Wine Talk

Snooth User: Philip James

New York wine lovers mourn the Federal Court decision

Posted by Philip James, Jul 6, 2009.

Lots of chatter on this, but basically, the Federal Court upheld a district court's decision and said that the 2005 Supreme Court ruling applied to wineries, but not to retailers! Its now with the appellate court.

Great quote by Tom Wark, which sums it up:
"Very simply, this court got it very wrong in their decision," said Tom Wark, executive director of the Specialty Wine Retailers Association. "It's not a surprising decision. This is the same circuit court that was overturned by the Granholm decision. What we have here in the 2nd Circuit's decision is something that squarely ignores the commands of the United States Supreme Court."

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Reply by Gregory Dal Piaz, Jul 6, 2009.

Yeah, ths will be overturned. Dumbasses got it wrong.

Glad I don't need any wine right now!

Reply by dmcker, Jul 7, 2009.

No matter how any lamebrain on the bench tries to twist it, the constitutional issues are clear to any halfway clear thinking layman. More than once I've wondered if certain circuit judges are kept in place merely to generate workloads for courts of higher appeal...

Reply by dmcker, Jul 7, 2009.

Meant to also mention that it's always fun to see tax dollars at work!

Reply by dmcker, Jul 7, 2009.

I was also wondering about the whys and hows of the rationale espoused by legislators and the courts that direct-from-producer-to-consumer distribution would 'ensure' control of the market by organized crime. Anyone care to elucidate on that?

Reply by GregT, Jul 7, 2009.

It's weird reasoning. The concurring opinion makes a lot more sense than the ruling. In the former case, the Judge doesn't necessarily agree with the law, but says that it is not the role of the court to decide what is anachronistic when there is no room for interpretation. He cites the prohibition on cruel and unusual punishment, the meanings of which can evolve over time, and the requirement that the President be 35 years old, which does not change with time. He concludes that the Constitution gives states the power to regulate the sale of alcohol and in this case, that is all they are doing, simply requiring that alcohol go thru dealers in the state who are licensed. It's a weak analysis because the Supreme Court pointed out that the US today is different from what it was years ago in that today people treat alcohol as simply another item of commerce. Notwithstanding the fact that the states are explicitly given the power to regulate its sale within their borders, the Supreme Court ruled in Granholm that they must take the least obtrusive approach. This does not seem to fit that requirement.

The majority opinion however, is much worse. It is basically a jeremiad against the critics of the three-tier system. He claims that the Supreme Court explicitly acknowledged the validity of the three-tier system, that in-state retailers and wholesalers are an essential part of it, and that the law does not discriminate between in and out of state alcohol because it requires all alcohol to pass through the in-state retailers and wholesalers.

Of course, that is false on its face because if a winery can ship directly to the customer, as they can after the Granholm decision, then not all alcohol is passing through in-state retailers and wholesalers. And if that is the case, then in fact this may actually punish the three tier system he is trying to protect because the logical move would be for more wineries to ship directly.

It's a stupid and poorly thought out decision. I have the opinion but you can probably look it up on Google. Try:

Buy Rite, Inc. v. Boyle, 07-4781-cv (July 1, 2009)

and if you're interested, read

Granholm v. Heald, 544 U.S. 460, 488 (2005)

dmcker - I'm not sure if you're serious or not?

If you are, the answer is Al Capone. He made the gin, his trucks delivered it, and his guys convinced the retailers to take them in as "partners". It was complete vertical integration, which was in vogue at the time. Consider Ford Motor Company - coal and steel came from their mines on their boats, It went into one end of the factory. A car came out the other end.

When Prohibition was repealed, the three-tier system was created to ensure that one player could never be vertically integrated again, because it was felt that this would give them too much power and control. In fact, the drafters of the laws were poor economists because the power and money has always been the middleman. The woodcarver in Poland couldn't eat unless he sold his product in Vienna. But he didn't speak the language and had no means of transportation and couldn't leave his farm. Al Capone didn't have to open the speakeasies - someone else did that. And he didn't have to actually manufacture the gin although that was probably a good idea to ensure quality control. But his main role was getting it from the bathtub into the bar. And look who dominates the market today. The biggest players by far are not the wineries, even the few behemoths like Kendal Jackson and Gallo.

The concurring opinion in this case actually gives a decent summary of the whys and hows.

Reply by dmcker, Jul 7, 2009.

GretT, thanks for the, as usual, well thought response.

