Farm wineries win as court declares Minnesota law mandating use of majority in-state wine ingredients in wines made by farm wineries facially unconstitutional in light of SCOTUS Dormant Commerce Clause jurisprudence. Bonus: we’ve got the briefs for you.

A pair of farm wineries challenged a portion of Minnesota’s farm winery law that mandates the farm winery produce its wines from ingredients grown or produced in Minnesota as violating the dormant commerce clause by favoring in-state Minnesota wine ingredient producers over out-of-state (and also a claim for foreign commerce clause violation) wine ingredient producers. Here’s the way the statute read:

Subd. 11.Farm winery. “Farm winery” is a winery operated by the owner of a Minnesota farm and producing table, sparkling, or fortified wines from grapes, grape juice, other fruit bases, or honey with a majority of the ingredients grown or produced in Minnesota.  Minn. Stat. § 340A.101, subdiv. 11.

Initially, last year the District Court ruled that the wineries did not have standing to pursue their claims and they appealed to the 8th Circuit. The 8th Circuit disagreed and reversed for further proceedings finding that the wineries could certainly pursue their claims under the Dormant Commerce Clause. You can read our initial post on the 8th Circuit briefing in this farm winery Commerce Clause matter here and the follow-up on the Court’s eventual ruling in favor of the wineries here

On remand, the District Court had the issue briefed through cross-motions for summary judgment with the Plaintiffs’ asserting in their arguments that:

[T]that they cannot consistently obtain the necessary quantity and quality of wine ingredients to support expanding their operations if 51 percent of the ingredients must originate in Minnesota. Although the Commissioner has never denied Alexis Bailly or Next Chapter a requested exemption, 

{ASIDE}Minnesota applied an exemption to this requirement for wineries when Minnesota-produced ingredients were not available in sufficient quantities to constitute a “majority” of the wine produced by a farm winery in a given year, but the wineries needed to apply for that exemption annually and had to submit an affidavit regarding the situation and even then, it was up to the Commissioner of Minnesota’s Department of Agriculture to agree and allow the exemption or to disagree and not allow the exemption.{END ASIDE}

both wineries maintain that the Act’s in-state requirement affects their business planning and wine production, including their desire to expand their operations. Plaintiffs want to produce more wine varieties, use higher-quality and lower-cost ingredients that are more reliably available from other states and countries, and increase the volume of wine they produce. For example, Next Chapter contends that, absent the Act’s in-state requirement, it would immediately double the amount of grapes and grape juices that Next Chapter purchases from outside Minnesota. Plaintiffs commenced this lawsuit against the Commissioner2 seeking a declaration that the Act’s in-state requirement restricts interstate and foreign commerce, in violation of the United States Constitution, and a permanent injunction against enforcement of the Act’s in-state requirement

The Court’s opinion [you can find the Court’s opinion here] deftly points out that the Dormant Commerce Clause prohibits states from enacting laws that discriminate against or unduly burden interstate commerce clause – that state laws violate the Clause if they mandate different treatment of in-state and out-of-state economic interests that benefits the former and burdens the latter. Noting the analysis is twofold, first does the statute overtly discriminate against interstate commerce (in which case it is subject to strict scrutiny and per se invalid unless the government can demonstrate that it has no other means to advance a legitimate local interest), and second, if it determines the legislation does not overtly discriminate the analysis must then determine whether the buren the statute imposes on interstate commerce is clearly excessive in relation to its putative local benefits (if the answer is yes, then the statute is also invalidated).

In analyzing the Minnesota law the Court found that it did overtly discriminate against interstate commerce while rejecting contentions made by the Commissioner to the contrary:

Here, the Commissioner is correct that the Act’s in-state requirement does not impose a tax or surcharge on any transaction that crosses state lines. But the Act nonetheless expressly penalizes interstate transactions by making a farm winery license contingent on a farm winery purchasing most of its winemaking ingredients from entities within Minnesota. As a prerequisite to licensure, the Act mandates disparate treatment of in-state and out-of-state winemaking ingredients, favoring the former and disfavoring the latter. The Commissioner’s contention that the Act merely regulates the in-state production and sale of wine is misleading because it focuses on the production and sale of wine while ignoring the procurement of ingredients necessary to produce wine. The fact that the Act “does not favor Minnesotan farm wineries over other states’ wineries” might be true. But that fact is inconsequential to the analysis because the Act does favor Minnesota growers and producers of winemaking ingredients, as well as Minnesota wineries that use mostly in-state ingredients.

