Two recent decisions on wine retailer shipping cases out of Arizona ( Arizona Decision) and New Jersey (NJ Decision) federal courts show how judges are misunderstanding the issues and flat out getting it wrong.

In Arizona much of the decision was based on the judge’s conclusion that siding with the retailer would “require complete exemption from the three-tier system for out-of-state retailers or would require the Court to rewrite the licensing and regulatory scheme to enable out-of-state retailers to obtain a license.”

The Court imparts an essential element test without naming it as such. The argument goes that requiring product pass thru an in-state wholesaler is an essential element of the three-tier system and without this element the three-tier system is destroyed.

In her 7th Circuit opinion in Lebamoff v. Rauner, Judge Wood countered the idea of an essential element test when she opined that “There is no archetypal three-tier system from which the ‘integral’ or ‘inherent’ elements of that system may be gleaned.” Lebamoff Enters., Inc. v. Rauner, 909 F.3d 847, 855 (7th Cir. 2018).

As state licensing regimes are different and often times there is no perfect three-tier system, the Arizona Court makes a leap of logic into an amorphous concept. How do they square protecting a strict three-tier system when Arizona allows exceptions such as producer sales to a retailer without going through the three-tier system? Is the three-tier system strict or is it a pick and choose model? It seems like the latter concept prevails, which means the three-tier system has morphed into a fluid rather than a strict concept. Which begs the question, why the Arizona Court decided to hitch its wagon to this amorphous concept?

Even if the three-tier system was strict in Arizona, the Court fails to take into account that it can coexist with direct-to-consumer (DTC) shipping. Fourteen states maintain some form of a three-tier system, but still permit DTC shipping. Concrete evidence demonstrates from other states that permitting DTC retailer shipping will not destroy a three-tier system. If anyone has destroyed the three-tier system it has been state laws riddled with exceptions. Which again makes me wonder why the judge deems some exceptions to the three-tier system acceptable and others not!

Turning to New Jersey, this represents another case where a judge fails to understand the concepts and nuisances of state liquor laws. The Judge relied on the importance of in-state inspections as a major reason why out-of-state retailers should not be allowed to ship into New Jersey. The Judge discussed the Supreme Court’s Granholm holding in which the Supreme Court held that an in-state physical presence for a winery was not necessary, because technology allows monitoring of out-of-state wineries and permits the states to gain access to financial records and background checks.

Seemingly to go into opposition to this important holding in Granholm, the judge held that “While true (referring to Granholm’s holding on this issue), technology improvements do not address the State of New Jersey’s goal of performing unannounced on-site inspections and investigations.”

What the judge fails to understand is exactly what the Supreme Court understood in Granholm. In Granholm the state was not regulating a winery but a winery shipper. As there are two different regulatory regimes that apply to wineries and to wine shippers, the state is required to regulate them differently. A winery, which is an in-state entity with a physical premises, opens its physical premise to customers in a state, a winery shipper does not provide this same service. The winery shipper limits its customer access to shipping product, and hence why as noted in Granholm, the physical presence inspection requirement is not necessary.

Similarly, the in-state retailer, like the in-state winery, opens its physical premises to customers in a state, the out-of-state wine retailer shipper does not. The out-of-state wine retailer shipper, similar to the winery shipper, limits customer access to shipping product.

Hence for a winery shipper and an out-of-state wine retailer shipper, there is not the necessity for on-site inspections.

If the opinion was written correctly, the judge would have discussed the similarities or differences between the wine shipper and the out-of-state retailer shipper. Instead, we get an opinion that glosses over the Granholm inspection regime and fails to account for the important factors for making a correct decision.

Liquor law is complicated, and the legal nuances are often times difficult to see, but if these judges dig a little deeper, they could find the gold!