I was half serious. We all know the various stories from Prohibition. Cartels are ruthless juggernauts, witness today with other controlled substances. I was more curious about how the rationale fits legalized substances today, and whether the three-tiered system was essential in the minds of 21st century jurists to prevent the likes of wineries, or organized crime, from controlling all aspects of the trade.

Reply by Philip James, Jul 7, 2009.

There is a great analysis of the ruling by R. Corbin Houchins, Beverage Industry Counsel, on the Ship Compliant blog:

Reply by GregT, Jul 7, 2009.

dmucker - the rationale is exactly the point. There's a debate as to how it fits today and that's what we're seeing in all of these cases. Several approaches have been tried. In the Granholm case for example, they trotted out the idea that minors would have access to alcohol if it were allowed from out of state wineries. The Court swatted that one away. They also tried the argument that it's harder to collect taxes from out of state wineries. That also got swatted aside. The concurring opinion in this current case talks at length about the evolution of the law and how anachronistic laws are dealt with.

It's interesting that you don't see a lot of arguing about organized crime and I'm wondering if that isn't because people are so afraid of being politically incorrect these days - our esteemed former Governor Cuomo was famous for stating that there was and is no such thing as the mafia and that reference to it was simply anti-Italian sentiment.

This particular ruling is interesting because when the Supreme Court has essentially said that certain arguments don't pass the laugh test, it's hard to make those arguments the heart of your case. In earlier cases, the SC simply commented that the three tier system was legitimate. But it's legitimacy was not the heart of the case, so their comment is essentially what's called dicta. In this ruling however, Wesley seems to have transformed the issue and because he can't bring up the old arguments, his entire holding seems to be a defense of the three-tier system - as it is run in the state of NY.

Thinking about it a little more, his ruling is even stupider than I thought earlier because the three tier system was not the issue. The issue is alcohol, not business practice and the three-tier system has no Constitutional protection as it is only one of many possible systems that we can imagine. And it still exists although two of the legs may be in other states. But that's the beauty of the Commerce Clause - full faith and credit to the laws of the other states.

Although the historical roots of the 3 tier system may be Al Capone, I can't imagine anyone bringing him up today when his level of gangsterism seems almost quaint. So we get stupid rulings like this one, where the system is defended because it has been called legitimate by the Supreme Court. Of course, legitimate does not mean essential, and that's where this ruling is going to fail.

The analysis Philip linked to is pretty good too.

Reply by dmcker, Jul 8, 2009.

I spent a lot of the '90s building up the Internet and electronic commerce infrastructure, laying the groundwork for Web 2.0 and all it has brought us, including Snooth and the means for our discussion in this forum, as well as the means for interstate online wine purchases.

Obviously the Internet facilitates a lot of aggregation and various forms of vertical integration in distribution and other areas--to put it mildly. I find it interesting to see how even today the courts and vested political interests in places like New York are having so much trouble 'getting it', and understanding how so many rules of the game have been changing in a telescoped length of time. Except for their power to entangle and hinder, I don't see much difference between the circuit court judges in NY, and the Vinexpo chief in Bordeaux that Philip also posted about. Hard to imagine that mindset whereby they have to appear confident in defining the world around them, while wearing horse-and-buggy era blinders that narrow their view of how that world is changing.

Reply by Philip James, Jul 8, 2009.

Well said DM. There's certainly an 'old guard' mentality, which is about protecting existing assets, rather than embracing change and figuring out how to play in a world with new rules.

Reply by Greg Roberts, Jul 8, 2009.

Given the deep pockets of the big distributors and their willingness to throw money at the issue, individual wine lovers like us can influence the debate not only in NY but in other states as well by contacting their state legislatures. Free the Grapes is a great resource for consumers who want the freedom to buy wine online. They have a tool which will generate a faxed letter to your state rep simply by entering your zip and addr. Better yet give their office a call and ask them about the issue.

Reply by dmcker, Jul 8, 2009.

I wonder if the circuit court judges, et al., read the WSJ?

Reply by GregT, Jul 8, 2009.

dmucker - totally right. I spent time trying to raise money for an internet company in New York. Nobody got it. In CA, everyone would have understood. We ended up selling out and selling our domain name to Infospace.

The interesting piece is Amazon. You remember what happened to and Amazon waited, watched, and learned and decided to get into the business. I have a little insight into what they're doing and it's really incredible what they have to go through. The states are so mired in the horse and buggy age it almost defies belief. But Greg Roberts is right on the money - it's about who will pony up the cash.

