Eastern Shore Times

The Virginia Court of Appeals has ruled that wine shipping companies employing drop-shipping strategies must now secure a state license for every step within their supply chain, in contrast to the previous regulation focused solely on the company's home office, the Virginia Mercury reported. The decision marks a significant departure from the past, affecting businesses like VinoShipper and highlighting the court's emphasis on meticulous compliance with state licensing across the industry. 

Appellate Judge Stuart A. Raphael said VinoShipper “may have developed an innovative and efficient wine-shipping model that is ideal for a ‘just-in-time digital economy...that model does not currently comply with Virginia law,” the newspaper reported. 

VinoShipper and organizations like it, which utilize drop-shipping methods to fulfill orders, must acquire a state license for each location involved in the supply chain, the news story on the ruling said. This overturns a previous ruling by the Richmond Circuit Court, which had suggested that only the company's home office required licensing. 

The court ruled that wine shipping companies using a drop-shipping model, like VinoShipper, must obtain state licenses for all locations involved in the order fulfillment process. This overturns a lower court ruling saying VinoShipper needed only a license for its home office. VinoShipper operates by purchasing wine from wineries, arranging for shipment through third parties, and attesting to compliance with state laws, including age verification and quantity limits.

In response to inquiries from other licensees, the Virginia Alcoholic Beverage Control Authority (ABC) had argued that VinoShipper was obligated to obtain licenses for every distinct location involved in its wine shipping process, citing the state law's requirement for separate licenses for each business location, the news story said. 

VinoShipper contended that shipping should be regarded as a process rather than a sequence of isolated actions, and said the critical step was when VinoShipper instructed UPS to collect the shipment from the winery. It said this activity, along with all other aspects of the process, originated exclusively from its office in Windsor, California, making that the sole locus of the 'shipping' process, the news story said.

The appeals court dismissed VinoShipper's argument on Aug. 15, agreeing with the Virginia ABC that the company had violated state law. Raphael said the term "shipping" encompassed a sequence of actions, including receiving the customer's order, procuring wine from wineries, preparing and packing the wine in boxes, attaching shipping labels and labels indicating the recipient's age, and ultimately delivering the package to UPS for customer delivery, the news story reported. 

Raphael said that even though VinoShipper outsourced the third, fourth, and fifth steps to the wineries, it still performed these essential functions related to sales and shipping, but through entities lacking a Virginia license and using those entities' employees. Raphael said the state's General Assembly had previously revised the ABC Act to accommodate technological advancements, and the decision on whether further amendments were necessary to accommodate VinoShipper's business model rested with the General Assembly, rather than the court, the news story said.