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Category archives for “Tied-House”

Out-of-State Wine Sales: Going Beyond Direct Shipping

February 6th, 2012

In 2005, when Granholm v. Heald was decided by the Supreme Court, the doors to direct shipping wine to consumers opened wider than ever before. But the principles behind Granholm may open more than just the direct shipping avenue. Recently, a California winery stepped down this expanded path by opening a tasting room in Pennsylvania. Several states allow licensed wineries to operate satellite tasting rooms within the state. In Pennsylvania, limited wineries may operate, separately or in conjunction with other limited wineries, up to five additional tasting and off-premises sales locations within the state. No production or bottling is required at those five separate facilities. 47 Pa. Cons. Stat. § 5-505.2(a)(3). Virginia has a similar provision allowing licensed farm wineries to sell wine for on- and off-premises consumption at up to five additional retail locations. Va. Code Ann. § 4.1-207(5).

In order to become a licensed limited winery in Pennsylvania a winery must be producing wine from agricultural products grown in Pennsylvania. While this requirement seems to preclude an out-of-state winery from opening a tasting room in Pennsylvania, the Granholm court addressed this issue when it examined New York’s former requirement that only farm wineries, which can only produce wine from agricultural products grown in New York, were allowed the most direct avenue to ship wine to New York consumers. Granholm v. Heald, 544 U.S. 460, 476 (2005). In its decision the Court stated, “States may not enact laws that burden out-of-state producers or shippers simply to give a competitive advantage to in-state business.” Id. at 472. Thus, predicating the ability to open a tasting facility where direct sales are allowed on the production of wine solely from in-state grown agricultural products violates the principles of Granholm. In 2010 this exact issue came to heard in New Jersey when a law that allowed in-state wineries to sell directly to consumers from up to six salesrooms apart from the winery premises, while prohibiting out-of-state wineries from similar direct sales activities, was found to violate the dormant Commerce Clause. Freeman v. Corzine, 629 F. 3d 146, 159 (2010). While opening up facilities in other states is a large investment of time and capital that likely would not suit many wineries, it may be a viable strategy for some. Given the rapid changes over the last few years in new paths to consumers, keeping an open mind about ways to grow sales is always a good idea.

Supreme Court Denies Certiorari for Wine Country Gift Baskets.com Case

March 7th, 2011

As we mentioned last Monday, the Supreme Court was toying with the decision to grant certiorari to Wine Country Gift Baskets.com, et. al., v. John T. Steen Jr., et. al., a case that dealt with Commerce Clause and Twenty-First Amendment issues as they pertain to wine retailers inside and outside the state of Texas. The Supreme Court Justices took the case to conference three times and today finally issued their order denying certiorari. No reasoning for the certiorari denial was given, although such explanations by the Court are often not provided. This means that the Fifth Circuit decision, which upheld Texas’ law prohibiting out-of-state wine retailers from shipping wine directly to Texas consumers while allowing in-state wine retailers to ship wine directly to Texas consumers, will remain the final decision on the case. If you are interested in reading the Fifth Circuit’s opinion for the case, it can be found here.

Still No Certiorari Decision from the Supreme Court on Wine Country Gift Baskets.com Case

February 28th, 2011

The pins and needles many in the alcoholic beverage industry were on this morning remain, as the Supreme Court’s orders list issued this morningwas silent on the certiorari decision for Wine Country Gift Baskets.com, et.al., v. John T. Steen, Jr., et.al.Cases are typically distributed among the Supreme Court Justices on Fridays for their conferences, during which they discuss whether or not to grant certiorari. Orders are then typically issued the following Monday. If a case that goes to conference on a Friday is not among the order list published on the following Monday, it usually means the case is being discussed among the Justices, with a few but not a majority, arguing for the grant of certiorari. However, once a case has gone to conference more than once without a subsequent order being issued, it tends to mean that the votes for the certiorari grant are not and will not be there. This is now the second time Wine County Gift Baskets.com, et.al., v. John T. Steen, Jr., et.al. has gone to conference (first on February 18, 2011 and second on February 25, 2011) and not been included in the following Monday’s orders. Thus, it is unlikely that the case will be granted certiorari, although not impossible. If the case is denied certiorari, the Fifth Circuit’s decision will stand. For a summary of the Fifth Circuit’s decision, see our prior post here.

Vertical Integration in California (“Tied-House” Laws)

February 17th, 2011

The general rule with alcoholic beverage licensing is that you cannot be involved in more than one “tier” of the industry, meaning that suppliers and importers can’t be wholesalers, wholesalers can’t be retailers, retailers can’t be suppliers, and vice versa. The objective, which came about following the repeal of prohibition, was to promote the organized and responsible distribution of alcohol. It was thought that by keeping the three tiers separate, suppliers would not exert undue influence over retailers, consumers would not be encouraged to over consume, and the societal ills that led to prohibition in the first place would not be repeated. In the 75+ years since the creation of the three-tier system, dozens of exceptions have found their way into the California ABC Act. The tiers are no longer entirely separate and some licensees are permitted to hold licenses in other tiers. For example:

12/18 (Distilled Spirits Importer)/(Distilled Spirits Wholesaler)

17/20 (Wine and Beer Wholesaler)/(Wine and Beer Retailer)

9/17/20 (Wine and Beer Importer)/ (Wine and Beer Wholesaler)/(Wine and Beer Retailer)

There are restrictions on operating under each of these combinations, but the ability to hold them in combination remains a privilege available in California that is not available in many other states. The “tied-house” rules have implications that extend well beyond the licensing structure. If you are interested in learning more about tied-house issues, feel free to contact any of the attorneys here at Strike & Techel.