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1st Circ. Leaves Cork In Mass. Small Winery Sales Law

14 January 2010

A federal appeals court on Thursday upheld an injunction against a 2006 Massachusetts law that allows small wineries to sell their products directly to individuals and retailers while restricting larger, out-of-state vintners from engaging in the same practice.

Thursday's ruling, in the U.S. Court of Appeals for the First Circuit, said a federal judge was right to enjoin the statute on the grounds that it discriminates against interstate commerce in violation of the Commerce Clause of the U.S. Constitution.

"It is clear that Section 2 of the Twenty-first Amendment does not protect state alcohol laws that explicitly favor in-state over out-of-state interests," the First Circuit said Thursday.

The statute at issue, referred to in court papers as Section 19F, allows only "small" wineries, defined by Massachusetts as those producing 30,000 gallons or less of grape wine a year, to obtain a license that allows them to sell wine to retailers, wholesalers or directly to consumers.

All of Massachusetts' wineries are small wineries under the statute, the First Circuit noted.

Under the state's law, however, "large" wineries — those producing more than 30,000 gallons of grape wine annually — cannot sell wines directly to retailers. The law at issue also prohibits any out-of-state winery from shipping wine directly to a consumer if the winery has sold wine through a Massachusetts wholesaler in the past six months.

Then-Massachusetts Gov. Mitt Romney vetoed the bill, but his veto was overridden.

The law triggered a complaint, lodged in September 2006 in the U.S. District Court for the District of Massachusetts, asserting the law was designed with the purpose, and has the effect, of advantaging Massachusetts wineries to the detriment of other wineries outside the Bay State.

Siding with the plaintiff, District Judge Rya W. Zobel enjoined the enforcement of the law in December 2008, triggering the appeal.

The First Circuit said that, while the law didn't explicitly discriminate against out-of-state wineries, it instead employed "a very particular gallonage cap to confer this benefit."

"The effect of its particular gallonage cap is to change the competitive balance between in-state and out-of-state wineries," the appellate court ruled.

The Massachusetts attorney general's office said after the ruling, "When a statute that has passed and is presumed to be constitutional is overturned by a single district court judge, it is customary that the attorney general's office bring an appeal so that a panel of federal appeals court judges may fully vet the analysis of that single lower judge."

The attorney general's office will "review it promptly with our client, the Alcohol Beverages Control Commission," it added.

The appeal was heard by First Circuit Judges Sandra Lynch and Norman H. Stahl and District Judge Joseph A. DiClerico Jr.

The winemakers are represented in the appeal by Kirkland & Ellis LLP and Rubin & Rudman LLP.

Massachusetts is represented by its attorney general's office.

The appeal is Family Winemakers of Calif. et al. v. Jenkins et al., case number 09-1169, in the U.S. Court of Appeals for the First Circuit.

Practices