Court upholds Tenn. ban on direct wine sales

NASHVILLE, Tenn. - A federal appeals court on Friday upheld Tennessee's ban on direct wine shipments, which prohibits consumers from buying wine online and having it shipped to their homes.

The opinion from the 6th U.S. Circuit Court of Appeals in Cincinnati said federal trade rules allow Tennessee to prohibit wineries from selling directly to consumers without going through wholesalers.

The U.S. Supreme Court in 2005 struck down laws in New York and Michigan that allowed in-state wineries - but not out-of-state businesses - to ship directly to consumers. But Friday's opinion said Tennessee's law doesn't fall under that ruling because the state bans all direct shipment of wine regardless of where it's made.

The opinion came in an appeal of a lawsuit filed by Rick Jelovsek, a Johnson City man who argued that the law protects Tennessee wine producers from competition and prevents people like him from enjoying a wider selection of wine from out-of-state wineries at cheaper prices.

Even though the judges upheld the ban, they said special rules for in-state wineries are unfair to competitors outside Tennessee, and sent the case back to a lower court to make the regulations more equitable.

Tennessee's "Grape and Wine Law" is aimed at promoting the state's wine industry and includes an exception that allows people to buy wine at wineries that use at least 75 percent of ingredients produced within the state.

"Each of these provisions impermissibly favor Tennessee interests at expense of the interstate commerce," according to the opinion written by Judge Alan E. Norris.

The case was complicated by Tennessee's unclear liquor laws, Norris wrote in the opinion.

"These statutes seem to contradict each other, which creates a confusing web of seemingly applicable laws," he said.

Attorneys for the state "did little to unravel the mystery" in written or oral arguments, he said. The Tennessee attorney general's office is reviewing the decision before determining how to proceed, a spokeswoman said.

The Wine and Spirits Wholesalers of Tennessee argued in the appeal that if Tennessee's laws were found discriminatory, the best remedy would be to strike the direct-sale benefits for in-state wineries rather than to extend them to out-of-state businesses.

But Norris said it would be unfair to penalize in-state wineries that are not a party in the dispute. Henry Hildebrant, the wholesalers association's lawyer, did not immediately return a message seeking comment.

The beer and liquor industry has contributed more than $1.1 million to candidates and causes in state races during the past decade, according to data compiled by the National Institute on Money in State Politics.

The wholesalers association's legendary lobbyist, Tom "The Golden Goose" Hensley, earned his nickname by lavishly wining and dining lawmakers for the past 40 years, and the industry has fiercely fought efforts to change existing regulations.

State Sen. Bill Ketron, who has led an effort to challenge another state law that only allows wine to be sold in liquor stores, said a special legislative committee will look into the direct shipment issue before the General Assembly convenes in January.

"We're going to study it and hear testimony from people who have interests on all sides," the Murfreesboro Republican said.

Copyright 2008 Associated Press. All rights reserved. This material may not be published broadcast, rewritten, or redistributed