On July 26, 2023 arguments took place in Anvar v. Dwyer, which challenged Rhode Island’s law, which only allows their in-state retailers to deliver wine to Rhode Island consumers, but denies this same privilege to out-of-state wine retailers. Along with this facially discriminatory law, there was a discriminatory in effect Commerce Clause challenge to the law, as Rhode Island does not permit retailer shipping. The effect of only permitting delivery is it makes it impossible for faraway retailers in California or other states to reach Rhode Island consumers.
In addition to the typical issues surrounding Granholm and Tennessee Wine, the Family Winemakers of California v. Jenkins heavily influenced this oral argument. In Family Winemakers, a Massachusetts law which restricted winery shipping to those wineries producing below 30,000 gallons or less, was struck down as unconstitutional. Although the law permitted out-of-state wineries producing below 30,000 gallons to ship into the state and did not discriminate on its face, the 1st Circuit ruled because the practical effect of the production cap favored Massachusetts wineries and significantly burdened out-of-state producers it was discriminatory in effect.
Judge Bruce Selya asked many interesting and provocative questions. If I life to his age of 89, I hope my mind is as sharp as his, what a grasp of the issues and the details.
The interesting part of oral arguments is Judge Selya pressed both parties on the evidence for their assertions. This plays to the plaintiff’s advantage as the burden of proof rest with the state.
There were many doubts Judge Selya raised on the state’s position, I don’t think he was convinced about the in-state wholesale requirement being sacrosanct. And a major takeaway is that he believed that allowing wine retailer shipping would not destroy the three-tier system.
This is the first time in a Circuit argument that the Judge asked whether the wholesalers tested product for safety concerns, which the intervenor’s counsel had to admit the answer was no.
Although the state and intervenor made the argument of in-state wholesalers ensuring safety, I am not so sure it will be bought by the panel.
In the end, the concrete evidence provided against opening markets to DTC shipping is weak, the justifications for safety were challenged by the judge and the lack of testing requirement shows the lack of safety safeguards, which calls into question the in-state wholesaler’s role in safety functions. Finally, the Judge put credence into concrete evidence that fourteen states allow out-of-state retailer shipping with very little problems.
The retailer’s attorney Alex Tanford started out by discussing what is the exact standard that applies to alcohol cases. He indicated that the Commerce Clause cases dealing with alcohol are under a different standard than other consumer goods. And that although the 21st Amendment affords the states protection, it is still subject to the Commerce Clause’s non-discriminatory principles.
He posed the question, if there is not strict scrutiny under the Commerce Clause, as alcohol is judged by a different standard than other consumer goods, and we don’t have minimum scrutiny under the 21st Amendment, as it is limited in its application by the Commerce Clause, what is left?
He concluded there is some kind of constitutional scrutiny that takes both provisions into account, and that the Supreme Court applied intermediate scrutiny by using a factual test based on three factors. 1. Have the plaintiffs established there is a discriminatory effect that protects the local businesses from competition, 2. has the state responded by showing there is a public health interest, and 3. are there issues that can’t be protected by non-discriminatory alternatives.
He indicated that the Supreme Court twice in Granholm and Tennessee Wine and the 1st Circuit in the Family Winemakers Case indicated that the nondiscriminatory alternative was a permit and licensing system. In all three cases, courts decided that there was no evidence that the three-tier system was necessary to protect health and safety.
First, Judge Thompson asked if the dispute was in the district court’s fact finding or legal theory. Tanford responded that the district court did not engage in fact finding. They relied on 6th Circuit’s decision that this was controlled by the 21st Amendment and gave no weight to the Commerce Clause and by relying on 21st Amendment, the judge didn’t bother to look into evidence.
Judge Thompson indicated that the state put on evidence of promoting public health and maintaining a system that ensures alcohol is not tainted, and that minors don’t have access to alcohol. Tanford replied that their record is not actually that this is happening, but it could happen and this is contrary to the evidence of states that allow wine shipping, where this is not happening.
Tanford went back to the Supreme Court and 1st Circuit standard that speculation about the future and assertions are not adequate, there must be evidence that this is an actual problem.
