Out-of-state wine retailers can ship directly to Michigan consumers, Federal District Judge Arthur J. Tarnow ruled.
He found a Michigan statute that permits Michigan wine retailers to use third-party delivery services to ship alcoholic beverages directly to Michigan customers but bans out-of-state retailers from shipping to Michigan consumers by any means is unconstitutional.
The operator of 15 Cap n’ Cork package stores in the Fort Wayne, Ind., area sued, saying many of its customers live in southwest Michigan and have asked the retailer to ship wine to them.
The Michigan Liquor Control Commission opposed the retailer, saying it was seeking to do what no Michigan retailer may do – ship wine to Michigan consumers that hasn’t passed through the Michigan three-tier system.
“The governing question,” the court said, “is whether Michigan is permitted to enforce a statute that explicitly denies out-of-state retailers a privilege available to their in-state competitors. The answer at this stage must be no, for [s]tate laws that discriminate against interstate commerce face a ‘virtually per se rule of invalidity’.” (citing Granholm).
“Michigan departed from a hermetically-sealed three-tier system when it chose to permit its wine retailers to join the digital marketplace and engage in direct shipping to customers,” the judge wrote, adding:
“The State created a market for Michigan consumers that implicated interstate commerce in a manner above-and-beyond that of a traditional three-tier system. These same laws then closed off this Michigan-sized portion of American interstate commerce to out-of-state competition. State laws that so favor in-state business presumptively violate the dormant Commerce Clause because they undermine “strong federal interests in preventing economic Balkanization.”
The court adopted a Sixth Circuit test that held “[d]istinctions between in-state and out-of-state retailers and wholesalers are permissible only if they are an inherent aspect of the three-tier system.”
And it said Michigan failed that test. “Michigan retains its Twenty-first Amendment powers to maintain a closed three tier system, just as it remained free after Granholm to prohibit wineries from shipping directly to consumers. But when it starts carving exceptions out of that system, it must do so without resorting to economic protectionism. The State’s Twenty-first Amendment powers do not extend so far as to spare protectionist laws from the Commerce Clause.”
The court rejected MLCC’s argument that it couldn’t possibly regulate a nationwide market of 338,000 wine retailers. It also rejected MLCC’s contention that allowing out-of-state retailers to deliver wine would “substantially increase the rise of minors obtaining alcohol.” Likewise, it rejected contentions that collecting taxes from out-of-state retailers would be unworkable.
And the court rejected MLCC’s argument that permitting out-of-state retailer delivery “would defeat MLCC’s product safety function” by citing an article by Robert M. Tobiassen, who today becomes president of National Association of Beverage Importers, that concluded fake alcohol isn’t a problem in the U.S. thanks to federal and state regulation.
“While the success of regulation should never undermine the regulation that made it possible, Michigan has not demonstrated that the regulatory efforts of the Federal Government and other state governments is so deficient as to require Michigan to keep all retail shippers within its state lines,” the court wrote.