Stephen Coppolo, a member of the firm???s Employment Counseling and Litigation Practice Group, reports the following:
In January, the Boston-based First Circuit Court of Appeals ruled unconstitutional a Massachusetts statute severely limiting the ability of what the law defines as ???large??? wine producers, all of whom were outside of Massachusetts, to ship wine directly to state consumers. The First Circuit decision is a victory for winemakers across the country, as the Massachusetts??? law was the first in a wave of state laws passed in reaction to the Supreme Court???s 2005 Granholm v. Heald decision, which held unconstitutional New York and Michigan schemes that permitted in-state wineries to ship directly to consumers, while prohibiting out-of-state wineries from doing the same.
The Massachusetts statute, Mass. Gen. Laws ch. 138, ?? 19F (2006), defines ???small??? wineries are as those that produce less than 30,000 gallons of grape wine per year, while ???large??? wineries are those that produce more than 30,000 gallons of grape wine per year. Under ?? 19F, ???small??? wineries may sell wine both through traditional beverage distributors and through direct to consumer shipments. ???Large??? wineries must choose to either their sell products through distributors or through direct shipments to consumers. Key to the First Circuit???s ruling was the fact that all wineries in Massachusetts qualified as small wineries, entitled to the competitive advantage against large wineries, each of which was based out-of-state.
Specifically, the First Circuit held ?? 19F violated the Commerce Clause because it had both the purpose and effect of favoring in-state wine producers and the Commonwealth had not demonstrated ?? 19F achieved a legitimate local purpose that cannot be furthered by a non-discriminatory alternative.
The court found that the effect of ?? 19F was discriminatory against out-of-state wine producers since ???large??? winemakers are not offered the ability to benefit from the synergy provided with dual-marketing through direct-to-consumer shipments and through traditional beverage distributors who procure placement of wines in retail outlets. The court also rejected the Commonwealth???s argument that small wineries both inside and outside of Massachusetts benefited, noting that 27 of Massachusetts??? 31 wineries have obtained small winery licenses (allowing them to enjoy the benefits of the law), while only 26 of the 2,933 out-of-state ???small??? wineries have done so.
The court also found ?? 19F???s discriminatory purpose was clear from the statements of the bill???s sponsor that ???[w]ith the limitations that we are suggesting ??? we are really still giving an inherent advantage indirectly to the local wineries.??? Further, a state senator whose district included Massachusetts??? then largest winery, which was planning to expand above the 30,000 gallon limitation, voiced concern about the legislation???s effect on that winery. Soon after, language was added to the bill exempting non-grape wine from the calculation, allowing the winery in question to safely avoid the 30,000 gallon cap. Lastly, the court found no correlation between the 30,000 gallon number chosen and any other state or federal system of classifying wine producers: the only correlation found was with the Massachusetts wine industry.
The Court further rejected Massachusetts??? argument that no non-discriminatory method was available to meet the purported purposed behind ?? 19F, noting that the National Conference of State Legislatures adopted a Model Direct Shipment Bill in 1997, which does not regulate winery access to direct shipments based on winery size. Lastly, the Court rejected an unrelated argument that the 21st Amendment to the United States Constitution, which repealed Prohibition, overrides the Commerce Clause in this area and gives states the power to enact laws that discriminate against out-of-state producers.
Massachusetts could seek Supreme Court rule of the First Circuit decision, although the soundness of the First Circuit???s reasoning leaves Massachusetts with a steep hill to climb in successfully having the decision overturned. More likely, the First Circuit decision will serve as a model for other federal trial and appeals courts to rule on the constitutionality of similar laws enacted in other states.
