Minnesota farm wineries will have a second chance to challenge a law that requires at least 51 percent of the grapes used for wines produced in the state by any such operation be Minnesota-grown.
Minnesota’s cold weather prevents grape harvests in the state from meeting the demand of vintners, and grapes are imported to blend with the domestically grown fruit.
Two wineries that sued to overturn the Minnesota statute were granted standing to make their case in federal court by an opinion of the Eighth Circuit Court of Appeals issued on July 29.
Burden on Interstate Commerce
The 51 percent rule is unconstitutional because it affords “differential treatment of in-state and out-of-state economic interests that benefits the former and burdens the latter,” the appeals court stated.
The requirement violates the Interstate Commerce Clause of the U.S. Constitution, argue the plaintiffs, Timothy Tulloch, owner of Next Chapter Winery LLC, and Nan Bailly, owner of the Alexis Bailly Vineyard.
“Essentially, this law restricts my constitutional right to do interstate commerce,” Tulloch told Budget & Tax News.
“It is unconstitutional for the state to limit my right to engage in interstate commerce and freely purchase grapes from wherever I choose to make my wines,” Bailly said.
The 51 percent rule could prevent them from expanding by purchasing out-of-state grapes, says Tulloch.
“The effect of the law is that in the event that my children want to really grow the business, they would not be able to, as they would not be able to get sufficient grapes from Minnesota,” Tulloch said.
Farm winery owners must make an annual request to the state for an exemption from the 51 percent rule, says Bailly.
“We do not have the freedom to go out on the market and purchase needed grapes without first securing permission from the Department of Public Safety in Minnesota,” Bailly said.
A farm winery must file an affidavit certifying there are not enough Minnesota-grown grapes or grape juice to constitute most of the winery’s product. The requirement to obtain an exemption creates uncertainty, says Bailly.
“Since I often lose a significant portion of my crop each year, this is a burden on the growth of my business,” Bailly said. “I have no assurance from the state that I will be guaranteed permission to buy needed grapes to make my wines,” Bailly said. “Without that needed affidavit from the state giving me permission to buy more grapes, I would not have any wine to sell and would go out of business.”
Under Minnesota’s three-tiered alcohol distribution system, retailers are not allowed to manufacture alcohol, and manufacturers are not lawfully able to sell their products to retailers or the public, only to distributors.
Licensed farm wineries are an exception, allowed to manufacture wine and sell it directly to retailers and consumers, within strict limits. In addition to paying an annual fee, a farm winery must be located on agricultural land, produce fewer than 75,000 gallons of wine annually, and use mostly Minnesota-grown grapes in producing its wines.
In dismissing the case in 2018, U.S. District Judge Wilhelmina Wright said wineries can change their business status from “farm winery” to “manufacturer,” which would allow them to expand without following the 51 percent rule.
This change of status, however, would prevent the wineries from selling directly to retailers and the public.
Farm wineries are required to explain why they need an exemption from the in-state grape requirement. Minnesota’s severe weather limits the winemakers’ ability to grow consistent crops to sustain their businesses, Bailly says.
“It is very difficult growing grapes in Minnesota,” Bailly says. “I have always respected the 51 percent mandate to make the majority of my wines from Minnesota grapes, but the mounting losses I experience every year limit the growth and profits of my business.
“I have not been able to find quality fruit grown in Minnesota to purchase at a fair price, and I have not succeeded in growing enough grapes from my vineyard,” Bailly said.
Extreme Crop Losses
This year, Bailly lost more than 75 percent of what would be a normal crop, she says. More than 50 percent of her vines were killed back to the ground.
“Although this is an extreme year, I have not had a normal crop in over 20 years, and with our losses this year, the expectation of my vines recovering to produce again is doubtful for at least three to five years,” Bailly said.
“That’s three to five years of laborious work to reestablish vines that may or may not produce again for me, during which time I will have no income from my vineyard.”
District Court Hearing
Wright dismissed the lawsuit in 2018 on procedural grounds, ruling the wineries lacked standing to challenge the law. The Eighth Circuit ruling sends the case back to district court, where the case could be heard on its merits.
“I hope it will promote competition in the market for better quality in our locally grown grapes that will be sold at a fair market price and provide for better quality wines for all consumers to enjoy,” Bailly said.
“It is a benefit to my winery to have a high standard of quality wines made locally,” Bailly said. “Hopefully this will help attract new and enthusiastic growers and winemakers to Minnesota for the future of our industry.”
Vivian E. Jones ([email protected]) writes from Murfreesboro, Tennessee.
Alexis Bailly Vineyard, Inc. v. John Harrington, U.S. Court of Appeals for the Eighth Circuit, Docket No. 18-1846, July 29, 2019: https://heartland.org/publications-resources/publications/federal-appeals-court-opinion-minnesota-winemakers-have-standing-to-sue