Nogales' Arizona Vineyards is among the state's wineries that are able again to sell directly to buyers, bypassing wholesalers and retailers.

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Napolitano signs bill to allow wine shipments

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PHOENIX — Gov. Janet Napolitano signed legislation on Thursday designed to once again make it legal for some wineries to ship their products directly to consumers and retailers.

The signing was a relief to some winery owners southeast of Tucson, who expect to be able to resume direct shipments.

"Basically it gives us a lot more options, in terms of getting wine to people who would like it," Kent Callaghan, owner of Callaghan Vineyards, near Elgin. "When you're as small as we are, the more ways of getting direct to customers, the better off you're going to be."

Sales direct to retailers account for 95 percent of the sales of another Cochise County winery, Dos Cabezas Wineworks in Kansas Settlement, said owner Al Buhl.

The signing, he said "means we'll be able to make a profit for a change."

But all the signing may do is provoke yet another lawsuit against the state over its wine laws. A lawyer who already has sued the state over winery shipments said Thursday that the new law may be as legally suspect as the one it replaces.

Attorney Robert Epstein said he may amend his existing claim — filed on behalf of individual wine buyers — to challenge the new law.

Rep. Lucy Mason, R-Prescott, who helped craft the replacement, said she doubts Epstein could convince a federal judge that the new law is discriminatory — as was the law it replaces.

That 1982 law allows small Arizona wineries — those bottling less than 75,000 gallons a year — to sell directly to buyers, bypassing wholesalers.

It was designed to help spur the Arizona's nascent wine producers by allowing them to bypass the state's three-tiered system which generally requires wholesalers to sell only to distributors — and empowers only distributors to sell to retailers, with customers having to buy from them. Small wineries argued they not only could not get the attention of major wholesalers but the additional mark-ups would price their products out of the market.

The U.S. Supreme Court, in a historic decision last year, voided similar laws from other states, ruling that type of preferential treatment for an in-state winery violates constitutional provisions which bar states from interfering with interstate commerce.

That decision spurred Epstein's lawsuit against the state to officially scrap laws here. That case, however, was put on hold to give lawmakers a chance to alter the law.

The new law allows any winery, anywhere in the country, that produces less than 20,000 gallons a year ship directly to consumers and retailers in Arizona. That includes Callaghan Vineyards and most other wineries in the state, including the cluster in Cochise County, Callaghan said.

On the surface, the new measure resolves the Epstein lawsuit — and the legal problem of discrimination — by allowing all small wineries the same privilege. Epstein, however, disagreed.

"It is still protectionist and still subject to constitutional attack," he said.

That's also the conclusion of a nationally recognized legal expert on the issue. James Tanford said that all Arizona lawmakers may be doing is replacing one legal problem with another.

Tanford, a professor at the University of Indiana College of Law, said the commerce clause of the U.S. Constitution — the one used to undermine current law — doesn't just make outright disparate treatment illegal. He said it also calls into question any law which has the "practical effect" of discrimination.

Tanford said a law may look neutral on its face, "but in actual practice it just so happens that all the Arizona wineries produce less than 20,000 gallons a year, so they all fall within the statute, and several thousand out-of-state wineries do not, then the practical effect is that it will let in a few more out-of-state wineries to compete but will still exclude the majority of out-of-state wineries from competing in the market," he said.

Tanford noted that the gallonage limits were inserted into the legislation at the behest of the wholesalers because they would not agree to allow all wineries to ship directly, thus bypassing them.

He said that makes the law appear to comply with the U.S. Supreme Court ruling "whereas, in reality, you maintain a market that is substantially closed to out-of-state wine." Tanford called those gallonage limits just a "pretext."

Tanford, who is working with Epstein, conceded that none of the gallonage limits being enacted by states have been tested yet.

But Mason said legislative attorneys believe states remain free to give special privileges to small wineries that are not available to larger ones — as long as these privileges are based on size, not geography.

Buhl said he doubts a legal challenge will succeed, but he doesn't really care if the 20,000-gallon limit is voided.

"We're not afraid of any competition," Buhl said. "The limit was thrown out as a bone to the wholesalers, the distributors."