As we previously reported, most states authorize direct-to-consumer (DTC) shipments of wine if the shipper has obtained the correct license, but this area of law has continued to evolve through litigation. Recently, the Virginia Court of Appeals decided a case involving whether an out-of-state online wine retailer (the retailer) was required to maintain multiple licenses for multiple out-of-state locations. This case should be of interest to any multistate wineries, breweries, or retailers selling and shipping wine or beer to consumers.
In this case, the online wine retailer (retailer) located in California, challenged a decision by the Virginia Alcoholic Beverage Control Authority (the authority) to suspend its DTC shipper license for failing to obtain licenses for multiple places of business. The retailer has a somewhat unique business model, in which customers across the U.S., including in Virginia, buy wine on its website, then the retailer delegates the business of selecting and boxing the wine, labeling the packages, and tendering the shipments to the retailer’s common carrier for delivery to customers across the U.S., including in Virginia, to various U.S. wineries. The retailer only maintained one DTC shipper license for its California location, but it did not secure licenses for the wineries with whom it contracted to provide fulfillment services. Thus, the issue before the Virginia Court of Appeals was whether the retailer’s DTC shipper license for its California place of business was sufficient under Virginia law, given its business model.
The Virginia Alcoholic Beverage Control Act (the ABC Act) allows any in- or out-of-state winery, brewery, or retailer to obtain a Virginia shipper’s license to sell and ship wine or beer directly to a Virginia consumer’s home for personal consumption and not for resale. The ABC Act requires a separate license for each separate “place” of “business.” In its decision, the Court of Appeals determined that the law broadly defines “place” to include all locations where “the manufacture, bottling, distribution, use or sale of alcoholic beverages shall be performed, except that portion of any such building or other improvement actually and exclusively used as a private residence.” Va. Code § 4.1-100. “Distribution” is not further defined in the ABC Act or implementing regulations but relying on the plain meaning of the term in a dictionary, the court determined that the wineries with whom the retailer contracted enabled it to give out and distribute wine to its intended recipients, which met the plain meaning of the term.
Unlike “place,” neither the ABC Act nor its implementing regulations define “business,” but the court determined that it was evident from the ABC Act that the business of a wine shipper is to sell and ship wine. The term “ship” is not defined by the ABC Act or its implementing regulations. The retailer argued that shipping consists of several steps, and from a legal perspective the key step is when it instructs its common carrier to pick up the packages for delivery to its Virginia customers, which is done from its California office. The court disagreed, however, siding with the authority’s view that the term includes all activities necessary to ship wine, such as the activities wineries undertook on the retailer’s behalf to select the wine, box it, affix legally required labels, and tender it to the retailer’s common carrier for delivery to Virginia customers.
Furthermore, the court reasoned that the ABC Act allows DTC shipper licensees to avoid obtaining a license for locations where their beer or wine will be stored, packed, and shipped if they delegate those fulfillment services to a licensed fulfillment warehouse with whom they contract for such services. If the retailer were correct that the fulfillment services described above at the various winery locations are not required to obtain a license, the court reasoned that there would be no need for a separately licensed fulfillment warehouse.
The court also noted that the ABC Act expressly allows farm wineries, wine wholesalers, and restaurants serving mixed beverages to obtain a single license for multiple locations. From the court’s perspective, this separate legislative action was evidence that the Virginia General Assembly did not intend to extend the same privilege to DTC shipper licensees.
The court further observed that licensure of multiple places of business supports the legislative purpose of the ABC Act by allowing the authority to inspect places of business, confirm that shipping and labeling operations occur on-site as required under the ABC Act, and to inspect records located at those places of business.
Thus, the court concluded that the ABC Act required the retailer to obtain a separate license for each place of business at which it directs wine to be boxed, labeled, and tendered to its common carrier for delivery to Virginia customers.