Whitmer takes the path of least Constitutional resistance
Several liquor bills (Senate Bills 934, 1138, 1139, 1140) in Michigan were recently vetoed by Governor Gretchen Whitmer. When presented with the bills, Governor Gretchen Whitmer decided to exercise her pocket veto, which allows a governor to veto legislation by failing to act on the legislation within 14 days.
Some of these bills such as SB 934 and SB 1338, which would expand self-distribution privileges for craft distillers and small wineries, did not become law, even though these bills enjoyed heavy bi-partisan support.
Although these bills presented positive progress in the liquor industry, and helped struggling industries, these bills presented to governor were fraught with constitutional problems.
For example, let’s examine SB 934, which allows a small winemaker (a winery manufacturing less than 50,000 gallons a year) or an out-of-state entity that is equivalent to a small winemaker, to self-distribute their product to retailers. However, the proposed legislation requires any winery self-distributing to utilize their own employees and deliver the wine in company owned vehicles.
The requirement that a winery utilize their own vehicles and employees to enjoy self-distribution privileges, opens up Michigan to a Commerce Clause constitutional challenges.
Although this law is not discriminatory on its face, as both in and out-of-state wineries can self-distribute and are subject to the same regulatory requirements, the law violates the Commerce Clause based on having a discriminatory impact. It is exceedingly difficult for a California small winemaker to meet these requirements, while it is easy for a Michigan small winemaker to meet these requirements.
In Cherry Hill Vineyards, the Sixth Circuit held that a Kentucky law requiring a consumer make an in-person purchase before wine could be shipped, violated the Commerce Clause. Although the requirements were the same for both in-state and out-of-state wineries, the impact was not the same.
The Sixth Circuit held that the practical effect of the law was discriminatory, because the in-person requirement made it economically and logistically infeasible for most consumers to purchase wine from out-of-state wineries.
Because of these logistical and economic barriers to out-of-state wineries, Kentucky wineries benefited from less competition, and Kentucky’s wholesalers received the benefit of wineries that would have bypassed the three-tier system and ship directly, if not for the law.
The Court determined the law’s in-person purchase requirement was a burden on interstate commerce and was clearly excessive in relation to the putative local benefits.
Finally, the Court considered whether the statute, “advances a legitimate local purpose that cannot be adequately served by reasonable nondiscriminatory means.” The state argued similar to Granholm that the in-person requirement was necessary to prevent underage drinking and tax avoidance. The Sixth Circuit dismissed these justifications as reasons to discriminate. Cherry Hill Vineyards, LLC v. Lilly, 553 F.3d 423 (6th Circuit 2008)
SB 934 allows self-distribution for small winemakers if they deliver with their employees in company owned vehicles. Similar to the Kentucky law ruled unconstitutional in Cherry Hill Vineyards, the proposed Michigan legislation’s practical effect discriminates against out-of-state small winemakers. The company owned vehicle requirement makes it economically and logistically infeasible for many wineries including wineries a far distance from Michigan to enter the marketplace.
Additionally, SB 934 provides an advantage to Michigan small winemakers over out-of-state small winemakers in that because of the economic cost, the small winemaker cannot take advantage of the law’s benefit and must go through an in-state distributor. This raises the cost of the out-of-state small winemaker’s wine versus the Michigan winemaker.
Even if the law discriminates, which it does, it could be upheld if it advances a legitimate local purpose that cannot be adequately served by reasonable nondiscriminatory means. I cannot see a legitimate local purpose for this proposed law which would sustain a Commerce Clause challenge.
SB 1138 also has a similar provision which pertains to small distillers.
In the end, we can debate whether Governor Whitmer’s pocket veto was the correct course of action, but what we all can see is that if she signed the bills into law, she would open the state up to constitutional challenges. By letting the bills pass quietly into the night, Governor Whitmer avoided a constitutional challenge and a potential showdown in court.