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2nd Circ. Tussle Distills Court Divide on Booze Laws

Sharp disagreements in the Second Circuit over whether a Connecticut liquor law runs afoul of antitrust law, recently exposed in a bitter dissent, highlight a circuit split that some experts predict will be taken up by the US Supreme Court.

A three-judge panel upheld the law in February by batting down a retailer’s challenge to three parts of Connecticut’s liquor sales law, including a controversial “post and hold” provision that lets wholesalers match each other’s prices. The panel rejected the retailers’ claim that the provision forced wholesalers into illegal price-fixing deals.

“There is a split, and it’s an important area,” said Raymond Jacobsen Jr., McDermott partner, backing the retailer’s view that the “post and hold” requirement creates a clear state-sanctioned violation of the Sherman Act. He said he believes it’s a question that will intrigue the justices.

Access the full article.

Originally published on Law360, September 2019.




District Court Decision Rejects Commerce Clause Challenge to Missouri’s Retailer Wine Shipping Laws

On Friday, March 29, the US District Court for the Eastern District of Missouri handed down its decision in Sarasota Wine Market v. Parson, No. 4:17CV2792. The decision upholds Missouri’s laws permitting in-state retailers to sell and deliver directly to consumers’ homes, but withholding that same privilege to out-of-state retailers. Plaintiffs had challenged the Missouri statutes under both the so-called “dormant” Commerce Clause and the Privileges and Immunities Clause of the Federal Constitution.

The decision is not surprising, as Missouri lies within the jurisdiction of the US Court of Appeals for the Eighth Circuit. The Eighth Circuit, in a challenge to a residency requirement in a case entitled Southern Wine & Spirits v. Division of Alc. & Tobacco Control (2013), previously held that state laws regulating retailers and wholesalers are immune from dormant Commerce Clause scrutiny under the 21st Amendment. The Sarasota Wine Market decision relies heavily on Southern Wine & Spirits in rejecting the plaintiffs’ dormant Commerce Clause challenge. And, the court reasoned that because the right to engage in the wine trade is subject to the limitations of the 21st Amendment, the Privileges and Immunities Clause is not implicated.

Whether the 21st Amendment insulates state laws regulating retailers and wholesalers from dormant Commerce Clause scrutiny is currently pending before the Supreme Court in the Tennessee Wine & Spirits Retailers Association v. Blair (f/n/a Byrd) case. Thus, the Sarasota Wine Market opinion faces almost-certain reversal or affirmance, depending on how the Supreme Court rules in Blair. In the meantime, the decision serves to underscore the stakes of the question currently pending before the Supreme Court.




The Future of Direct Shipping

In September 2018, the U.S. Supreme Court granted a petition for a writ of certiorari brought before the Court by the Tennessee Retailers in Tennessee Wine and Spirits Retailers Association v. Byrd. The petition requested that the Court review the lower court’s decision upholding a finding that Tennessee’s two-year residency requirement for retail license applicants is unconstitutional. Specifically, the question Tennessee retailers posed to the Court is whether the 21st Amendment of the U.S. Constitution gives states the authority to, consistent with the so-called “Dormant” Commerce Clause of the Constitution, regulate sales of alcohol beverages by imposing residency requirements on retail (or wholesale) license applicants. The court heard oral arguments on January 16, 2019.

In an article published by The New Brewer, Marc Sorini and Bethany Hatef discussed the Sixth Circuit’s opinion in the Byrd case, the circuit split it created and the potential impacts of the pending SCOTUS decision.

Read the full article.

Originally published in The New Brewer, March/April 2019.




7th Circuit Issues Lebamoff Opinion

As you likely have read in the trade press already, on Wednesday, November 28, 2018, the US Court of Appeals for the Seventh Circuit issued its opinion in Lebamoff v. Rauner. The opinion adds three judges of the Seventh Circuit to the collection of legal minds rejecting the notion that the dormant Commerce Clause non-discrimination principles applied by the Supreme Court in Bacchus (1984) and Granholm (2005) should be limited to laws discriminating against producers and products.

Like other cases brought by Lebamoff and its legal team, this case involves a challenge to state laws that prohibit direct-to-consumer wine shipments by out-of-state retailers. Illinois, like many states, permits in-state retailers to deliver wine directly to Illinois consumers located anywhere in the state. The law, however, denies that same privilege to out-of-state retailers. This distinction, according to the plaintiffs, amounts to discrimination against out-of-state economic interests in violation of the Constitution’s dormant Commerce Clause.

The Seventh Circuit opinion rejects the reading of Granholm, embraced by the Second and Eighth Circuits, that the Supreme Court drew an implicit distinction between laws discriminating against producers and products (not permitted) and laws affecting the wholesale- or retail-tiers (immune from Commerce Clause scrutiny). Reading Granholm in its totality, the Seventh Circuit finds such an implied bright-line rule unlikely. Moreover, drawing on the Brown-Forman (1986) and Healy (1989) cases, the Seventh Circuit notes that prior Supreme Court opinions have applied dormant Commerce Clause principles to laws that did not regulate producers or products.

