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Direct-to-Consumer Sales

Certainly one of the most prominent and pressing issues of the day is that of direct-to-consumer sales – that is, either sales directly from a supplier to a consumer or sales from an out-of-state supplier or retailer to an in-state consumer. It is more the latter of the two causing attorneys general across the country heartburn. Before we dive into at a few cases that highlight the issues involved, let’s go over the logistics of such a sale. As an example, a consumer might go to the website (fictitious), which is a website the offers browsers the ability to purchase wine, beer, and/or spirits and have such products delivered to the purchaser’s home. The consumer in this example lives in Mississippi, where direct shipping of spirits by retailers to consumers is prohibited. While browsing the website, the consumer selects to purchase a bottle Bat Wing Vodka (fictitious). The consumer inputs his credit card information and shipping information and clicks purchase. From where does the bottle of Bat Wing Vodka actually ship? In this case, it ships from an alcohol retailer located in Florida. This alcohol retailer holds no Mississippi alcohol license. The alcohol retailer simply ships the bottle of Bat Wing directly to the consumer in Mississippi. In Mississippi, even in-state retailers are prohibited from shipping alcohol directly to consumers, so why should a retailer in Florida be able to do so? What if Mississippi did allow in-state retailers to ship directly to Mississippi consumers – would that change things? Would that open up a dormant Commerce Clause challenge?

  1. Ohio: In July, the State of Ohio filed a complaint and a motion for preliminary injunction against a number of out-of-state alcohol retailers for allegedly illegally shipping alcohol to consumers located residing in Ohio.

    On the flipside, in House of Glunz, Inc. v. Ohio, an Illinois alcohol retailer filed suit against Ohio alleging that Ohio law violates the dormant Commerce Clause because it allows Ohio alcohol retailers to deliver wine directly to Ohio consumers but prohibits an out-of-state retailer from doing so.

  2. Michigan direct shipping case (6th Cir.): In Lebamoff v. Michigan, the Eastern District of Michigan ruled against the state and for an Indiana alcohol retailer on the dormant Commerce Clause challenge to Michigan’s alcohol laws that allows Michigan alcohol retailers to deliver to Michigan consumers but prohibits out-of-state alcohol retailers from doing so. A stay was entered in the case until the outcome of the Tennessee Retailers’ Association case at the U.S. Supreme Court. Then the Tennessee Retailers’ Association case was decided in June 2020, after which the 6th Cir. Held oral arguments in this case. Judge Sutton, who authored the opinion, stated:

    As these opinions suggest, there is nothing unusual about the three-tier system, about prohibiting direct deliveries from out of state to avoid it, or about allowing in-state retailers to deliver alcohol within the State. Opening up the State to direct deliveries from out-of-state retailers necessarily means opening it up to alcohol that passes through out-of-state wholesalers or for that matter no wholesaler at all. See Arnold’s Wines, 571 F.3d at 185 n.3. That effectively eliminates the role of Michigan’s wholesalers. If successful, [the Indiana retailer’s] challenge would create a sizeable hole in the three-tier system.

  3. Florida direct shipping case: In Sarasota Wine Market, LLC v. Missouri, a Florida alcohol retailer challenged a Missouri law (8th Cir.) that allowed in-state alcohol retailers to make deliveries of wine but prohibited out-of-state retailers from doing so. The district court ruled in favor of Missouri. The Florida retailer has appealed. Oral arguments are scheduled for September 24, 2020. Note: The 6th Cir. Michigan case was recently decided in favor of the state. Not surprisingly, Missouri has filed a supplemental brief highlighting the new 6th Cir. Decision.

  4. Mississippi direct shipping case:In Mississippi v. Wine Express, Inc., et al., three out-of-state wine shippers shipped alcohol to Mississippi consumers in violation of Mississippi law. The state argued that there was no dormant Commerce Clause claim, as both in-state and out-of-state wine shippers are prohibited from shipping to Mississippi consumers. The Mississippi Supreme Court found that:

    [R]egardless of the F.O.B. contract terms used here by the Defendants in their sales contracts, the Defendants “stood ready and willing to do business” with Mississippi residents, and “knowingly did do business” with Mississippi residents. Hemi Group, 662 F.3d at 758. And they did so frequently. Had the Defendants wanted to avoid being sued in Mississippi, they simply could have chosen—like the other Internet wine-and spirit retailers—not to sell their alcoholic-beverage products to residents in Mississippi…We find that the doing-business component of Mississippi’s long-arm statute is applicable to the Defendants. We further find that each of the Defendants have established sufficient minimum contacts with Mississippi and that those contacts relate to the State’s claims against the Defendants. Personal jurisdiction over each of the Defendants comports with fair play and substantial justice and does not violate their constitutional due process rights.

    There is certainly a lot to consider. It will be interesting to see how GA HB 879 plays out – that’s the new GA alcohol delivery bill. If certain Georgia retailers are allowed to deliver product themselves or via third parties directly to consumers, can Georgia prohibit out-of-state retailers from doing so? Or, would such violate the dormant Commerce Clause?

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