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In Michigan, Federal Court Gives Out-of-State Retailers Same Shipping Rights as Wineries

State's ban on retailer shipping is ruled unconstitutional; judgment is stayed but residents begin ordering wine from out-of-state retailers

Robert Taylor

Posted: Tuesday, October 14, 2008

A federal judge has struck down Michigan's law permitting in-state retailers to ship wine directly to private residences but banning out-of-state retailers from doing the same, ruling it unconstitutional. The Sept. 30 decision, which effectively throws out Michigan's retailer shipping regulations, was stayed on Oct. 7 while attorneys for the Michigan Beer & Wine Wholesalers Association considered whether to appeal or begin lobbying for new legislation to bring the state into compliance.

Since the landmark 2005 Supreme Court ruling Granholm v. Heald declared that a state would be in violation of the Constitution's Commerce Clause if it treated in-state and out-of-state wineries differently in regard to shipping rights, state legislators have been gradually drafting new laws—some of which have triggered new suits. The 2005 decision did not address the rights of retailers, however. In many states, it is illegal for an out-of-state retailer to ship wine to residents. And while many large retailers have been fighting for legislation giving them the same rights wineries now have, many others have simply ignored the laws, which are inconsistently enforced.

Florida-based wine retailer Siesta Village Market, along with Michigan residents Joseph Chess and Terry Fowler, filed the lawsuit in United States District Court against Michigan Gov. Jennifer Granholm and Michigan Attorney General Mike Cox, challenging Michigan's ban. (Siesta Village Market was the plaintiff in a similar case decided in Texas this past January; Gov. Granholm was also the defendant in the Supreme Court's Granholm v. Heald decision.)

In her September decision, Federal Judge Denise Page Hood wrote, "The state's argument that the 21st Amendment [repealing Prohibition] gives it the authority to regulate alcohol coming into the state and the three-tier system it has designed for regulatory purposes is flawed. Plaintiffs have shown that Michigan's ban on direct shipments of wine from out-of-state retailers to consumers discriminates against out-of-state interests."

Indianapolis-based attorney Robert Epstein, who represented the plaintiffs and has worked on the case for two years, agreed to the stay, and called any decision to begin shipping to Michigan residents to be "presumptive." (Epstein was also involved in last year's Siesta Village Market v. Perry decision in Texas, which also ruled that states could not discriminate between in- and out-of-state retailers but is currently under appeal because the presiding judge in that case instituted a new law with his ruling, which critics have called untenable.)

Others had a different interpretation of the ruling. "[Michigan] is enjoined from enforcing any laws whatsoever concerning the prohibition on out-of-state retailers, which means out-of-state retailers may begin shipping into Michigan," said Tom Wark, executive director of the Specialty Wine Retailers Association.

For Michigan and Texas residents, however, the stays and appeals appear to be irrelevant, as out-of-state retailers such as Wine.com are shipping to them directly, despite the interpretation of many that the practice is still technically illegal.

"We're already serving Michigan customers," said Wine.com CEO Rich Bergsund after the ruling was handed down. That Michigan residents can now legally receive wine shipments from out-of-state retailers is "absolutely our interpretation [of the ruling]. This is a federal court finding that it's unconstitutional to treat outside retailers differently from in-state retailers on direct shipping," he said. (Wine.com is one of the few online retailers that does set up a brick-and-mortar warehouse in many of the states to which it ships, though it did not ship to Michigan residents prior to the Sept. 30 ruling.)

"More important than the legal [issues are] the practical issues: [In] most states that don't allow direct shipping from out of state, it's happening anyway," Bergsund said. "By opening up, [those states] can charge sales tax, and you can require people to get a license so you have some control over what's going on."

Michigan residents aren't the only ones benefiting from the confusing state of shipping laws. Residents in many "no-ship" states have little difficulty receiving shipments from out-of-state retailers despite the laws. "There's been people [shipping wine to Michigan residents] illegally forever," said Mike Lashbrook, president of the Michigan Beer and Wine Wholesalers Association. "That's nothing new. Some of these folks, their disregard for the laws are truly amazing."

"[We] believe that between the wine brands currently approved for sale in the state and the currently 420-some wineries throughout the country that have direct-shipping permits, the consumers have tremendous variety and choice," Lashbrook said.

While the virtual lack of enforcement of wine-shipping laws is a boon to residents and retailers willing to practice civil disobedience (and enjoy wine), it makes the cause of retailers working to enact proper legislations and play by the rules more difficult—retailers willingly subverting shipping laws are less likely to draw attention to themselves by joining the retailer association.

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