How This Craft Distiller’s Federal Lawsuit Might Change Liquor Legal guidelines Throughout the Nation

A Los Angeles craft distillery is difficult the New York State Liquor Authority in federal court docket. And it’s a case that might have broader implications for alcohol distribution in the US.

The case is titled The Obscure Distillery v. Lily M. Fan. The Obscure Distillery is a California craft distiller of spirits, together with a rye whiskey made with American chestnut tree trimmings sourced from New York. Lily M. Fan, the chair of the New York State Liquor Authority since 2023, is being sued in her official capability with the State Liquor Authority.

The Obscure Distillery’s submitting alleges “a discriminatory burden on interstate commerce that forestalls out-of-state distilleries from competing in New York on equal phrases with in-state distilleries.” 

For the reason that repeal of Prohibition in 1933, liquor distribution in the US has primarily adopted what is usually known as a “three-tier system.” Underneath this construction, producers and importers should promote their merchandise to wholesale distributors, who then promote to consumer-facing retailers like liquor shops and bars. Laws range by state and typically by county. In 17 states, together with Michigan, New Hampshire, Oregon, and Pennsylvania, the state authorities controls the wholesale or retail distribution of alcohol. New York shouldn’t be one in every of these states, which means wholesale and retail distribution is dealt with by non-public entities. 

As craft distilling has grown exponentially over the previous 20 years — from dozens of producers within the mid-2000s to just about 3,000 at present — some jurisdictions have begun altering legal guidelines to permit for extra direct-to-consumer gross sales. This contains rules associated to liquor e-commerce, in addition to direct gross sales at distillery reward retailers and tasting rooms.

The Obscure Distillery’s submitting highlights restrictions on which out-of-state distilleries can and can’t ship to shoppers in New York. In August 2024, New York Governor Kathy Hochul signed Senate Invoice S2852A, increasing the capability of the state’s small spirits, cider, and mead producers to ship on to shoppers. The regulation additionally outlines restrictions on sure out-of-state retailers, stopping them from transport on to New York residents.

Particularly, the brand new regulation “authorizes the direct interstate cargo of as much as thirty-six instances of liquor per yr to a New York resident, who’s not less than twenty-one years of age, by a licensed producer with the privilege of manufacturing liquor that’s: (1) equal in school and/or annual manufacturing capability to the NYS producers licensed to make direct liquor shipments; and (2) from a state that affords reciprocal transport skills to equally licensed NYS producers.”

In its submitting on April 16, 2025, The Obscure Distillery alleges that as a result of California and New York don’t share transport reciprocity, it can’t receive an “out-of-state direct shipper’s license.” The submitting argues that this prevents it and related companies from dealing with an unconstitutional ban on interstate commerce.

“Legal guidelines that deal with companies in another way based mostly on location are discriminatory and unconstitutional,” stated Jeff Jennings, legal professional for Pacific Authorized Basis, which is representing The Obscure Distillery at no cost. “By permitting in-state distilleries privileges that out-of-state distilleries don’t have, New York has created an unfair commerce barrier, violating the Structure’s Commerce Clause.”

The Pacific Authorized Basis has a historical past of representing alcohol producers in court docket; latest instances have included a federal lawsuit concerning Pennsylvania’s rules on breweries and a state lawsuit centered on leisure restrictions at Alaskan breweries.

“It’s true that California’s regulation is discriminatory too. However simply because California has a discriminatory regulation doesn’t imply that New York is allowed to discriminate towards companies in California,” the Pacific Authorized Basis writes in a latest weblog publish describing the case. “It’s unjust to burden hardworking entrepreneurs with further, onerous hurdles that restrict market entry and financial alternative to companies positioned out of state. New York has created an unfair commerce barrier, violating the Structure’s Commerce Clause.”

The lawsuit seeks the next reduction on behalf of the plaintiff: 

A. A declaratory judgment that N.Y. Alco. Bev. Cont. Legislation § 68, on its face and as utilized to Plaintiff, violates the Interstate Commerce Clause of the Structure insofar because it bans out-of-state distilleries from transport to New York shoppers except the out-of-state distillery’s house state provides reciprocity to New York distilleries;
B. A everlasting injunction towards Defendants, their officers, their staff, brokers, assigns, and all individuals performing in live performance with them, directing them to cease imposing N.Y. Alco. Bev. Cont. Legislation § 68’s reciprocity requirement;
C. Legal professional charges and prices pursuant to 42 U.S.C. § 1988; and
D. Any additional authorized or equitable reduction that this Courtroom might deem simply and correct.

It stays to be seen if this latest swimsuit will maintain up in court docket — and if it may create a brand new precedent for rules surrounding interstate liquor transport.