State Law Restrictions on Direct Sales to Consumers Are Ripe for Challenge
In the 2005 case Granholm v. Held, the U.S. Supreme Court struck down Michigan and New York laws that effectively prevented out-of-state wineries from shipping directly to in-state consumers but that allowed in-state wineries to conclude in-state direct sales. The Court held that these laws violated the U.S. Constitution’s Commerce Clause. Since then, lower federal courts around the country have had the tools to strike down similar state laws that facially discriminate against out-of-state producers without a permissible justification. For example, federal courts have struck down or enjoined facially discriminatory statutes—or selected provisions of such laws—in states such as Indiana, Kentucky, Massachusetts, New Jersey, Pennsylvania, Tennessee, and Texas.
But these rulings do not apply consistently across the country. For example, although the Sixth Circuit held unconstitutional Kentucky’s law requiring direct sales to be made only pursuant to in-person purchases, Indiana’s law requiring similar in-person sales remains on the books. And a number of other states retain laws restricting direct sales that appear legally dubious in the wake of Granholm and its progeny. But Granholm also has spurred Congressional attempts to restrict its reach. In 2010 and 2011, legislators introduced the Community Alcohol Regulatory Effectiveness (“CARE”) Act in the U.S. House of Representatives. In its latest iteration the bill aims to eliminate the federal statutory requirement that imported alcohol be subject to state laws “to the same extent and in the same manner” as alcohol produced in-state. The original version of the CARE Act did not survive the life of the last Congress, and it is unclear if the current version will find any more support in the present one. But notwithstanding this threat to direct shipping by out-of-state producers, overly restrictive state laws favoring in-state direct sellers remain ripe targets for litigation seeking to enforce Granholm and its reading of the Commerce Clause.
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This is certainly a problem for many Direct Sales companies. Good luck to those who have been affected.
~Adam Paul Green
Xocai Healthy Chocolate, Ambassador
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It seems like the inconsistent post-Granholm rulings are premised on either a narrow or broad interpretation of the case. The narrow interpretation only applies Granholm to producers, while a broad interpretation contemplates application to all three tiers (producers, wholesalers, and retailers).
The narrow interpretation strikes me as untenable, given that the Granholm court expressly applied its ruling to "out of state producers or shippers" of alcohol. To me, the court's inclusion of "shippers" makes its holding applicable to all three tiers.
The 2011 CARE act would, among other things, essentially break congressional silence and codify the narrow interpretation. In many instances, this would result in a windfall for wholesalers -- whom I suspect are strongly lobbying for this legislation -- given that it would allow states to impose blatantly discriminatory provisions on out-of-state retailers (e.g., force retailers to go through intrastate wholesalers to get their product to market).