Court allows direct out-of-state wine sales

WASHINGTON -- The Supreme Court ruled yesterday that states cannot ban direct-sale shipments from out-of-state vineyards if they allow local wineries to sell directly to consumers, a decision that strikes down laws in 24 states, including Massachusetts, Connecticut, Vermont, and Maine.

The 5-4 decision means that state legislatures could loosen shipping rules to allow all wineries to ship to their residents, or they could tighten laws to shut down all in-state direct sales that involve shipping as well.

If legislatures react by allowing all wineries to ship to their residents, the ruling could unleash a new boom in the burgeoning Internet-order market that has helped smaller vineyards flourish. One industry group said about 2 percent of the $23.2 billion in annual US wine sales is currently done through direct sales, but numbers are restricted by the large number of states banning out-of-state sales.

''This is the best day for wine-lovers since the invention of the corkscrew," said Clint Bolick of the Institute for Justice, which argued for a winery in the case. ''This landmark ruling is a victory for consumers and small businesses and a defeat for economic protectionism. It demonstrates that in the era of the Internet, the court will vindicate the principles of free trade that made this country great."

But critics of the ruling argued that allowing more direct wine sales will open the floodgates to minors obtaining wine over the Internet. Many states, including Massachusetts, require that buyers of alcohol by mail declare that they are of legal drinking age, but violations are difficult to enforce.

The critics also have vowed to ask legislatures to end all mail-order wine shipping, which would limit consumer choices and hurt smaller wineries whose production is too small for large wholesalers to bother doing business with them. In that effort, they will have the well-funded backing of the alcohol wholesale industry, which fears losing its cut of the business.

The Wine and Spirits Wholesalers of America ''supports state efforts to strengthen -- not weaken -- alcohol laws by making all producers play from the same set of rules that ensure accountable, responsible alcohol sales," said association president Juanita Duggan. ''Face-to-face ID checks by those licensed to sell alcohol are the best way to do that."

Already, customers are largely banned from ordering hard liquor and beer directly from manufacturers, but wine, made by numerous small vineyards, has often been treated differently.

A spokeswoman for the Massachusetts Alcoholic Beverages Control Commission said it would not comment on the Supreme Court ruling. Last week, a Connecticut winery and two wine consumers in Middlesex County filed a lawsuit in federal court against the state commission, seeking to strike down Massachusetts' barriers to out-of-state shipments. Yesterday's Supreme Court ruling virtually guarantees that the lawsuit will succeed.

Meanwhile, lawmakers in Massachusetts have filed bills on both sides of the issue in recent years, but they have not gone anywhere.

Steve Gross, director of state relations for the Wine Institute, a trade association representing 840 California wineries, said he expects the Legislature to move quickly now that the Supreme Court has declared that the existing law cannot stand. His group, he said, would lobby for Massachusetts to pass a regulated system like one in New Hampshire, whereby out-of-state shippers can obtain state licenses and in return pay taxes to the state.

Yesterday's case grew out of lawsuits by vineyards against the states of Michigan and New York, each of which allowed in-state wineries to ship directly to consumers but had regulations making it more difficult for customers to buy directly from out-of-state producers, an increasingly popular move among wine enthusiasts.

The case involved two seemingly contradictory constitutional provisions.

The Constitution designates that Congress alone can regulate matters that affect interstate commerce, applying rules equally among the states. But a clause in the 21st Amendment, which ended Prohibition in 1933, says that states may set their own rules regarding the importation and sale of alcoholic beverages inside their borders.

The conflict made little difference for the first seven decades of its existence. But the arrival of the Internet and the growth in small wineries and wine tours put the two provisions on a collision course.

Associate Justice Anthony Kennedy, writing for the narrow majority, reconciled the two by saying that states may set whatever rules they wish for alcohol, but they cannot discriminate between in-state and out-of-state producers. He was joined by associate justices Antonin Scalia, David Souter, Ruth Bader Ginsburg, and Stephen Breyer.

The power of states to regulate alcohol sales, Kennedy wrote, ''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. If a state chooses to allow direct shipment of wine, it must do so on evenhanded terms."

In two dissenting opinions, the other four justices -- Chief Justice William Rehnquist and associate justices Sandra Day O'Connor, John Paul Stevens, and Clarence Thomas -- argued that the 21st Amendment carved out an exception for intoxicating beverages, allowing states to do anything they wanted in regulating them.

''The text of the Twenty-first Amendment is a far more reliable guide to its meaning than the unwritten rules that the majority enforces today," Stevens wrote.

Supporters of allowing states to bar only outside shipments of wine had also argued that it was easier for the government to regulate licensed in-state producers to make sure that they did not sell wine to minors.

But Kennedy rejected that argument, saying there was little evidence that the 26 states that allow out-of-state wine shipments had greater problems with sales to children. This was not surprising, he wrote, because minors prefer beer, wine coolers, and hard liquor to wine. Also, they have a more direct means of obtaining alcohol, and they want ''instant gratification."

Opponents were unconvinced. Michigan Liquor Control Commissioner Nida Samona said she would recommend to that state's legislature that it ban all direct-sale shipments, saying the risk of sales to minors was too great.

In Massachusetts, Attorney General Thomas Reilly, who signed on to a friend-of-the-court brief asking the Supreme Court to uphold the Michigan and New York laws, vowed to continue fighting online sales of alcohol to minors. In 2004, his office conducted a sting against seven online retailers who had shipped wine, beer, and liquor to minors in Massachusetts.

According to the Institute for Justice, the 24 states whose laws were affected by the Supreme Court's ruling are: Alabama, Arizona, Arkansas, Connecticut, Delaware, Florida, Indiana, Kansas, Kentucky, Maine, Maryland, Massachusetts, Michigan, Mississippi, Montana, New Jersey, Ohio, Oklahoma, Pennsylvania, New York, South Dakota, Tennessee, Utah, and Vermont.