An Indiana wine retailer is one step closer to overturning a Prohibition-era Illinois law and selling wine directly to consumers in the Prairie State.
Lebamoff Enterprises, which owns 15 Cap n’ Cork liquor stores in Fort Wayne, Ind., prevailed in the U.S. 7th Circuit Court of Appeals last month, allowing it to reopen a 2016 lawsuit against Illinois for the right to sell and ship wine across state lines.
The appellate decision reversed a Chicago federal court, which dismissed the case last year, reflecting a potential shift in judicial sentiment away from strict state control of alcohol sales. The U.S. Supreme Court is expected to hear a case next month challenging Tennessee’s residency requirements for retail liquor licenses.
Eileen Boyce, a spokeswoman for the Illinois attorney general’s office, which is representing the state in the Lebamoff case, declined to comment on the ruling.
A multigenerational family business, Lebamoff is also pursuing a similar case against Michigan. The plan is to expand beyond Indiana by selling to its neighbors over the internet.
“It’s costly to do what we’re doing, obviously,” Lebamoff co-owner Joe Doust said. “We’ve got big plans to open things up.”
The Lebamoff case may have broad legal implications, pitting interstate commerce protections against strong state liquor laws empowered by the 21st Amendment, which ended the ban on alcohol sales 85 years ago this month.
States have had the ultimate authority in alcohol regulation since the repeal of Prohibition, with a patchwork of laws that, for the most part, restricts sales to licensed in-state businesses. The relevance of those regulations is increasingly being called into question in the e-commerce age.
“The very notion in the modern economy of physical location and what it is to be a local business is changing,” said Alex Tanford, an Indianapolis attorney representing Lebamoff in both border cases. “No place is that more of a problem than the alcoholic beverage laws.”
The Illinois Liquor Control Act of 1934 created a three-tier system of producers, distributors and retailers. It requires that any alcohol shipped to the state must go through a distributor and be sold by a retailer with a physical location in the state.
Illinois retailers are allowed to ship to customers statewide, unless prohibited by local laws. The state statute bars anyone from shipping “alcoholic liquor from a point outside” the state to anyone other than a licensed distributor.
Cutting out the middleman would disrupt a system that generates significant revenue.
There are 109 distributor facilities in the state of Illinois, which collected $222.7 million in excise taxes in 2016, according to the Wine and Spirits Distributors of Illinois, a trade association and intervening defendant in the Lebamoff appeal.
Karin Lijana Matura, executive director of the trade group, declined to comment on the ongoing litigation.
Lebamoff currently does about 10 percent of its sales online, mostly fulfilling bulk orders for wine clubs located throughout Indiana, Doust said. Deliveries are made by the company’s own fleet of trucks.
By expanding beyond the state lines, Doust envisions internet sales ramping up to a much broader customer base, with shipping by FedEx and UPS. The offerings would expand as well, from the current 5,000 wines to as many as 50,000 varieties, he said.
“If we could do it online and just display it, it makes it much easier,” Doust said. “That’s the Amazon concept — they’re fulfilling as they get the orders.”
Becoming a regional or national online wine purveyor remains an endeavor limited by state law. California-based K&L Wine Merchants, a leader in the industry, ships to only 11 states, scattered across the country between Oregon and New Hampshire, according to its website.
While Illinois regulators and distributors oppose Lebamoff’s lawsuit, at least some retailers are ready to open up the floodgates to online sales and interstate competition — as long as the business flows both ways.
In 2016, Binny’s Beverage Depot, a 70-year-old, family-owned Chicago liquor retailer with 40 Illinois locations, was blocked when it attempted to cross into northwest Indiana with a new 33,000-square-foot store in Schererville. After Binny’s received local approval, then-Indiana Gov. Mike Pence signed laws strengthening residency requirements, effectively killing Binny’s expansion plan.
“Indiana retailers circled the wagons to keep Binny’s out of the state,” Binny’s spokesman Greg Versch said.
Versch said Binny’s does a “fair amount of business” through website orders and ships wine within the state of Illinois. If the Lebamoff lawsuit prevails, Indiana would once again be on Binny’s retail radar.
“I think what is keeping us from shipping out of the state are the same regulations that are keeping them from shipping in,” Versch said. “So if the strike zone is the same for everyone, it’s a fair game”.
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