Minnesota Farm Wineries Fight for Free Trade

Introduction

It is legal to buy wine made from California, New York or Virginia grapes in a liquor store in Minnesota. But if a Minnesota farm winery wants to make and sell a majority of their wine from those grapes, the government will shut it down. This bizarre state of affairs is thanks to a state law that runs deeply counter to interstate commerce protections in the U.S Constitution.

The entrepreneurs behind Alexis Bailly Vineyard and Next Chapter Winery, two farm wineries in Minnesota, want to offer a diverse mix of wines to their customers, like any other winery. But Minnesota law forces them to make a majority of their wines with Minnesota grapes and products. This trade restriction prevents farm wineries from buying grapes from other states to expand and offer more varieties of wines to the public.

Though Alexis Bailly Vineyard and Next Chapter Winery have had success growing their own grapes, they have struggled to grow enough local grapes in Minnesota’s cold climate to satisfy the in-state majority mandate and keep up with demand for their products. Their own government’s interstate protectionism is actively undermining their ability to earn an honest living. And it’s not just them. Wineries throughout the state cannot grow their businesses because the government is blocking their ability to buy grapes grown in other states.

The Institute for Justice is joining Alexis Bailly Vineyard and Next Chapter Winery to ask a critical question: Why do wines that are legal to make in Minnesota suddenly become illegal when they are made from grapes grown outside Minnesota?

The in-state restriction does nothing to protect the public. It only serves to protects the state’s grape-growing industry from competition by hurting small businesses like Alexis Bailly and Next Chapter. And Minnesota is not alone. From agriculture to occupational licensing to renewable energy, states have imposed similar misguided restrictions on the free flow of goods and services across the nation. This excessive red tape limits economic opportunity, hurts innovation and drives up costs for consumers.

Minnesota shouldn’t be boxing in farm wineries with protectionist laws. That is why Alexis Bailly Vineyard, Next Chapter Winery and the Institute for Justice are filing a lawsuit to challenge the state’s restriction on free trade. Together they are fighting for their right—and the right of all entrepreneurs—to economic liberty.

Winemaking in Minnesota

Farm wineries are a relatively recent phenomenon in Minnesota. For most of the state’s history, wine-producing grapes could not survive the state’s harsh winters. ¹ But with the advent of northern-climate, cold-hardy grapes, more and more Minnesota entrepreneurs are trying their hands at winegrowing. ²

Yet even with these advances, Minnesota winemakers face obstacles to growth. The state’s extreme temperatures and unpredictable weather patterns cause many farm wineries to lose a significant portion of their crop each year. ³ They also face a serious restriction that threatens their very success: Minnesota’s limitation on the out-of-state products they can use to make their wine.

Minnesota’s Protectionist Trade Restriction

Minnesota does not require farm wineries to grow their own grapes or the other raw materials they use to make their wine. A winery can grow no grapes of its own and still offer a variety of wines directly to the public as long as more than 50 percent of the grapes they use were grown in Minnesota. ⁴

Although it’s completely legal to operate a farm winery in the state without planting a vineyard, most of Minnesota’s farm wineries enjoy growing their own grapes. Yet even with these grapes, they continue to struggle to source their wine with a majority of Minnesota grapes and products.

If a farm winery cannot grow enough of its own grapes to meet the in-state mandate, it must buy them in Minnesota exclusively.

To no surprise, the state’s restriction drives up the prices of Minnesota-grown grapes, increasing costs for wineries and ultimately consumers. It also severely limits the varieties of wines that farm wineries can produce: Northern-climate grapes tend to produce an acidic wine that works for some purposes, but not for others, preventing farm wineries from catering to their customer’s tastes. ⁵

In the past, when some farm wineries have been unable to meet the in-state mandate, they have applied to the state for a year-long exemption. But under Minnesota law the state can only grant an exemption if it finds that there are not enough Minnesota grapes available. ⁶ Consequently, many farm wineries are burdened with completing this process year after year, and there is no guarantee the exemption will be granted.

The Plaintiffs

The plaintiffs in the lawsuit are Alexis Bailly Vineyard and Next Chapter Winery, two Minnesota farm wineries that want the freedom to diversify the wine they offer to consumers.

Inspired by France’s wine-growing regions, a Minnesota lawyer started Alexis Bailly Vineyard, Minnesota’s oldest operating farm winery, in 1973. ⁷ He named it after an ancestor who helped settle the area in the early 1800s. Located about 30 miles outside of Minneapolis in Hastings, Minnesota, the vineyard made history in 1978 when it released the first wines ever produced commercially with only Minnesota grapes. The award-winning, nationally recognized winery is now owned by the founder’s daughter, Nan Bailly.

Nan has continued her father’s legacy, making Minnesota wines with her vineyard’s grapes and other locally-sourced ingredients. However, she also enjoys blending her grapes with grapes and juices from different regions, including Wisconsin, California and even overseas, and her vineyard’s visitors enjoy these wines too. She would like the freedom to offer new and greater varieties of blended wine to the public without worrying about an arbitrary limit on how many of her grapes crossed Minnesota’s border.

Next Chapter Winery is a family-run winery in New Prague, Minnesota. ⁸ After Timothy Tulloch built a successful coffee roasting business, he and wife Therese decided to pursue a lifelong dream of starting their own vineyard. ⁹ In 2007, they planted 3,700 cold-hardy grapes on their farm and opened Next Chapter Winery a couple years later.

