Federal Court Denies Motion to Dismiss in Internet Wine Sales Case

(September 8, 2000) A federal court issued a decision denying defendants' motion dismiss in Swedenburg v. Kelly, a constitutional challenge to New York State's statute restricting direct sales of alcoholic beverages. Judge Berman wrote that the 21st Amendment will not sustain a statute that is mere economic protectionism.

U.S. District Court Judge Richard Berman (S.D.N.Y.) released his 23 page Decision and Order denying defendants' Motion to Dismiss on September 5. Nominally, the decision simply denies Defendants' F.R.C.P. 12(b)(6) Motion to Dismiss, and directs that the case proceed to trial.

Two of the plaintiffs are winery owners in Virginia and California who want to sell to consumers in New York. Three are residents of New York who want to buy directly from them. They filed their complaint on February 3, 2000, alleging that New York laws banning direct sales of alcohol violate the Commerce Clause and the Privileges and Immunities Clause.

One statute at issue is New York Alco. Bev. Cont. Law § 102(1)(c), which provides in part:

"No alcoholic beverages shall be shipped into the state unless the same shall be consigned to a person duly licensed hereunder to traffic in alcoholic beverages. This prohibition shall apply to all shipments of alcoholic beverages into New York state and includes importation or distribution for commercial purposes, for personal use, or otherwise, and irrespective of whether such alcoholic beverages were purchased within or without the state. . . ."

While the Court did not rule on the merits of the case, Judge Berman's decision is very favorable to the Plaintiffs. His analysis regarding why the case should proceed to trial also suggests that once evidence is presented at trial, he may rule that the statute violates the Commerce Clause.

Most of the lengthy opinion is a review of existing case law. Judge Berman's decision quotes at length from recent federal court decisions which have struck down state liquor control statutes under the Commerce Clause on the grounds that they constitute economic protectionism rather than regulation of evils associated with liquor trafficing. Judge Berman also pointed that several cases cited in Defendants' brief which upheld state laws banning direct liquor sales are less recent, and have "been diminished by subsequent rulings".

For example, he quoted with approval the decision of the U.S. Supreme Court in Bacchus Imports v. Dias. The Supreme Court wrote "[t]he central purpose of the [Twenty-first Amendment] was not to empower States to favor local liquor industries by erecting barriers to competition ... State laws that constitute mere economic protectionism are therefore not entitled to the same deference as laws enacted to combat the perceived evils of an unrestricted traffic in liquor."

Judge Berman also commented briefly on the Internet. "Technological advancements facilitate -- as never before -- the commerce between and among states. ... The Internet increasingly is responsible for direct sale and shipment of goods to consumers."

He concluded that "In view of the allegations in the complaint, and light of these (legal and economic) developments, it would be inappropriate to deny Plaintiffs here the opportunity to adduce evidence in support of their claims." The case will now likely proceed to trial, at which the parties will present evidence regarding the purpose of the statute.

"We welcome the chance to prove our case," said Clint Bolick in a release. "We will demonstrate that the ban on direct wine shipments benefits powerful special interest groups to the detriment of consumers in New York and across America."

Bolick is an attorney with the Institute for Justice, which is part of the plaintiffs' legal team.