Update On Minnesota Farm Winery

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We have blogged, most recently on July 30, 2019, about Minnesota’s farm winery statute. The statute allows local wineries to sell direct to retailers and the public, unlike the traditional three-stage manufacturer-distributor-retailer system. In order to qualify for the farm winery license, the winery must obtain 50% or more of its ingredients from Minnesota sources. If that proves impossible, the winery must apply for an exemption which is discretionary and only runs for a year.

Two Minnesota farms challenged the statute on the ground that it discriminates against interstate commerce by giving a leg up to Minnesota producers of wine ingredients, mostly grape juice. The District Court dismissed the lawsuit on standing grounds, but the Eighth Circuit reversed as we discussed on July 30, 2019.

On remand, the parties filed cross-motions for summary judgment. As we predicted, the District Court found that the statute violates the dormant commerce clause by overtly discriminating against out-of-state producers of the ingredients for wine. The Court agreed with Minnesota that the statute does not discriminate against out-of-state wineries. But it held that fact is irrelevant, because it so clearly does favor Minnesota producers of the ingredients.

The finding of discrimination against out-of-state commerce triggers strict scrutiny, which requires the state to prove that there is no reasonable, non-discriminatory way to accomplish the state’s legitimate interests. As a practical matter, the opinion states, the “only way” to do so is to prove that the out-of-state articles are more dangerous than in-state articles.

The state made no effort to satisfy strict scrutiny and the Court held that it could not. It acknowledged that the state had a legitimate interest in encouraging in-state economic activity. But the state could not serve that interest at the expense of out-of-state businesses.

The opinion holds that the state presented neither evidence nor argument that out-of-state ingredients were more dangerous than Minnesota ingredients. And the statute itself belies any such suggestion because it allows up to 49% of ingredients to come from out of state.

The surprisingly short opinion in Alexis Bailly Vineyard, Inc. v. Herrington, is reported at 2020 WL 5106789 (D. Minn. 2020). It is unclear whether the state will appeal as its time to file runs through the end of September.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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