District Court dismisses challenge to California’s importer law but the battle has just begun

Chief Judge Diane Mueller ruled in favor of California in a challenge to its laws which requires that alcoholic beverages imported into the state be consigned and delivered to a licensed importer at the importer’s licensed premises or at a public warehouse. A Florida importer, who wanted to deliver products to California retailers directly without delivering to a licensed premises or warehouse, sought a declaratory judgement that the California law, § 23361, discriminates against interstate commerce and violates the U.S. Constitution’s Commerce Clause and Privilege and Immunities Clause.

The Judge ruled that the party lacked sufficient standing to sue and could not prove evidence of injury.

Facts at Controversy

Orion Wine Imports, LLC (Orion) is a Florida based wholesaler and importer of wines that desires to import, sell, and deliver products directly to California retailers. Orion seeks to import product directly to a retailer named Pour House.

However, Section 2361 of the California Beverage Control Act precludes this activity and requires that alcoholic beverages imported into the state be consigned and delivered upon arriving in the state. Specifically, the statute states:

“[A]lcoholic beverages may be brought into this state from without this state for delivery or use within the state only by common carriers and only when the alcoholic beverages are consigned to a licensed importer, and only when consigned to the premises of the licensed importer or to a licensed importer or customs broker at the premises of a public warehouse licensed under this division.”

Under this licensing scheme, an importer can not sell to a retailer unless it possesses a California wholesaler’s license. If the importer holds a wholesaler’s license, it can transfer product from the importer’s license to its California wholesaler’s license and then sell to retailers.

“The statute thus regulates where in the three-tier structure alcoholic beverages are to be consigned and delivered upon arrival in California, funneling imported alcoholic beverages into California’s three-tier system at the manufacturer or wholesaler levels. The statute also regulates where imported alcoholic beverages may be physically delivered: to a licensed importer either at its licensed premises or at a licensed public warehouse.”

Plaintiff’s position

Plaintiff alleges that this system discriminates against an out-of-state entity, specifically out-of-state wine wholesalers and importers.

A business located in California can obtain a combination license which allows it to import, sell, and deliver wine to California retailers, while a business with locations outside California cannot obtain a combination license and is required to sell wine to in-state importers or wholesalers, who then can deliver and sell the wine to California retailers.

The Plaintiff alleges that all wine from out-of-state distributors must be consigned to a California based importer with a premise located in California. And that if Orion wanted to obtain a California importer and wholesaler license, it would need to open a location in the state.

Defendant’s counter

California claims that Orion’s allegation that someone is required to be California based to enjoy the benefits of the importer’s license is off base. California claims that an importer can utilize a public warehouse to consign its inventory and the law does not require an importer maintain a California office.

Discussion of Legal Issues

The main issue in this case revolves around whether Orion has standing to challenge the State’s position.

Orion alleges that it suffered injury under the Dormant Commerce Clause and Privileges and Immunities Clause, because it couldn’t ship wine directly to a California retailer without the added burden of consigning wine to an importer or a public warehouse. Orion alleges it had an agreement to sell wine to Pour House but had to renege on the agreement, because the sale of wine directly to Pour House would violate California law. Orion alleges their injury was caused by the California law “that prohibits direct-to-retailer sales from an out-of-state licensed wholesaler, such as Orion.”

Orion requested judgment declaring § 23361 unconstitutional, and requested that the Court enjoin the State from enforcing the law and requiring the state to allow Orion to sell and deliver wine directly to California retailers without consigning wine to a California importer.

The Court stated that Orion touts § 23361 and 23405.2 (a record keeping requirement) as the statutory sections in which they suffered injury. However, the Court indicates that Orion only request relief from § 23361.

The Court goes onto hold that regardless of § 23361 (the statutory section where injury is claimed), the plaintiff’s proposed transaction would still be barred by other provisions of California’s ABC Act. The Court further held that § 23361 did not cause the plaintiff’s injury and that invalidating the statute would not redress Orion’s injury.

The Court stated that if Orion delivered wine to Pour House, Pour House is then defined as an importer, yet it holds a retail license and not an importer’s license. This would cause Pour House to operate as an importer without a license. And common carriers could not deliver the wine to Pour House unless they had a license. Hence, rescinding § 23361, would not solve Orion’s problem of selling wine directly to Pour House.

Because rescinding § 23361 would not alleviate Orion’s injury, the Court dismissed their claim based on a lack of standing.

What comes next?

I would expect an appeal on this issue. State laws which require an in-state presence for importers and wholesalers will become highly contested in the very near future.

Granholm has settled the principle that laws that treat out-of-state suppliers differently than in-state suppliers is a violation of the Commerce Clause.

Tennessee Wine stands for the proposition that retailer requirements based on residency are unconstitutional and a violation of the Commerce Clause.

But importer and wholesaler laws are a little more complex and intricate than supplier and retailer laws.

However, if I were a state, I wouldn’t get too comfortable with this ruling.

Tennessee Wine indicated that the Granholm extends to all out-of-state economic interest, which would seem to include wholesalers and importers. A state may win on perfect facts, but there are a lot of state laws that don’t meet these criteria.

Stay tuned, more to come and more challenges to wholesaler/importer laws!

 

 

 

 

 

 

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