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The Texas Alcoholic Beverage Commission threw in the towel on Aug. 25, opting not to appeal to the U.S. Supreme Court a lower court’s decision invalidating state laws prohibiting out-of-state wineries from shipping wine directly to Texas residents. TABC general counsel Lou Bright said the commission’s decision not to seek a writ of certiorari means that Texans who are age 21 or older and live in “wet” areas can have wines shipped to them directly by wineries outside the state using carriers with a state permit to transport alcoholic beverages. “They can order [wine] just like they can order shoes from L.L. Bean,” said Fort Worth solo Sterling Steves, one of the attorneys representing a group of Houston-area wine connoisseurs who sued the TABC in 1997. But Mark Harwell, lead counsel for the plaintiffs, said direct-shipping litigation is under way in a number of states, and a case from another state could be appealed to the nation’s highest court. “This is probably not the final word,” Harwell, a shareholder in Houston’s Cotham Harwell & Evans, said of the TABC’s decision. “I’m not sure when we’ll see the final word.” Bright said the high costs involved in litigation are one reason he recommended that the TABC not appeal a June 26 decision by the 5th U.S. Circuit Court of Appeals in Dickerson, et al. v. Bailey. “The best you can say is [that] it is an unsettled and unpredictable area of law. Pursuing the case would be an expenditure of state resources,” he said. Harwell said he believes supporters of direct-shipment statutes wanted “to pick their battles carefully.” The Texas case is not a good one to take to the Supreme Court because the plaintiffs’ victory was complete, he said. Harwell said he honed his arguments for the 5th Circuit by rehearsing before Ken Starr, a former U.S. solicitor general who took on the White House as special prosecutor for the Whitewater matter during former President Bill Clinton’s term. Starr, a partner in Kirkland & Ellis in Washington, D.C., has been retained by the Coalition for Free Trade, a group of wineries and retailers challenging laws restricting direct shipment of alcoholic beverages. Karen Gravois, spokeswoman for the Wine and Spirits Wholesalers of America, a trade association headquartered in Washington, said challenges to state statutes prohibiting unlicensed direct shipment of alcohol to consumers are continuing in courts in Florida, New Jersey, Ohio, New York, Michigan and the state of Washington. Out-of-state wineries won a victory in the New York case. Last December, a judge for the U.S. District Court of the Southern District of New York enjoined the state from enforcing the state’s Alcoholic Beverage and Container Law to prohibit the wineries from shipping their wines to New York. The 2nd U.S. Circuit Court of Appeals will hear arguments in Swedenburg, et al. v. Kelly, et al. the week of Sept. 1. However, the Texas case is considered the biggest victory to date for the opponents of direct-shipment statutes. In 2002, U.S. District Judge Melinda Harmon of the Southern District in Houston granted summary judgment to the plaintiffs, determining that Texas Alcoholic Beverage Code Section 107.07(f), which bans the direct importation of wine, violates the Commerce Clause of the U.S. Constitution because it discriminates economically against out-of-state wineries, imposing different burdens on them than are imposed on in-state wineries. Harmon also determined that other provisions of the code – Sections 6.01, 11.01, 37.07, 107.05(a) and 107.07(a) – are unconstitutional as applied to the plaintiffs because they deprive them “of their right to engage in interstate commerce by importing out-of-state wine for personal consumption without the threat of criminal punishment if they violate the statutes.” Under Alcoholic Beverage Code Section 1.05(a), a violation of the code is a misdemeanor punishable by up to a year in jail, up to a $1,000 fine or both. In her memorandum and order, Harmon said the statutes preclude the plaintiffs from buying wine directly from out-of-state wineries and having it shipped directly to their homes but allow them to purchase wine directly from in-state wineries and have it shipped to them. The purpose of the statutes is either economic discrimination against out-of-state interests or economic protectionism for in-state wineries, Harmon wrote. Harmon found that the state’s reasons for allowing the discrimination aren’t saved by the powers to regulate alcohol granted to it under Section 2 of the 21st Amendment. She enjoined the TABC from enforcing the statutes but stayed the injunction to give the Texas Legislature a chance to make changes. After the Legislature failed to act on the issue during its regular session this year, the 5th Circuit affirmed Harmon’s judgment. In its June opinion, the appeals court said the statutes that Harmon found unconstitutional allow Texas wineries to sell and ship directly to in-state consumers but prevent out-of-state wineries from exercising the same right. “To paraphrase the Bard, that which we call discrimination by any other name would still smell as foul,” Judge Jacques Wiener wrote for the three-judge panel that heard Dickerson. Circuit Judge Edith Clement and U.S. District Judge F.A. Little of the Western District of Louisiana, sitting by designation, joined Wiener in the opinion. Tracy Genesen, legal director for the Coalition for Free Trade, a Sacramento, Calif.-based nonprofit association, calls the Texas case “a milestone” in the group’s effort to challenge direct-shipping statutes through litigation. “It’s a complete victory, and it’s final,” said Genesen, also a grape grower and senior counsel at Miller Owen & Trost in Sacramento. The decision at the 5th Circuit is the first in which “judges unanimously agreed that the nondiscrimination provision which animates the Commerce Clause takes precedence over a state’s ability to discriminate against out-of-state wineries under the 21st Amendment,” Genesen said. “Texas may not use the 21st Amendment as a veil to hide from constitutional scrutiny its parochial economic discrimination against out-of-state wineries,” Wiener said in the opinion. While the TABC decided not to appeal the 5th Circuit’s ruling, Bright didn’t rule out the possibility that the commission will try to regulate out-of-state wine shipments through rulemaking and still stay within the court’s order. Noted Bright: “We’re discussing whether we have legal authority to do that.” This article originally appeared in The Texas Lawyer , a publication of American Lawyer Media.

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