6th Circuit Wine Retailer Shipping Case: Part I

The Untouchable Legal Team, (From left to right) Sean O’Leary, Joe Beutel, Bob Epstein, and Alex Tanford

6th Circuit Wine Retailer Shipping Case

Intro

As an amicus party and being at the table with Professor Tanford during oral arguments, I had a nice front row seat at the 6th Circuit Oral Argument.

The three-judge panel consisted of Judge David McKeague, Judge Jeffrey Sutton, and Judge Bernice Donald.

Judge McKeague and Sutton were active in questioning, while Judge Donald’s questions came towards the end of oral argument.

Takeaways

The Panel focused on numerous issues including: lack of consumer choice in the present system; whether the state’s interests in discriminating are justified; whether the parties are similarly situated for Commerce Clause purposes; is 21st Amendment jurisprudence still viable under a modern economy; can the state justify discrimination based on price controls and various aspects of the Michigan regulatory system; whether physical presence is a justifiable reason for the state to discriminate; and do out of state retailers that attempt to end run Michigan’s three-tier system set themselves up for a victory which will lead to discrimination in their favor.

Prediction based on Oral Argument

Predicting any result based on oral argument is difficult. The Judges also need to consider written briefs and amicus briefs, past precedent, and the role of the 21st Amendment that intersects with a new technology-based economy, that was not around or even a thought when the 21st Amendment was ratified in 1933.

Further, Judge Donald was not active in questioning the attorneys, so it is difficult to maintain certainty over her vote.

Nevertheless, readers have grown to expect a prediction and I can’t waffle based on uncertainty.

So here I go!

Judge McKeague will side for Lebamoff. He came off as very skeptical and even dismissive of the state’s and wholesaler’s positions. He could not understand how consumers should be denied access to greater choice, and he questioned the state on why their interest are a concern, when Michigan already allows out-of-state wineries to ship into the state.

Judge Sutton questioned both sides harshly. He was confused on what the state/wholesaler’s interest for discrimination really were. He questioned Alex Tanford very intensely and questioned him very hard on whether the parties were similarly situated. At the end of his exchanges with Alex Tanford, he seemed to come away satisfied with the answers. I am not so sure the same could be said with his exchange with the other side.

Judge Donald was stoic in oral argument, which makes it difficult to predict how she will come out. Nevertheless, when she questioned Tanford about the state’s interest for justifying discrimination, she seemed satisfied with his answers. I am not sure I can say the same thing when she questioned the wholesaler’s counsel about the line between discrimination and protectionism.

Irish Liquor Lawyer prediction: 3-0 for Lebamoff.

Before I get to the discussion, I must admit I was surprised that the issue of foreign wines did not really come up. As these are the rarest products and the least likely to be carried by wholesalers, I thought there would be more discussions on this issue. Further, I thought there would be more discussions on the economics and cost of wine shipping.

But this demonstrates how predicting any court action is difficult and nonsensical.

Why I make my prediction

I will go through bullet points via oral argument on why I believe Lebamoff will prevail.

State’s oral argument

1. The State’s oral argument does not provide a convincing reason for finding on their behalf.

The state made the argument that there is a distinction between wineries shipping into the state and wine retailers, because the state knows for wineries where the product is coming from and it lacks this certainty for retailers.

With the advance of technology, it is easier to trace product. Plus, common carrier reports help to make tracing products easier. Finally, with wines having a COLA (certificate of label approval) from the federal government, Michigan would have numerous avenues of traceability and accountability for wine retailers.

I was surprised the Panel did not push this issue further. Nevertheless, the advance of technology became an issue in Granholm, and 15 years later it should still influence the Court.

2. The State advanced the argument that presence is necessary because they can’t take a license away from an out-of-state retailer.

If Michigan would license out-of-state retailers that is exactly what they could do. A license would subject an out-of-state retailer to jurisdiction, and Michigan could sanction them for violating their laws.

3. The state admits that there is an incidental effect of protectionism. When the state was pressed on their law being protectionist, they denied it. When further pressed, they admitted that although the law was not motivated by protectionism, it may be the incidental effect of the law.

When there is a law that is discriminatory on its face and when the state even admits the effect maybe protectionist, that position does not bode well for the state.

Wholesaler’s Oral Argument

1. The Wholesaler’s argument was based on wineries and retailers being different because one is outside the three-tier system (winery) and the other being a link within the system (retailers).

However, Tennessee Wine, indicated that this bright line test between a retailer and producer is legally suspect.

Skakel’s argument is premised on a concept rejected by the Supreme Court in Tennessee Wine.

Utilizing the difference justification for state laws to discriminate against a retailer, is not a winning argument based on Court precedents.

2. Skakel makes an argument based on the fear of retailer shipping leading to dire consequences, if a retailer is not following the Michigan regulatory distribution system. This argument makes no sense when winery shipping has already been around for over a decade. Further, Skakel argues that post hold and minimum posting are necessary to maintain an orderly system. But Judge McKeague indicated that wineries do not need to follow these rules and can ship in, and yet we haven’t seen evidence of a damaged system.

The lack of evidence on social harms makes this a really tough theory to prove.

3. Skakel indicated that she has a whole binder full of affidavits to show that the law has the predominant effect of protecting public health and safety.

Unfortunately for her side, the evidence is weak and often times unavailable. Often times when the Panel questioned her on assertions, there was no evidence to back up these assertions.

I doubt this evidence scares the other side.

Lebamoff’s argument

1. Tanford performed well in proving that physical presence cannot be used as a condition for issuing a license. He noted that Granholm settled the physical presence issue for wineries and Tennessee Wine extended Granholm to retailers.

2. Tanford demonstrated on numerous occasions that the state needs to provide concrete evidence to prove that its discriminatory law passes constitutional muster. Then he pointed out how Michigan cannot provide any evidence to justify discrimination against an out-of-state entity.

3. One argument against Lebamoff’s position, is that they are going through a different distribution and regulatory system and are doing an end run around Michigan’s regulatory system.

Tanford questioned the position that Michigan’s regulatory system is somehow superior to Indiana’s and the federal government’s.

He makes a compelling case that this is a terrible justification for preventing wine shipping.

4. Judge Sutton’s similarly situated argument was the hardest one to combat because on their face Michigan and Indiana retailers are different and got through a different regulatory system. Nevertheless, I think Tanford did a nice job indicating that this fact is not relevant and is not a justification for discriminating against commerce.

How the State could beat the odds and win

1. If Temperance comes roaring back to life the state can win. One of the few arguments Judge Sutton found somewhat persuasive is that Lebamoff, as an Indiana retailer, could sell for a lower price than Michigan retailers, and could bypass the Michigan regulatory system. This could lead to a break down of the state maintaining an orderly market for liquor distribution. And it is an important consideration to keep cheaper alcohol off the market.

2. The parties are not similarly situated and hence a Commerce Clause violation is not possible. The Michigan and Indiana retailers are not purchasing from the same system and following the same rules, if the Court finds this is a persuasive legal reason, a Commerce Clause violation cannot occur..

Summary of the argument will come in Part II, stay tuned for the blow by blow highlights!

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