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Retailer Empire Wine Sues New York State Liquor Authority: Direct Shipping

In August, the New York State Liquor Authority (“NYSLA”) charged a New York retailer, Empire Wine & Spirits, with sixteen counts of improperly shipping wine to out-of-state consumers in states including California, Illinois, Louisiana, Massachusetts, Ohio, Pennsylvania, and Virginia. See New York Retailer Charged with Illegally Shipping Wine to Out-of-State Consumers. The charges are the result of a disciplinary proceeding NYSLA held against Empire in August at which NYSLA issued a Notice of Pleading outlining sixteen violations of 9 NYCRR 53.1(n). NYSLA maintains that the agency has jurisdiction over and authority to regulate shipments of alcohol beverages destined to be distributed and consumed outside of New York State pursuant to 9 NYCRR 53.1(n), which outlines the causes for revocation, suspension, or cancellation of an alcohol beverage permit or license. 9 NYCRR 53.1(n) specifically states:

For improper conduct by the licensee or permittee, and if a corporation, by an officer, director or person directly or indirectly owning or controlling 10 percent or more of its stock, or an officer, director or person directly or indirectly owning or controlling 10 percent or more of the stock of any parent, affiliate or subsidiary of such licensed corporation, whether such conduct was on or off the licensed premises, and which conduct is of such nature that if known to the authority, the authority, in its discretion, could properly deny the issuance of a permit or license or any renewal thereof because of the unsatisfactory character and/or fitness of such person. 9 NYCRR 53.1(n).

On September 22nd, Empire filed suit against the state agency arguing that New York has no jurisdiction over out-of-state wine sales, the charges brought against Empire violate the Constitution’s Commerce Clause, and that 9 NYCRR 53.1(n) is unconstitutionally vague because the regulation does not mention out-of-state shipping and does not provide licensees notice of what “improper conduct” the regulation governs. Additionally, Empire alleges that NYSLA is is “precluded from asserting jurisdiction and authority over the shipment of alcoholic beverages destined for distribution to and consumption by consumers outside the State of New York, even when the shipment originates in New York.” See Empire Wine & Spirits LLC v. New York State Liquor Authority. Empire also argues that there is no New York State statute or regulation that expressly prohibits a retailer from directly shipping wine to a customer in a state outside of New York. The retailer asks for the court to issue a judgment asserting that NYSLA lacks the jurisdiction and authority to regulate wine ship to consumers outside of New York State, that 9 NYCRR 53.1(n) is unconstitutionally vague on its face and as applied, and enjoining or prohibiting the Agency from pursuing “improper conduct” charges against the retailer for directly selling wine to consumers outside of New York.

The 2005 Supreme Court case Granholm v. Heald dealt with direct shipment in the context of two state laws—those of Michigan and New York—that discriminated against interstate commerce with respect to wineries. The Court in Granholm held that a state’s regulatory scheme that allows in-state wineries to directly ship to consumers but restricts the ability of out-of-state wineries from direct shipment violates the dormant Commerce Clause in light of Section 2 of the 21st Amendment. Section 2 of the 21st Amendment provides states with the ability to regulate alcohol beverages, but not to the extent that such regulation discriminates against interstate commerce. (For more information on Granholm v. Heald, see prior blog entry Granholm v. Heald and the Wine Industry.) Section 2 of the 21st Amendment also expressly permits a state to regulate alcohol beverages within the individual state’s borders (i.e., as suggested by “for delivery or use therein” in Section 2 of the 21st Amendment), but does not propose that a state can regulate alcohol beverages for delivery or use outside of said state even if the beverage product originates in the state at issue.

Granholm specifically examined the laws in the context of producers (wineries), but many have since called into question whether the Granholm interpretation should extend to retailers as well. In the nine years post-Granholm, while a variety of state regulatory regimes exist, many states permit in-state retailers to directly ship to consumers but forbid such shipping by out-of-state retailers. As many can wonder, this calls into question whether the commerce clause limitations on the 21st Amendment should equally apply to other tiers of the three-tier distribution model (in this case, retailers). Some argue that wineries, when directly shipping to consumers, are committing acts as retailers.

Irrespective of where you stand on the issue of direct shipment, multiple interpretations and subsequent issues have emerged since the 2005 decision. See, e.g.The Alcohol Beverage Legal Environment Post-Granholm (exploring the legal environment, post-Granholm, relative to the constitutionality of the several state liquor regulatory laws); see also Southern Wine & Spirits, et al. v. Division of Alcohol and Tobacco, et al. 2013 WL 5340391 (8th Cir. Sept. 25, 2013); Costco Wholesale Corp. v. Maleng, 514 F.3d 915 (9th Cir. 2008); and Family Winemakers of California, et al. v. Jenkins, 592 F.3d (1st Cir. 2010). Perhaps Empire Wine holds the key to re-examining some aspect of the application of Granholm for retail establishments. The issues in this particular case are more jurisdictional in nature, however such may still foreshadow the legal issues to one day unfold.

To read Empire’s complaint against NYSLA, please see Empire Wine & Spirits LLC v. New York State Liquor Authority.

For more information on New York State wine or alcohol law, or establishing a winery, brewery, or distillery in New York, please contact Lindsey Zahn.

DISCLAIMER: This blog post is for general information purposes only, is not intended to constitute legal advice, and no attorney-client relationship results. Please consult your own attorney for legal advice.

Lindsey A. Zahn


Lindsey is the founder and author of On Reserve: A Wine Law Blog. She is an alcohol beverage and food attorney and is admitted to the New York State Bar.

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