U.S. District Judge Charles Simpson of Louisville throws out Ky. Wine distribution law.

   Kentucky appealed a federal court decision allowing small wineries in and out of the state to ship to Kentucky customers who order over the telephone from catalogs or from the Internet.

 

   In an opinion issued Dec. 26, 2006, Judge Simpson through out several Ky. Alcoholic Beverage Control laws which will make it easier for the consumer of wines to use the internet for wine purchases which may then be shipped to Ky. purchasers.

 

A courier journal story discussed the effect of  the court’s ruling.

 

See affected statutes below.

 

**************

Judge: Wineries can ship to Ky.   New law takes effect on Jan. 1
By Alex Davis Reprinted from The Courier-Journal
Small wineries across the country can ship wine directly to Kentuckians who order it on the phone or the Internet, a federal judge in Louisville ruled yesterday.
Steve Humphress, an attorney for the state’s office of Alcoholic Beverage Control, said in an interview that the ruling sets up a “pretty big modification” of the state’s existing laws for alcohol sales. Those requirements, which date to the end of Prohibition, created a three-tier system in which producers sell to distributors who then sell to retailers.
U.S. District Court Judge Charles R. Simpson III’s ruling covers a new law set to take effect Jan. 1. Most of the new law remains intact under Simpson’s ruling, including a provision that shipments can be made only from wineries that produce no more than 50,000 gallons of wine annually.
The new rules could make buying more convenient in some instances, but long-distance orders wouldn’t replace the local wine shop, said several customers at The Wine Rack, 2716 Frankfort Ave.
Paul Kichler and his fiancée, Casie McCafferty, frequent visitors to Louisville from their home in Chicago, said it would be handy to be able to buy and ship wine as gifts — and to order makes not available at local stores. “We love Oliver Wines in Bloomington,” Ind., Kichler said.
However, good shops offer more than the wine itself, McCafferty said. “We would go to the store to get expert opinions.”
The Huber Orchard and Winery in Clark County, Ind., initially challenged Kentucky’s wine-shipping laws in a suit filed in May 2005. Huber has since dropped out of the matter, and an Oregon winery, Cherry Hill Vineyards, is now the plaintiff.
Humphress said he could not comment in detail about Simpson’s ruling, but predicted that the state will appeal to the 6th U.S. Circuit Court of Appeals in Cincinnati.
Simpson had initially ruled in August that the state’s existing alcohol laws were unconstitutional. He reiterated that argument in Tuesday’s ruling on the new law, saying it puts out-of-state wineries at an unfair disadvantage by allowing them to ship only to customers who visit their properties in person. Simpson ruled that while Kentucky’s law aimed to be fair by requiring in-person purchases whether the winery was in the state or not, the effect was discriminatory because it’s impractical for Kentucky consumers to shop at distant wineries.
The ruling will allow properly licensed small-farm wineries to ship to Kentucky without the in-person requirement, either over the Internet, by fax or by phone. Purchases will be limited to two cases per person.
Ted Huber, co-owner of Huber Orchard and Winery, said it was too soon to tell if his winery would apply for a $100 shipping license. He said shipping usually makes sense only for wines that cost more than $10 a bottle, because of the relatively high cost of postage.
James Tanford, one of the lawyers for Cherry Hill, said last week that he and a fellow attorney have been involved in similar legal battles in about 18 states, and that of the roughly half-dozen cases that have been decided, all but one of the rulings has been favorable.
Tanford, a law professor at Indiana University, did not return a message left at his Bloomington, Ind., office yesterday. A message left with Cherry Hill also was not returned.
After the initial lawsuit filed by Huber, a trade group called Wine and Spirits Wholesalers of Kentucky Inc. voluntarily entered the case as a defendant.
The group’s leaders have argued that allowing direct shipments to customers over the Internet would compromise the three-tier distribution system and circumvent the law in dry counties where alcohol sales are not allowed.
The new law also sets aside $400,000 in public funds next year for the state’s wine industry. Three-fourths of the money will be used to promote and market wine made in Kentucky. Another $75,000 will be used to pay fees to wholesalers who distribute the wine, and $25,000 will go toward administrative costs for the Kentucky Grape and Wine Council.
John Johnson, owner of The Wine Rack, said he wasn’t sure how much impact the rule change might have on Kentucky wine stores. Other states that allow Internet and phone orders find they account for less than 5 percent of total sales, he said.
One customer Johnson can count on is Louisville Mayor Jerry Abramson, who stopped by early yesterday evening.
Asked by a reporter about the rule change, Abramson paused and smiled. “All I know,” he said, “is I only buy my wine at my local store.”
Reporter Bill Wolfe also contributed to this story.
Reporter Alex Davis can be reached at (502) 582-4644.
***********************

