Supreme Court Denies Cert on Retailer DtC Shipping – What Does That Mean?

Alex Koral
January 11, 2023

On Monday, January 9, the U.S. Supreme Court rejected a petition to hear an appeal of B-21 v. Bauer, a case revolving around the issue of interstate direct-to-consumer (DtC) shipping by alcohol retailers.

B-21 stemmed from a challenge to a North Carolina law that allows in-state retailers to ship wine through third-party carriers to North Carolina residents while prohibiting out-of-state retailers from doing the same. Lower courts, including the 4th Circuit Court of Appeals, had ruled that the apparently discriminatory law is justified under North Carolina’s 21st Amendment rights. The challengers of that law disagreed and had asked the Supreme Court to reverse that ruling.

The refusal to hear the case, or “denial of certiorari,” as lawyers call it, is the latest blow against their efforts to further interstate DtC wine shipping by retailers. Currently, 14 states permit out-of-state retailers to DtC ship wine, but there is still an open controversy about the constitutionality of other states that only allow in-state retailers to DtC ship.

However, even if the Court has signaled a lack of interest in this one case, that does not mean that the efforts to create a national shipping model open to all legitimate sellers of wine are over, though it may lead some to question the apparent “try, try again” attitude of the proponents where it comes to litigation. Indeed, even if they had been successful before the Supreme Court, there would still be a great deal of work to do.

What does the denial mean going forward?

In the immediate moment, the Supreme Court’s decision to not hear the case means that effectively nothing has changed. The ruling by the 4th Circuit, that North Carolina’s laws are valid, stands and so the law will continue to control from whom North Carolina residents can purchase wine.

However, the denial of cert, issued without comment by the Supreme Court (which is standard), means that the broader issue of whether states can discriminate against out-of-state interests regarding alcohol laws remains unsettled. Indeed, it could be argued that the Court is signaling that such discrimination is valid, or at least that it is uninterested in upsetting the status quo by stepping into the middle of things.

For those who support interstate shipping of wine by retailers (or by producers, too), this is a chilling prospect. Many states have moved, like North Carolina, to privilege local interests over remote businesses in a way that would be utterly unconstitutional if this were any other market but alcohol. While states might say that they are benefitting their residents by allowing local retailers to do DtC shipping, by not allowing out-of-state retailers to do the same, they are continuing to restrict consumers from accessing the full range of alcoholic products sold nationally. By keeping this state of affairs intact, the Supreme Court is in effect limiting consumer choice to only those products that in-state distributors are willing to carry.

Implications on future litigation

Part of the petitioner’s request in B-21 was asking the Supreme Court to weigh in on whether the North Carolina district court that first heard the case did so properly. Specifically, the petitioners wanted to settle what kind of evidence should a court look at when it hears this kind of challenge? This question is critical as it gets at an all-important aspect of reviewing state laws for their constitutionality: what is the proper standard of review?

In a nutshell, the standard of review gets at how much deference a court should give a state when it is hearing a challenge on a law that implicates constitutional rights. In U.S. jurisprudence, there are three broad standards that can be applied: strict scrutiny, which requires a law to be “narrowly tailored” to a “compelling state interest”; rational basis, which merely requires a law to be reasonably related to a legitimate state interest; and intermediate scrutiny, which is somewhere in between.

Which standard to apply is a critical question, which the Supreme Court has weighed in on many times in its history. Generally, strict scrutiny is used only when a fundamental right is implicated (like religious freedom) or if a law targets a specific group of people based on an inalienable part of their identity (such as race). For B-21 then, the question was more around whether courts should apply rational basis or intermediate scrutiny.

While this may seem like a technical consideration, a decisive ruling on this question would have profound implications for B-21 and future such litigation. In the last few years, most courts hearing cases on interstate retailer DtC shipping have applied rational basis scrutiny. As such, states have consistently won these cases after trotting out the barest bones statements about the “health and safety” of their residents and references to the “unquestionable legitimacy” of the three-tier system. Courts have accepted those arguments uncritically and more or less rolled over any arguments contrary to the states’ positions.

However, the petitioners in B-21 pointed out that in Tennessee Wine & Spirits, the last alcohol-related case the Supreme Court heard, the Court indicated that states must provide clear, convincing evidence that their laws actually are directly related and tailored to supporting the health and safety of their residents (the purpose of Section 2 of the 21st Amendment, which grants states authority to regulate their own alcohol markets). That is, the petitioners were arguing that the lower courts have improperly been applying rational basis scrutiny, even though the Supreme Court had ruled in Tennessee Wine & Spirits that something like intermediate scrutiny should be used instead. If nothing else, the petitioners were saying that states need to support their arguments with actual facts and statistics and should not be given the deference they have received so far.

Again, by denying cert, the Supreme Court leaves this question unsettled, though it may be implicating that it didn’t really mean what is said in Tennessee Wine & Spirits, and that states can justify their alcohol laws with essentially the wave of a hand.

Where do we go from here?

As noted, the denial brings no immediate change. States seemingly can continue to discriminate against out-of-state alcohol retailers, and already active litigation on this issue in other states will go on.

Proponents of retailer DtC shipping are firmly committed to keeping fighting with ongoing litigation, but one might wonder if, after a certain point, it may make sense to look beyond the courts for succor.

After all, while the 2005 Granholm case, which established the non-discriminatory policy for interstate DtC shipping by wine producers, was a key part of making that market nearly ubiquitous—wine producers can now DtC ship into all but three states—that still required years and years of legislation to bring to fruition. So, even if the Supreme Court ruled in favor of interstate retailer DtC shipping, there would still be a tremendous amount of work to enact the relevant laws across the country.

Yes, extending the anti-discriminatory principles of Granholm to retailers and ensuring that retailers across the country would operate on a more even playing field would be extremely beneficial. But such a ruling is neither sufficient nor necessary on its own—and it might not even lead some states to simply retrench and prohibit all DtC shipping by retailers; if no one can ship, then there’s no discrimination to be had.

Indeed, 14 states currently allow interstate retailer DtC shipping without a constitutional rule (and also without creating a morass of overconsumption, teenage drinking and missed taxes—by creating a regulated market for out-of-state retailers to access, those states instead ensure they can police such concerns directly). Instead, those permissions came simply from working with state legislatures to enact effective, pro-consumer, pro-industry laws.

To that, it is heartening to see efforts to change state laws are going on even as court battles rage on. There is convincing support among consumers for greater access to alcoholic beverages, particularly ones that are not distributed in most states; it is also clear that shippers want to meet that demand and are more than willing to do so in safe, legally compliant ways. All that we need is for states to change their laws and remove the regulatory barriers in our way.

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Alex Koral

Alex Koral is Senior Regulatory Counsel for Sovos ShipCompliant in the company’s Boulder, Colorado office. He actively researches beverage alcohol regulations and market developments to inform development of Sovos’ ShipCompliant product and help educate the industry on compliance issues. Alex has been in the beverage alcohol arena since 2015, after receiving his J.D. from the University of Colorado Law School.
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