5th Circuit Denies Online Retailers

FILED JULY 23, 2010

Dear Client:

The 5th Circuit Court of Appeals has denied a request for a rehearing by the Specialty Wine Retailers Association (SWRA) in its Siesta Village Market v. Steen lawsuit. "We hold that the statutes do not run afoul of the dormant Commerce Clause. We vacate and remand for entry of judgment," said the decision.

The judges continued: "We conclude that the limited rights Texas has given its state-licensed retailers to make deliveries do not transgress the dormant Commerce Clause.

"We have held that Texas can require its authorized retailers to sell from locations physically located in Texas. Therefore, the dormant Commerce Clause does not support ordering Texas to issue retail permits for use at out-of-state locations. No other issue about the personal importation limit is meaningfully raised. We leave the provision fully in force."

You'll recall the 5th Circuit Court ruled in January that Texas does not violate the Commerce Clause by allowing in-state retailers to ship wine directly to consumers but banning out-of-state retailers from doing the same. That decisions stated that "because of Granholm and its approval of three-tier systems, we know that Texas may authorize its in-state, permit-holding retailers to make sales and may prohibit out-of-state retailers from doing the same. This put the 5th Circuit in accordance with the 2nd Circuit, which also rejected attempts by out-of-state retailers to ship directly to consumers in New York.

Then in February the association, which represents online wine retailers, filed a petition for an en banc hearing before the full Fifth Circuit court. An en banc occurs when all judges from the court come together to consider a case upon which a smaller panel of judges has already ruled. One of the 16 judges on the Fifth Circuit Court would have had to ask for such a hearing.

BACKGROUND. This was a rather bizarre case. A Texas District Court judge ruled that the 2005 Granholm v. Heald Supreme Court decision applied as much to retailers as it did to wineries, meaning a state may not allow in-state retailers to ship wine directly to consumers but ban out-of-state retailers from doing the same thing. However, the judge ruled that the state can require out-of-state retailers to purchase the wines they intend sell to Texas residents only from Texas wholesalers. The plaintiffs, Siesta Village Market and some consumers, and the defendant, Texas ABC, both appealed the decision. You can get more background on the case here.


The battle of HR 5034 is not cooling down anytime soon, it seems. And for the first time brick and mortar retailers are entering the scene. Jerry Rosen, executive director and legislative liaison of the Beverage Retailers Alliance of Illinois wrote House Judiciary Committee Chairman John Conyers a letter in response to the letter sent a few weeks ago 5 by supplier trade groups opposing HR 5034. In his letter Jerry calls out Discus, Wine Institute, Beer Institute, Brewers Association, Wine America and Specialty Wine Retailers Association, although the latter didn't sign the aforementioned letter.

Jerry writes that suppliers "have been in the forefront of attacking the three-tier system, while claiming to be interested in 'preserving the effectiveness of the existing state-based alcohol regulatory system.'"

For Jerry, size matters. He claims that "global giants" AB-InBev, SAB MillerCoors, Diageo and Pernod Ricard "want to remove any and all state legal barriers to further their goal of complete market dominance." These companies "covet the distribution tier of the industry. They can charge any price, deliver when they feel like it, and create any credit terms that suit them." He also writes that "these multinational enterprises have no understanding" of the "unique" alcohol regulation system in the US. "They would prefer an 'old world' or third world environment where they deal with little or no government requirements."

He then directly calls out Tom Wark, head of the Specialty Wine Retailers Association (online wine retailers). He disagrees with the part of the suppliers' letter in June that claims HR 5034 puts "'retailers at the competitive disadvantage" because it only mentions producers, not retailers. Well Jerry doesn't agree with that and gives an example of what he considers "faulty logic:" "'a dog is an animal, a cat is an animal; therefore, a dog is a cat.' Applying the same logic: a retail liquor store can sell to a consumer, a winery can sell to a consumer; therefore, a retail liquor store is a winery. Obviously this is not true." He writes that "the SWRA and Tom Wark have been very active in disseminating misinformation to on-line customers, and the wine press has bought into this misinformation."

Although the supplier trade groups state in their letter that "the current system of alcohol beverage regulation in the US provides a proven and effective balance between states and federal government," he claims they are not actually interested in regulations. For example, he writes that in 2007 Tom told listeners at a NABCA convention that he wants to create "'alcohol anarchy.'" And also points to the fact that A-B is currently suing the State of Illinois because they were denied a distributor license. "And they say they support the three-tier system?" he writes.

Opponents to HR 5034 claim it's a ruse by wholesalers to increase their profits. But "the opponents fail to neither recognize, nor even consider, the impact on job losses at wholesale and retail, states and local communities' ability to identify and collect tax revenues, local philanthropic participation by wholesalers, and 'bricks and mortar' retailers."

Jerry also accuses these opponents to HR 5034 of either being "interested in their profit or their personal pleasures with absolutely no regard for the fact that alcohol is a 'mind-altering drug....' All the arguments put forth by the opponents to HR 5034 are totally devoid of any social responsibility."

Granholm was supposed to help "small artisan wineries grow" but has instead resulted in rampant deregulation, he writes. He again calls out the "global conglomerates" and the SWRA "spearheaded by Tom Wark's propaganda" for criticizing wholesalers "whose very position was dictated by the predominantly foreign-owned brand owners (suppliers and manufacturers)." He believes blaming wholesalers is comparative to blaming the postal service "because your bank raised your interest rate or called in your bank loan."

In all, says Jerry, "HR 5034 was created in the attempt to limit the scope of the Granholm decision to the subject of small artisan wineries' market access on a state-by-state basis, recognizing the state's rights pertaining to alcohol within the authority granted by the 21st."

Thoughts? Let us know at megan@winespiritsdaily.com

Beam Global said today it has joined RNDC in Indiana. The company was with National Wine & Spirits for 37 years in the state, and will stick with the newly formed company after RNDC acquired certain assets of National in March. As a part of the agreement, Beam said both companies will focus resources and attention to growing Beam's share in the state. "Consumers in Indiana have made Jim Beam the number one Bourbon in the state," said Bill Newlands, president of Beam Global's U.S. business. So now a line is drawn: Diageo went with Southern's new operations in the state and Beam Global is with RNDC.


Banfi Vintners has appointed Capital Wine & Spirits, a member of The Charmer Sunbelt Group (CSG), as its exclusive distributor in Pennsylvania. Banfi was previously represented by Southern Wine & Spirits in the state. Banfi is also represented by CSG houses in Metro and Upstate New York, South Carolina, Colorado, Arizona, and Florida.


CHAMPAGNE REBOUND. "Because of the crisis, consumers temporarily switched to cheaper brands. This phenomenon is now receding. We're seeing a move back to the major brands and cuvees de prestige," Vranken-Pommery chairman Paul-Francois Vranken told Reuters in an interview.

AUSTRALIAN VINTAGE has named Neil McGuigan director and ceo, effective immediately. He was previously the company's GM of production and supply, but stepped in as interim ceo after Dane Hudson stepped down.

Until Monday, Megan

"The world belongs to the energetic."
Ralph Waldo Emerson

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