Missouri's Hangover: Wine-ing about Direct-to-Consumer Prohibition: Sarasota Wine Mkt., LLC v. Schmitt.

AuthorWarren, Matthew D.
  1. INTRODUCTION

    "[W]ine," Thomas Jefferson once said, "[is] a necessary of life with me." (1) The French Ambassador turned president spent well over $365,000 in today's currency on imported wines during his eight-year tenure as president of the United States. (2) The intoxicating rights once afforded to Jefferson, as a drafter of the Constitution, have shifted throughout history with the passing of the Eighteenth and Twenty-First Amendments. (3)

    Many view the repeal of prohibition as the end of the temperance movement across the American political landscape, but this view ignores the continuing importance of Section 2 of the Twenty-First Amendment ("Section 2"). (4) Section 2 states that "[t]he 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." (5) Multiple states, including Missouri, passed stringent Liquor Control Acts as a "comprehensive scheme for regulation and control of the manufacture, sale, possession, transportation, and distribution of intoxicating liquor." (6) Although there are no completely dry states, some states severely limit liquor sales and distribution. (7) For example, only the State government may import alcohol in Utah, making it the leading retailer of all alcoholic products other than light beer. (8) Similarly, in Michigan, the State is the only permitted wholesaler for liquor, but not wine and beer. (9)

    In 2007, Missouri amended its Liquor Control Act to allow in-state and out-of-state wine producers to ship wine directly to Missouri consumers. (10) This amendment, however, requires wine retailers to have a physical presence within Missouri and a retail license to ship wine directly to consumers. (11) A wine retailer in Sarasota, Florida, recently challenged the validity of the Missouri amendment on Dormant Commerce Clause grounds. (12) In Sarasota Wine Market, LLC v. Schmitt, the Eighth Circuit faced two important, yet competing interests: (1) Missouri's power under the Twenty-First Amendment, which allows states to regulate the transportation or importation of alcohol within its economic system; and (2) the freedoms of retailers like Sarasota Wine Market to ship and sell alcohol within an interstate system of commerce. (13)

    The year 2020 would likely have restricted a founding father from enjoying his favorite glass of French wine or, as he might say, his "Life, Liberty, and pursuit of Happiness" in Missouri. (14) The Eighth Circuit's interpretation of current legal doctrines surrounding alcohol distribution similarly inhibits the alcohol industry's growth during a pandemic and e-commerce driven world--bringing to light a new kind of prohibition. Part II of this Note describes the prohibitionary history in the United States, the three-tier alcohol distribution system in Missouri, and the facts in Sarasota. Part III provides the relevant legal background of the Dormant Commerce Clause and the Twenty-First Amendment. Part IV explains the Eighth Circuit's decision in Sarasota, which held that Missouri's retail licensing residency requirement is constitutional, as it does not discriminate against out-of-state retailers and is necessary to protect the health and safety of Missouri citizens. Finally, Part V argues that the Supreme Court of the United States needs to reevaluate the constitutionality of the three-tier system under its new Tennessee Wine test, which addresses the relationship between the Dormant Commerce Clause and Section 2 of the Twenty-First Amendment within the growing world of e-commerce. (15)

  2. FACTS AND HOLDING

    To understand the facts of Sarasota, it is necessary to first explain the three-tier alcohol distribution system and prohibitionary history in the United States.

    1. An Old Fashion: The Traditional Three-tier Model of Alcohol Distribution

      Throughout the twentieth century, many states enacted laws composed of a "three-tier model" for alcohol distribution. (16) Under the original three-tier system, there are three distinct and independently-owned levels of distribution through which alcohol must travel before being sold to consumers.. (17) First, the producer - often a winery, brewer, or distiller - sells its product to a licensed in-state wholesaler. (18) Second, the wholesaler - typically the most essential and restrictive level of the three-tier system - pays the excise taxes and delivers the alcohol to the in-state retailers. (19) Generally few in number and sometimes state-owned, wholesalers are the pathway through which all alcohol travels when entering a state's commerce system. (20) States often use the wholesaler-tier to control alcohol sales through inflated or competitive pricing, taxation, and other regulations. (21) In the final step, after the producer's shipment and wholesaler's regulations, the retailer sells the alcoholic products directly to the consumer while collecting the applicable taxes. (22) The consumer is then free to "cheers" and drink within the bounds of the state's statutory laws.

