Battle of the Grape

Juanita Swedenburg, a warm woman with a head of curly gray hair, is the last person one would think to call an "elite" member of "special interests" who's out to profit from corrupting America's youth. Yet according to the Wine and Spirits Wholesalers of America, whose members earn billions of dollars annually keeping supermarket and liquor stores shelves stocked with alcoholic beverages, that is exactly what she is.

Juanita's family has been farming Virginia's soil for over 300 years. Today, she raises beef cattle and grapes-Chardonnay, Reisling, Pinot Noir, Seyval, Cabernet Sauvignon-which she turns into just under 2,000 cases of wine and sells at the Swedenburg Winery in Middleburg, Virginia. Like thousands of other small vintners, she would also like to ship her wine directly to her customers, who come from all over the country.

But such simple commerce is illegal in 30 states, which require all alcohol sales to be routed through licensed wholesalers who mark it up and take a cut before letting it pass on to the consumer.

Last week, Juanita teamed up with a small California winery, three New York wine enthusiasts and the Institute for Justice, a DC-based public interest law firm, and filed suit in U.S. District Court for the Southern District of New York in an attempt to force New York to repeal its laws that prevent out of state wineries from shipping directly to New York residents. So draconian are New York's laws that residents who visit out of state wineries can't ship wine to themselves. The Empire State even prohibits non-New York wineries from sending advertisements to its residents, a restriction that is certainly out of date in the Internet age.

In fact, the most common wine distribution regime, which requires producers to sell to wholesalers who then sell to retailers who then sell to consumers, is archaic in today's communication economy. Consumers, after all, can easily bypass the limited selection on store shelves and click straight to the source. This is good news for consumers, who will no longer have to support an extra layer of costs and profits (wine wholesalers mark up the price 18 to 24 percent) unless they chose to do so. It is certainly good news for small, specialized boutique producers like Juanita, who can reach customers directly and carve out profitable niches.

It's not such happy news for the wholesaler middlemen, who are fighting emerging entrepreneurs. The wholesalers' weapons include long term relationships with state and federal legislators, the 21st Amendment to the U.S. Constitution, which repealed prohibition and gave states the right to regulate alcohol sales, and exaggerated rhetoric. Thus Wine and Spirits Wholesalers of America CEO Juanita Duggan accuses small vintners like Swedenburg of wanting to "legitimize the growing black market in illegal alcohol sales, sell direct to consumers, pocket outrageous profits and avoid state taxes."

The outcome of Juanita Swedenburg's New York suit, and four others currently moving forward against Florida, Indiana, Texas and Virginia, will depend on how judges conceive of the regulations. If judges consider them temperance laws, then they will probably deem them constitutional. But if judges consider the regulations protectionist impediments to interstate commerce, they will surely strike them down. And there's reason to believe the court will choose the latter-especially in the case of New York.

While wholesalers supporting New York's regulations argue that they are necessary to prevent minors from purchasing wine on the Internet, this appears to be a red herring. After all, New York allows its own wineries to deliver their products directly to consumers. As for the taxes, wineries are on record as being willing to work with New York to collect sales taxes. "This is the oldest gambit of American politics: economic protectionism," says IJ attorney Clint Bolick. "These laws are designed to preserve the monopoly of liquor wholesalers who control all out-of-state wine in New York."

Bolick is right. It's not Juanita Swedenburg who represents a "small group of special interests," as the Wine and Spirits Wholesalers assert. It's the other Juanita, Juanita Duggan, the head of the Wholesalers. Let's hope her narrow interests are defeated in court.