On Monday, August 27th the Chancery court in Mississippi upheld “passage of title” terms of sale, dismissing a case brought by the Mississippi Attorney General alleging illegal shipments of wine into the state by out-of-state retailers. Where the terms of sale, and the transaction documentation, clearly articulate that title passes in the home state of the licensed merchant, the court did not have jurisdiction over the defendants. This case was about consumer rights to buy wine in any state, and personal importation. The case isn’t over, but the victory is important. Read on for more details.
The Sting Operation
Mississippi Attorney General Jim Hood looked for a sexy issue to burnish his law and order credentials – he found one, retail wine and spirits shipping. However, he didn’t expect the response he got from the accused merchants, and the ruling from the Judge who heard the case.
63 retailers from around the US were targeted in a sting operation conducted by AG Hood; 22 reportedly sold wine to state agents posing as customers, agreeing to the terms of sale, entering orders on-line and directing delivery to themselves in Mississippi. Federal Express and UPS records were sought by the AG. The records were produced by the carriers. Four of the defendants (apparently randomly selected) were sued in Mississippi. The rest were sent warning letters and threatened with prosecution, presumably to be sued after the first four defendants were found guilty.
AG Hood sent out a press release announcing the sting.
The sting involved a state agency ignoring terms of sale and personally importing wine and spirits in violation of state law. If there was any law violated in this case it was by the agents of the state who traveled to other states, bought alcohol, shipped it to themselves and then charged the out of state sellers with a crime for selling it to them in the first place in the seller’s home state.
The Motion to Dismiss – The Uniform Commercial Code
The defendants, all represented in the Chancery court by Joel W. Howell III of Jackson, Mississippi, and nationally by John Hinman of Hinman & Carmichael LLP, moved to dismiss the complaints. The basis for the request for dismissal was that the challenged sales had all occurred in the states of licensure of the defendants (New York and California), the terms of sale mandated that title to the products passed in the state of licensure and the buyer was responsible for shipment of the goods. This is based on the Uniform Commercial Code, and the careful placement of UCC terms on each defendants’ website and in the transaction documentation. These “passage of title” terms are not new law. The UCC has been used for many years by many merchants to specify where they do (and do not) do business. The UCC applies throughout the United States (including in Mississippi) and governs all commercial transactions.
The motion was heard in Mississippi on August 23rd. Rankin County Chancery Court Judge John S. Grant III carefully reviewed the UCC law in Mississippi (which is the same as the law in New York and California) and ruled on Monday August 27th that because the terms of sale included the passage of title in the state of sale, and placed responsibility for any shipment on the buyer (who accepted that responsibility), there was no personal jurisdiction over the defendants and thus no case against them.
The Judge also observed that the defendants were passive sellers in the sense they did not specifically advertise to Mississippi nor did they encourage Mississippi customers to visit their websites (such as by mass mailings or mass emails).
The cases were all dismissed with prejudice.
What this means to Consumers
All citizens of the US, including those in Mississippi, may travel to other states and take possession of wine and spirits for their personal use. Getting it to themselves in states like Mississippi (which are essentially dry, and the state is the seller) is much more difficult. The personal importation laws governing consumer-controlled movement of wine and spirits vary from state to state.
When consumers travel (as they have the right to do), many states (and the federal government for international transactions) have established legislative exceptions permitting consumers to personally import wine and spirits for personal use. This right is most commonly exercised when visiting foreign countries; but is also available for interstate travel (virtual or actual).
Federal Express and UPS will not officially carry wine for consumers, will not carry spirits at all and require that all merchants shipping alcohol have either permits in the state of delivery or a clear right to ship under state law.
How, when and in what manner (on their person, by common carrier or in other ways) consumers may move their wine and spirits from state to state is a larger discussion, and at its core is a consumer rights issue. However, the right to own wine and spirits in another state is established regardless of where the consumer resides.
What this Means to the Retail US Wine Industry
This decision (and other similar earlier decisions from other states) clarify the business practices of merchants doing business in their own states. If the terms of sale (including all sale documentation) are carefully structured to require the buyer to pick up the goods at the seller’s location, retailers (and other sellers with the right to sell to consumers - such as breweries, distilleries and wineries) with websites may sell wine, beer and spirits to any consumer regardless of where that consumer may live. This removes the necessity of having to block a consumer from access to the retailer’s website simply because of where he or she officially resides.
This does not, however, address the consumer rights issues created by consumers asking for their wine, spirits or beer to be delivered to them outside of the state in which the goods were purchased.
What about Sales and Use Taxes?
Sales Taxes are collected under the sales tax regulations of the state of sale. Use taxes are the responsibility of the buyer and are governed by the buyer’s state if it differs from the seller’s state. Regardless, nothing is more certain than that the states involved will collect their taxes. In the wake of the Wayfair decision, many states will be evaluating their policies regarding the taxation of goods in their states. Whether any newly enacted legislation will affect “passage of title” remains to be seen.
Is This Case Over?
The Mississippi AG has stated that he will appeal the case. The defendants are confident that the Mississippi appellate courts will uphold Judge Grant’s decision. It is basic law and it applies nationally. It also appears that Mr. Hood’s decision to appeal is not universally supported in Mississippi.
Regardless, Judge Grant’s welcome application of settled commercial law to the sting attempted by Attorney General Hood reinforces existing precedent important to consumers and retailers throughout the country.