6th Circuit hears oral argument in Ohio wine shipping case. Questions regarding implementing an out-of-state license and the evidentiary basis for factual assertions regarding public health and safety justifications for shipping prohibitions predominate.
The appeal results from a challenge in Ohio. An out-of-state wine retailer and an in-state wine enthusiast brought suit against the state of Ohio looking for a judgment that the inability of the out-of-state wine shipper to obtain a retail license to ship wine direct to consumers in Ohio without establishing a physical presence in Ohio violated Dormant Commerce Clause principles. You know the argument – in state retailers can ship direct but out-of-state retailers cannot and plaintiffs believe that is a Constitutional violation. The wine enthusiast also brought suit challenging a law that Ohio really doesn’t enforce regarding the maximum quantity of out-of-state wine a person can transport into the state for their use.
Unlike many of the more recent challenges for wine shipping, this matter was not resolved at the motion to dismiss stage, but proceeded in accordance with the principles outlined in Tennessee Wine to summary judgment to inquire as to whether the law can be justified as a public health or safety measure on on some other legitimate non-protectionist ground. Recognizing the precedent set in the 6th Circuit Lebamoff case, the District Court did not have to look far for those legitimate grounds – “curbing over-consumption and controlling distribution of alcohol are themselves sufficient.”:
[T]here is nothing unusual about the three-tier system, about prohibiting direct deliveries from out of state to avoid it, or about allowing in-state retailers to deliver alcohol within the State. Opening up the State to direct deliveries from out-of-state retailers necessarily means opening it up to alcohol that passes through out-of-state wholesalers or for that matter no wholesaler at all. See [Arnold’s Wines, Inc. v. Boyle, 571 F.3d 185, 185 n.3 (2d Cir. 2009)]. That effectively eliminates the role of Michigan’s wholesalers. If successful, Lebamoff’s challenge would create a sizeable hole in the three-tier system. Michigan imposes heavy taxes on all alcohol products at the wholesale level . . . , prompting higher prices than a free market would bear. . . . That leaves too much room for out-of-state retailers to undercut local prices and to escape the State’s interests in limiting consumption.
There’s ample reason to think Indiana retailers like Lebamoff would do just that.
The District Court held it was bound in this case by the 6th Circuit’s Lebamoff decision and also found that the Ohio restriction was justified on non-protectionist grounds:
The portions of Ohio law at issue here are substantively identical to the Michigan law discussed in Lebamoff. Ohio has a three-tier system. Wholesalers and retailers must be permitted by the Division. Permitted retailers must purchase their product from permitted wholesalers, and must maintain a physical presence within the state.They must also comply with a litany of other regulations— including opening their premises and books and records to regulators, and selling merchandise at a mandatory mark-up. Ohio’s liquor control enforcement agencies routinely conduct inspections of physical premises to ensure compliance with the liquor control laws, and routinely bring enforcement actions against violators. Allowing out-of-state retailers to ship wine directly to Ohio consumers would all but topple the scheme that the Ohio General Assembly has established, with prices easily undercut and enforcement agencies easily neutered.
The plaintiffs appealed that determination arguing that the Court applied the wrong level of scrutiny, that it relied on inadmissible evidence, and that Plaintiff’s evidence in contravention of the State’s assertions did not receive consideration. The briefs and oral argument audio are linked below.
It would be an understatement to say that the procedural posture of this case’s determination affected the tenor and subjects discussed at oral argument. Unlike other determinations in circuits where dismissal occurred and the circuit courts assumed a legitimate justification, no such thing occurred at oral argument in this case. In fact, the argument and questioning predominantly involved the evidentiary support regarding health and safety claims and questioned the mechanics of implementing an out-of-state retailer direct shipping license.
There were two main lines of questioning that received the most attention:
1. Could the State impose comparable price mandates and increases on the out-of-state products such that Ohio’s assertions that temperance is regulated by their control over pricing and requirement of mandatory minimum markups for in-state retailers which it would find hard to regulate with regard to out-of-state shippers.
2. What studies support the position that pricing or taxation promote health and safety issues. This question is important in light of the evidence as the plaintiffs assert that the State only introduced ultimate expert ultimate opinions about the impacts of pricing or taxation on health and safety and that the underlying studies relied upon by the experts for the opinions were not introduced nor are they admissible.
Talk about getting into the weeds. If the Circuit Court opinion in this case follows the same inquiry and renders determinations based on the evidence the opinion could result in a new breed of factually supported Dormant Commerce Clause cases addressing the three-tiered system opening a host of considerations and issues that Courts have been rather reluctant to engage on despite the holding in Tennessee Wine that this is the inquiry that should occur.
The vast tide of these cases has gone against the wine retailers looking for inroads on interstate shipping. The oral argument’s tenor involving questions regarding the studies and evidence makes sense given the need to give the advocates a full review, but the pressure applied on questions regarding the difficulty of implementing a system that similarly controlled pricing for out-of-state retailers shipping into Ohio implies that the Court may be questioning prior decisions holding that in-state and out-of-state retailers are not similarly situated for Dormant Commerce Clause analysis purposes given that those groups acquire their products through different state systems. If nothing else, it certainly appeared that the panel was not taking the 6th Circuit’s prior Lebamoff decision as a dispositive starting and end point for this challenge.
One issue that I hope the Court touches on in its opinion involves a point that received rather short shrift during the argument. It centers around the parade-of-horrible future prognostication vs actual-implementation evidence debate. This comes up again and again in these cases. The State argued that opening the door to out-of-state licensing for shipping would result in a race to the bottom scenario with hundreds of thousands of retailers looking to ship cheaper and cheaper plonk to Ohioans. The advocates for wine shipping refuted this by noting that in states that did implement these out-of-state wine shipping licenses, a couple hundred retailers signed up (yes “X00” not “X00,000”) and the state regulatory agencies in those jurisdictions reported little to no problems. It is an epistemic issue. Courts determining these issues should not engage in hypothecating or accepting such unsupported assertions where actual data exists. If Tennessee Wine stands for anything, its required factual determinations should be assessed from substantiated empirical evidence and the days of making judicial determinations premised on the “just so stories” about the likely outcomes of alcohol restrictions should end. If the 21st Amendment has provided anything, it has provided 50 separate laboratories for data concerning the actual outcomes in differing approaches to alcohol shipping. Even Fosdick and Scott understood this and took this empirical approach in Toward Liquor Control by analyzing other countries’ regulatory systems before making their suggestions. Where evidence exists, we should resist accepting assumptions about the future that run contrary to past experience.
You can listen to the oral argument here.
Here are the appellate briefs:
Intervenor – Wholesaler Association Brief.