End of Chevron Deference could cause Wine Chaos
The overturning of a key principle in US law could mean legal challenges to hundreds of federal alcohol regulations.
Tuesday, 09-Jul-2024
The federal agency that sets alcohol regulations could find itself in court following a recent Supreme Court decision.
"Clean wine" could be back on wine labels. Distributors could withhold payment longer from importers and wineries. Breweries could overturn "tied house" laws so they could own and operate pubs.
These are just three possible consequences of a monumental US Supreme Court decision last month to overturn what is know as the "Chevron deference". While other SCOTUS decisions this year involving abortion and presidential immunity have gotten more attention, overturning Chevron – a longtime dream of conservatives – might be the most consequential.
Any business that doesn't like a decision by a federal agency – including the Alcohol and Tobacco Tax and Trade Bureau (TTB) – can sue that agency in federal court. That has always been true. What the "Chevron deference" meant was that in the absence of specific laws written by Congress, federal judges should defer to the agency's expertise on the matter.
Now, each federal judge can decide each matter by his or her own judgment. This will lead to chaos, as presidents from both parties have been intentionally appointing ideologues to federal judgeships – which are lifetime appointments. Now every agency decision could be overruled if a business can find a sympathetic federal judge somewhere – but it could be overruled again by a less sympathetic appeals court.
In other words, it's now legal chaos in the United States of America, where we stand for life, liberty and the right to sue anyone over anything.
"The [Supreme] Court put itself on a high and mighty plane that says, we can do whatever we want, and we will," said Robert Tobiassen, former in-house counsel for the TTB who is now the president of the National Association of Beverage Importers (NABI).
It's worth noting that wine shipping, the focus of many of the lawsuits involving wine over the last two decades, should not be affected by this ruling at all, because wine shipping laws are state laws, and the SCOTUS decision involves only federal regulations such as those passed by the TTB.
Tobiassen, who knows TTB operations as well as anyone, said it usually issues regulations after soliciting – and actually reading – thousands of public comments, on topics about which it already has expertise.
"Will a federal judge read 5000 comments from the industry?" Tobiassen told Wine-Searcher. "A judge's clerk, just out of law school, is going to read a very technical paper on chemistry? Or molecular biology?"
The TTB has a somewhat greater specific mandate from Congress than many other federal agencies. But it has also made many judgment calls on its own, and can now be sued over most if not all of them. It's worth noting that in order to sue, a business has to show harm, which means it probably has to have lost a case at the TTB already.
For example, in 2022, the TTB said it's okay to call the taste of a wine "clean and crisp", but not OK to say a wine is "clean and healthy". But that's purely the TTB's judgment without a specific regulation from Congress. Now a producer could sue to put "clean and healthy" on the label. All that would need to happen is for a company to put that on a label application, and for the TTB to do what it said it would do in 2022, and deny approval to that label.
"What I wonder is, how circumspect will agencies be?" Tobiassen said. "If you went to TTB and said, we don't think you have any solid basis for this decision. We are going to challenge you eventually. Do you really want to go down that road? Do you really want to issue all these regulations and have them mired down in courts for years? Are agencies going to be a little more shy in what they do?"
Beverage alcohol attorney John Hinman said one regulation that could be challenged regards payment terms. The Federal Alcohol Administration Act that empowers the TTB specifically forbids consignment or conditional sales; that was written by Congress, so it will not be overturned.
In 2022, the TTB put out a circular to the industry warning: "Payment terms exceeding 30 days for sales between industry members and trade buyers may invite scrutiny from TTB to determine whether the payment terms were merely a subterfuge to sell on consignment because the trade buyer is effectively under no obligation to pay for the product until such trade buyer sells it."
This is the TTB filling in for Congress that the difference between a normal sale and a consignment sale is the difference between payment in 30 days, and 31 days.
"This has caused a lot of industry members to question extended terms of sale, which make sense for long tail and slow-moving products," Hinman told Wine-Searcher. "The net effect is to make it more difficult for imports and small producers to find a market because their products are slow-moving. Why, if the terms of sale do not link to payment being contingent on the downstream seller selling the goods – true consignment – aren’t extended payment terms legal? Because the agency says so?"
Tobiassen points out that for this provision to be challenged, an importer or producer would first have to lose a decision at the TTB, so that it has something specific to challenge. And to do so would put it at risk of having its license suspended or revoked.
Tobiassen said that one of the worst impacts of the decision is industry uncertainty. Companies invest millions of dollars to ensure that they are in compliance with regulations – but now those regulations might not stand if a single federal judge doesn't like them.
"The Supreme Court in most cases doesn't want to accept that the world is much more complicated and the courts and the executive branch have to evolve," Tobiassen said. "The issues in the 1790s were not as complicated as they are today. Back then, the biggest decision might have been, is a smallpox vaccine good medicine? That's a decision, but is it the same as deciding if an AI doctor making a diagnosis is a doctor acting within the standards of care for a community?
"I don't know why, if the Supreme Court wants to be originalist, they're not stuck on the Second Amendment, saying [the right to bear] 'firearms' means flintlocks and dueling pistols," Tobiassen said. "That's what 'bearing arms' meant in the 1790s. It doesn't mean AK47s. They didn't have AK47s in the 1790s. But the justices don't do that. They pick and choose where they want to be originalist. Now the courts have essentially said, 'All bets are off. We can do anything'."
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