Two Minnesota farm wineries brought a challenge to a Minnesota Farm Winery Act restriction mandating that in order to have the benefits of the Farm Winery license (direct to consumer sales, and direct to retailer sales) they make their wine from a “majority” of grapes grown or produced in Minnesota. The act does not mandate that they grow the grapes themselves, just that a majority of the grapes they use in their wines come from Minnesota.

They argue that the purpose of this “in-state” mandate “was giving a commercial advantage to Minnesota ingredients at the expense of out-of-state ingredients.”

The District Court found (link to opinion) that the inability of the Farm Wineries to grow their businesses by being able to produce more wine was not “fairly traceable” to the in-state mandate because they had the option of getting a wine manufacturers’ license instead of the Farm Winery license. That license would allow them to make wine from a majority of out-of-state products, but would remove their ability to sell direct to consumers and to retailers. The Court held the availability of the manufacturer’s license meant the Farm Wineries lacked standing because their injury – the inability to expand their business due to the fear they might not be able to make wine due to a lack of in-state products (they couldn’t get enough Minnesota grapes or might be denied a one-time exemption allowing them to not use a majority Minnesota grapes) – was not caused by the in-state mandate where an alternative license that would allow them to make products from out-of-state products was available.

The Farm Wineries appealed the decision arguing they shouldn’t have to change and become manufacturers and lose their direct to consumer and direct to liquor store sales rights and that that potential harm should be enough to grant them standing to challenge the law. In essence they claim they are bringing a pre-enforcement challenge (not getting an exemption in the face of not having enough quality Minnesota product) to a discriminatory law. The argument is that determining whether the law unconstitutionally limits the Farm Wineries’ businesses is a question on the merits and not one of standing as the change to a manufacturing license would result in a complete change to their business models (e.g. no tap rooms and no direct retailers sales).

Thankfully the Farm Wineries also argue that the appellate court should address the merits of their claims as well, that the restrictions are a violation of the commerce clause.

The briefs focus on an argument that the statute is facially discriminatory in that it explicitly favors and restricts the Farm Wineries to using a majority of in-state products in the creation of their wines. The important part of the rationale for the licensed beverage industry is the emphasis and argument from the Farm Wineries about their inability to grow a sufficient quantity of grapes in their own vineyards to produce enough volume to satisfy demand. They argue that by bringing products in from out of state, they can expand their varietals and volumes. The out of state grapes offer them lower prices, better quality, and greater variety. The argument is a time-honored Commerce Clause refrain, that discrimination against out of state products in favor of in-state products rarely has a government interest sufficient to overcome strict scrutiny and “it is that kind of xenophobia that the dormant Commerce Clause sets its face against.”

Additionally, they call the District Court’s rationale a “loophole” that would allow all state regulators the ability to avoid pre-enforcement challenges “simply by providing inferior alternatives to disfavored groups.” The Farm Wineries also make the argument from Granholm that the 21st Amendment does not change the commerce clause analysis just because alcohol regulation is involved here. (An argument we may soon see expounded/curtailed in Tennessee v. Byrd).

These are all persuasive and intelligent points directly related to any challenge to a statute promoting in-state favoritism and a reminder that a narrow decision in Byrd will only amplify and generate more litigation in alcohol related dormant commerce clause cases.

The briefing and oral arguments are in and the case now awaits a decision from the 8th Circuit.

You can read the Farm Wineries’ opening brief here.

You can read Minnesota’s response here.

You can read the Wineries’ reply here.

You can listen to the oral argument here.