|Source: The National Law Journal|
Five years after the Supreme Court settled one wine war, another is fermenting at the high court.
Wine Country Gift Baskets.com, an Internet purveyor of wine and gourmet goodies, has filed a petition challenging a decision by the U.S. Court of Appeals for the 5th Circuit. The petition contends that the appellate court wrongly upheld a Texas law that discriminates between in-state and out-of-state businesses. The law allows in-state retailers to remotely sell and directly ship alcoholic beverages to in-state consumers but bars out-of-state retailers from doing the same.
"Thus, a liquor store in Pasadena, Texas, may take an order for a case of wine over the telephone and ship it by Federal Express to a household in Houston, but an identical store in Pasadena, Calif., may not," explains the petition.
Christopher Landau, partner at Kirkland & Ellis, is counsel of record to Wine Country Gift Baskets and other specialty wine retailers in the petition: Wine Country Gift Baskets.com v. Steen. His firm is no stranger to the legal wine wars having represented the wine industry for a number of years.
Former Kirkland partner and former solicitor general Kenneth Starr coordinated the legal strategy in the key 2005 precedent at issue in this latest challenge—Granholm v. Heald. Starr, now president of Baylor University in Waco, Texas, is on the new petition in his private capacity. He and Kirkland partners James Basile and Tracy Genesen make up the rest of Landau's legal team.
In Granholm—a case involving wine producers—a 5-4 Supreme Court held that state laws that allow in-state wineries to ship alcohol directly to consumers, but restrict the ability of out-of-state wineries to do so, violate the dormant commerce clause by favoring in-state wineries at the expense of out-of-state wineries. Writing for the majority, Justice Anthony Kennedy said state authority to engage in this kind of economic discrimination was not the purpose of the 21st Amendment. That amendment, he said, did not save state laws violating other provisions of the Constitution.
"Granholm sought to end 'an ongoing, low-level trade war' between states over the remote sale and direct shipping of wine and other alcoholic beverages," the petition argues. "But this case shows that the war rages on—the battlefield has simply shifted from producers to retailers."
Texas, like many states, has a three-tier system governing the distribution of alcoholic beverages. The system is designed to ensure separate ownership of alcohol producers, wholesalers and retailers.
The 5th Circuit noted that the Granholm decision had called the three-tier system an "unquestionably legitimate" system under the 21st Amendment. Because discrimination between in-state and out-of-state retailers is an "inherent" part of that system, the appellate court concluded it cannot violate the commerce clause.
Landau said the ruling turns Granholm into a license to discriminate as long as the discrimination occurs at the retail level.
"This is just really an evasion of Granholm and a very flimsy attempt to distinguish Granholm," he said. "It keeps alive the trade war the Court thought it was conclusively ending in Granholm."
The 5th Circuit is not the only circuit to have misapplied Granholm, said Landau. The 2nd Circuit did so in an earlier decision: Arnold's Wines, Inc. v. Boyle (2009).
"When you're talking about interstate trade wars, the federal courts play a very important role," said Landau. "If two circuits have come out this way, our hope is the Supreme Court will realize Granholm is not nearly so limited and will want to clarify this for the lower courts."
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