A federal appeals court upheld a North Carolina statute that bars out-of-state retailers — but not instate retailers — from shipping wine directly to North Carolina consumers. The statute does not violate the Constitution’s dormant Commerce Clause, the court held.
The case was brought by B-21 Wines, a Tarpon Springs, Fla., retailer, and three North Carolina residents who wanted to purchase wine from out-of-state retailers and have it shipped directly to them. North Carolina’s statute prohibits both out-of-state retailers from shipping wine to North Carolina residents, and North Carolina residents from having “any alcohol beverage mailed or shipped to them from out of state.”
North Carolina’s rules are different for North Carolina retailers. They can ship to North Carolina residents and those who live out of state. North Carolina requires its retailers to get special permits before shipping bev/al. That distinction led B-21 to cry foul.
North Carolina does allow out-of-state wineries to ship directly to consumers.
The decision notes that in 2019, North Carolina amended its bev/al statutes to specify their purpose is to “limit rather than expand” commerce involving alcohol and to maintain “strict regulatory control through the tier-tier system.”
The appeals court agreed that the discriminatory nature of allowing in-state retailers to ship wine directly to consumers while preventing out of state retailers from doing so “is obvious.” But that doesn’t matter, the appeals court said, because the 21st Amendment “gives each state leeway in choosing the alcohol-related public health and safety measures that its citizens find desirable,” and North Carolina “has decided that its three-tier system can tolerate a limited exception for in-state and out-of-state producers, allowing them to sell wine directly to consumers,” while restricting retail sales to in-state retailers only. “And that exception is within North Carolina’s constitutional power to create.”
The court noted that the Supreme Court has confirmed that the states” possess ‘virtually complete control’ over the distribution of alcoholic beverages — including wine — within their borders.” It distinguished the North Carolina situation from that recently decided in a case involving Tennessee, which had imposed a lengthy residency period before one could get an off-premises retail license. North Carolina hasn’t imposed such a requirement because it is not “essential to its three-tier system.” But it has created the Retail Wine Importation Bar which is integral to the North Carolina three-tier system because it relates to the state’s ability to separate producers, wholesalers and retailers. “Direct shipping of alcoholic beverages to North Carolina consumers by out-of-state retailers would completely exempt those out-of-state retailers from the three-tier system,” opening the North Carolina wine market to “less regulated wine, undermining the State’s three-tier system and the established public interest of safe alcohol consumption it promotes.”
Eliminating the role of North Carolina wholesalers by permitting out-of-state retailers to ship into the state would create “a sizeable hole in the State’s three-tier system. And when such direct wine shipping is authorized, the ‘least regulated (and thus the cheapest) alcohol will win.”
The three-tier system is based upon the concept of the states being able to regulate how alcohol is imported and sold within its borders, the court noted. Thus, if a state can restrict licenses to in-state entities, which it can, then it can also determine whether those entities can or cannot not only sell alcoholic beverages for carryout, but also whether those entities can ship their products to consumers within the state.
The Fourth Circuit Court of Appeals noted that its decision is the same as that arrived at by appeals courts in the Sixth and Eighth Circuits.
One judge dissented, saying the majority “has forsaken the commercial unity that makes this nation one.”