 

Authorities:

The plaintiff had filed motions asking the court to:

 

Declare Ky. Rev. Stat. §§ 243.032 and 244.165 unconstitutional to the
extent that they prohibit out-of-state wineries from selling and delivering wine directly to consumers and retail wine sellers in the Commonwealth of Kentucky, as a violation of the Commerce Clause of the United States Constitution.

 

Declare Ky. Rev. Stat. §§ 241.010(22), 241.010(45), 243.155 and 243.156
unconstitutional to the extent that they limit the issuance of licenses authorizing wineries to sell and ship wine directly to consumers and retail wine sellers to wineries located in Kentucky or using fruit or honey produced in Kentucky, as a violation of the Commerce Clause of the United States Constitution.

 

Enjoining defendant from enforcing Ky. Rev. Stat. §§ 241.010, 243.032,
243.155, 243.156 and 244.165 so as to prohibit out-of-state wineries from selling and shipping wine directly to consumers and retail wine sellers in Kentucky.
 

 

KRS 244.165 Unlawful sale and shipment by out-of-state seller directly to a Kentucky consumer — Penalty.
(1) It shall be unlawful for any person in the business of selling alcoholic beverages in
another state or country to ship or cause to be shipped any alcoholic beverage
directly to any Kentucky resident who does not hold a valid wholesaler or
distributor license issued by the Commonwealth of Kentucky.

 

(2) Any person who violates subsection (1) of this section shall, for the first offense, be
mailed a certified letter by the office ordering that person to cease and desist any
shipments of alcoholic beverages to Kentucky residents, and for the second and
each subsequent offense, be guilty of a Class D felony.
Effective: July 15, 1996
History:Created 1996 Ky. Acts ch. 72, sec. 1, effective July 15, 1996.
Legislative Research Commission Note (6/20/2005). 2005 Ky. Acts chs. 11, 85, 95, 97,
98, 99, 123, and 181 instruct the Reviser of Statutes to correct statutory references to
agencies and officers whose names have been changed in 2005 legislation confirming
the reorganization of the executive branch. Such a correction has been made in this
section.
 

KRS 242.010 (22)  ”Farm winery” means a winery located on a Kentucky farm with a producing vineyard, orchard, or similar growing area, manufacturing and bottling wines in an amount not to exceed twenty-five thousand (25,000) gallons per year.

 

KRS 242.010  45) “Small winery” means a winery producing wines from grapes, other fruit, or honey produced in Kentucky, unless exempt under KRS 243.155(2), in an amount not to exceed fifty thousand (50,000) gallons in one (1) year.
 

Portions of the following law which was to become effective Jan. 1, 2007 have been ruled unconstitutional by Judge Simpson’s ruling.
 

