By: Louis J. Terminello, Esq. and Brad Berkman, Esq.
Direct to consumer (“DTC”) sales by out-of-state vendors of alcoholic beverages are viewed as problematic, in many states, to the regulatory scheme and the interests of industry stakeholders. The three-tier system is the bedrock of alcohol beverage law, and this foundational principle is increasingly under attack by disruptors at various levels of the industry.
This short blog post will focus only on DTC out-of-state vendor sales and two recent developments within that sphere.
First, to Tennessee, where the state’s alcohol regulatory authority (Tennessee Alcoholic Beverage Commission, or TABC) conducted a sting operation against various out-of-state sellers of alcohol. The State’s Attorney General (“AG”) alleges that these sellers of alcohol shipped untaxed spirits to consumers in the state in circumvention of the three-tier system and without a license. Tennessee does not issue a license that allows for the activity complained of.
Interestingly, the AG brought the action in federal court (US District Court for the Middle District of Tennessee), under the 21st Amendment Enforcement Act (the “Act”), or 27 USC 122a , and the Tennessee Consumer Protection Act. This is the first time that a state has used the Act to enforce its alcohol beverage laws.
The Act, enacted by Congress in 2000, allows states’ Attorney Generals to seek injunctive relief against any party that illegally ships or transports alcohol into a state.
The federal court has yet to rule on the injunction, but we will be watching developments carefully in Tennessee. Further, it will be interesting to see if those other states that prohibit DTC shipments by out-of-state sellers will use the 21st Amendment Enforcement Act to enforce the preclusion of such activity. The Act is a powerful tool for Attorney Generals across the nation to enforce their respective state’s beverage laws, particularly in the context of the increasing popularity of the use of the Internet or the purchase of alcohol.
Now to Florida, where a rather unique set of circumstances has brought the issue of DTC sales to the fore with an interesting result. The new matter, in fact, stems from an old matter known as Bainbridge vs. Turner . In that case, a collection of plaintiffs brought an action against Florida Beverage Law which ran contrary to the Supreme Court’s ruling in Granholm vs Heald . In Granholm, the Court concluded that a state could not prohibit out-of-state producers of wine from selling directly to consumers in another state if that receiving state permitted its home wineries to do the same. Bainbridge attacked a Florida law that ran contrary to this ruling and ultimately prevailed. In that matter, the Florida Division of Alcoholic Beverage (DABT) agreed to the entry of a judgment that, among other things, enjoined DABT from enforcing its statutes against direct shipments made by out-of-state vendors and producers. It must be noted that the parties proposed injunction did not include the term “vendor” but was rather added, sua sponte , by the district court.
In the years which followed, DABT continued to enforce the prohibition against out-of-state vendors while permitting out-of-state wineries (producers) to ship into this state until 2017 when an Indiana attorney submitted a request for a declaratory statement on behalf of various retailers in multiple out-of-state jurisdictions (Petitioners). The Petitioners requested DABT to determine whether Florida Statutes 561.545(1) and (2) and 561.54(1) (the statutes cited in the order and injunction mentioned above and found to be unenforceable), prohibited out-of-state retailers from selling, shipping and delivering wine directly to consumers in the State of Florida.
In response, the Division issued its declaratory statement that out-of-state retailers were exempt from the prohibition as well, based on its interpretation of the earlier injunction, which DABT would soon argue was erroneous.
Shortly thereafter, DABT filed a motion with the federal district court to clarify and modify the injunction limiting the exemption from the prohibition to wine producers and removing the term vendor from the same, thereby prohibiting out-of-state vendors from selling directly to Florida consumers.
DABT in its motion, among other things, argued that the inclusion of the term “vendor” was ambiguous, and exceeded the scope of the parties’ agreement. The district court denied the motion and the Division appealed.
The appellate court for numerous reasons based on the Rules of Civil Procedure affirmed the district court’s denial of the Division’s motion.[1] The appeals court gave deference to the district court’s interpretation of its own prior order (the original injunction) and among other issues, also concluded that court’s sua sponte motion fell short of a fundamental infirmity necessary to render a judgment void. There is much interesting detail to review in the court’s opinion, which shall be left for another, more scholarly article, but for now, both wine producers and retailers operating outside Florida are free to ship wine directly to consumers in this state.
DTC sales by retailers, whether brick and mortar or online, are in a state of flux and change. Once again, the vested interests are fighting it out in the court system. This writer suspects, depending on who the prevailing party may be, the next step is almost certainly the legislative floor.
[1] See Jerry Bainbridge v. Director of the Florida Division of Alcoholic Beverage and Tobacco, 22-10525 (11th Cir. 2023 )