Tanford discussed Step 2, if problem was real, why couldn’t it be addressed through a permit and licensing system. The Supreme Court and the 1st Circuit indicated that a licensing and permitting system where tracking, audibility and tax collection work well is a reasonable system to cure their problems and the state would need to show why it wouldn’t work. Rhode Island has not done so.
Judge Selya indicated to Tanford that the common carrier shipping and retail delivery need to be dealt with separately. The Judge stated there are troubling assertions that the claim that common carrier shipping is discriminatory lacks evidence.
Tanford indicated that the evidence issue is different for common carrier shipping, because the home delivery statute is facially discriminatory, and the common carrier provision is not. He drew parallels to the Family Wine Makers case where it dealt with a discriminatory in effect issue because 95% of wineries in America could not satisfy the Massachusetts law and were excluded from the market. The same issue exists here, where it is implausible for 95% of the wine sold in America to reach Rhode Island. These retailers are too far from Rhode Island to use their vehicles. Judge Selya asked how do we know it if is too far from Rhode Island to use their own vehicles. Isn’t that evidentiary, what evidence is there? Is Springfield, Mass too far is Albany too far. We don’t know if it is practical enough or not. Tanford answered that from Tom Wark’s report, there is evidence from retailers in California that delivery in company owned vehicles is beyond the feasibility of most retailers. Tanford indicated that the evidence does not require there needs to be economic infeasibility for all retailers.
The Judge asked doesn’t the predominant effect have to be discriminatory? Tanford said yes, the predominant effect is discriminatory to protect local retailers from competition. Even in New York City it is not feasible to take four bottles and drive it into Rhode Island. Tanford admitted the evidence wasn’t strong, but that they provided evidence in summary judgment and there was no contrary evidence presented against this proposition.
Judge Selya stated that the common carrier and delivery provisions are not going to stand and fall together, as they are different provisions.
Tanford then stated that Rhode Island allow out-of-state wineries to use common carriers, if they had evidence that common carriers were any threat to health and safety, then why would they have them available for winery shipping? Rhode Island knows common carriers are safe, because they regulate them and there is no evidence of public safety problems and minor access.
Tanford indicated that there are two different issues, but the court in Family Winemakers treated them as one issue. Facial discrimination and discriminatory in effect.
Michael Field argued for the State of Rhode Island and started out his argument discussing the concrete component of the Tennessee Wine test, and that Debbi Skakel would be arguing the essential features test and other discriminatory elements.
Field started out by stating that the court only needed to consider the concrete evidence standard if the court discovered there was discrimination.
Judge Selya responded, you don’t seriously dispute there is no discriminatory in effect, let’s take the direct shipping statute, clearly it treats out-of-state retailers different than in-state retailers. Whether it is justified or not is a different question.
Field took aim at the common carrier issue, there is concrete evidence in the record that this is a nondiscriminatory regulation. He brought up evidence that a Rhode Island resident illegally ordered wine from a New York retailer and had it shipped into Rhode Island, and delivered by common carrier, and she was never asked for identification. He indicated that no permit system will address this. He distinguished Rhode Island winery shipping via common carrier, because those ordering wine shipped into Rhode Island must visit the winery and any order requires a face-to-face requirement where they check id.
Judge Thompson stated that this doesn’t address the issue of common carrier shipping.
Field discussed that the winery is required under Rhode Island law to id the consumer in person and that a winery differs from a retailer, because they are subject to federal law and if they violate shipping laws, this could hurt their ability to ship around the country, which is not the same with retailers.
Field took the position that the common carrier is the issue in this case, because common carrier shipping would allow the retailer to avoid the wholesaler, wine would come through with no wholesaler inspection and a wholesaler tax.
Judge Selya indicated that Rhode Island chooses not to setup a system to tax, which is an available mechanism used by fourteen other states.
Field indicated that the permit system doesn’t address inspection, wholesalers are inspected every year. Rhode Island doesn’t have authority inspect in every state, alcohol comes to rest if there is a problem and the state can track down alcohol readily, and it is harder to track with out of state retailers.
