When we last left off, I told you about the three-tier distribution system and the challenges it poses for wine consumers in certain states. In this article, I’ll tell you the tale of a group of hearty Indiana wine collectors who set out to change the world.

But first, let me acknowledge El Jefe’s comment/correction. I wasn’t very clear in my first post–trying to put things in a historical perspective, but you’re right, El Jefe, California is no longer a reciprocal state. But let’s get back to the story…

In the mid-1990s, the Indiana state legislature did something that very few people noticed. It changed Indiana’s laws on direct shipment of wine. While direct shipment to Indiana consumers from outside Indiana was always unlawful, it was rare that anyone was penalized for working a case of wine inside Indiana’s borders. But with this change in the law, Indiana made it a felony to ship wine into Indiana without going through the three-tier system. In other words, your mom and pop winery in California could be charged and sent to prison for at least a year just for shipping your wine home so you didn’t have to carry it on the airplane.

A group of wine drinkers in Indiana had, for years, been working around Indiana’s direct shipment prohibition. One of them, Russ Bridenbaugh, had done so for professional reasons. He was a wine writer and wine critic for a number of Indiana newspapers. Wineries that had been happy to ship him a bottle of their latest offering for review were suddenly faced with criminal prosecution, so they stopped.

Besides having a great nose and palate, Russ also holds a law degree, and he remembered something from law school that he thought might be useful.

Settle in and sit back for a bit of a constitutional law lecture–here we go.

While some parts of the Constitution here in the U.S. are well known, like the First Amendment, some are not, like the Commerce Clause. The Commerce Clause says that the U.S. Congress gets to regulate commerce among the individual states. Over the ensuing decades, the U.S. Supreme Court has repeatedly held that when a state tries to regulate commerce, it can do so only if its regulation has no effect at all on interstate commerce. For example, the state of Wisconsin could not impose a tax on milk brought in from outside Wisconsin while not taxing milk made in Wisconsin. States are prohibited from playing economic favoritism.

Well, Russ Bridenbaugh was aware that under the new shipping law, Indiana’s own wineries and wine retailers were able to ship wines to people living in Indiana. But a seller outside Indiana could not. To Russ, that smelled like economic favoritism, and he decided to do something about it.

Russ contacted a law professor at the Indiana University School of Law in Bloomington who taught constitutional law. The professor, Alex Tanford, agreed that there just might be a good legal case here. They teamed up with an attorney and wine collector in Indianapolis by the name of Bob Epstein. They located a lawyer in South Bend (that would be me) to serve as local counsel, and then recruited a number of other wine collectors to serve as plaintiffs, including a guy by the name of Jim Davis who became famous for drawing a cat named Garfield.

We filed suit against the State of Indiana in federal court and alleged that the new shipping law ran afoul of the Commerce Clause because it allowed Indiana sellers to ship to Hoosiers (that’s what we call ourselves here in the Hoosier State) but not sellers outside Indiana. Simply put, Indiana discriminated in favor of Indiana sellers, and the Commerce Clause says you can’t do that.

It seems that within minutes of our suit being filed against the state, the wholesalers trade group filed a motion to intervene. Now, for those who aren’t lawyers, this may not make sense, so I’ll try to explain it to you. When a lawsuit is filed, the plaintiff picks who the defendant is. In other words, the plaintiff picks the party that is committing the wrong. In our case, we claimed it was the state of Indiana since it had this discriminatory shipping policy. We didn’t sue the wholesalers since they were not responsible for enforcing the law. In our view, they had nothing to do with it.

But the law allows a party who feels that it has some interest in the outcome of the lawsuit to request to intervene and be made a party so that it can advance its arguments and try to affect the outcome. And that’s what the wholesalers were doing here. They admitted in their request that they had an economic interest in the outcome of our lawsuit. The trial court judge could have denied their motion (and probably should have), but to avoid giving the wholesalers an issue to appeal, the trial court granted their request and let them in.

In this case, the plaintiffs argued the constitutional law stuff I explained above, and it was pretty straightforward. How did the state and the wholesalers respond? Well, first they argued that the state was exercising its powers under the second section of the Twenty-first Amendment, which gives states the right to control the sale of alcohol within the state. In other words, they kind of tried to change the subject and argue that the Twenty-first Amendment “trumped” the Commerce Clause.

But to do this, the state also had to show that its regulation of alcohol was related to core principles behind the Twenty-first Amendment, namely temperance or keeping minors from acquiring alcohol. The state, to its credit, really couldn’t argue termperance very well since the state permitted Indiana sellers to ship to Indiana residents. So they hung their hat on the “we gotta prevent kids from using the Internet to order booze” argument as well as arguing that the three-tier system helps ensure that all excise taxes were collected and paid. They pointed out that the plaintiffs admitted they had previously acquired wine from out-of-state sellers, and thus hadn’t paid the excise taxes. (The state didn’t directly explain how the plaintiffs could have paid the taxes when no mechanism was in place, but who cares about the details?)

Now, at this time back in the 1990s, roughly ten years ago, no one had any evidence of a minor using the Internet to order alcohol and have it delivered to him or her. And if we think back to our days of being teenagers wanting to get ahold of some beers, two things come to mind. First, teenagers typically don’t have credit cards (although way too many college students do and they carry balances–oy!), and even if they used a parent’s credit card, there’s a bill with the transaction information. Mom and Dad would probably recall not buying a case of Bud Lite from an online seller, so the kid is likely to get busted. Moral of the story: Kids trying to buy beer usually do so with cash so there’s no proof of their transaction.

In addition, kids who want to buy beer rarely plan very far ahead. They are not likely to want to wait several days for shipping of the product when they can get it at the local store down the road. They’ll spend more time figuring out how to get a fake ID, since they see that as the ticket to buying beer. Teens are in to instant gratification, not delayed gratification.

Anyway, although there was no proof that the three-tier system keeps kids from getting alcohol (after all, the wholesalers aren’t the ones checking IDs), this was their argument.

To make a very long story short, the federal judge agreed with the plaintiffs and ruled that the Indiana statute was in violation of the Commerce Clause and couldn’t be enforced.

We celebrated while the state prepared its notice of appeal. But in the meantime, wineries in California (who took notice of this ruling) still wouldn’t ship to Indiana because although the law prohibiting that shipment had been struck down, there was still no law saying it was legal to ship into Indiana! And with the Twenty-first Amendment, you need that kind of a law.

Anyway, we fought the appeal at the federal appeals court in Chicago, and ended up losing. Major bummer. We asked the US Supreme Court to hear the case, but it declined, which was not surprising. The Supreme Court doesn’t like to take up cases unless the various federal courts of appeals around the country have reached different results on the same issue. Since our case was the first one to be ruled on by a court of appeals, we really didn’t have a chance.

But, while Indiana’s borders remained closed to out-of-state shipments, we laid the first important stone in the foundation of our monument to free shipping. Over the next few years, other suits (with the same Indianapolis lawyer and IU law professor…I kind of got left on the sidelines (sniff)) in other states were filed. Other courts of appeals reached decisions–some of which agreed with the ruling in our case, and some of which didn’t. And that set the stage for the Supreme Court to decide the issue once and for all.

There’s more to the story…keep watching this blog as you never know when it will be written and published!