Practical Winery
65 Mitchell Blvd, San Rafael, CA 94903
phone: 415-453-9700 ext 102
email: Office@practicalwinery.com
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NOVEMBER/DECEMBER 2010
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demanding challengers prove otherwise. Had this version passed, it would have become impossible to challenge any state alcohol law in court.
But the language was so blatantly anti-competitive that the bill’s sponsor, Rep. Bill Delahunt (D-Mass.), offered a more modest draft for full Judiciary Committee consideration on September 29. It removed provisions shifting the burden of proof to challengers of state laws and the unlimited justifications for state action.
Yet it maintained the provision breaking congressional silence, changing only the second sentence in Section 3(b) to read: “However, state or territorial regulations may not intentionally or facially discriminate, against out-of-state or out-of-territory producers of alcoholic beverages in favor of in-state producers or in-territory producers unless the State or territory can demonstrate that the challenged law advances a legitimate local purpose that cannot be adequately served by reasonable nondiscrminatory alternatives.”
This version appears much less problematic and in line with Granholm. Except, it only applies to producers and it appears to validate state laws that are indirectly or allegedly “unintentionally” discriminatory. Courts would then have to decide how to apply this new standard.
Policy implications
Both versions of HR 5034 are designed to empower wholesalers to buck deregulatory trends within the industry to ensure their governmentally secured-middleman role. Specifically, the legislation is designed to help states win cases defending anti-competitive laws that are currently being argued before federal courts and to encourage state legislatures to impose additional regulations.
“Direct-to-consumer shipments will never drive a wholesaler out of business, but the deregulation it is fostering will,” noted Craig Wolf of the Wine and Spirit Wholesalers of America in 2007. [iii]
Indeed, wholesalers recognize that Granholm has advanced a deregulatory trend. For example, Richard Mendelson, wine lawyer and author of From Demon to Darling: A Legal History of Wine in America, notes: “Within two and half years of Granholm, eleven states had leveled up, and none had leveled down completely … Those states had to open their borders to all direct shipping or close them entirely.”
Tom Wark of the Specialty Wine Retailers Association has noted that the new version of HR 5034 will open the door to a host of directly discriminatory state regulations
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BY
Angela Logomasini,
Director of Risk & Environmental Policy,
Competitive Enterprise Institute,
Washington, D.C.
A
mong the “fictions” allegedly being perpetrated by opponents of the new bill HR 5034 is one that reads, “Fiction: This bill will ‘overturn’ the 2005 Granholm decision.” A new public relations website — HR5034.org — hosted by the National Beer Wholesalers Association (NBWA), — addresses this issue and a number of other alleged “fictions” they claim are perpetrated by bill opponents.
This assertion strikes out at wineries and other producers who argue that HR 5034 would essentially override the decision in the Granholm v. Heald. That case invalidated discriminatory state laws that banned direct-shipping from wineries outside the state, while allowing in-state wineries to ship.
Wendell Lee, (General Counsel of the Wine Institute), expressed such concerns in Wine and Spirits Daily: “The scope of the bill [HR 5034] gives to the states the power to pass laws that totally disregard the Commerce Clause or federal statutes,” he notes. Yet the NBWA website says, “[O]nly the Supreme Court itself or a constitutional amendment can ‘overturn’ a Supreme Court decision.”
Commerce Clause
NBWA’s claim is highly misleading. Under the Constitution’s Commerce Clause, congressional action can override certain Supreme Court rulings. The Commerce Clause of the U.S. Constitution grants Congress the power “to regulate commerce … among the several states.” How that applies depends on whether Congress is silent on an issue or addresses it in legislation.
If Congress is silent, the court applies a legal doctrine known as the “dormant commerce clause.” It bars state laws that directly or indirectly apply differential legal treatment to in-state and out-of-state entities.
There are some limited exceptions. For example, states can pass laws that impact commerce if they can demonstrate that the law has “a legitimate purpose” (such as protecting public health) that it could not meet “in a less restrictive way.” [i] For example, in 1986, the Supreme Court allowed the state of Maine to ban imports of live fishing bait because of the potential to introduce new parasites into the state fisheries. [ii]
Granholm was decided on the basis of congressional silence. Accordingly, the Supreme Court held that states may not impose laws that apply “differential treatment of in-state and out-of-state economic interests that benefits the former and burdens the latter,” unless the state could not meet its purpose in a less restrictive way.
Overriding Granholm
HR 5034 would break Congressional “silence.” Section 3(b) explicitly states: “Silence on the part of Congress shall not be construed to impose any barrier under clause 3 of section 8 of article I of the Constitution (commonly referred to as the ‘Commerce Clause’) to the regulation by a State or territory of alcoholic beverages. However, State or territorial regulations may not facially discriminate, without justification, against out-of-state producers of alcoholic beverages in favor of in-state producers.”
The second sentence appears to provide some protection for Granholm, but Section 3(c) of the bill sets standards that essentially make all state regulations justifiable. It also would have directed the courts to assume that all state alcohol laws are valid,