The Seventh Circuit, of course, recognized that its opinion could be substantially affected by the Tennessee Wine & Spirits Retailers Ass’n v. Byrd case now pending before the Supreme Court. Moreover, the Seventh Circuit’s discussion of issues upon remand suggests a number of potential distinguishing facts that could alter the outcome of the case. Nevertheless, should the Supreme Court affirm the Sixth Circuit’s Byrd decision, the state of Illinois will have a hard time defending the discriminatory treatment challenged in Lebamoff.




What’s New in US Constitutional Law Developments

During the International Wine Association’s 2018 Conference, Marc Sorini presented on the latest law developments, including the Commerce Clause and First Amendment.

The topic was made particularly timely by the Supreme Court’s September 27 decision to grant certiorari review of the Byrd v. Tennessee Wine and Spirits Retailers Association decision.

View the full presentation.




Distilling Lessons from Recent Trademark Cases

Craft distillers know the value of a good trademark. The name of a particular spirit, a logo, or a label design can be vitally important to a brand’s identity (and a distiller’s bottom line).  They also know how complicated—and legally fraught—branding can be. For better or worse, trademark disputes involving alcohol beverage products are becoming increasingly common. The disputes that make it to court provide valuable insight that could prevent future legal headaches surrounding the selection, protection, and enforcement of alcohol beverage trademarks.

Read the full article.

Originally published in Artisan Spirit: Fall 2018.




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

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. (more…)




Son of Granholm Inches Closer

Two recent developments reinforce my expectation that the Supreme Court will need to clarify the scope of its 2005 Granholm v. Heald decision within the next few years.

Granholm struck down state restrictions on the interstate sale and shipment of wine by wineries, where the state permitted in-state wineries to engage in such direct-to-consumer sales activities but withheld that privilege from out-of-state wineries. According to that decision, such facially-discriminatory laws are virtually per se unconstitutional under the so-called “dormant” Commerce Clause, and are not saved by the additional power that states have over alcohol sales under the 21st Amendment. The Granholm court also referred to the three-tier system as “unquestionably legitimate.”

In the years since Granholm, lower federal courts have wrestled with the question of whether or not the Commerce Clause’s non-discrimination principle is limited to state laws imposing different rules on in-state versus out-of-state producers and products. Decisions by several Circuit Courts of Appeal, including the US Court of Appeals for the Second Circuit (Arnold’s Wines, 2009) and the Eighth Circuit (Southern Wine, 2013), have concluded that only those state laws discriminating against out-of-state producers or products face the high level of scrutiny mandated by Granholm. Others, including the Fifth Circuit (Cooper II, 2016) and the Sixth Circuit (Byrd, 2018), have concluded that state laws regulating the wholesale- and retail-tiers remain subject to vigorous Commerce Clause scrutiny. Notably, however, the Fifth and Sixth Circuit opinions also suggest that the outcome of a challenge to a state law regulating the wholesale- or retail-tier may depend on the type of law challenged, and both involved residency requirements for licensees, not laws directly regulating the sale and shipment of alcohol. (more…)




Durational-Residency Requirements for Alcohol Beverage Retail Licensees Held Unconstitutional

On February 21, 2018, the US Court of Appeals for the Sixth Circuit published its opinion in Byrd v. Tennessee Wine and Spirits Retailers Association, No. 17-5552. The decision, which includes a partial dissent, affirms a Middle District of Tennessee decision finding that the “durational-residency” (residency) requirements imposed by Tennessee law for alcohol beverage retail licensees are unconstitutional under the “dormant” Commerce Clause.

Tennessee law requires an applicant for a retail license to have been a resident of Tennessee for at least the two-year period immediately preceding the submission of the license application. For corporate license applicants, the two-year requirement applies to any officer, director or stockholder of the corporation. Moreover, to renew such a license the law requires Tennessee residency for at least ten consecutive years.

Two prospective retail applicants that did not meet the two-year residency requirement, notably including the Tennessee affiliate of Total Wine Spirits & Beer, sought licenses. Expecting litigation, the Tennessee Attorney General filed a declaratory judgement action in state court seeking to have the residency requirements declared constitutional. The action was removed to federal court, and the Middle District of Tennessee found the requirements unconstitutional.

(more…)




Implications of Recent Supreme Court Free Speech Decision

On June 19, 2017, the Supreme Court issued its decision in Matal v. Tam, declaring the Trademark Act’s (commonly referred to as the “Lanham Act”) “disparagement clause” unconstitutional as a violation of the free speech principles embodied in the First Amendment. If the case name doesn’t ring a bell, the players involved might. The decision was the culmination of Simon Shiao Tams’ fight to obtain a federal trademark registration for “THE SLANTS” for use in connection with his rock band. The term “Slants” can be used as a racially pejorative word for persons of Asian descent and was selected by the Asian-American band in an effort to “reclaim” the derogatory term. Tam’s win at the Supreme Court, however, wasn’t only a victory for his band. The Washington Redskins, who are also engaged in a protracted legal battle to maintain their trademark registrations despite challenge from a Native American group, hailed the decision a success. The Redskins’ owner, Dan Snyder, simply stated: “I am THRILLED.”

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