Judge: Wineries can ship to Ky.

Judge: Wineries can ship to Ky.
New law takes effect on Jan. 1

By Alex Davis
alexdavis@courier-journal.com
The Courier-Journal

Small wineries across the country can ship wine directly to Kentuckians who order it on the phone or the Internet, a federal judge in Louisville ruled yesterday.

Steve Humphress, an attorney for the state's office of Alcoholic Beverage Control, said in an interview that the ruling sets up a "pretty big modification" of the state's existing laws for alcohol sales. Those requirements, which date to the end of Prohibition, created a three-tier system in which producers sell to distributors who then sell to retailers.



U.S. District Court Judge Charles R. Simpson III's ruling covers a new law set to take effect Jan. 1. Most of the new law remains intact under Simpson's ruling, including a provision that shipments can be made only from wineries that produce no more than 50,000 gallons of wine annually.

The new rules could make buying more convenient in some instances, but long-distance orders wouldn't replace the local wine shop, said several customers at The Wine Rack, 2716 Frankfort Ave.

Paul Kichler and his fiancée, Casie McCafferty, frequent visitors to Louisville from their home in Chicago, said it would be handy to be able to buy and ship wine as gifts -- and to order makes not available at local stores. "We love Oliver Wines in Bloomington," Ind., Kichler said.

However, good shops offer more than the wine itself, McCafferty said. "We would go to the store to get expert opinions."

The Huber Orchard and Winery in Clark County, Ind., initially challenged Kentucky's wine-shipping laws in a suit filed in May 2005. Huber has since dropped out of the matter, and an Oregon winery, Cherry Hill Vineyards, is now the plaintiff.

Humphress said he could not comment in detail about Simpson's ruling, but predicted that the state will appeal to the 6th U.S. Circuit Court of Appeals in Cincinnati.

Simpson had initially ruled in August that the state's existing alcohol laws were unconstitutional. He reiterated that argument in Tuesday's ruling on the new law, saying it puts out-of-state wineries at an unfair disadvantage by allowing them to ship only to customers who visit their properties in person. Simpson ruled that while Kentucky's law aimed to be fair by requiring in-person purchases whether the winery was in the state or not, the effect was discriminatory because it's impractical for Kentucky consumers to shop at distant wineries.

The ruling will allow properly licensed small-farm wineries to ship to Kentucky without the in-person requirement, either over the Internet, by fax or by phone. Purchases will be limited to two cases per person.

Ted Huber, co-owner of Huber Orchard and Winery, said it was too soon to tell if his winery would apply for a $100 shipping license. He said shipping usually makes sense only for wines that cost more than $10 a bottle, because of the relatively high cost of postage.

James Tanford, one of the lawyers for Cherry Hill, said last week that he and a fellow attorney have been involved in similar legal battles in about 18 states, and that of the roughly half-dozen cases that have been decided, all but one of the rulings has been favorable.

Tanford, a law professor at Indiana University, did not return a message left at his Bloomington, Ind., office yesterday. A message left with Cherry Hill also was not returned.

After the initial lawsuit filed by Huber, a trade group called Wine and Spirits Wholesalers of Kentucky Inc. voluntarily entered the case as a defendant.

The group's leaders have argued that allowing direct shipments to customers over the Internet would compromise the three-tier distribution system and circumvent the law in dry counties where alcohol sales are not allowed.

The new law also sets aside $400,000 in public funds next year for the state's wine industry. Three-fourths of the money will be used to promote and market wine made in Kentucky. Another $75,000 will be used to pay fees to wholesalers who distribute the wine, and $25,000 will go toward administrative costs for the Kentucky Grape and Wine Council.

John Johnson, owner of The Wine Rack, said he wasn't sure how much impact the rule change might have on Kentucky wine stores. Other states that allow Internet and phone orders find they account for less than 5 percent of total sales, he said.

One customer Johnson can count on is Louisville Mayor Jerry Abramson, who stopped by early yesterday evening.

Asked by a reporter about the rule change, Abramson paused and smiled. "All I know," he said, "is I only buy my wine at my local store."

Reporter Bill Wolfe also contributed to this story.

Reporter Alex Davis can be reached at (502) 582-4644.

Jeff,
This is good news. The evil empire of the middlemen don't give up easily, so you can expect some new legislative initiatives to turn back the clock on wine shipping during your next session. These middlemen are expert at finding legislators willing to tackle this peripheral issue (except for us wine geeks) while the tough issues such as public education, heath care, government efficiency, taxation lanquish due to partisan bickering. I hope this is not the case, but I've become cynical about ever having true freedom of choice on this matter.
Bill

Chalk up another one for the good guys. Now Garr can order oaky Cal Chard to his heart's content.

