Recent Retailer Direct Shipping Opinion Illustrates Stakes in Upcoming Supreme Court Review

By on October 1, 2018

The recent US District Court for the Eastern District of Michigan opinion strikes down a Michigan statue and authorizes out-of-state retailers to sell and ship wine directly to Michigan consumers. Lebamoff Enterprises v. Snyder, E.D. Mich. Case No. 17-10191 (Sept. 28, 2018). More fundamentally, the Lebamoff decision underscores the stakes in the upcoming (as of September 27) Supreme Court review of the Sixth Circuit’s decision in Byrd v. Tenn. Wine and Spirits Retailers Ass’n.

The Lebamoff case involves 2016 legislation that amended Michigan law to: (1) make it easier for in-state retailers to ship directly to consumers by employing third-party carriers and (2) prohibit completely the sale and shipment of alcohol beverages to Michigan consumers by out-of-state retailers. The plaintiffs include an Indiana retail chain, its owner and several Michigan wine consumers.

The Lebamoff opinion first recaps the familiar dormant Commerce Clause analysis that: (a) asks whether the challenged law discriminates against interstate commerce or favors in-state interests over out-of-state interests; and (b) examines the state’s justifications for the law to see if they advance a legitimate local purpose that reasonable alternatives cannot adequately advance. Not surprisingly, the district court had little trouble concluding that the challenged law—which facially discriminates between in-state and out-of-state retailers—favors in-state interests and discriminates against interstate commerce.

The opinion next turns to the critical question, “whether the interests implicated by [the] state regulation are so closely related to the powers reserved by the Twenty-first Amendment that the regulation may prevail, notwithstanding that its requirements directly conflict with express federal policies.” (Quoting Bacchus Imports – S. Ct. 1984). This leads to the heart of the current circuit split in such cases: whether discrimination against interstate commerce by the retail tier is prohibited in the same manner as discrimination against wineries was prohibited in Granholm v. Heald (S. Ct. 2005). After surveying the case law on the subject, the Lebamoff opinion relies on the Sixth Circuit’s Byrd decision to conclude that no bright-line protects state laws regulating the retail tier from dormant Commerce Clause scrutiny.

The opinion then turns to the state’s justifications for the law to see if they advanced legitimate local purposes that could not be advanced by reasonable alternatives. It rejects each of Michigan’s four justifications:

  1. The state has not demonstrated that no alternative exists to the alleged “administrative overburdening” that might occur if the state needs to also regulate out-of-state retailers.
  2. Youth access is primarily an issue on the delivery end within Michigan, and the state has controls in place to regulate deliveries and carriers.

“The Granholm Court found that Michigan failed in 2005 to make the ‘clearest showing’ that was necessary to justify discrimination. The state has not adequately demonstrated that replacing wineries with wine retailers has made a significant enough difference.”

  1. The state has adequate tools to ensure that it collects taxes on out-of-state shipments. Indeed, since the Supreme Court’s 2018 South Dakota v. Wayfair decision, today states have even more power to enforce their tax laws on out-of-sate shippers.
  2. No evidence justifies the state’s alleged concern that it cannot monitor the safety of products shipped to its consumers from outside the state.

Having completed the analysis, the opinion concludes that “Michigan is . . . operating an unjustifiable protectionist regime in its consumer wine market, a privilege unsanctioned by the Twenty-first Amendment and forbidden by the dormant Commerce Clause.” As a remedy, the court grants to out-of-state retailers the same direct-to-consumer privileges extended to in-state retailers in the 2016 legislation.

Whether the Lebamoff opinion survives an appeal will likely hinge on the Supreme Court’s eventual decision in the Byrd case. The Lebamoff opinion, coming just one day after the Supreme Court agreed to review Byrd, illustrates that although Byrd itself concerns residency, its outcome has huge implications for the future of the US direct-to-consumer market for alcohol beverages.