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WASHINGTON — To Juanita Swedenburg, vintner, farmer, rancher and Daughter of the American Revolution, the issue is simple. “I don’t have any problem shipping a bull to Montana,” she says. “What about a case of wine? Both come from the soil of Virginia. That’s what the interstate commerce clause is all about. That’s what the Founding Fathers meant.” Swedenburg runs the Swedenburg Estate Vineyard and a large Angus cattle operation. She admits she knows little about constitutional law. But she knows a lot about the frustration of New Yorkers and other out-of-state visitors to her winery in Middleburg, Va., popular hunt country and tourist magnet. “People come from all over,” she said. “They’ll take a few bottles home, and once they get back home, they telephone us and want us to send them a few bottles more. I did for a few years, and then I discovered the problems with all of these laws. Such a hodgepodge. Such a mess.” Laws in 26 states prohibit the direct shipment of wines to consumers across state lines. New York is the largest prohibition state and the second-largest wine market in the nation. At the same time, New York and some of the other 26 states allow the in-state direct shipment of wine to consumers. That interstate-intrastate distinction, she and others believe, is unconstitutional economic discrimination under the commerce clause. Swedenburg, other winery owners and wine lovers are challenging direct-shipment laws in suits around the country. Their primary opponents are state officials and wine and beverage wholesalers — the middlemen between producers and retailers in the distribution system common to most states. That group argues that the 21st Amendment, which repealed Prohibition and gave states the authority to regulate the importation of alcohol, trumps the commerce clause. Proponents of direct shipment received a boost this month from a Federal Trade Commission report that concluded that consumers could “reap significant benefits” if they could purchase wine online from out-of-state sources and have it shipped directly to them. States that permit interstate direct shipment, the report said, report few or no problems with shipments to minors or with tax collection — two major objections to direct shipment voiced by opponents. The litigation thus far has produced mixed results. But because of a recent decision by the Fifth Circuit U.S. Court of Appeals in favor of the wineries, lawyers agree that the stage may be set for the entry of the U.S. Supreme Court into this dispute. “This is almost a classic, moot-court type of case in that it pits the 21st Amendment against the commerce clause, and the boundaries between those two constitutional provisions are not entirely clear,” said Clint Bolick of the Institute for Justice, which is representing Swedenburg, three New York wine consumers and California vintner David Lucas in the effort to topple New York’s prohibition. Grape lovers For Bolick and other lawyers pressing the direct-shipment assault, the litigation is a labor of love of wine. They are handling their cases pro bono. It was during a wine-tasting visit to Swedenburg’s winery in his home state of Virginia that Bolick learned about the direct-shipment bans and began thinking about a lawsuit. Robert Epstein of Indianapolis’ Epstein & Frisch, a wine collector and former chef, was once the wine columnist for the Indianapolis Star. His successor, Russell Bridenbaugh, came to him and complained that he could no longer get samples from out of state for his column because a new law made those shipments a felony. Epstein, Bridenbaugh (a nonpracticing lawyer) and Alexander Tanford of the Indiana University School of Law at Bloomington filed the first direct shipping challenge in Indiana. They lost in the Seventh Circuit. Bridenbaugh v. Freeman-Wilson, 227 F.3d 848 (7th Cir. 2000). And the Supreme Court in 2001 denied a petition for review. Now they have filed suits in North Carolina, Michigan, Florida and, just this month, in New Jersey and Ohio. In Texas, Sterling Steves, of Fort Worth’s Lane, Ray, Wilson, Carr & Steves, has been a freelance wine writer, along with his wife, for 15 years. “We know a lot of people in the wine business and we were familiar with their problem,” he said. Steves was researching a suit at about the same time as Mark Harwell of Houston’s Cotham, Harwell & Evans. Harwell’s partner had been unable to ship a wine that he liked to his home in Houston. The firms joined forces to file the successful challenge to Texas’ prohibition. Dickerson v. Bailey, 02-21137 (Fifth Cir. June 26, 2003). Texas officials are now weighing whether to seek Supreme Court review. Most wine in the United States is distributed through a three-tier network that developed after the repeal of Prohibition. A producer must obtain a permit to sell wine. The producer then sells to a licensed wholesaler, who pays excise taxes and delivers the wine to a retailer. The retailer sells the wine to the consumer. The FTC report noted that, as demand for wine has increased in the past two decades, the number of wineries has grown to well above 2,000. Many are small, producing fewer than 2,000 cases a year, compared with large wineries’ 300,000. Meanwhile, the number of wholesalers has shrunk, according to the FTC, from several thousand in the 1950s to a few hundred today. The smaller wineries