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Another wine war is fermenting across the country, this time between vineyards that want to sell directly to consumers and wholesalers that are fighting to remain the middlemen. The feud is part of the fallout from last year’s U.S. Supreme Court ruling in Granholm v. Heald, 543 U.S. 953 (2005), which held that if in-state wineries could ship directly to consumers, then out-of-state wineries should be allowed to do the same. Wine advocates had hoped the ruling would lead to a more open marketplace for wine. It hasn’t gone that way. Nearly one year after the high court ruling, 17 states still prohibit direct shipment of wine to consumers, triggering several legislative battles and a new round of wine-shipment lawsuits that raise a new issue: a vineyard’s right to ship wine directly to retailers. Currently, nearly a dozen lawsuits are pending across the country where wineries are fighting not only for the right to ship directly to consumers, but now also to retailers, like restaurants and retail stores. An industry on edge The litigation has put the wholesale industry on edge, fearing that the wine war could spill over into beer and hard-alcohol sales, with everyone fighting for direct-shipment status. “The bigger concern to us wasn’t a few bottles of wine that were shipped directly. We worried about the slippery slope, where it goes next . . . .Will breweries want to ship direct too?” said Craig Wolf, general counsel for Wine and Spirits Wholesalers of America Inc., which has been challenging legislative efforts and lawsuits fighting for direct-shipment. Wolf argues that direct-shipment of wine runs afoul of the 21st Amendment, which gives states the right to regulate the sale of alcohol within its borders. Wine advocates, for their part, argue that wholesalers could drive small wineries out of business. “The wholesalers are trying to protect their big accounts,” said Tracy Genesen of the San Francisco office of Chicago’s Kirkland & Ellis, who specializes in wine litigation and counsels the Coalition for FreeTrade, a legal foundation seeking to overturn bans on direct shipment. “The biggest problem in this whole thing is that there are very few wholesalers around and they don’t service the small guys very well.” On the legislative front, many states have scrambled over the past year to get their wine-shipment laws in line with the U.S. Supreme Court ruling. In the last year, seven states-Connecticut, Florida, Massachusetts, Michigan, New York, Texas and Washington-passed laws allowing for direct shipment of wine. Arizona, Colorado, Hawaii and Illinois are considering similar measures. There are still several states-including Kentucky, Maryland, Tennessee and Utah-that continue to prohibit direct shipment completely and make direct wine shipments to consumers a felony. On the litigation front, attorneys are keeping a close eye on Costco Wholesale Corp. v. Hoen, No. CV 04-0360 (W.D. Wash.), which went to trial last week. “[Costco] wants to be able to take shipments of wine, price it however they can price it, and that is at the center of the issue: They want to treat wine like potato chips . . . and the state believes that wine is not potato chips. It is a controlled substance,” said Bob Burdick, spokesman for the Washington State Liquor Control Board, the defendant in the Costco suit. Costco is challenging a number of state restrictions, that, among other things prohibit distributors from giving retailers quantity discounts. The state has argued that such restrictions are allowed under the 21st Amendment. Costco disagrees. “What’s left in the case is for the state to try and prove that these laws perform a purpose under the 21st Amendment, and we don’t think they do. We think that the effect of the laws is to unjustifiably raise prices to consumers,” said John Sullivan, in-house counsel to Costco. States fighting to preserve the three-tier regulatory system-producer, middleman, retailer-is a part of the wine-shipment debate. “Most states have a lot invested in the three-tier system,” said attorney Rebecca Nelson, partner at Bryan Cave in St. Louis, who is representing the Illinois Grape Growers and Vintners Association in an ongoing legislative battle in Illinois. Most recently, a compromise bill was reached in Illinois, requiring commercial wine sales to go through a middleman, but allowing wineries to ship up to 12 cases of wine each year to each consumer.

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