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U.S. Supreme Court Accepts N.Y. Wine Direct Shipping Case; Case Holds Major Implications for Internet Commerce

Washington, D.C.–The U.S. Supreme Court today agreed to consider the Institute for Justice’s case Swedenburg v. Kelly, in which the 2nd U.S. Circuit Court of Appeals upheld New York State’s protectionist ban on direct interstate wine shipments to consumers. The one question the court will consider: Does a state’s regulatory scheme that permits in-state wineries directly to ship alcohol to consumers but restricts the ability of out-of-state wineries to do so violate the dormant Commerce Clause in light of Section Two of the 21st Amendment. IJ’s case was consolidated with two cases from Michigan. No argument date has been set.

Clint Bolick, the lead attorney for the Institute for Justice, which represents the plaintiffs in the New York case, welcomed the Court’s decision. “This case will decide whether consumers or a cartel of billion-dollar liquor distributors will determine what wine is available to consumers in New York and two dozen other states.”

The Institute represents two family winemakers, Juanita Swedenburg of Virginia and David Lucas of California, as well as New York consumers who would like to purchase their wine. Because all out-of-state wine must pass through the hands of liquor distributors (who siphon off 18 to 25 percent markups on each bottle sold), only a fraction of the wine produced by the nation’s 2,500 wineries—most of which are small, family-run businesses—are available to New York consumers. By contrast, New York allows in-state wineries to sell and ship directly to New York consumers.

New York is among 25 states that prohibit direct interstate shipment of wine to consumers, while the other half permit it subject to regulation to prevent access to minors and, in some instances, to collect taxes. The 2nd U.S. Circuit Court of Appeals overturned a lower court ruling striking down the ban. Last year, a Federal Trade Commission report found that the bans present a barrier to e-commerce and are unnecessary to protect legitimate state interests.

The case pits the Commerce Clause of the U.S. Constitution, which guarantees free trade and business opportunities among the states, against the 21st Amendment, which gives states broad latitude in regulating alcohol. “The 21st Amendment does not empower states to squelch free trade in the interest of economic protectionism,” declared Bolick.

Steve Simpson, senior attorney for the Institute for Justice said, “The case could impact Internet commerce far beyond wine. The 2nd Circuit ruled that New York could require out-of-state businesses to set up a separate business with the state in order to sell goods there. If that ruling stands, it could severely inhibit the vast potential of the Internet to expand consumer freedom and choice.”

The New York Legislature is considering a bill, backed by Governor George Pataki and a bipartisan coalition of legislators, that would allow direct shipping.

 

 

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