Mississippi-Wine Express Oral Argument: Did the Mississippi Supreme Court get it right or are they going down the wrong road?

Mississippi-Wine Express Oral Argument: Did the Mississippi Supreme Court get it right or are they going down the wrong road?

Procedural History & Introduction

The long-awaited oral argument in the Mississippi UCC/wine retailer shipping case occurred last week.

In this case, the Mississippi Attorney General (AG) performed a sting operation where AG’s agents ordered wine from out-of-state retailers (collectively referred to as Retailers) in California and New York and had the wine ship to them.

Under the Terms and Conditions of the contract, the consumer agreed (in this case the Mississippi AG) to UCC F.OB. terms, where the purchase of wine would take place in the home state of the Retailers and title would pass there. The Retailers agreed to act as an agent for the buyer and arrange for common carrier shipment into Mississippi.

In a Chancery Court decision, the judge ruled that the state did not have jurisdiction over the Retailers, because the sales occurred outside of Mississippi and that the Retailers’ activity in Mississippi did not establish minimum contacts with the state, and the Retailers did not purposefully avail themselves to the forum state.

The AG decided to file the lawsuit in the Chancery Court in Mississippi instead of at the Legal Division. The Chancellor, the Judge at the Chancery Court, sat as the trier of fact, acting in place of a jury, as well as drawing conclusions of law.  Under Mississippi case law, the Chancellor’s ruling is entitled to great deference and can only be overruled for abuse of discretion.

Attorney for the retailers, Joel Howell, established this point during oral argument and simplified a concept that is not easy for a legal outsider to Mississippi law to understand.

Attorney General’s position

The AG took the position that the lower court’s decision was erroneous because UCC F.O.B. terms do not supplant state law and the 21st Amendment, and that the Retailers purposefully availed themselves to the state through sophisticated business websites that repeatedly made sales to Mississippi consumers.

Basing their theory of jurisdiction on the Mississippi Long Arm Statute, the AG indicated that the Retailers’ activities met the doing business prong of the Long Arm Statute.

The unfortunate consequences of the AG’s position not being challenged by the Court

The AG was questioned sparingly by the Justices (hereafter referred to as the Panel) and her position was never really challenged on its merits.

That is unfortunate because many parts of the AG’s argument were questionable under legal scrutiny.

The AG’s legal theory does not jive with legal precedent

The AG took the position that the lower court erred, because the court concluded that UCC F.OB. terms supplant state law and the 21st Amendment. However, there are several cases where the state lost jurisdictional cases when UCC F.O.B. terms were at issue. Charia v. Cigarette Racing Team, Inc., 583 F.2d 184 (5th Cir. 1978); Butler v. Beer Across America, 83, F. Supp 2nd 1261 (N.D. Ala. 2000)

The Butler case is closely related factually to this case. In Butler, Beer Across America was successful against Alabama based on UCC F.O.B. terms of contract, and also because Beer Across America did not purposefully avail themselves to the state. Butler v. Beer Across America, 83, F. Supp 2nd 1261 (N.D. Ala. 2000).

Although the Butler case was in the Respondent’s brief and in Wine Freedom’s amicus brief, the Court did not question the AG on distinguishing Butler from the case at hand.

In the Butler case purposeful availment wasn’t established because the sales represented significantly less than $100,000 in sales per year and represented less than 4% of Beer Across America’s told sales.

In the Wine Express case, each Retailer’s sales into Mississippi were significantly less than $100,000 and the sales to Mississippi were lower than 4%, which was Beer Across America’s percentage of sales in Butler.

The misplaced use of International Shoe

The AG indicated that the U.S. Supreme Court’s decision in International Shoe, justified jurisdiction over the Retailers based on them purposefully directing their activities towards Mississippi.

Problematically, the AG failed to mention and the Supreme Court failed to point out that International Shoe was decided seven years before the UCC, and in International Shoe, the company sent agents into the state and targeted the state.

Peculiar notions of jurisdiction

The AG concluded that if a Mississippi consumer went into a Louisiana store and brought wine and asked the Louisiana retailer to arrange for a common carrier to ship the product to Mississippi, the retailer establishes jurisdiction in Mississippi.

However, if the hypothetical retailer had no agents, presence, or never targeted the Mississippi market, it would seem to violate their due process rights to establish jurisdiction in Mississippi.

Retailer’s position and Justices’ line of questioning

Unlike the line of questioning for the AG, the Panel’s questions were many and robust with no softballs.

The Panel focused on numerous topics including: whether the Retailers knowingly acted as agent to an illegal act by making labels for shipment to Mississippi and helping arrange for shipment to Mississippi; the fact that the UCC was formed before the internet; how by running a website the Retailers could not foresee they would be brought before a court; and why the UCC should apply to this jurisdictional case when the UCC generally deals with who has the liability over goods.

Agents charged for a crime with the principal escaping liability

The Panel harped on the Retailers acting as an agent for an illegal act. The Panel stated that the Retailers’ actions included arranging for shipping and making labels for the packages.

But remember who the perpetrators were, the Mississippi Attorney General’s agent. The state is asking the Court to charge the agents but not charge the perpetrators. This would lead to an absurd legal result where the illegal actor escapes sanction and 100% of the sanction falls on the agent.

Internet sales didn’t change the legal landscape

The Panel stated that the UCC was created before the internet, and allowing what the Retailers propose could lead to eBay or Amazon selling on the internet F.O.B.

But the Panel must remember, the internet has been around for over 30 years, and the UCC does not distinguish between the internet and brick and mortar retailers. Further, the Butler case from federal district court stood for the proposition that UCC F.O.B. terms apply equally to internet and brick and mortar sales.

The difference between the Retailers and eBay and Amazon are the Retailers’ actions are not directed towards a forum state. eBay and Amazon target states continuously and have representatives there. The Retailers in this case do not.

Foreseeability is not a foregone conclusion

The Retailers took careful precautions to avoid availing themselves to the state. Their contracts detailed that the sales take place in California and New York and their activities are limited to these states. The Retailers never had agents or presence in Mississippi, nor did they target Mississippi. The AG’s agent went to the Retailers’ websites and sought them out.

UCC is an applicable legal doctrine

The Panel questioned why the UCC should control when we are dealing with a state civil enforcement action and the UCC generally deals with goods?

As federal case law demonstrates, the UCC governs important jurisdictional concepts such as where title of goods pass, making it an important component of jurisdictional cases.

Finally, pertaining to civil enforcement action, as Retailers’ Counsel stated, a state’s right to enforce their 21st Amendment rights ends at their borders, and the Panel should recognize the legal integrity of the U.S. Supreme Court decisions in Brown Forman and Healy v. Beer Institute.

Conclusion

This was an oral argument I was looking forward to! And it didn’t disappoint.

But nevertheless, the panel’s questioning or sometimes lack thereof disappointed me a little.

The AG never really faced a hard question.

On the other side, they questioned the Retailers’ Counsel extensively. Which I think benefits their side.

In the end, I think the Court may be stuck in a tough position to rule against the Retailers. A favorable ruling for the state would lead to absurd and contradictory legal conclusions.

 

 

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