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Sixth Circuit Upholds Michigan's Prohibition Against Direct to Consumer Wine Shipments From Out-Of-State Retailers

May 8, 2020

Direct to consumer shipments of wine continue to increase in popularity. Indeed, 45 states and the District of Columbia permit some form of direct to consumer shipping, enabling over 90% of Americans to connect directly with their favorite wineries. However, the federal Sixth Circuit Court of Appeals recently dealt a blow to Michigan citizens hoping to lawfully directly purchase wine from wineries and other specialized retailers without a presence in Michigan. In Lebamoff Enterprises, Inc. v. Gretchen Whitmer (Case Nos. 18-2199, 18-2200), the Court upheld a 2017 Michigan statutory amendment to Michigan’s Liquor Control Code that permitted in-state wine retailers, only, to deliver wine directly to consumers through state-licensed “third party facilitators” or common carriers like FedEx or UPS. 2016 Mich. Pub. Acts 520, § 203(3), (15).

Each state can choose whether to permit sales of alcohol within its borders and, if so, on what terms and in what way. U.S. Const. amend. XXI, § 2. Michigan, like many other states, utilizes a “three-tier system,” which forbids alcohol producers (the first tier) to sell directly to retailers or consumers. To access the market, producers must sell to wholesalers located within the state (the second tier). After that, in-state wholesalers sell exclusively to in-state retailers (the third tier), who make final sales to consumers.

Before the statutory enactment in 2017, all retailers were prohibited from delivering wine directly to consumers. However, after Michigan amended the statute to permit Michigan (in-state) retailers to do so, an out-of-state wine retailer from Indiana (along with three aggrieved wine consumers from Michigan) filed suit, alleging that Michigan’s new law violated the Commerce Clause (U.S. Const. art. I, § 8, cl. 3) and the Privileges and Immunities Clause (U.S. Const., art. IV, § 2, cl. 1) of the United States Constitution. The lower court granted summary judgment for these plaintiffs on their constitutional claims and chose to remedy the violations by extending delivery rights to out-of-state retailers, rather than returning matters to the no-delivery status quo. The State of Michigan appealed.

On appeal, the Sixth Circuit reiterated that the three-tier system of alcohol distribution was a crucial part of multiple states’ efforts to control the flow of alcohol since the end of Prohibition in 1933. In particular, the Sixth Circuit observed that wholesalers play a key role in that three-tier system, and the 21st Amendment allows states to funnel alcohol sales from suppliers through in-state distributors to licensed retailers. The Sixth Circuit identified that the purpose of this three-tier system is to balance the availability of alcohol to consumers against excessively low prices that could overstimulate consumption. By upholding Michigan’s amended statute, the Sixth Circuit preserved Michigan’s authority to prevent out-of-state retailers like the Indiana wine retailer, who did not participate in Michigan’s regulatory requirements, from undercutting Michigan retailer prices and “escap[ing] the State’s interests in limiting consumption.” The Court concluded that Michigan presented sufficient evidence to show that requiring in-state presence serves the public health (e.g., by permitting Michigan’s Liquor Control Commission to physically inspect Michigan-based retailers for regulatory compliance) and that the plaintiffs failed to “sufficiently refute[]” that evidence. As a result, the Sixth Circuit reversed the lower court’s decision and remanded the case to be decided by the lower court in accordance with the Sixth Circuit’s Opinion.

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