A new Arizona law allowing small wineries to ship directly to consumers who order wines over the Internet, by phone or by mail is being challenged in a federal court.
J. Alex Tanford, an attorney for an out-of-state winery, says the new statute, while intended to address constitutional inequities in the state’s previous wine law, is not any more constitutional than the one it replaces.
“[The Legislature] tried to remove… the overtly discriminatory parts of their wine law, but at the same time, not hurt the Arizona wineries,” he said. “It resolved a couple of them, but it didn’t resolve them all, so an amended complaint [has been] filed.”
The goal, he said, is to allow fair competition for all wineries across the country. Legislators revamped Arizona’s law last session because of a 2005 decision by the U.S. Supreme Court in the Granholm v. Heald lawsuit that voided similar laws in other states. The justices concluded that special privileges granted by statutes to only that state’s wineries violate the Commerce Clause of the U.S. Constitution.
Previously, Arizona law only allowed local wineries to ship to Arizonans if they bought the wine at the winery. It prohibited direct shipment to consumers from any out-of-state wineries, even if the customer bought the wine there and wished to ship it home.
The Arizona law was similar to the Michigan law the Supreme Court struck down in Granholm. In response to that, legislators last session approved a law that allows any U.S. winery that produces less than 20,000 gallons annually to ship its wine directly to Arizona residents.
Consumers can still have wine shipped from larger wineries, but not directly to their homes. Instead, the wine can be shipped to a wholesaler, which will then charge the consumer a fee when the transaction is completed.
Though it appears to address the concerns of the court ruling on its surface and he says it was a good-faith effort to abide by the Granholm ruling, Mr. Tanford says the practical effect of the law is still discriminatory, in that it treats small wineries different from larger ones.
“Whatever plausible reason the state might have for not allowing direct shipping [from large wineries] won’t justify [allowing] one to direct ship and not others,” he said. “The practical effect of it is, if you can’t ship directly, no one from Arizona is going to drive to California to pick [wine] up.”
Rep. Mason: Defining small wineries is important
However, Rep. Lucy Mason, R-1, one of the proponents of S1276 (Laws 2006, Chapter 310), says the new law meets the requirements of the court ruling and, further, is needed to ensure Arizona wineries can stay in business.
“The Supreme Court referred to small wineries,” she said. “Because of that, it was important for us to define what ‘small wineries’ means.
“It’s a matter of economies of scale. Without this definition, we could easily drive small wineries out of business.”
The state’s 22 wineries, Ms. Mason said, are a growing industry and are important to Arizona’s tourism and economic base. Allowing them to directly ship to consumers levels the playing field with the larger wineries, which are able to contract with wholesalers to sell their wines at retail stores across the state and country. Because small wineries sell so little wine and their profit is so low, wholesalers do not distribute their wines.
“It allows them to have their business,” Ms. Mason said. “They are clearly not in competition with large wineries.”
Bob Lynch, a lobbyist last session for the Arizona Wine Growers Association, said he doesn’t think Mr. Tanford’s challenge to the new law is going to be successful.
“I think he’s wrong because the [point] of Granholm was the disparity of treatment between in-state and out-of-state,” he said.
“There is no disparity in treatment [under the new law]… “If he doesn’t complain about this, he has no lawsuit. In fact, he has no suit [now].”
Mr. Lynch said that, by removing the political-border-based regulations, the state has complied with the court’s ruling. Changing the rules for small wineries, he said, is a good thing.
“The smaller you are, the more economic incentive you have to compete,” he said. “There’s nothing wrong with that.”
A status conference will be held on Mr. Tanford’s challenge Oct. 10 in federal district court in Phoenix.