Minnesota wineries win second chance in court at getting their grapes

It's not that two Minnesota wineries don't like the grapes grown here. They just want more options.

An Eighth U.S. Circuit Court of Appeals ruling Monday served up another round in court for the two wineries challenging the constitutionality of a state law requiring most of their grapes to be grown within state borders.

The question of constitutionality now will go back to U.S. District Judge Wilhelmina Wright's courtroom in Minneapolis. A year ago, Wright tossed out the case on procedural grounds, saying that Hastings' Alexis Bailly Vineyard and New Prague's Next Chapter Winery didn't have legal standing to contest the law.

A three-judge Eighth Circuit panel ruled Monday that Wright was wrong, that the wineries do have legitimate standing to challenge the law. Wright will now be asked to rule on the substance of their claim.

The lawsuit, filed on behalf of the wineries by the Washington, D.C.-based libertarian nonprofit Institute for Justice, claims that Minnesota law governing wine sales violates the commerce clause of the U.S. Constitution by arbitrarily limiting the use of out-of-state grapes.

At the heart of the case is Minnesota's three-tiered law for how alcohol can be manufactured, delivered wholesale and sold retail. The system limits a business to one of three types of licenses, so a manufacturer cannot sell directly to consumers or retailers.

Farm wineries, however, are exempt — provided that at least 51% of their ingredients come from within the state and are produced on their land. Farm wineries can sell directly to consumers, a draw for tourists. Most of the state's 80 farm wineries have supported the existing law.

But Bailly and Next Chapter, both farm wineries, want more options for obtaining their grapes, in part because they want to expand.

Anthony Sanders, the lawyer at the Institute for Justice who argued the case, said the law is "explicit discrimination" against out-of-state goods. The Constitution's commerce clause requires the free flow of goods and services across state borders, he said.

Bolstering his case, Sanders said, was a U.S. Supreme Court ruling in June that struck down Tennessee's two-year residency requirement for those seeking to obtain licenses to sell liquor.

In that 7-2 decision, Justice Samuel Alito wrote that "removing state trade barriers was a principal reason for the adoption of the Constitution." He added that the 21st Amendment — which repealed Prohibition — did not undercut that basic idea.

Both Bailly and Next Chapter want to expand but say they can't get enough grapes from Minnesota to expand as much as they'd like. Bailly would like to go from 10,000 gallons of wine to more than 25,000, Sanders said a year ago. Next Chapter would like to increase production from 5,000 gallons to more than 20,000, he said.

The state countered that the winemakers can expand their businesses by obtaining a manufacturer's license, which frees them from the 51% threshold for Minnesota-grown grapes. But then, the winemakers say, they wouldn't be allowed to sell their product directly to visitors at their wineries.

Deciding the case for the Eighth Circuit were Judges Bobby Shepherd, Ralph Erickson and Jonathan Kobes, who wrote the unanimous decision.

Rochelle Olson • 612-673-1747 Twitter: @rochelleolson