The huge distributors have the most money and consequently have the most at stake. That's who is paying the legislators. It's out and out corrupt IMO.

And your comment gets at something else too - the people who make the laws have no idea about technology. The most frightening thing is to go into a meeting with politicians and administrators when the subject of technology comes up. They are so afraid of looking stupid that they have discussions that are at best, superficial and at worst, non-existent. In NYC, we had a Deputy Mayor who saw hte movie with Sandra Bullock where her identity was stolen and he decreed that there will be no internet applications for the City. It was an "unproven" technology. This was in the late 90s!!

Someone will need to appeal this case to the Supreme Court. That will take money and time. And all because of some ignorant and easily influenced judges.

Reply by fibo86, Jul 9, 2009.

You know it's a shame you can't produce a partition with all the snooth buyers,
I'm sure you could raise enough signatures -
for the cause that is or is it completely out of your hands and in the judges hands only?

Another form of archaic thinking from a/or person/s in control?

It almost seems as if you have the same problem as usual, the person/s whom made the decisions has there head stuck somewhere in the past (trying to be nice).

Is the future that bad, or is it the lack of control?
Maybe there sharing idea's with China?

Reply by GregT, Jul 9, 2009.

The legislature passed a law and the court interpreted that law. The legislature could change it if they wished. However, there is money behind keeping things as they are.. Snooth signatures would only matter if they are from people in NY who can vote.

More importantly, you should see what's going on with the legislature in New York these days! The Democrats had a 2 vote majority. Then two of them decided to switch sides. Suddenly the Republicans had a 2 vote majority. But then one of the switchers decided to switch back. So now there is no majority. Now each side holds hearings and meetings at the same time and tries to talk louder than the other side.

Incidentally, those two people who switched sides? One of them is going to trial for slashing his girlfriend with a bottle and the other is under investigation, if not indictment, for living outside the city, fraudulently sending state money to his nonprofit organization that pays him over $300K a year, and various other activities.

Dopey as the judges are, they are in fact the geniuses in this state!

Reply by Eric Guido, Jul 10, 2009.

So this covers retailers and wineries? Wow. Like the article stated, really hard to enforce. Sitting here in Napa with a list of wines I've purchased for delivery to my home this fall and no one mentioned any problem with that to me.

Reply by Gregory Dal Piaz, Jul 10, 2009.

I wouldn't worry yet Eric.

I think everyone is taking a wait and see what happens on appeal attitude.

If this law is upheld, as crazy as that may sound, I intend to set up a company in a neighboring state to accept deliveries from wineries and retailers and offer storage and delivery options. I may be breaking the law by doing so but if I can make enough money I should be able to pay off enough politicos for them to look the other way. Oops, did I just say that. Nevermind,

Reply by GregT, Jul 10, 2009.

Eric - retailers were always OK. It was wineries that were the problem because they didn't use retailers and distributors. So the distributors financed some big fights and that went to the Supreme Court. The distributors couldn't care less about retailers in other states because many of them were customers anyway. Prior to the Supreme Court decision, a number of wineries would send the wine to a retailer to clear it in CA, and then it could be shipped.

But in 2005 the SC ruled that wineries had to be treated the same whether in or out of state. So Pataki threw in the towel and said "OK, New Yorkers can get wine shipped in from wineries." There had never been an issue with retailers in other states, so things seemed OK. New Yorkers today can get shipments from wineries.

Then this idiot court went BACKWARDS and took away the right that had been there for many years. Out of thin air, they created a problem where none existed and now we can get wine from wineries but not from retailers out of state. In simple terms, the arguments used in the winery case included 1) the absence of tax collection in the receiving state and 2) the likelihood that minors will order wine thru the mail. The SC said neither of those were insurmountable problems that justified restraint on trade, and that although the three tier system was "unquestionably legal", it was not the final answer in wine sales.

So this court took that comment to create new law. They said that

A) since the three-tier system was "unquestionably legal",

B) it had to be an in-state system. Thus,

C) using a distributor and a retailer from another state must be illegal.

OK, C follows from B, but where did A come from?

Answer = the microcephalic judges. They made it up.

Reply by dmcker, Jul 10, 2009.

GregDP, I may know of a source of financing for your new venture, from some families in Russia and a banker in Switzerland. Ooops, so this is where organized crime enters in... ;-)

Reply by GregT, Jul 11, 2009.

You think they're not in already? Who else is so good at bribing and threatening politicos and store owners?

Besides, not to cast aspersions on anybody, but what's distribution after all? Trucking!

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