Two years after wine lovers thought markets had been opened to them, a federal court in Indiana may have finally kicked down the doors.
In 2005, the U.S. Supreme Court ruled state laws that set different rules for shipping wine to consumers based on whether the winery was in state or out of state were unconstitutional. At the time, the nation was a patchwork of 50 different sets of laws, creating a nightmare for wineries hoping to ship wine to out-of-state customers and for customers hoping to order hard-to-find wine.
At first, wine lovers thought all of that was going to change with the Supreme Court decision, which said the rules had to be the same. You could hear corks popping across the nation as wine lovers celebrated. Then reality hit.
Instead of simplicity, the picture got even more confusing.
Some states embraced direct-shipping, others tried to prohibit direct-shipping entirely and still others – like Indiana – created so many rules and regulations that they may as well have prohibited it outright.
On Wednesday, the federal court in Indianapolis ruled most of Indiana’s regulations on shipping wine directly to consumers are unconstitutional and struck them down. A separate order prohibits the state from enforcing the provisions the court declared unconstitutional. The suit was filed by five wine connoisseurs and Chateau Grand Traverse, a winery in Traverse City, Mich., that makes yummy Rieslings.
“It’s very good news for the consumers, and wineries like happy consumers,” said Larry Satek, president of the Indiana Winegrowers Guild and owner of Satek Winery in Fremont.
Among the provisions struck down was the one that was most burdensome and confusing for customers and wineries alike. The law said a winery could ship wine directly to customers but only if they had seen them at least once face-to-face to verify their age. That meant if you wanted to order Oliver’s limited-edition, impossible-to-find ice wine, you had to go to Bloomington and fill out a form at the winery first.
Of course, the same rule would apply to, say, a winery in Napa, Calif. Want a bottle of cult-favorite Screaming Eagle Cabernet Sauvignon? Even if Screaming Eagle had a permit to ship wine to Indiana (which it couldn’t get under the law, as we’ll explain below), you would have to go to the winery in person first before they could mail you a bottle.
The federal court, however, found that because the burden of complying with the law grew with the winery’s distance from Indiana, the law discriminated far more against out-of-state wineries, making it unconstitutional. The face-to-face transaction requirement is now history.
“Forcing nearly all out-of-state wineries to use a wholesaler or come to Indiana to sell gives in-state wineries a distinct competitive advantage,” the court wrote. “Indeed, virtually the entire direct shipping market is limited to in-state wineries.”
But the rules even for in-state wineries were such a pain that Indiana wineries were hurt, too.
A couple of months ago, Bill Oliver told us his winery had lost 75 percent of its shipping market under the new law. Satek said 80 percent of the wine he ships is out of state because the in-state shipping laws are so burdensome.
And worse than that, Terre Vin Winery, in Rockville north of Terre Haute, couldn’t survive without shipping. It closed early this year, citing the shipping mess.
Another piece of the law that was struck down was part of the $100 direct-shippers permit. Under Indiana’s law, wineries could ship wine directly to consumers if they had a permit from the state. But those permits could not be issued to any winery that is also allowed to sell wine wholesale. That provision eliminated any wineries in California, Washington and Oregon from getting permits – cutting off 90 percent of the wine in the national market. The court ruled the permit situation allowed Indiana wineries to ship but excluded most out-of-state wineries, making it unconstitutional.
The court batted down that provision with a vengeance.
“The wholesale prohibition is not aimed so much at protecting Indiana’s wineries as it is at guarding the bank accounts of Indiana’s wholesalers,” the decision said.
Larry Satek said that while wineries are hailing the decision, they also remember what happened in the past two years. After the U.S. Supreme Court decision came down, the state first tried to say all shipping to consumers – in-state or out-of-state – was illegal.
The wineries went to court and in the meantime tried to change the law. But the law was gutted by the wholesalers’ lobby and turned into one that not only made shipping illegal but would have killed almost the entire Indiana wine industry.
Thankfully, that effort was turned aside in favor of the “compromise” that became law – though it’s hard to call it a compromise when your other choice is being put out of business.
“Two years ago people were cracking open the champagne and then we ended up almost getting destroyed in the legislature,” Satek said. “We’re also cognizant of the fact we’re going to have to work very hard to protect ourselves in the future.”
Jim Purucker, executive director of the Wine and Spirits Wholesalers of Indiana, said the decision will hurt the state’s efforts to keep alcohol away from underage buyers. The court found the wholesalers’ arguments that kids will buy wine online rather than buying beer at the corner store unconvincing, at best. Not that they have ever been convincing.
“It is unfortunate that just because other states have more lax standards, Indiana cannot insist on greater seller responsibility,” Purucker said in a written statement. “We hope that on appeal the state’s right to regulate alcohol will be reinstated.”
Ed O’Keefe Sr., founder and CEO of Chateau Grand Traverse, said the only goal of the lawsuit was to make a level playing field.
“We want a fair market for everybody,” O’Keefe said. “It’s a big victory for the small wineries, I tell you.”
We wrote a column earlier this year saying we hoped the General Assembly would use its next session to return some common sense to the law. It appears the federal court has done that work for them.
To that, we say cheers!