Tuesday, March 28, 2006

Texas Alcohol Beverage Commission Engaging in Petty Protectionism

I'm on the e-mailing lists for a bunch of retail stores around the country from which I've ordered small amounts of hard-to-get wines over the last several years. One of them, Sherry-Lehmann in NYC, sent me an e-mail today saying that the Texas Alcoholic Beverage Commission had sent them a cease-and-desist letter threatening criminal prosecution if they continued to ship wine to Texas consumers. As a result, they'll no longer ship to me.

Here's an excerpt from the e-mail:

An Official Announcement from Sherry-Lehmann Wine & Spirits


In spite of a recent Supreme Court ruling (Granholm v. Heald) in favor of free trade, the state of Texas has passed new, anti-consumer legislation forbidding out-of-state retailers and auction houses from shipping wine to their customers in Texas.
Sherry-Lehmann has just received a formal cease-and-desist letter from the Texas Alcohol Beverage Commission. The letter states that if we continue to ship wine into Texas, we will be subject to criminal prosecution.

This law violates the United State's Supreme Court's ruling that practices permitted for in-state wine businesses must also be extended to out-of-state wine businesses.
It is unconstitutional to permit in-state wine retailers the right to ship wine, but to prohibit the practice for out-of-state retailers.

What a colossal waste of my Texas taxes. Threatening hoidy-toidy, high-end wine retailers who sell what must be miniscule amounts of classified growth Bordeaux and snooty Burgundies to a few Texas connoisseurs is ridiculous.

While Sherry-Lehmann says this is contrary to the US Supreme Court's 2005 decision in Granholm v. Heald, I don't know if that's right. Granholm says that a state can't treat out-of-state wineries worse than in-state wineries by allowing the in-state ones to ship out but not the out-of-state ones to ship in. I don't know if Texas liquor stores can ship out-of-state, so I don't know if Granholm applies to the Texas scheme. Be that as it may, the point is: THIS IS A STUPID RULE. What is the cost to benefit ratio here?? By going after Sherry-Lehmann, and probably others, Texas is essentially saying, "Oh my God, we need to stop this influx of Premier Cru Cotes de Nuits from leading to the decay of the moral fiber of the state! Whatever will we do if too many people get their lips on a glasses of limited production Brunellos or single vineyard "garagiste" Pomerols? Heavens to Betsy!"

Get a grip. Doesn't the state have better ways to spend its money?

(UPDATE): And another thing. Even as protectionism, this fails. I don't order wines from out of state retailers unless I CAN'T get it from the several Houston (and sometimes Austin) retailers I patronize. I mean, why have to pay the expensive additional shipping if you can get it at your local retailers? Extrapolating from my own experience and using common sense, does the sporadic ordering by wine collectors from out-of-state retailers REALLY have any economic effect on Texas wine retailers??? The answer is pretty obviously NO.


tduchesne said...

Hey Tom,
I think you are correct. While wineries can ship, my understanding is that the Supreme court decision did not address wine/liquor stores. (We still can't order hard to get micro brew's either). However I think I wrote over on my site that something like this was going to come down the pipe addressing Wine Retailers and direct shipping. Here's the link to the Yahoo news article:

Brian Franklin said...


I just found your blog and may I compliment you on sharing some great information. Regarding our protectionist Texas legislature, it is scandalous that they can be bought by the liquor distributor lobby at the expense of consumer choice in a supposedly free market state. I used to buy from a specialty retailer in California named K&L Wines whenever I couldn't find something in Houston. They are actively in this fight, and the following is an update they recently sent me:

As one of our Texas customers, you may be interested in the following news related to our fight to conduct business in your state. We are part of a lawsuit filed against the Texas Alcoholic Beverage Commission. Details below...

SACRAMENTO (April 3rd, 2006) -- The Specialty Wine Retailers Association (SWRA) supports a lawsuit filed today challenging the constitutionality of Texas' laws prohibiting adult consumers from purchasing and receiving wine directly from out-of-state retailers. (www.specialtywineretailers.org)

Filed in U.S. District Court for the Northern District of Texas, Fort Worth Division, by Kenneth W. Starr of Kirkland & Ellis in conjunction with Texas counsel, named defendant is Alan Steen, administrator of The Texas Alcoholic Beverage Commission. Plaintiffs for this case include Wine Country Gift Baskets.com, K&L Wine Merchants, Beverages & More, Inc., David L. Tapp, Ronald L. Parrish, and Jeffry R. Davis.

"A great state has done a real wrong, by engaging in an archaic form of economic protectionism that plainly violates the constitutional rights of citizens. As the U.S. Supreme Court made clear in its recent Granholm v Heald decision, the Commerce Clause requires that out-of-state wine retailers be treated the same as in-state wine retailers," said James Shannon, partner of Kirkland & Ellis. "Rather than abide by the U.S. Constitution, however, Texas apparently has decided to favor the interests of its powerful liquor lobby, by seeking to prevent out-of-state wine retailers from delivering wines directly to Texas consumers. That unconstitutional decision also punishes Texas consumers, who are made to pay more for wine and have a lesser selection of it," he added.

In Heald, the U.S. Supreme Court ruled that "states may not enact laws that burden out-of-state producers or shippers simply to give a competitive advantage to in-state businesses." Heald applies to both wineries and retailers, but many states, including Texas, that enable direct-to-consumer shipments from wineries and in-state retailers do not extend the same privilege to out-of-state retailers. This lawsuit has been filed to correct this issue and allow Texas wine consumers the ability to purchase wines from out-of-state retailers and have them shipped straight to their homes or offices.

"It is the right of every wine consumer to have greater choice and access to wines across America, regardless of whether they're purchasing from a winery or retailer," said Lesley P. Berglund, president of the SWRA. "We support this lawsuit filed by Kirkland & Ellis that challenges Texas' unfair laws and look forward to helping consumers access the wines they prefer from retailers of their choice across the country," she added.

The Specialty Wine Retailers Association has been formed to encourage states to create a borderless national wine marketplace that offers consumers more choice, lower pricing and more convenience, and offers states increased tax revenues.

SWRA members include, but are not limited to, wine merchants, wine auction houses, wine e-tailers, catalogers, and wine clubs. Members operate in 30 states, including 1-800-flowers.com (Ambrosiawine.com), Beverages & More, Bonhams & Butterfields, K & L Wine Merchants, My Wines Direct, Rare Wine Company, Signature Wines, Vinesse, Vinfolio, Winebid.com, and Wine Country Gift Baskets, among others. The organization is in active membership discussions with hundreds of other wine retailers -- and even wineries -- across the country that are supportive of a national wine market.

Headquartered in Sacramento, California, SWRA is organizing as a 501(c)(6) not-for-profit trade association. The Association serves its members in various legislative and regulatory arenas and by litigating to improve the system for all constituencies. (www.specialtywineretailers.org)

K&L Wine Merchants
Phone: 877-KLWines (toll free 877-559-4637)
Email: wine@klwines.com