      In the nineteenth century, the Missouri legislature passed the original three-tier model to prevent a return to the "tied-house system," which facilitated monopolies throughout the alcohol distribution process from the producer down to the consumer. (23) Historically, tied-house systems and alcohol monopolies in the United States were run by "absentee owners" who were part of the producer tier. (24) The absentee owners provided potential saloonkeepers with property, equipment, and supplies to start their own saloons in exchange for exclusive alcohol distribution contracts. (25) As a result, the absentee owners never witnessed the local damage produced by the liquor distributed within their respective communities. (26) Instead, the absentee owners were solely focused on turning a profit. (27)

      In early American history, those states without a protective three-tier system often struggled with excess alcohol consumption among children and adults, leading to unstable households and greater levels of misery, addiction, and crime. (28) Because each tier of the three-tier system is independently owned and operated, no member of one tier will have a financial interest in a higher or lower tier. (29) Thus, the original three-tier system effectively helped eliminate tied-house systems and alcohol monopolies within Missouri and minimized the dangerous effects of alcohol within a community. (30)

      In 1919, Congress quashed the need for the three-tier system when it ratified the Eighteenth Amendment after citizens lobbied to ban alcohol manufacture, sale, and transportation. (31) That nationwide experiment came to a halt in 1933 when the ratification of the Twenty-First Amendment ended alcohol prohibition. (32) Section 1 of the Twenty-First Amendment repealed the Eighteenth Amendment, while Section 2 provided that "the transportation or importation into any state . . . for the delivery or use therein of intoxicating liquors, in violation of the laws thereof, is hereby prohibited." (33) As the Supreme Court once wrote, Section 2 essentially grants "complete control to the states to permit the importation or sale of liquor and [decide] how to structure [their own] liquor system." (34) As such, Section 2 effectively gave states three avenues: prohibit the sale of alcohol within its borders, permit the sale of alcohol in a market heavily regulated by the state's visible hand, or permit the sale of alcohol with little to no regulation. (35) In response to ratification, Missouri promptly enacted the Liquor Control Act in 1933, reviving its pre-prohibition three-tier system. (36)

    2. The King of Beers: Missouri's Liquor Control Act and License Provisions

      In Missouri, not every drop of alcohol goes through the three-tier system. For example, Missouri allows out-of-state wineries to ship wine directly to consumers. (37) Allowing producers to ship directly to consumers is unlike allowing retailers to do so. The former is an exception to the general rule that all alcohol must pass through licensed wholesalers and retailers before arriving to consumers. (38) Typically, licensed retailers ship alcohol purchased from licensed wholesalers, causing both transactions to occur wholly within a state's three-tier distribution system. (39)

      Unique to Missouri's traditional three-tier system is a ban preventing the sale of alcohol "without taking a license." (40) To obtain a license, an applicant must demonstrate "good moral character" and establish that they are "a qualified legal voter and taxpaying citizen of the county, town, city or village" in which the act of alcohol distribution will occur. (41) A corporate licensee's managing officer must also abide by Missouri licensing rules and operate from the physical premises in Missouri listed in the license. (42) Finally, the managing retailer and officer must purchase liquor exclusively from Missouri-licensed wholesalers. (43)

    3. Brewing a New Debate: Sarasota Wine Market, LLC v. Schmitt

      Sarasota involved two sets of plaintiffs: Missouri residents seeking to buy wines from out-of-state retailers and an out-of-state retailer ("Magnum Wine") wanting to ship wines directly to Missouri residents. (44) If the Missouri Liquor Control Act - which requires physical residency in Missouri for retailers - were ruled unconstitutional under the Dormant Commerce Clause, (45) these residents could purchase wine from the out-of-state retailer and the out-of-state retailer could sell and ship the wine directly to the Missouri residents. (46)

      Magnum Wine did not intend to establish Missouri residency or restrict its purchases to Missouri-licensed wholesalers. (47) Although these procedures would permit Magnum Wine to qualify for an in-state retail license and allow direct-to-consumer shipments to Missouri residents, they would also impose unreasonable economic stress on Magnum Wine's business that...

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