There is nothing illegal about an Arizona law giving special privileges to small wineries, a federal appeals court ruled Tuesday.
The 9th U.S. Circuit Court of Appeals rejected arguments by a Michigan winery that the 2006 law illegally discriminates against out-of-state companies. Judge Stephen Trott, writing for the unanimous three-judge panel of the court, said the law treats everyone in similar circumstances the same, even if that means some wineries are in a better position to sell their products in Arizona.
Tuesday’s ruling is a setback not only for the out-of-state company but also several Arizona wine lovers who had joined the lawsuit. That includes John Norton who served as undersecretary of agriculture in the Reagan administration.
Norton, founder of the J.R. Norton Co., a Phoenix-based agricultural firm, said the law hurts Arizonans who want specialty wines which are not sold here.
“Those sons of bitches are restraining trade,” Norton told Capitol Media Services when legal action was first filed years ago. Norton said no one in Arizona stocks the wine he likes that is produced in Virginia and the small winery has no relationship with an Arizona wholesaler to get it to him.
On Tuesday, told of the new ruling, Norton appeared resolved to the situation.
“At some point,” he said, “do you have the energy to fight the bureaucracy forever?”
Central to the dispute is Arizona’s three-tiered system: Manufacturers sell to only to wholesalers. Retailers can buy only from wholesalers. And consumers can buy only from retailers.
A 1982 law designed to help the state’s nascent wine industry created an exception: Arizona wineries producing less than 75,000 gallons a year could sell directly to consumers.
The law also let them ship directly to both retailers and consumers, bypassing the wholesalers. That got around the concern that many wholesalers would not bother with the Arizona wines.
All went well until the U.S. Supreme Court in 2005 voided similar laws in other states. The justices concluded that special privileges granted by legislators to only that state’s wineries violates the Commerce Clause of the U.S. Constitution.
In response, Arizona altered the law to allow any winery, anywhere, that produces less than 20,000 gallons a year to ship directly to customers and retailers in Arizona.
Black Star Farms, a Michigan winery that produces about 35,000 gallons a year filed suit, with Norton and others joining in. They argued this law also was an improper infringement on interstate commerce. As proof of discrimination, they pointed out that all Arizona operations, with one lone exception — Kokopelli Winery — fit the small winery definition.
The net effect, they argued, denied wineries too big for the exception access to Arizona retailers and consumers. That’s because while they did not fit the small winery exception, they were still too small to convince an Arizona wholesaler to handle their product, a necessary step to getting on the shelves of Arizona retailers.
Trott said the problem with that argument is it is based on speculation. He said challengers want the court to void the Arizona law because it might have the practical effect of discriminating against some out-of-state wineries.
“The proof of the pudding here must be in the eating, not in the picture on the box as seen through the partial eyes of the beholder,” he wrote.
In fact, the judge said, there are many more small wineries outside of Arizona who can take advantage of the law than those in the state. And he said many of these already have obtained the necessary licenses.
The court concluded that any effect on interstate commerce for wineries larger than that was “incidental.”