Appeals court calls RI ban on home delivery of out-of-state wine discriminatory. What's next?

BOSTON — National wine retailers are hailing an appeals court ruling labeling as discriminatory Rhode Island’s ban on bottles being shipped from out-of-state straight to buyers’ doors.

A 1st U.S. Circuit Court of Appeals panel made up of Rhode Island judges ruled Thursday that Rhode Island law “facially discriminates” against out-of-state retailers by limiting retail licenses exclusively to state residents or in-state businesses and by requiring that such licensees maintain a physical presence within the state.

In doing so, the court sent the case back to U.S. District Court Chief Judge John J. McConnell Jr. for further examination of whether the state can prove that the law discriminating against out-of-state wine sellers is necessary to protect the health and safety of Rhode Islanders.

What was the original ruling?

The ruling vacated and upheld in part a 2022 decision by McConnell that struck down a Constitutional challenge to the law brought by two wine enthusiasts. McConnell found that the state’s wine sales framework was “grounded in its pursuit of public health and safety” and therefore did not violate the dormant Commerce Clause.

The National Association of Wine Retailers president, David Parker, praised the ruling as opening a path he believes will lead to wine consumers being able to obtain the wines they want legally.

“[The] First Circuit Court of Appeals made the important determination that the state’s simple assertions that its three-tier system and its requirement that retailers must have an in-state presence automatically uphold the health and safety of its residents are faulty. The Court properly understood and stated that ‘concrete evidence’ for these assertions must be presented by the state," Parker said in a statement.

“We are confident that the important principles of non-discrimination in state alcohol laws as laid out in the Supreme Court’s Granholm v Heald and Tennessee Wine v Thomas decisions will eventually lead to consumers finally being able to access all the wines they want from retailers across the country, rather than the limited selection currently provided by in-state wholesalers,” Parker said.

Parker noted that it was the third appellate ruling to require the constitutionality of states’ discriminatory wine shipping laws to be determined based on evidence, not just assertions or speculation.

Wine enthusiasts launch Constitutional challenge

In 2019, Kambis Anvar, of East Greenwich, and Michelle Drum, a Newport resident, sued Attorney General Peter F. Neronha and Department of Business Regulation Interim Director Elizabeth Tanner in federal court, alleging that state laws and regulations discriminated against out-of-state wine retailers.

Like many states, Rhode Island controls the distribution of alcohol through a “three-tier system,” that protects local liquor stores and distributors from national retailers and e-commerce.

Under the system, the state issues specific licenses for the manufacture, wholesale or retail of alcohol, thus distinguishing between each tier of the supply chain. Each licensee is required both to maintain a physical premises within the state, with wine and other spirits first funneled to retailers through in-state wholesalers who alone can receive shipments from outside the state.

The only exception is that consumers may buy alcohol from an in-state or out-of-state manufacturer and have it shipped directly to their home, but only if the purchase is made in-person.

Drum and Anvar argued through the Indiana law firm, Epstein Cohen Seif & Porter, that the law restricted them from buying choice wines for "no legitimate reason other than protectionism."

The Rhode Island Responsible Beverage Alcohol Coalition, a nonprofit group of alcohol wholesalers, weighed in in opposition to the consumers’ lawsuit. They argued that the state was validly exercising its police powers in enforcing the laws.

The consumers’ lawsuit is part of an effort backed by national retailers to strike down state laws preventing direct sales across the country. New Jersey, Indiana, Illinois, Mississippi and Kentucky faced similar suits.

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Appeals court ruling

The 1st Circuit, in the opinion written by Senior 1st U.S. Circuit Court of Appeals Judge Bruce M. Selya, emphasized that the dormant Commerce Clause requires that a state law that discriminates against interstate goods or non-resident interests “can be upheld only if it 'advances a legitimate local purpose that cannot be adequately served by reasonable nondiscriminatory alternatives.'"

“The short of it is that a discriminatory aspect of a state's version of the three-tier system cannot be given a judicial seal of approval premised either on the virtues of three-tier systems generally or on the basis of a theoretical benefit to public health and safety associated with the challenged regulation,” Selya said.

“Such a requirement — if it is to be sanctioned — must be supported by 'concrete evidence' demonstrating that its predominant effect advances the goals of the Twenty-first Amendment and not merely the protection of in-state business interests,” the ruling continued.

The appeals panel sent the case back to McConnell to determine whether the consumers’ assertions that states that allow out-of-state retail deliveries of alcohol do not experience a corresponding erosion in public health and safety outweigh the state’s arguments to the contrary.

Selya was joined in hearing arguments earlier this summer by fellow Rhode Islanders Senior 1st Circuit Judge O. Rogeriee Thompson and 1st U.S. Circuit Court of Appeals Judge Lara Montecalvo, constituting a full Ocean State panel.

This article originally appeared on The Providence Journal: Retailers hail appeals court ruling on home delivery of out-of-state wine