheld.

THE IMPORTANCE OF THIS CASE TO CONSUMERS & RETAILERS

Though this is a complicated case, it does speak directly to wine consumers who desire merely to obtain the wines they want and who want access to the true American marketplace of wines. It is also a case that speaks directly to that relatively small group of retailers across the country that desire to fulfill the growing market for specialty wines now being made in every state in the Union and imported from numerous countries that simply don't find their way into the collections of wines that states' wholesalers choose to make available.

Ken Starr and Tracy Genesen of the law-firm of Kirkland and Ellis have headed up this litigation on behalf of SWRA and Starr will make the oral arguments in front of a 3-judge panel in the federal court house in New Orleans on Tuesday. A decision from the 5th Circuit Court could come as early as June or be delayed as long as late fall or early winter.

The Bottom Line is published weekly by the Specialty Wine Retailers Association. More information on SWRA is available at www.specialtywineretailers.org

Tom Wark, SWRA's Executive Director, can be contacted at 707-935-4424 or via e-mail at twark@specialtywineretailers.org [mailto:twark@specialtywineretailers.org].

The Specialty Wine Retailers Association is a national organization of wine retailers, associated businesses and wineries that promote a free, open and appropriately regulated national market for wine.

SWRA's mission is to legally open the national US wine market to all US fine wine retailers. US wine consumers do not want their choices of wine, or wine merchants, artificially restricted by state borders, and those consumers are the customers of SWRA's members.