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Los Angeles Distillery Challenges New York’s Alcohol Shipping Laws in Court

A craft distillery from Los Angeles has taken a significant step by filing a lawsuit against the New York State Liquor Authority in federal court. The case could lead to far-reaching effects on the distribution of alcohol across the United States.

Entitled The Obscure Distillery v. Lily M. Fan, the lawsuit involves a California-based distillery known for producing various spirits, including a rye whiskey crafted with American chestnut tree trimmings sourced from New York. The case names Lily M. Fan, who has chaired the New York State Liquor Authority since 2023, as a defendant in her official role.

The complaint put forth by The Obscure Distillery asserts that the current regulations impose an unfair and discriminatory burden on interstate commerce, effectively sidelining distilleries from other states in favor of in-state competitors.

Since the end of Prohibition in 1933, the alcohol distribution landscape in the U.S. has largely adhered to a “three-tier system,” where manufacturers and importers sell their products to wholesalers, who then pass them along to retailers serving consumers. The regulations regarding this distribution vary significantly from one state to another, and while some states, such as Michigan and Pennsylvania, have state-controlled distribution, New York employs a private sector approach for both wholesale and retail.

Over the past two decades, the craft distilling sector has flourished, expanding from a handful of producers in the mid-2000s to nearly 3,000 today. This growth has prompted some regions to revise their laws to facilitate direct-to-consumer sales, encompassing facets such as e-commerce and on-site sales at distilleries.

The lawsuit points out the limitations placed on which out-of-state distilleries can ship to New York consumers. In August 2024, New York Governor Kathy Hochul approved Senate Bill S2852A, which enhanced the ability of small-scale spirits, cider, and mead makers to engage in direct shipments to consumers. However, the law also includes stipulations that restrict certain out-of-state retailers from shipping their products directly to New York residents.

Under this new legislation, licensed manufacturers that produce liquor equivalent to or smaller than New York state producers are authorized to ship up to thirty-six cases of liquor per year to New York consumers who are at least twenty-one years old. However, this privilege is contingent upon whether the distillery’s home state reciprocates with similar shipping allowances for New York manufacturers.

In its April 16, 2025, filing, The Obscure Distillery claims that due to the lack of shipping reciprocity between California and New York, it is barred from obtaining an “out-of-state direct shipper’s license.” This restriction, the distillery argues, enforces an unconstitutional barrier on interstate commerce.

“Laws that treat businesses differently based on location are discriminatory and unconstitutional,” stated Jeff Jennings, an attorney from the Pacific Legal Foundation representing The Obscure Distillery pro bono. He points out that New York’s regulations favor in-state distilleries, thus creating uneven competitive conditions that violate the Commerce Clause outlined in the Constitution.

The Pacific Legal Foundation has a notable track record of representing alcohol producers in legal disputes; previous cases include a federal lawsuit connected to Pennsylvania’s brewery regulations and litigation regarding entertainment restrictions affecting Alaskan breweries.

In a recent blog post, the Pacific Legal Foundation articulated that while California’s laws also exhibit discrimination, this does not justify New York’s similar approach toward California businesses. They emphasized the importance of eliminating excessive burdens on entrepreneurs that restrict out-of-state market access and economic opportunities. This situation, they argue, has resulted in an unfair trade barrier, infringing upon the Constitution’s Commerce Clause.

The lawsuit seeks the following relief for The Obscure Distillery:

A. A declaratory judgment stating that N.Y. Alco. Bev. Cont. Law § 68, on its face and as applied to the plaintiff, violates the Interstate Commerce Clause by prohibiting out-of-state distilleries from shipping to New York consumers unless their home state allows reciprocity;
B. A permanent injunction against the defendants, their officers, employees, agents, and all associated persons, demanding cessation of enforcement of N.Y. Alco. Bev. Cont. Law § 68’s reciprocity requirement;
C. Coverage for attorneys’ fees and costs under 42 U.S.C. § 1988; and
D. Any additional legal or equitable relief deemed appropriate by the Court.

The outcome of this case could potentially set a new standard for liquor shipping regulations and influence the operational landscape for distilleries across state lines.

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