5th Circuit Rules Against Out-of-State Retailers


Dear Client:

The 5th Circuit Court of Appeals issued a decision today that settles a confusing lower court ruling on the issue of out-of-state retailers shipping direct to consumers in Texas.

BACKGROUND. As you’ll recall, a Texas District Court judge ruled that the 2005 Granholm v. Heald Supreme Court decision applied as much to retailers as it did to wineries, meaning a state may not allow in-state retailers to ship wine directly to consumers but ban out-of-state retailers from doing the same thing. However, the judge ruled that the state can require out-of-state retailers to purchase the wines they intend sell to Texas residents only from Texas wholesalers. In the past, the Specialty Wine Retailers Association (SWRA) said, “The scheme is not only economically unfeasible, but would amount to an unlawful transaction. Retailers may not purchase wine from out-of-state wholesalers.” The plaintiffs, Siesta Village Market and some consumers, and the defendant, Texas ABC, both appealed the decision.

THE DECISION. The 5th Circuit ruled that Texas does not violate the Commerce Clause by allowing in-state retailers to ship direct to consumers but banning out-of-state retailers from doing the same. Here are some highlights from the decision:

“Because of Granholm and its approval of three-tier systems, we know that Texas may authorize its in-state, permit-holding retailers to make sales and may prohibit out-of-state retailers from doing the same.”

“Our read of Granholm is that the Twenty-first Amendment still gives each State quite broad discretion to regulate alcoholic beverages. The dormant Commerce Clause applies, but it applies differently than it does to products whose regulation is not authorized by a specific constitutional amendment. Regulating alcoholic beverage retailing is largely a State’s prerogative.”

The court then turned briefly to a separate provision regarding personal importing. Like other states, Texas limits the quantity of alcohol that an individual can purchase out-of-state and then bring back into Texas. The court found that this law cannot “limit the number of alcoholic beverages consumers may buy at an out-of-state retailer... We conclude that the incidental effect on foreign retail sales resulting from limits on quantities to be brought into Texas is at worst an acceptable balancing. The interests of Texas consumers in purchasing alcoholic beverages outside of Texas are recognized, but the State validly insists that the vast majority of the alcoholic beverages consumed in Texas be obtained through its own retailers.”

DECISION AGREES WITH 2ND CIRCUIT. Recall in July when the 2nd Circuit Court upheld the decision of the Southern District of New York by rejecting an attempt by out-of-state retailers to ship direct to consumers in the state. That court found that “because New York’s three-tier system treats in-state and out-of-state liquor the same, and does not discriminate against out-of-state products or producers, we need not analyze the regulation further under Commerce Clause principles.”

And there you have it...

Until tomorrow, Megan

“Just because something doesn't do what you planned it to do doesn't mean it's useless.”
Thomas A. Edison

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