Legal battle over shipping wine threatens entrepreneurs’ dream

A year ago, lifelong friends Michael Solar of Farmington Hills and Jeff Resnick of Bloomfield Hills fulfilled their dream of starting a business together, launching winebuys.com, an online wine retailer based in Ferndale.

So far they’ve invested $1 million in the enterprise, which offers 14,000 wines for sale. They employ four people full-time and anticipate hiring two or three more as they enter their busiest season. In Michigan’s bleak economy, they consider their company a bright spot.

“We feel we’re helping to grow the Michigan economy,” says Solar, who forecasts $10 million in sales by their second anniversary.

But hanging over their heads as they enter the critical holiday period — when 30 percent to 40 percent of sales occur — is whether they’ll still be around to take those orders.

In the wake of a Sept. 30 federal court ruling, Solar and Resnick fear that Michigan may “level down” the alcoholic beverage retail market. The term dates back three years, when the U.S. Supreme Court ruled a Michigan law that allowed in-state wineries to ship to Michigan customers — but barred out-of-state wineries from doing so — violated constitutional commerce protections.

Following that decision, Michigan “leveled up” as far as wineries were concerned, allowing those out-of-state to join in-state and ship to Michigan residents.

“Leveling down” and barring shipping by both in- and out-of-state wineries would have been just as legally valid, however. That’s what Solar and Resnick fear happening now, given the decision in a subsequent shipping case, this one brought by retailers.

“It would be very damaging,” Solar said. “It could put us out of business.”

The back story behind his furrowed brow: In late October, the state and the Michigan Beer and Wine Wholesalers Association filed notices to appeal the Sept. 30 federal judge’s ruling that essentially applied the Supreme Court’s rationale to retailers. (Judge Denise Page Hood subsequently stayed her decision allowing retailers nationwide to ship to Michigan customers pending the appeal.)

The appeals process is expected to last well into 2009. In the meantime, some speculate the Michigan Legislature may act to level down the retail market, choking off the shipping that is winebuys.com’s lifeline.

Mike Lashbrook, president of the association, said his organization will “follow the state’s lead.”

“This is really a vital concern to the state of Michigan and the Liquor Control Commission,” he said. “I think they will look at all options to try and preserve rational regulation.”

Would leveling down be among them?

“I imagine that’s an option that will be looked at,” Lashbrook said.

Lashbrook said the MBWWA is not working with any legislator to introduce a bill to level down, and that he hasn’t even discussed it with the organization’s board. But distributors have a lot to lose, much more than in the winery shipping case. Lashbrook said he’s seen estimates of 500,000 to 700,000 alcohol retailers nationwide — retailers who, if the decision stands, could bypass Michigan distributors in selling to Michigan customers.

Conversely, retailers have a lot to gain.

“We would do everything to oppose a leveling down in Michigan,” said Tom Wark, director of the California-based Specialty Wine Retailers Association, an organization formed in 2006 for the sole purpose of opening markets to what Wark described as “well-regulated” shipping. SWRA is currently funding a similar case by its members in Texas. As in Michigan, retailers won the first round but Texas wholesalers are appealing, Wark said.

Lashbrook contends that a half-million retailers would overwhelm the Michigan Liquor Control Commission.

“You could not set up a regulatory structure to deal with that,” he said. “It really does speak to the whole notion of a licensed system for the retail sale of alcohol in the state of Michigan and the accountability and public safety components that such a system provides the state.” Collection of state sales tax is another issue, he added.

But 14 states do allow retailers to direct ship, Wark said.

“A number of states carry it out,” he said. “Retailers would love to pay Michigan sales tax.”

Maybe not all of them. Ann Arbor resident Joel Goldberg runs michwine.com, a site billed as an independent consumer guide to Michigan wines and wine country. He tested the court’s ruling by placing two orders from an online wine retailer wine.com in October. Both were delivered but sales tax was not collected, he says on his site.

A lot of players with a lot at stake.

Solar’s brow furrow will likely only deepen.