Judge's ruling leaves bitter taste for 2 Minnesota winemakers

As if nasty weather didn't make things hard enough, two Minnesota wineries say the state — and now a federal judge — are unfairly suppressing their vineyard sales by requiring most of their grapes to be homegrown.

A ruling from U.S. District Judge Wilhelmina Wright on Monday dismissed a lawsuit by Alexis Bailly Vineyard and Next Chapter Winery. Bailly in Hastings and Next Chapter in New Prague sued the state a year ago, saying state law restricted their ability to expand because of a licensing requirement that 51 percent of their grapes be Minnesota-grown.

The lawsuit, filed by the nonprofit, self-described libertarian Institute for Justice on behalf of the two wineries, claims Minnesota law governing their wine sales violates the commerce clause of the U.S. Constitution. The law unfairly restricts business across state lines, the lawsuit said.

"I'm an artist making wine. Wine is my craft. I'm limited in the palette I can choose," said Nan Bailly, owner of Alexis Bailly, the state's oldest winery, started in 1973.

Bailly and her lawyer Anthony Sanders said the law is unconstitutional, so they will ask the Eighth U.S. Circuit Court of Appeals to overturn the ruling. Wright's 10-page ruling Monday didn't address the constitutionality of the state law. Instead, she said the wineries lacked the authority to sue over the law because they have the option of expanding their businesses through a manufacturer's license.

Most of the state's 80 farm wineries favor current law, said Dave Mohn, president of the Minnesota Grape Growers Association, because using homegrown grapes ultimately will give the region an identity as a wine producer. Most Minnesota producers use the hardier grapes bred to survive the cold.

"We've been trying to build an industry from these grapes. They're more acidic than what is grown in Napa Valley," he said.

Like Bailly, Winehaven in Chisago City is one of the state's oldest and largest growers. But winemaker Kyle Peterson, who is also a lawyer, agreed with Wright's ruling, saying it protects the unique appeal of Minnesota agritourism and wines sold on the farms here.

"If people want a West Coast merlot, they can buy it off the liquor store shelves," Peterson said. "Fifty-one percent isn't a huge ask. You can still blend 49 percent."

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 percent of their components come from within the state and are produced on their land. Farm wineries can sell directly to consumers, a draw for tourists.

Bailly said she's been selling wine from her winery for 40 years. "With that manufacturer's license, I would have to close my doors to the public," she said.

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

Bailly said the requirement creates an artificial market for Minnesota grapes when she can get them much cheaper from California.

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

Wright's ruling dismissed that predicament, writing, "There is no right to sell wine directly to the public, and the state of Minnesota is not required to configure its licensure" laws to allow the wineries to "conduct business in any fashion they choose."

The state does allow wineries to apply for waivers from the 51 percent threshold — something Bailly said she has done often because of the difficulty of growing French grapes — the ones her father planted. But the need to apply for the waiver — and the potential for rejection — makes it difficult to plan, she said.

The two grape growers pointed out in their filings that beer makers, such as Surly and Summit, can sell beer composed of grain imported from anywhere at their Twin Cities breweries. She pointed to Summit's new "Dakota Soul" beer, which the St. Paul brewery boasts uses barley grown exclusively in Rugby, N.D. Bailly called the brew "delicious" and said she wants the same freedom to craft.

Peterson disputed the beer comparison. He said that unlike beer, wine is about "terroir," the French term describing the character of a wine created by climate and soil conditions where it's grown.

The charm of Minnesota wineries is the surprise over what can be grown here, Peterson said, adding that he disagreed with the lawsuit's insinuation that Minnesota grapes "weren't ready for prime time."

At Winehaven, Peterson said he uses 75 percent Minnesota-grown grapes.

Bailly was blunt, calling terroir an "antiquated European concept" from wineries where grapes have been grown for centuries. "Sure, I have a flavor that comes from my vineyard. ... But who cares about terroir? What does terroir mean to anybody?" she asked.

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