Responsible Alcohol Coalition
The Responsible Alcohol Coalition entered the case as an intervenor and was represented by Deborah Skakel
Skakel started off by discussing the in-person purchase piece and common carrier piece, a retailer can accept online orders, but delivery has to be in person, plaintiff want the out-of-state retailer to take order and send through common carrier, that does not happen at all in Rhode Island.
Judge Selya indicated. but the state could require in-state delivery for in-state retailers, it could require it for out-of-state retailers.
Skakel then discussed the difference in the Rhode Island requirement that a retailer purchase from a Rhode Island wholesaler. That a New York retailer wanting to deliver in Rhode Island would need to buy wine from a New York wholesaler.
Judge Selya asked, where is the concrete evidence that wholesaler involvement is necessary or essential in Rhode island’s regulation of alcohol?
Skakel, retorted that in-state wholesaler purchase requirements are an essential feature.
Arguing based on the Tennessee Wine concrete evidence standard of why the in-state wholesaler requirement is necessary, which is for public health and safety, Skakel mentioned: 1. The benefits of statutory scheme; and 2. Wholesaler stringent in-state inspections
Judge Selya stated that what he doesn’t see is concrete evidence that wine purchased from out-of-state retailers that doesn’t go through wholesalers, would cause problem for Rhode Island, yes, a theoretical problem, but there is no concrete evidence in the fourteen states that allow wine retailer shipping that there have been problems to speak of.
Skakel indicated that the wholesalers put in evidence that they get wine back from retailers, if there was a problem. Skakel followed up that if we allow a retailer to bypass the wholesaler and go directly to a consumer, we miss the safety measure and stop gate. She brought up the Rhode Island at-rest-provision for wholesalers, which she claims bolsters safety and that product must remain at rest for 2 hours. During that period the wholesaler has the ability to see if the wine is proper to be sold into a retailer and if there is a problem, they can get the wine back.
Judge Selya asked is there evidence that the wholesalers test this wine, Skakel said no but they get word from and to the manufacture.
Judge Selya was still wondering why the wholesaler is essential in this? Skakel answered the three-tier system is unquestionably legitimate. The Judge, also said not everything the state wants to do can be justified by saying it is part of the three-tier system, the three-tier system ensures there is no economic vertical integration.
Judge Selya stated that it doesn’t seem to me this exception on shipping would have any discernable impact on the three-tier system and that the three-tier system will function fine.
Skakel stated it would have a significant impact on the three-tier system. Plaintiffs get what they want, and it doesn’t have to go through the Rhode Island wholesaler.
Skakel next attacked the other side’s evidence, she indicated that they use 50 state surveys and that of the fourteen states that legalized retailer shipping, some are above the average for consumption, some are below and that there is no causative correlation that out-of-state retailer shipping helps or hurts you. It doesn’t prove anything.
Judge Selya responded, the fact that it doesn’t help or hurt (retailer shipping state evidence) helps the plaintiff’s case, considering that the evidentiary burden is on the state.
Skakel discussed what she deemed the other side’s speculative evidence, Tom Wark only says that states allowing out-of-state retailer shipping, were safely regulating and monitoring, but he does not indicate how permitting states monitor safely. And that Wark relies on letters from out-of-state regulators as evidence that there are no problems, but does not indicate how these states determined there were no problems.
Tanford gave a short rebuttal. He reminded the judge that it is not our burden of proof but the states. Tanford indicated that there may be weakness in evidence, but the other side has no evidence to the contrary. Second, as for the essential role of wholesalers, there is no such thing, this is a contrived argument, Rhode Island allows its wineries, brewers, and distillers to bypass the wholesalers and allows out of state wineries to bypass the wholesaler. We are not talking about running rum from the Caribbean, all these entities are regulated by their home state, every single state claims their system is the best, and allows other forms of alcohol to bypass wholesaler, so it can’t be essential.
He finished up with two small points, the state indicated that the Plaintiff’s expert witness was not age verified by the common carrier, the person at issue was 70 years old and a responsible delivery driver wouldn’t have needed to see her ID. Finally, there is evidence in the record that retailers in Massachusetts and Connecticut would deliver in company owned vehicles if allowed to do so.
 Family Winemakers of Ca. v. Jenkins, 592 F.3d 1 (1st Cir. 2010)