Court Ruling Deals Blow to Minnesota Wine Lovers

Institute for Justice · April 9, 2018

Minneapolis—Minnesotans looking to buy their favorite wines at local wineries just faced a frustrating setback thanks to a new court ruling. Today, a federal judge in Minnesota dismissed a lawsuit from two Minnesota wineries challenging a little-known but onerous state law that severely restricts the amount of grapes they can use to make wine. Under the law, a winery in Minnesota cannot legally make wine unless a majority of the winery’s grapes are grown in Minnesota. This out-of-state grape cap makes it more expensive for consumers to buy wine in Minnesota, and reduces their choices, in order to protect the state’s grape industry from healthy economic competition.

By contrast, Minnesota’s biggest craft breweries, like Summit and Surly Brewing, are among the most successful in the country, thanks in part to a variety of hops grown in the Pacific Northwest that flavor their signature beers. If Minnesota breweries were instead forced to mostly use hops grown in Minnesota, many of their popular products would become difficult, if not impossible, to offer. This is the separate and unequal problem facing Minnesota’s farm wineries.

In March 2017, Alexis Bailly Vineyard and Next Chapter Winery teamed up with the Institute for Justice (IJ) to challenge Minnesota’s unusual and severe winemaking restriction as a violation of the Constitution’s Interstate Commerce Clause. Under the Commerce Clause, open discrimination against out-of-state commerce is unconstitutional unless the state can prove that the out-of-state commerce at issue is more dangerous than the in-state commerce, a burden that the state cannot satisfy in this case.

But today’s ruling does not address whether the law is constitutional. Instead, the judge dismissed the case by claiming the wineries could use a different, inferior, license—a wine manufacturers’ license—to make wine with more out-of-state ingredients. However, the wine manufacturers’ license also unconstitutionally limits where winemakers can source their materials, unless they do not sell directly to the public or to retailers. But IJ’s clients do sell directly to the public and to retailers. Not only that, but the alternative license is more expensive. So the wineries will appeal the decision to the U.S. Court of Appeals for the 8th Circuit, which covers Minnesota, Arkansas, Iowa, Missouri, and North and South Dakota.

“We’re fighting for our right to run a successful business,” said Nan Bailly, owner of Alexis Bailly Vineyard, which was started by her father. “As our business has grown, we cannot produce enough from our vineyard to meet demand. The government is keeping us from making the wines that people are asking for.”

Most wines Americans are accustomed to drinking are made with grapes that struggle in Minnesota’s cold climate. Northern grape varieties, which can grow with some difficulty in Minnesota, often produce wine too acidic for most consumers. To make a Minnesota wine palatable, most wineries blend Minnesota grapes with grapes grown elsewhere to create a wine that is essentially Minnesotan, but more appealing to a traditional pallet. The trouble is that state law mandating Minnesota grapes comprise the majority of a farm winery’s wine handicaps vintners’ hands. As a result, the government’s in-state grape requirement restricts farm wineries from producing the broad variety of wines that consumers want—even though these wines would be legal to sell at a wine or liquor store if made out-of-state.

“Today’s ruling is disappointing because it ignores the foundational American principle that wineries and consumers, not the government, should decide what wines Minnesota farm wineries can make and sell to the public,” said Anthony Sanders, a senior attorney with the Institute for Justice, which represents the wineries in the lawsuit. “The U.S. Constitution was crafted to guarantee free trade among the states. Minnesota is violating this founding ideal by restricting the grapes that wineries can purchase from other states. We look forward to vindicating the constitutional rights of Minnesota’s wine community on appeal.”

This is not the first time IJ has fought illegal wine regulations in court. In the 2005 Granholm v. Heald ruling, the U.S. Supreme Court found it unconstitutional for states to discriminate against out-of-state wineries in the business of selling wine directly by mail to consumers after hearing IJ’s arguments. An IJ victory in this Minnesota lawsuit could similarly roll back harmful regulations on wineries across the United States.

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