Wine shipper must have separate licenses for each shipping location

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Distributors of alcoholic beverages in Virginia must have a separate license from the Virginia Alcoholic Beverage Control Authority, or Virginia ABC, for “each separate place of business” that ships beverages straight to customers, the Court of Appeals of Virginia has held.

The decision reverses a bench ruling from the Richmond Circuit Court, which sided with a California-based wine shipper that argued they merely needed a license for their California business address, rather than the wineries across the country that it delegates to.

“VinoShipper may have developed an innovative and effective wine-shipping model that is ideal for a ‘“just-in-time” digital economy,’ but that model does not currently comply with Virginia law,” Judge Stuart A. Raphael wrote.

Judge Kimberley Slayton White and Senior Judge William G. Petty joined Raphael’s opinion in Virginia Alcoholic Beverage Control Authority v. Zero Links Markets (VLW 023-7-323).

Background

Virginia ABC has regulated the alcoholic beverage market in Virginia since 1934, when the General Assembly established the Virginia Alcoholic Beverage Control Board. Virginia’s ABC Act maintains a “three-tier system” requiring separate licenses for producers, wholesalers and retailers.

The case involves a wine shipper’s license — “a kind of retailer’s license” that enables the licensee to ship direct to the consumer. Per the opinion, Virginia ABC oversees about 1,400 such active direct shipping licenses.

These licenses require a designation of “the place where the business of the licensee will be carried on,” with separate licenses required for each separate place of business.

VinoShipper, a California-based wine shipper, received its first Virginia wine shipper license in 2007, and has renewed annually since. The license lists a Windsor, California address as its place of business.

Under their business model, customers order wine from the VinoShipper website, which verifies the customer’s age and ensures the quantities ordered do not violate state law. From there, VinoShipper buys the wine from the winery, and the winery is tasked with affixing shipping labels from VinoShipper on the package and tendering the package to the common carrier for shipment.

Virginia ABC claimed that, under Va. Code § 4.1-203(A), VinoShipper needed a separate license for each winery that packages the wine for shipment and tenders the package for delivery.

VinoShipper maintained that the act merely requires a wine shipper’s license for its Windsor, California address.

Virginia ABC received inquiries from other licensees in 2019 about whether VinoShipper’s business model was allowed under the ABC Act. In December 2019, VinoShipper made 86 shipments to Virginia customers from licensed locations and 227 from unlicensed locations. None were made from the Windsor address.

A hearing was held in June 2020 at the request of Virginia ABC’s Bureau of Law Enforcement. The hearing officer found VinoShipper “had shipped wine from unlicensed locations during the December 2019 period charged.”

But the hearing officer declined to revoke VinoShipper’s license, instead suspending the license for 25 days, which could be shortened by paying a $2,500 civil penalty.

The ABC Board upheld the hearing officer’s decision on appeal. VinoShipper appealed to the Richmond Circuit Court, which reversed the board’s order in a bench ruling that agreed with VinoShipper’s argument that it only needed a license for its California office.

This appeal followed.

Reversal

Even though they aren’t defined in the ABC Act, the terms “business” and “place” are “evident from the statute itself,” Raphael said.

“We conclude from the plain language of the separate-license requirement in Code § 4.1-203(A), and from the broader statutory context in which that requirement operates, that the ABC Act requires VinoShipper to obtain a license for each of the locations from which wine is shipped into Virginia at VinoShipper’s direction,” he wrote.

What it means to “ship” wine was contested on appeal. VinoShipper said shipping “does not consist of a single act, but is instead a ‘process,’” which is directed from the California office. Virginia ABC asserted that shipping “includes all activities needed for the shipper to ship the wine.”

Raphael agreed with Virginia ABC.

“Here the business of selling and shipping wine includes those activities necessary for VinoShipper to ‘deliver’ the wine and ‘send’ it to the purchaser,” he said.

The judge noted three of the five elements of shipping were delegated by VinoShipper to wineries. Specifically, that the wineries select the wine and pack boxes, affix shipping labels and tender the shipment for delivery. Those delegated functions are essential for both the distribution and sale of the wine.

“In short, VinoShipper performs essential portions of the business of selling and shipping wine at places not mentioned in its license as it relies on its contract wineries to select, package, label, and tender the wine to UPS for delivery into Virginia,” Raphael said. “VinoShipper thus violated Code § 4.1-203(A) by failing to obtain ‘a separate license … for each separate place of business” in which ‘the business of the licensee will be carried on.’”

Since 2010, the act permits wine shippers to avoid licensing locations where wine is packed and shipped if it is done in a board-licensed fulfillment warehouse. Since those need to be separately licensed, VinoShipper’s argument that no business is done where the wine is packed and shipped is unfounded, Raphael said.

The act also has specific, limited exceptions to the rule, which the judge found do not apply to what VinoShipper does.

“Those careful and detailed exceptions show that the General Assembly has scrupulously applied the separate-license-for-each-place-of-business requirement,” Raphael said. “There is no similar statutory exception for what VinoShipper does.”

VinoShipper’s argument that no genuine regulatory concern justifies the separate license requirement was rejected.

“The ABC Act vests the Authority with discretion to determine whether and when to use its statutory inspection powers,” Raphael wrote. “That regulatory authority is not forfeited through non-use.”

Noting the “innovative” business model at play, Raphael left the decision to permit such a model to operate in Virginia to the legislature.

“Whether the ABC Act should be amended again to accommodate VinoShipper’s business model is the General Assembly’s choice, not ours,” he concluded.