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Update: Some Interstate Alcohol Purchases on Hold After Ruling Challenged

November 13, 2018
Hospitality & Beverage Control Advisory

For those planning for on-line holiday orders, some alcohol purchases may be on hold. As a quick update, the named defendants in the Lebamoff Enterprises v Snyder, et al federal district court matter (see earlier post, below) did not take the district court's ruling in stride. Andrew J. Deloney, William Schuette and Rick Snyder filed an appeal in October, which is presently pending with the U.S. Court of Appeals, 6th Circuit. On November 6, the court granted the motion of the appellants, which will stay the lower court's ruling in abeyance, pending the decision of the U.S. Supreme Court in a case known as Tenn. Wine and Spirits et al v Bryd.

For the present time, the State of Michigan will not be required to provide non-Michigan beer and wine retailers with the same rights to sell beer and wine to Michigan consumers for delivery through a common carrier, in the same manner as their Michigan retail counterparts. Michigan consumers can continue to order beer and wine from Michigan licensed retailers, but transactions with non-SDM holders are presently on hold.

The members of Varnum's Hospitality and Beverage Control practice team will be monitoring status at both the U.S. Court of Appeals and the Supreme Court. Settle in with your favorite beverage and monitor this situation with us, as this dispute is far from resolved.

Just in Time for Holiday Shopping: Court Removes Restraints on Interstate Sales of Beer and Wine in Michigan

(The information in this post has been changed due to an appeal. See above.)

Bottles of wine in a shipping box

For those who might assume that state laws regulating the right of a retailer to sell beer or wine across state lines are relatively settled (or at the very least, predictable), our federal courts have recently issued a ruling that dispels any such notion. To be certain, the courts have provided a not-so-subtle reminder that any attempt by a state to restrict interstate commerce, as far as it impacts the sale and purchase of alcohol, will be examined and potentially rendered unenforceable.

In September 2018, the United States District Court for the Eastern District of Michigan, in Lebamoff Enterprises v Snyder, et al, confirmed the concept that the rights of a state to regulate and/or control the transportation or importation of alcohol - whether beer, wine or spirit - is limited by the provisions of the Commerce Clause of the US. Constitution, despite the powers otherwise reserved to the states under the 21st Amendment.

Confused? Here's a brief constitutional law primer:

The Commerce Clause provides that Congress shall have the power "to regulate Commerce with Foreign Nations, and among the several States, and with Indian Tribes." By inference, the "dormant commerce clause" means that because Congress possesses this power over interstate commerce, states cannot discriminate against interstate commerce nor can states enact laws that unduly burden interstate commerce.

By contrast and arguably in conflict with the Commerce Clause, Section 2 of the 21st Amendment to the Constitution delegates the right to regulate the flow of alcohol to the states, and provides in part "the transportation or importation into any State, Territory, or possession of the United States for delivery or use therein of intoxicating liquors, in violation of the laws thereof, is hereby prohibited."

How do these two conflicting concepts work in tandem? The State of Michigan received some unwelcomed guidance, in response to a relatively new law. In 2016, Michigan passed 2016 PA 520, which permitted retailers and other vendors who possess a Specially Designated Merchant (SDM) liquor license in Michigan to ship beer and wine products purchased online or through phone orders directly to the homes of consumers in Michigan, through recognized third party carriers, subject to certain restraints. Since the only class of beer and wine merchants that were given the lawful right to sell and ship directly to Michigan residents were those sellers who possessed a SDM license (and were, therefore, Michigan store operators), out-of-state retailers who likewise wanted to sell and ship in the same manner, as well as some of their thirst-crazed customers, objected and claimed that the law discriminated against non-Michigan retailers and was a violation of the Commerce Clause and thus unconstitutional. The State of Michigan did not accept this argument. It claimed that the 21st Amendment protects its right to regulate the sale of wine and beer in Michigan, and that it could legally limit the application of the new law to Michigan liquor licensees.

The Lebamoff Court agreed with the outstate sellers and others who joined in the legal fray, ruling that the applicable provisions of the Liquor Control Code wrongfully discriminated against out-of-state-vendors. The court did not find the State's argument compelling. Rather, the court opined that the State of Michigan failed to adequately demonstrate that the scope of the law and its implicit limitations is essential to protect Michigan's three-tier system (we will save this concept for a different discussion, and a few more drinks). In the absence of a legitimate local purpose, the law was declared unconstitutional.

What is the bottom line? Good news, if you are a consumer seeking to directly purchase from an out-of-state retailer, and not so great if you are a Michigan retailer who otherwise expects some home field advantage as a retailer that pays an annual fee for the privilege of transaction business in Michigan. Unless and until reversed on appeal, this federal ruling opens the door (or more literally, the web browser) for retailers who are legally operating in any state to sell directly to the Michigan customer base for direct "door-to-door" shipments through a third party carrier. No one is suggesting that Michigan's three-tier system is in peril as a result of this ruling. The actual impact will require more analysis while enjoying a Cabernet from California and completing my other online orders.

For further updates on this or other issues/concerns that focus on the Michigan Liquor Control Code, the Federal Alcohol Administration Act or any other state or federal trade practice issue, please contact Christopher Baker or any member of Varnum's Hospitality and Beverage Control Team.

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