Wine Without Borders

The Strange Case of Texas

July 18, 2008 – 7:48 am

For two years since Specialty Wine Retailers Association opened its lawsuit against the state of Texas challenging the constitutionality of its ban against out-of-state retailer shipping to Texans, the state has remained open to shippers. The mechanism by which consumers were still able to procure wines from out-of-state retailers was an agreed to preliminary injunction. Not only did the PI allow retailer to continue to serve their numerous customers in Texas, but it assured that Texas could still procure the thousands of fine wines not available to them due to the state’s wholesalers only bringing a fraction of the wines available into the state.

That agreed to PI is no longer in effect and, due to the January decision (Siesta Village Market v. Perry) in our case by a Texas District Court Judge, a strange situation has arisen.

Properly, the Texas judge ruled that the 2005 Supreme Court decision Granholm v. Heald did indeed apply to retailers as well as wineries. This meant the principle in Granholm, that a state may not discriminate against out-of-state economic interests to favor its own, applies retailers, a position most wholesalers and state attorney generals opposed. However, the judge also ruled that Texas may require out-of-state retailers to purchase the wines they intend to ship into the state only from Texas wholesalers.

In response to this ruling, the state of Texas issued the following announcement:

“The judge ruled that once receiving the permit, out-of-state retailers must also abide by relevant Texas laws, such as the one that mandates that all retailers purchase their product from a Texas wholesaler. In turn, they are then able to do whatever the law allows Texas retailers to do, such as shipping wine directly to consumers in Texas.

“Therefore, effective immediately, out-of-state retailers may not ship wine directly to Texas residents without obtaining the relevant Texas retailer’s permit. Since 2005, out-of-state wineries have been eligible for an Out-of-state Winery Direct Shipper’s Permit. In accordance with the court ruling, out-of-state are now eligible for a Wine Only Package Store permit.

“Be aware that purchasing product from a Texas wholesaler could jeopardize the permit held by an out-of-state retailer in their home state. Out-of-state retailers should check with their home state alcohol regulatory agency to find out if they are authorized to purchase product from a Texas wholesaler.”

Suffice to say, out-of-state retailers must consult with their lawyers before continuing shipping to Texans because the situation that currently exists is, in a word, strange.

1-Texas has invited out-of-state retailers to apply for a Texas Wine Only Package Store Permit.

2-The Permit allows one to ship to Texans, but requires Retailers buy wine from TX wholesalers

3-Obtaining such a permit will in most states violate the terms of their current permit

4-Texas is disallowed from issuing permits to business that are in violation of the law, which they would be if they obtain a Texas Wine Only Package Store Permit.

In the Texas District Court decision, the judge acknowledged that his remedy, allowing out-of-state retailers to obtain a Texas retailer permit, was “somewhat awkward”. This statement still remains the Understatement Of the Year.

The case is currently under appeal in the 5th Circuit Court of appeals and briefs have been filed by SWRA, The State of Texas, Texas Wholesalers, with Amicus briefs filed by a number of interests. More briefs are to be filed, followed by oral arguments, likely in the fall.

It is likely that most retailers will discontinue shipping to Texas until this case and the law is clarified. This is  a real loss to Texas consumers. With Texas wholesalers unable and unwilling to provide access to many of the wines Texans used to procure from out-of-state retailers, consumers will be at the mercy of the Wholesalers who will decide exactly what wines they believe Texas consumers should be able to access and nothing more.

When there were a limited number of American wineries and a limited number of imported brands and when Americans’ interest in wine was itself limited, this oligarchic arrangement was not terribly distasteful. But today, when literally many thousands of wines are available to Americans and when American interest in wine has exploded, the arrangement that exists is nothing less than anti-consumer and unethical, not to mention highly unAmerican.

Texas wholesalers, in their briefs filed in the Texas case, have suggested that all direct shipping be made illegal  in the state, including shipping from Texas retailers to Texas residents, essentially putting Texas consumers at the mercy of their local stores or forcing them to drive many miles to obtain wines they may want. Not the best situation for consumers nor for a country where energy is increasingly expensive.

The wholesalers have taken the position that consumers are simply asking for too much in their desire to obtain wines that aren’t provided to them through the oligarchic system. Craig Wolf, CEO of the Wine & Spirit Wholesalers Association recently noted, “Most Americans were satisfied with the system as it is except for a small, very vocal segment who say they can’t get their bottle of 1997 whatever.”

You don’t see this kind of disdain for consumers from retailers, rather just from wholesalers. However, wholesalers don’t ever deal directly with consumers, so this dismissive attitude is perhaps best explained by the wholesalers’ ignorance of the consumers and the current state of the American wine market.