A recently filed lawsuit against the state of Michigan claims the state violated the Commerce Clause of the U.S. Constitution when it passed a law that discriminates against out-of-state wine retailers by banning them from shipping wine to consumers in the state. What’s most unique about this lawsuit is that it is identical to a lawsuit that Michigan lost in 2008.
Senate Bill 1088 was signed by Michigan Governor Snyder on December 8, 2017. He, along with members of the Michigan legislature, was told well in advance that passage of the bill would lead to a lawsuit. However, they were assured by Michigan alcohol wholesalers that any threatened lawsuit would fail. The lawsuit was filed 12 days after the bill was signed.
The 2008 lawsuit, which Michigan lost, was heard in the United States District Court of Eastern Michigan by Judge Denise Page Hood. The new lawsuit was filed in the same jurisdiction, where Judge Hood is now the Chief Justice.
Prior to the new law’s passage, Michigan banned retailer to consumer shipment of wine by all retailers, whether located inside or outside the state. This law was put in place at the behest of Michigan wholesalers after the Federal Court in 2008 ruled the previous law that banned out of state retailer shipments was unconstitutional. In other words, Michigan wholesalers and Michigan lawmakers (along with then Chairman of Michigan Liquor Control Commission) chose to punish Michigan consumers and Michigan retailers rather than allow for the direct shipment of wine from out of state retailers.
In late 2016, it was suggested to Michigan lawmakers that there was a very easy way to avoid a costly lawsuit, to provide consumers with unfettered access to the wines they wanted, to increase tax revenue for the state, and to give Michigan liquor control personnel an easy and proven way to regulate retailer shipments: simply allow both in-state and out-of-state wine stores to ship wine directly to consumers under the same regulatory framework that in-state and out-of-state wineries may currently ship wine to consumers.
Amendments on this alternative were written. Testimony was given. Attorneys testified. In the end, Michigan lawmakers and the Michigan Governor chose to do the bidding of the wholesalers, who desperately wanted protection from having to compete in a modern, free market marketplace.
There is a concept called “rent seeking”. It describes a very simple proposition: if you can’t win in the marketplace, get the government to intervene. This is exactly what happened in Michigan two weeks ago when SB 1088 was signed into law. Knowing they were very bad at providing Michigan wine consumers with the selection they wanted and knowing they would have to work much harder to do so, Michigan wine wholesalers instead asked the government to intervene on their behalf by banning the competition.
The really unfortunate thing about this kind of rent seeking scheme is that only consumers and citizens pay a price. The participants in the underhandedness do not. Michigan residents, not wholesalers and not lawmakers, will have to pay for the defense of the lawsuit. Michigan consumers, not lawmakers and not wholesalers, are burdened by not being given access to the wines they want, but can’t find locally.
Just as in 2008, the state will find itself on the losing end of this new lawsuit. The court will enjoin the state from enforcing the new law. Michigan may appeal the decision (costing Michigan residents even more) or they may simply go back to the previous state of affairs in which Michigan wine retailers were punished by not having any wine shipping rights just as out of state retailers have no wine shipping rights.
There is another possibility that would save the state and its residents the cost of litigating then losing the current lawsuit and that would give Michigan consumers as well as retailers a leg up: Simply pass legislation allowing out of state retailers and in-state retailers the right to answer the demand of the Michigan consumer by shipping them the wines they want.
In order for this to happen, someone will have to tell Michigan wine wholesalers that it is time for them to stop begging for protection from competition, start working for a living, and stop asking for Michigan residents to pay for that protection.