Sinking the Playing Field

Lee Pender | June 13, 2006

Recent reports that state ABC stores in Virginia are running low on Virginia wines illustrate an interesting ripple effect of the direct shipment litigation. (See

By now nearly everyone has gotten the message that Granholm is neutral on freeing trade in wine, requiring only that states apply economically equivalent conditions to in-state and out-of-state suppliers in granting or denying access to resident customers.

The level up or down question arose well before the Supreme Court spoke, with results differing by particularities of the state statutes and their legislative histories, as well as by the predilections of judges. Thus, federal circuits that preceded Granholm in recognizing the unconstituionality of discrimination reached opposite conclusions on remedy in Dickerson and Beskind . Latitude to even the playing field by restricting trade continues, notwithstanding the irony of basing contraction of commerce on the commerce clause.

Most of the attention to leveling has properly centered on state legislatures, where the battle with wholesalers is mostly over how many restrictions will be piled on rather than closing trade channels altogether. There is, however, a role for regulatory agencies in states where existing statutory schemes are unconstitutional and the legislatures have not enacted substitutes.

Consider the apparent plight of an administrative agency that operated under a system intended to help local wineries by restricting or eliminating access by out-of-state producers to certain channels of trade. Administrative agencies exist as creatures of statute and can legitimately act only as authorized by legislative enactments. If a statute gives an alcoholic beverage commission the right to purchase and resell wine made in the state, but not other wine, and a court says the agency may not deal in one and exclude the other, what course of action is open to the agency? Like all executive branch instrumentalities, the agency is supposed to follow the law, including federal law that supersedes inconsistent state law under the Supremacy Clause, but application of broad principles in practice yields to specifics. If a state statute merely allows the agency to deal in local wine, and the federal constitution merely says that other wine must come if if the agency chooses to deal in local wine, the conservative course is to stop dealing in local wine with the result reported in Virginia.

Those of us wanting freeer trade might urge agencies to take a more creative stand. Of course they must follow the law, but “the law” is not just what’s written in the lawbooks, but the combination of that text with the legislative intent and the requirements of applicable federal law. Add to that the rule in most states that agencies are entitled to deference in interpreting the statutes under which they operate. Agencies could reason that the protectionist measures imbedded in their authorizing legislative constitute a legislative intent that they deal in the local wines to the maximum extent possible under the law, that they must read the statute consistently with the supreme law of the land, and that it is therefore more law-abiding to read into their authorizing legislatiion the right to deal in other wines to the extent necessary to carry out the legisltive intent to promote trade in local wines. Unfortunately, that approach is contrary both to the natural inclinations of administrators and state attorneys general (who tend to view the literal text of statute books as turf they were hired to defend) and to the well-articulated interests of wholesalers.