WILL THE BULLY STATE PREVAIL OVER THE CONSTITUTION?

Recently, several states introduced legislation requiring out-of-state fulfillment houses to obtain a license in their state, even though a fulfillment house does not generally perform business activity in the state. In Alabama and Kansas, bills requiring out-of-state fulfillment house become licensed passed both houses, and in Tennessee the legislation passed in the house and awaits a vote in the senate, and in Kentucky the legislation has become law.

Passing a law requiring an entity become licensed in your state, when they perform no business activity there, raises numerous constitutional issues. In my personal opinion, these laws are unconstitutional as the state lacks jurisdiction over an entity with no business presence in the state.

Although these laws are shocking, the behavior of certain governmental entities may be even more shocking. One state (one of the aforementioned) in particular decided that it does not need to wait for a law to pass and it has already started down the road of questionable governmental overreach. I will not specifically name the state as my goal is not to call out people and create contention, but to present the situation and hope we can get this state to reform its practices.

Essentially, this state is sending out letters telling fulfillment houses that they are prohibited from shipping into the state and that shipping privileges are limited to wineries. However, nowhere in the state’s law does it specifically prohibit fulfillment houses from shipping wine, and in fact allowed this practice to operate for numerous years. However, out of the blue and armed with no legal authority, the state has found religion on a fulfillment house ban.

The state takes the position that until a bill licensing fulfillment houses is passed; the fulfillment house must stop until it obtains a license.

As if this practice was bad enough, the state has decided to also harass the fulfillment house’s winery clients and go after the wineries indicating that the fulfillment house is illegally shipping into the state. This state action is interesting as according to my sources, some of the winery clients being harassed, do not even have sales in the state. Which means the state is engaging in a legal carpeting bombing campaign against fulfillment houses and targeting anyone tangentially related to the fulfillment house.

As stated above, the state has a very legally shaky position.

DANGEROUS PRECEDENT

The state’s course of behavior sets a terrible precedent. It starts from the premises that an activity which is not prohibited by law and has been allowed for many years, somehow just became illegal. Then it evolves to attempting to force a fulfillment house into an unconstitutional licensing regime, and when that doesn’t work, it reaches out to harass the fulfillment house’s clients, even when those clients have no business activity in the state.

In all probability, the state would lose in a constitutional challenge, because they have no constitutional jurisdiction over the fulfillment house. But the constitutionality of the law is irrelevant, because there is a way around an unconstitutional practice, go harass and bully the winery clients and scare them and may be even threaten them with revoking their license, even though they did nothing wrong. Starving the fulfillment house of the winery clients is a sure-fire way to getting fulfillment houses to comply to an unconstitutional licensing scheme.

Yes, the Constitution matters, but does it really matter, when you can utilize the bully state to get someone to submit to your regime. As liquor professionals, we must ask ourselves, whether the Constitution is important, or whether running a highly regulated market as the state regulator sees fit is more important!