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The BPAT Senate Study Committee Report: misplaced reliance on Granholm v. Heald

February 13, 2014

The recently released report is disappointing, to say the least. There is heavy emphasis in various testimonies on discrimination under the dormant Commerce Clause. The report mentions the Granholm decision in several places. To rely on Granholm is a mistake.

Here’s a link to the report: http://www.senate.ga.gov/sro/Documents/StudyCommRpts/13BrewpubsStudyCommitteeReport.pdf

Here’s a link to the Granholm decision: http://www.law.cornell.edu/supct/html/03-1116.ZS.html

The Granholm Court held that “straightforward attempts to discriminate in favor of local producers…[are] contrary to the Commerce Clause and [are] not saved by the Twenty-first Amendment.” Well, first things first, Granholm is a case about direct shipping laws, not face-to-face sales having nothing to do with shipping. The proposed legislation is not about direct shipping. There is a huge difference between direct shipping and face-to-face sales. The opponents of the proposed legislation cannot seem to get this point through their heads, which is why they mistakenly rely on Granholm. Furthermore, Granholm centered on the wine industry, not the craft beer industry; and, although similar in many ways, important distinctions exist between the two industries.

Senator Shafer stated that, “changes cannot just benefit domestic craft breweries.” Actually, yes, they can under certain circumstances. There is case law to the effect that if the benefit derived from the challenged law is a result of natural conditions, e.g., geographic location, then it can pass constitutional muster.

Let’s assume GA passed a law allowing GA breweries to ship directly to GA consumers, but prohibited out-of-state breweries from doing so. Well, states like N.C. and Oregon would say,” hey, wait a minute, that’s not fair.” Under these circumstances, there is a potential for litigation; but, these are not our facts – we are not talking about direct shipping.

Now, for our situation, let’s assume that Georgia passed a law allowing breweries to sell limited quantities of beer directly to consumers who visit the respective brewery (face-to-face sales). You visit Jekyll Brewing, buy a case of Hop Dang Diggity, and take it home with you. The opponents argue that this violates Granholm because it is treating in-state breweries differently than out-of-state breweries. I disagree. GA is not telling out-of-state breweries that they can or can’t sell directly to GA consumers who visit their facilities. If a GA consumer wants to visit Blind Squirrel Brewery in N.C., he can purchase beer directly from the brewery and transport it to his home in GA. We are not prohibiting out-of-state breweries from doing anything whatsoever. For GA to try to prohibit out-of-state breweries from certain acts on their premises would violate the prohibition against a state applying its laws extraterritorially.

The opponents’ mistaken reliance on Granholm needs to be addressed and explained to the BPAT Study Committee.

Interestingly, the author of the report actually addressed this point; albeit, in a mere footnote:

“See Granholm v. Heald, 544 U.S. 460 (2005); the Granholm decision addresses the constitutionality of laws addressing the direct shipment of wine to consumers. Consider, under OCGA §3-6-21.1, a Georgia Farm Winery is permitted to sell its wine at retail to customers in a face-to-face transaction, for consumption off-premises, provided the wine is sold in a closed package. This mirrors the intents of HB 314/SB 174 which would allow Georgia craft brewers to do coupled with volume limits (288 ozs. per individual, per day) on the direct retail sales of craft beer. These transactions are in-person which is wholly different than the direct shipping transactions that the Granholm decision addresses. For judicial authority that is more directly applicable to both HB 314/SB 174, refer to Cherry Hill Vineyard v. Baldacci, 505 DF.3d 28, 34 (1st Cir. 2007)(“[d]espite some superficial similarities, the fit between Granholm and [the farm winery cases] is not exact, and thus, the [Granholm] decision is of limited utility here; Black Star Farms v. Oliver, 600 F3d 1225 (9th Cir. 2010)(Arizona’s in-person purchase requirement does not discriminate against out-of-state wineries and does not impose any new burden on out-of-state wineries); see also, Brown & Williamson Tobacco Corp. v. Pataki, 320 F.3d 200, 212-14 (2d Cir. 2003)(upholding, as against a dormant commerce clause challenge, state law requiring that all tobacco sales be conducted in face-to-face transactions). As the First Circuit stated in Cherry Hill Vineyard, “an effect is not discriminatory, in violation of the dormant commerce clause, if it results from natural conditions.” Cherry Hill Vineyard, 505 F.3d at 38 n. 7. See also Baude v. Heath, 538 F.3d 608, 612 (7th Cir.2008), cert. denied, 129 S.Ct. 2382 (2009) (upholding an Indiana statute that required consumers who wanted to receive direct shipments of wine from a winery—whether located in state or out of state—to visit the winery and supply proof of age).”

Other folks misapplying Granholm:

Zachary stated that, “under Granholm, out-of-state brewpubs could litigate in order to sell their product in Georgia.” This is extremely unlikely, given that we are not talking about direct shipping.  Moreover, out-of-state brewpubs already can sell their product in Georgia (assuming each brewpub’s respective state permits such).

Kitchens mentioned Granholm, applying it to the potential for litigation and “opening up Georgia to outside craft beer sales.” Again, not talking about direct shipping. And, again, thousands of out-of-state craft beers are already sold in Georgia.

Martin Smith made the argument that, “if Georgia changes to allow an in-state brewery to sell directly to the consumer, the state must extend that same privilege to out-of-state brewers.” No, Martin; you are mistaken. Perhaps Martin would be correct IF we were talking about direct shipping, but we are not; we are talking about face-to-face sales. In this regard, Georgia cannot apply its laws extraterritorially, i.e., Georgia cannot tell Alabama that Alabama must allow Alabama breweries to sell directly to consumers.

At least the Senate Study Committee agrees that further study is needed, rather than putting the kibosh on the effort altogether.

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