[Robin Garr]

The evil empire of the middlemen don't give up easily, so you can expect some new legislative initiatives to turn back the clock on wine shipping during your next session.

Before the legislature even gets involved, we have to deal with ABC appealing the verdict to the federal circuit court. They ought to just let it drop and have reciprocity prevail as it does in a majority of states. But Kentucky's state administration, which ran on a "clean up government" platform, has proven to be even more corrupt than the last one.

... But Kentucky's state administration, which ran on a "clean up government" platform, has proven to be even more corrupt than the last one.

Robin,
I'm shocked!!!
BP

[James Roscoe]

... But Kentucky's state administration, which ran on a "clean up government" platform, has proven to be even more corrupt than the last one.

Robin,
I'm shocked!!!
BP

Politicians, corrupt? I'm ashamed that you could even suggest such a thing.

They ought to just let it drop and have reciprocity prevail as it does in a majority of states.

I thought the courts have made what we previously called "reciprocity" illegal, no?

[Robin Garr]

They ought to just let it drop and have reciprocity prevail as it does in a majority of states.

I thought the courts have made what we previously called "reciprocity" illegal, no?

Hmmm ... that's ringing a distant bell, Mark. I don't think it rose to a high level of attention because, in essence, the states that had reciprocity generally allowed shipping, and clouding the issue still more, the court's decision didn't address reciprocity directly because the subject states (New York and Michigan) didn't have it. But now that you mention it, it seems to me that most authorities concluded that the gist of the ruling implied that reciprocity as we know it would be out because it treated different states disparately.

Robin,
I don't think "Granholm" addressed reciprocity, but "Costco" does. Not being a lawyer, I'm not sure I understand the language, but it seems to me that the court decided something like "individual states setting up their own set(s) of laws regarding shipping" involves states competing with each other and that is in violation of the commerce clause. I could probably come up with a better explanation if pressed. I don't think SCOTUS is much impressed with the legal validity of reciprocity.
Best

I've never read Granholm, to be honest, but it's my understanding that along with striking down discriminatory treatment of in- and out-of-state wineries, it also said it was not OK for groups of states to make deals between each other that they didn't offer non club members. In other words, a reciprocal state illegally discriminates against a producer in a non-reciprocal state in favor of one in a fellow reciprocal state. Although I understand reciprocity wasn't specifically mentioned, its days were obviously legally numbered and so the former reciprocal states have been moving to replace those laws with new direct shipping regulations. I don't know if they've *all* done that by now but CA - the original home of reciprocity - CO and WA have.

That means residents of those former reciprocal states - like me, in WA - are the losers. Before Granholm and the subsequent new laws, for example, wine shipments to me from CA and OR were completely unrestricted - no licenses, no tax collection, no paperwork required by WA. Now wineries are required to do all of those things and, as a consquence, smaller wineries are no longer shipping to this state. I think WA's new laws are typical and the same is true in reverse, I know of WA wineries that no longer ship to CA, too.

I now assume I can get some of the better Kentucky wines shipped into Missouri.
Walt

[Robin Garr]

I now assume I can get some of the better Kentucky wines shipped into Missouri.

Theoretically, you are correct. In practice, however, I don't think you're going to be stocking your cellar.

Mark,
The language you are using is not the language used in "Costco," but otherwise you've made it to the bottom line, as I understand it.

In the end, the SCOTUS and Federal District Court decisions probably do more to restrict than enable the shipment of wine from small wineries to consumers. I am in what was once a reciprocal state, and my opportunities have diminished, mostly as a result of increased licensing and tax collection requirements for wineries.

For a small winery, the problem is having to meet those requirements for the 49 other states. Between the expense of licenses and paperwork, it frequently isn't worth it.

Best

Beverage News Daily

February 9, 2007

Kentucky's attorney general may not defend the state's new direct shipping law, but Wine & Spirits Wholesalers Association of Kentucky and Wine & Spirits Wholesalers of America will.

A federal judge ruled in late December that the new state law on direct shipping is unconstitutional because it required a customer to visit a winery in person to order a shipment by mail. The state decided not to appeal the ruling.

But Craig Wolf, WSWA president/ceo, said yesterday the Kentucky wholesalers' association will appeal, and WSWA will be filing an amicus supporting that appeal,

"While we believe the court ruled correctly on the gallonage cap and case limits, we believe the ruling was inconsistent with Granholm and dormant Commerce Clause precedent on the face-to-face requirement," Wolf said, adding the decision was "certainly inconsistent with rulings in Delaware and Maine."