Given the finding of overt discrimination, the Court’s application of strict scrutiny to the statutory scheme did not go well for the in-state ingredient requirement:

Plaintiffs [the wineries] argue that the Act’s in-state requirement cannot survive strict scrutiny because the Commissioner has not demonstrated that a non-discriminatory state interest exists, “let alone a lack of alternative means in achieving that interest.” The Commissioner does not directly address the strict-scrutiny analysis. Instead, the Commissioner insists that strict scrutiny does not apply. The Commissioner’s failure to address the strict-scrutiny analysis is fatal to the Commissioner’s position, given that the burden rests with the Commissioner. Nonetheless, the record also supports Plaintiffs’ position that the Act’s in-state requirement cannot survive strict scrutiny.

The Commissioner asserts that Minnesota has an interest in promoting “an agro-tourism industry for wine growers and producers on Minnesota farm land.” But even though a state may have a legitimate interest in “encouraging domestic industry” within the state, “the Commerce Clause stands as a limitation on the means by which a State can constitutionally seek to achieve that goal.”  Bacchus Imports, Ltd. v. Dias, 468 U.S. 263, 271 (1984). There is no suggestion in the record or the parties’ arguments that the Act’s in-state requirement serves any interest other than favoring Minnesota’s economic interests over similar out-of-state economic interests. The Commissioner has neither argued nor presented evidence that out-of-state winemaking ingredients are more dangerous than in-state winemaking ingredients. And the Act itself belies any such suggestion, as the Act permits a licensed farm winery to use out-of-state ingredients so long as those ingredients do not exceed 49 percent of the final product. Moreover, the Commissioner makes no effort even to suggest that there are no reasonable nondiscriminatory alternative methods of promoting an “agro-tourism industry” for wine in Minnesota.

For those following liquor laws under the Twenty-First Amendment and their intersection with the Dormant Commerce Clause, you will be interested in a particular footnote to this reasoning which does not mince words when delineating the ONLY probative question in a Dormant Commerce Clause challenge to a state liquor law:

The Commissioner argues that Minnesota’s three-tier alcohol-distribution system is constitutionally legitimate. The Twenty-First Amendment “gives each State leeway in choosing the alcohol-related public health and safety measures that its citizens find desirable,” but that leeway “is not a license to impose all manner of protectionist restrictions on commerce in alcoholic beverages.”  Tennessee Wine & Spirits Retailers Ass’n v. Thomas, 139 S. Ct. 2449, 2457 (2019) (holding that Tennessee’s residency requirement for retail liquor license applicants was unconstitutional as it “blatantly favors the State’s residents and has little relationship to public health and safety”); accord  Granholm, 544 U.S. at 488–89. As such, to the extent that the Commissioner relies on its legitimate interest in regulating alcohol through its three-tier alcohol-distribution system, that interest is insufficient to justify discriminatory treatment of out-of-state economic interests that contravene the dormant Commerce Clause.

It is important to see how easy the question is as some Courts appear to want to parse out other rules and revive overturned or questioned cases in attempting to favor state protectionism. A recent 6th Circuit case from April butchered this analysis and twisted itself into a pretzel citing abandoned and overruled law in finding in favor of a state law granting a privilege to in-state retailers to ship direct to consumers but denying that right ot out-of-state retailers.

In the end, here, the Court ruled the farm winery law’s mandate for majority-in-state ingredients for wine unconstitutionally violated the Dormant Commerce Clause and permanently enjoined the State of Minnesota from enforcing it.

We will undoubtedly see this appealed to the 8th Circuit once again.

Ashley Brandt

Hi there! I’m happy you’re here. My name is Ashley Brandt and I’m an attorney in Chicago representing clients in the Food and Beverage, Advertising, Media, and Real Estate industries. A while back I kept getting calls and questions from industry professionals and attorneys looking for advice and information on a fun and unique area of law that I’m lucky enough to practice in. These calls represented a serious lack of, and need for, some answers, news, and information on the legal aspects of marketing and media. I've got this deep seeded belief that information should be readily available and that the greatest benefit from the information age is open access to knowledge... so ... this blog seemed like the best way to accomplish that. I enjoy being an attorney and it’s given me some amazing opportunities, wonderful experiences, and an appreciation and love for this work. I live in Chicago and work at an exceptional law firm, Goldstein & McClintock, with some truly brilliant people. Feel free to contact me at any time with any issues, comments, concerns… frankly, after reading this far, I hope you take the time to at least let me know what you think about the blog and how I can make it a better resource.

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