First Circuit Overturns MA Law Banning Wine Shipments into MA

The First Circuit Court of Appeals, in Family Winemakers of CA, et. al. v. Jenkins, et. al., affirmed a lower court ruling that found a 2006 Massachusetts law unconstitutional because it limited winemakers from shipping wine directly to Massachusetts customers.

In 2006, the Legislature passed a law stating that winemakers that produce more than 30,000 gallons a year can either sell at retail locations through a Massachusetts wholesaler or apply for a license to ship directly to customers, but not both. All of the 35 or so wineries in Massachusetts fall below the 30,000-gallon limit.  Then Governor Mitt Romney vetoed the bill, but the Legislature overrode his veto.  Thereafter, a lawsuit was brought by Family Wineries of California challenging the constitutionality of the law.

The Appeals Court, in an opinion written by Chief Judge Sandra L. Lynch, stated, in relevant part, the following:

We briefly summarize the basis for the lawsuit, the issues presented, and our resolution of them before turning to the supporting analysis. Section 19F only allows “small” wineries, defined by Massachusetts as those producing 30,000 gallons or less of grape wine a year, to obtain a “small winery shipping license.” This license allows them to sell their wines in Massachusetts in three ways: by shipping directly to consumers, through wholesaler distribution, and through retail distribution. All of Massachusetts’s wineries are “small” wineries. Some out-of-state wineries also meet this definition.

Wines from “small” Massachusetts wineries compete with wines from “large” wineries, which Massachusetts has defined as those producing more than 30,000 gallons of grape wine annually. These “large” wineries must choose between relying upon wholesalers to distribute their wines in-state or applying for a “large winery shipping license” to sell directly to Massachusetts consumers. They cannot, by law, use both methods to sell their wines in Massachusetts, and they cannot sell wines directly to retailers under either option. No “large” wineries are located inside Massachusetts.

Plaintiffs, a group of California winemakers and Massachusetts residents, assert § 19F was designed with the purpose, and has the effect, of advantaging Massachusetts wineries to the detriment of those wineries that produce 98 percent of the country’s wine, in violation of the Commerce Clause. Massachusetts defends § 19F on the basis that its law has neither a discriminatory purpose nor a discriminatory effect. Massachusetts has not argued in its briefs that there are no legitimate alternative methods of regulation to serve § 19F’s asserted purposes. Massachusetts also argues that under the Twenty-first Amendment, state laws are immunized from Commerce Clause scrutiny unless the laws discriminate on their face.

The primary question before us is whether § 19F unconstitutionally discriminates against interstate commerce in light of both the Commerce Clause, art. I, § 8, cl. 3, and § 2 of the Twenty-first Amendment.

It is clear that § 2 of the Twenty-first Amendment does not protect state alcohol laws that explicitly favor in-state over out-of-state interests from invalidation under the Commerce Clause. Granholm v. Heald, 544 U.S. 460, 489 (2005). But § 19F is neutral on its face; it does not, by its terms, allow only Massachusetts wineries to distribute their wines through a combination of direct shipping, wholesaler distribution, and retail sales. Section 19F instead uses a very particular gallonage cap to confer this benefit upon “small” as opposed to “large” wineries.

We hold that § 19F violates the Commerce Clause because the effect of its particular gallonage cap is to change the competitive balance between in-state and out-of-state wineries in a way that benefits Massachusetts’s wineries and significantly burdens out-of-state competitors. Massachusetts has used its 30,000 gallon grape wine cap to expand the distribution options available to “small” wineries, including all Massachusetts wineries, but not to similarly situated “large” wineries, all of which are outside Massachusetts. The advantages afforded to “small” wineries by these expanded distribution options bear little relation to the market challenges caused by the relative sizes of the wineries. Section 19F’s statutory context, legislative history, and other factors also yield the unavoidable conclusion that this discrimination was purposeful. Nor does § 19F serve any legitimate local purpose that cannot be furthered by a non-discriminatory alternative.

We further hold that the Twenty-first Amendment cannot save § 19F from invalidation under the Commerce Clause. Section 2 of the Twenty-first Amendment does not exempt or otherwise immunize facially neutral but discriminatory state alcohol laws like § 19F from scrutiny under the Commerce Clause. We affirm the grant of injunctive relief.

While the Commonwealth could appeal the ruling to the Supreme Court, it should be noted that a 2005 Supreme Court ruling struck down New York and Michigan laws that barred out-of-state wine shipments.

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