KRS 243.155 Small farm winery license — Eligibility and application process — Business authorized by license — Off-premise retail sales outlet in wet territory — Use of Kentucky products — Other permitted licenses — Application to persons previously licensed as small or farm wineries. (Effective January 1, 2007)
(1) Any in-state or out-of-state small farm winery may apply for a small farm winery
license. In addition to all other licensing requirements, an applicant for a small farm
winery license shall submit with its application a copy of the small farm winery’s
federal basic permit and proof documenting its annual wine production. An out-ofstate
winery shall submit additional documentation evidencing its resident state. As
part of the application process, an out-of-state winery shall publish its notice of
intent, as required by KRS 243.360, in the Kentucky newspaper of highest
circulation. The office shall promulgate administrative regulations establishing the
form the documentation of proof of production shall take.
(2) A small farm winery license shall authorize the licensee to perform the following
functions without having to obtain separate licenses, except that each small farm
winery off-premises retail site shall be separately licensed:
(a) Manufacture wines and bottle wines produced by that small farm winery;
(b) Bottle wines produced by another small farm winery;
(c) Serve on the premises or at small farm winery off-premise retail sites
complimentary samples of wine produced by it in amounts not to exceed six
(6) ounces per patron per day, if the small farm winery or its off-premise retail
site is located in wet territory;
(d) Sell by the drink or by the package on premises, at small farm winery off premise
retail sites, and at fairs, festivals, and other similar types of events,
wine produced on the premises of the small farm winery or produced by a
licensed small farm winery, at retail to consumers if all sales sites are located
in wet territory;
(e) Sell and transport wine produced on the premises of the small farm winery to
wholesale license holders and small farm winery license holders;
(f) Consume on the premises wine produced by the small farm winery or a
licensed small farm winery and purchased by the drink or by the package at
the licensed premises, if the small farm winery is located in wet territory; and
(g) Ship to a customer wine produced by a small farm winery if:
1. The wine is purchased by the customer in person at the small farm
winery;
2. The wine is shipped by licensed common carrier; and
3. The amount of wine shipped is limited to two (2) cases per customer per
visit.
(3) If a licensed small farm winery is located in a dry territory, KRS 242.230 to 242.430
shall apply, unless a local option election is held in accordance with the provisions
of this subsection. A limited sale precinct election may be held in a precinct
containing a licensed small farm winery or a proposed small farm winery located in
a dry territory. The election shall be held in the same manner as prescribed by KRS
242.010 to 242.040 and 242.060 to 242.120. If the precinct contains a licensed
small farm winery, the proposition to be voted on shall state, “Are you in favor of
the sale of wine at the (name of the licensed small farm winery or wineries)?” If the
precinct contains a proposed small farm winery or wineries, the proposition voted
on shall state, “Are you in favor of the sale of wine at the (name of the proposed
small farm winery or wineries)?” If the proposition is approved, a licensed small
farm winery within the precinct may sell wine in accordance with subsection (2) of
this section.
(4) Other provisions of this chapter and KRS Chapter 244 notwithstanding, a small
farm winery license holder may also hold a restaurant wine license and a retail malt
beverage license, provided the issuance of these licenses is in connection with the
establishment and operation of a restaurant, hotel, inn, bed and breakfast,
conference center, or any similar business enterprise the purpose of which is to
promote viticulture, enology, and tourism. The retail malt beverage license issued
under this subsection shall limit the licensee to the sale of malt beverages for
consumption on the premises only.
(5) This section shall not exempt the holder of a small farm winery license from the
provisions of KRS Chapters 241, 242, 243, and 244, nor from the administrative
regulations of the board, nor from regulation by the board at all premises licensed
by the small farm winery, except as expressly stated in this section.
(6) Nothing contained in this section shall exempt a licensed out-of-state winery from
obeying the laws of its resident state.
(7) Any person previously licensed as a small or farm winery under this chapter prior to
January 1, 2007, shall hereby be authorized to conduct business as a small farm
winery licensee, until such time as the term of his or her small or farm winery
license expires. Upon the expiration of the term remaining on his or her small or
farm winery license, a licensee who is in good standing shall be issued a small farm
winery license as part of the renewal process after he or she submits to the office the
winery’s federal basic permit and proof of its annual wine production.
Effective: January 1, 2007
History: Amended 2006 Ky. Acts ch. 179, sec. 1, effective January 1, 2007. –
Amended 2005 Ky. Acts ch. 142, sec. 1, effective June 20, 2005. — Amended 2000
Ky. Acts ch. 167, sec. 1, effective July 14, 2000. — Amended 1998 Ky. Acts ch. 357,
sec. 1, effective July 15, 1998. — Amended 1996 Ky. Acts ch. 148, sec. 1, effective
July 15, 1996. — Amended 1994 Ky. Acts ch. 451, sec. 1, effective July 15, 1994. –
Amended 1990 Ky. Acts ch. 54, sec. 5, effective July 13, 1990. — Amended 1988
Ky. Acts ch. 433, sec. 2, effective July 15, 1988. — Amended 1982 Ky. Acts ch. 244,
sec. 2, effective July 15, 1982. — Created 1976 Ky. Acts ch. 381, sec. 2.
 
 

Comments

  1. [...] U.S. District Judge Charles Simpson of Louisville throws out Ky. Wine distribution law. [...]