When making wine, Timothy draws from his experience roasting coffee and uses old-world techniques, such as barrel-aging and grape stomping, to highlight and enhance the wines’ flavors. To grow Next Chapter’s business, Timothy would like to offer more varieties of wine, which would require using more grapes from other regions.

Together Alexis Bailly Vineyard and Next Chapter Winery have filed this lawsuit to secure the freedoms that other businesses enjoy: to experiment, innovate and tailor their products to their own and their customers’ interests and tastes.

The Constitution’s Promise of Free Trade in America

The Constitution guarantees free trade between the states. Indeed, a driving force behind its drafting was to put an end to the harmful, protectionist trade wars that had afflicted the thirteen states under the Articles of Confederation. ¹⁰   The Framers knew that for America to succeed, they had to create one strong economic union, and two clauses in the Constitution specifically protect it: the Commerce Clause of Article I, Section 8 and the Import-Export Clause of Article I, Section 10.

The Framers drafted the Commerce Clause to give Congress the exclusive power to regulate interstate trade. Though written as a grant of power to Congress, the Commerce Clause has long been understood to also forbid states from burdening interstate trade. ¹¹ This legal doctrine is widely known as the dormant Commerce Clause.

In addition, the Import-Export Clause was drafted to complement the Commerce Clause. The Import-Export Clause prevents states from burdening commerce that enters or leaves their borders. ¹² Though the Supreme Court has interpreted this clause to prohibit states from burdening foreign commerce, this clause was originally understood to also apply to trade between the states. ¹³

These clauses ensure hardworking Americans can enjoy the benefits of interstate trade, including greater economic options and lower costs.

Legal Claims

Alexis Bailly Vineyard and Next Chapter Winery’s federal lawsuit asserts that Minnesota’s restriction on their use of out-of-state products violates their right to engage in interstate commerce and foreign commerce—a right protected by both the Constitution’s Commerce Clause and Import-Export Clause, as well as the parallel Foreign Commerce Clause.

They first assert that Minnesota law explicitly discriminates against out-of-state commerce. Under the Commerce Clause, such discrimination faces the strictest form of judicial scrutiny and will be declared unconstitutional unless the state can prove that the out-of-state commerce at issue is more dangerous than the in-state commerce. ¹⁴ Because out-of-state grapes are as safe as Minnesota grapes, the state cannot meet this burden with its protectionist restraint on free trade. ¹⁵

The U.S. Supreme Court has not hesitated to strike down state trade barriers that have restricted the sale of out-of-state goods and services. ¹⁶ For example, in Hunt v. Washington State Apple Advertising Commission, the Supreme Court found that North Carolina could not ban Washington apples from its market just because the apples did not have a quality stamp issued by the U.S. Department of Agriculture, when Washington had an adequate grading system. And in Granholm v. Heald, a case IJ litigated in 2005, the Supreme Court found it unconstitutional for states to permit in-state wineries to sell wine directly by mail to consumers but not out-of-state wineries. ¹⁷

Additionally, Alexis Bailly Vineyard and Next Chapter Winery assert that Minnesota unconstitutionally burdens their ability to purchase products from other states in violation of the Import-Export Clause. ¹⁸ Their lawsuit asks the court to interpret the Import-Export Clause to forbid Minnesota’s harmful trade barrier and to restore the full protection the Constitution affords.

Finally, both wineries would like to import grapes from around the world. The arbitrary cap on non-Minnesota grapes affects their ability to purchase grapes from such far-flung places as France and South America. However, under the Constitution, only the federal government, not Minnesota, has the power to regulate international trade. Therefore, the wineries also argue that Minnesota’s restriction violates the Foreign Commerce Clause, a parallel clause to the “domestic” Commerce Clause and interpreted very similarly, because it burdens their ability to engage in international commerce. Minnesota’s law is truly an affront to global free trade.

On August 31, 2020 the federal district court ruled for the plaintiffs. This victory will ensure that farm wineries—and entrepreneurs and consumers across Minnesota—can benefit from these constitutional guarantees.

The Litigation Team

This case is being led by IJ attorney Meagan Forbes and IJ senior attorney Anthony Sanders of IJ’s Minnesota office (IJ-Minnesota).

About the Institute for Justice

Founded in 1991, the Institute for Justice is the national law firm for liberty and the nation’s leading advocate for economic liberty—the right to earn a living free from unreasonable government regulation. For more than 25 years, IJ has taken on state protectionism in various forms, including challenging protectionist occupational licensing laws and other regulations that irrationally prevent people from pursuing their livelihood.

IJ-Minnesota has worked to protect the right to earn a living in Minnesota for more than 10 years.  The firm successfully challenged a Lake Elmo trade ban that forbade small farmers from selling products on their own land unless they were grown within city limits. IJ-Minnesota also won an important victory on behalf of Minnesota wineries, protecting their ability to sell wine directly to consumers over the internet. ¹⁹ And after IJ-Minnesota filed a lawsuit challenging the state of Minnesota’s irrational licensing requirements for African hair braiders, the state dialed back its licensing requirements, creating opportunities for entrepreneurship across the state. IJ-Minnesota was also instrumental in persuading Minneapolis to lift its cap on taxicabs, paving the way for greater transportation options, including ridesharing in the city.

Outside of Minnesota, IJ has also litigated wine and the Commerce Clause before, in Granholm v. Heald—where in 2005 the Supreme Court found previous state wine restrictions unconstitutional.