The Golden State currently applies different regulations to local wineries versus out-of-state operations.
(CN) — An Illinois winery’s sour grapes over California alcohol regulations will move ahead, a federal judge ruled Wednesday.
U.S. Senior District Judge John Mendez partially denied California’s attempt to dismiss Blue Sky Vineyards’ challenge to a law that the winery claims puts out-of-state producers like itself at an unlawful disadvantage by only letting in-state wineries sell wine directly to California retailers.
Allowing the winery’s commerce clause claim to survive, Mendez, a George W. Bush appointee, noted the state couldn’t yet prove beyond doubt that its authority under the 21st Amendment — which contains a section banning the import of alcohol into states and territories that have prohibition laws — conflicted with the commerce clause, often cited to prevent states from upholding protectionist laws that give in-state businesses an advantage over out-of-state competitors,
The test over if the conflict exists “requires evidence that the state law is not discriminatory and has no ’legitimate nonprotectionist’ justification,” Mendez wrote. “Such factual questions cannot be decided on the pleadings at this early stage of the case and dismissal under Rule 12(b)(6) is improper here.”
In 2005, the U.S. Supreme Court ruled that state laws in Michigan and New York preventing out-of-state wineries from shipping directly to consumers, as in-state wineries were permitted to do, were unconstitutional because of that conflict.
The southern Illinois winery claims the law allows only California wineries to bypass the typical “three-tier system” — where wineries sell to a middleman entity which then sells to retail businesses.
“That means out-of-state wineries must sell through an importer/wholesaler, which adds costs that make distribution agreements economically undesirable if not entirely unrealistic,” Blue Sky Vineyards wrote in its February complaint.
Mendez said the winery’s commerce clause claim was valid at this point of the proceedings.
“Nearly all the cases cited by defendants in support of their argument that the three-tier system is constitutionally valid decided this issue on summary judgment rather than a motion to dismiss,” the judge wrote.
But Mendez did give California a slight win, granting its request to toss out the winery’s privileges and immunities clause claim, writing that the clause only affords protections to citizens, not corporations.
“We’re pleased with the judge’s decision, he adopted a lot of the reasoning we had in our brief and we certainly think that it was rightly decided,” said Gillian Garrett, lead attorney for Blue Sky Vineyards, in a phone call. “Now we move into the really crucial phase of the case … discovery and a motion for summary judgment.”
The winery sued Rob Bonta, California’s Attorney General, and Paul Tupy, director of the state’s Department of Alcoholic Beverage Control, in February.
The California Attorney General’s office did not immediately respond to request for comment.
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