complain they cannot get wholesalers to carry their labels. Gallo, Mondavi, Kendall Jackson — the big wineries — need to go through wholesalers, said Epstein, but two types of wineries don’t do well with wholesalers. “Mom-and-pop operators don’t have great name recognition,” Epstein explained. “And boutique, highly allocated wines — Screaming Eagle, Helen Turley — those wineries don’t need distributors. They can sell every drop they produce and don’t want to give up 20 percent to distributors.” All of the suits, except Bolick’s in New York, rely only on the commerce clause. Bolick also raises claims under the First Amendment and the privileges and immunities clause. The commerce clause empowers Congress to regulate commerce among the states. The Supreme Court has recognized that this provision has a logical corollary: States lack the power to impede interstate commerce with their own regulations. This “negative aspect” of the commerce clause has become known as the “dormant commerce clause” doctrine. The direct shipment suits rely on the dormant commerce clause, arguing that discrimination against out-of-state wineries is economic protectionism and that the 21st Amendment cannot be invoked as a pretext for protectionism. They cite Bacchus Imports v. Diaz, 486 U.S. 263 (1984). “We think it’s really a clean issue as to which trumps which — commerce clause or 21st Amendment,” said Epstein. “If you look at the evolution of the law, which, unfortunately, is not recognized by all judges or justices, we see a trend, which basically says, in our opinion, if there is discrimination on its face, you need look no further. Generally that would strike down the discriminatory statute.” If facial discrimination can’t be shown, then the state’s interests under the 21st Amendment must be balanced with the dictates of the commerce clause, he said. Amendment’s purpose The two sides disagree as to the core purposes of the 21st Amendment, which says taking liquor into a state “in violation of the laws thereof, is hereby prohibited.” Epstein and his colleagues say it was aimed at promoting temperance. The states and wholesalers argue that the amendment also aimed to ensure orderly market conditions and let states raise revenue. “Even if there are other interests, we think there can be some accommodation — as pointed out by the FTC — and we can win on that issue too,” Epstein said. But the states and wholesalers argue that the 21st Amendment was actually an exception to the commerce clause. They cite Craig v. Boren, 429 U.S. 190 (1976), in which the Supreme Court said the amendment “primarily created an exception to the normal operation of the commerce clause.” The Seventh Circuit in the Bridenbaugh decision agreed with the states. “It’s exactly what Judge Easterbrook said: ‘Alcohol is not cheese,’” said Randy Mastro, a partner in the New York office of Los Angeles-based Gibson, Dunn & Crutcher, counsel to a wholesaler in Clint Bolick’s New York suit. “It is different from every other product,” Mastro explained. “Going back to Prohibition and after Prohibition, we have always recognized that states should have the right to decide how to regulate alcohol imports. There hasn’t been a single Supreme Court case to say otherwise.” If state direct-shipment bans are struck down, then courts will have created inequality, said Mastro. Out-of-state wineries, without licenses and with no effective obligation to collect state taxes, would be able to ship wine directly to consumers, while in-state wineries must have licenses and pay taxes, they contend. Bolick, Epstein and the others pushing the litigation see the wholesalers as the real obstacles to ending direct shipment bans. “They enjoy right now a monopoly,” said Harwell of the wholesalers. “I don’t think economically it’s going to affect them because of the practical reality of interstate shipment — shipment costs, time. Unless you’re a collector or serious wine lover, it’s cheaper and easier to go to the corner store. But they fear now there will be an end run and everyone will order it from the Internet.” Mastro countered, “It’s really about states’ rights to establish the kind of alcohol distribution system they choose. The three-tier system is an accountability system. It ensures monitoring of alcohol, promotes temperance objectives, keeps alcohol out of the hands of minors and ensures states collect the taxes to which they are entitled.” The FTC report, he asserted, is a “political document with a political point of view” and has nothing to do with the constitutional issues that ultimately will decide the dispute. With the Fifth and Seventh Circuits in apparent disagreement and circuit rulings expected in several months from the Second and Sixth Circuits, the answer may well rest with the Supreme Court. Swedenburg said she is ready for the long haul. A Maryland state beverage commission official recently said Marylanders have all the wine they need in Maryland stores, recalled Swedenburg. “What did he mean, ‘need’?” she asked. “Thinking like that makes me furious. What if they find a little winery and like a wine for themselves? I can buy a coat anywhere, but sometimes I like to buy a coat from L.L. Bean in Maine. I don’t need that coat, but I like L.L. Bean.” Marcia Coyle is a reporter for The National Law Journal , a Recorder affiliate based in New York City.

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