Terroir II: Another Word Soon from the Court that Decided All Wines Aren’t Alike

Lee Pender | December 22, 2006

A new ruling is expected before the end of the year in the Granholm-based lawsuit that challenges the states’ and wholesalers’ “on-site only” strategy for resisting direct shipment. That line of defense argues it’s equal treatment to restrict all wineries, near and far, to the same limitation of in-person orders (which seems true in the same sense that a stew is equal parts horse and rabbit if made from one rabbit and one horse.)

On August 22, 2006, in the case then known as Huber Winery v. Wilcher but subsequently renamed Cherry Hill Vineyards, LLC v. Hudgins, a federal district court in Kentucky enjoined the state from prohibiting direct shipment to Kentucky consumers by out-of-state wineries of a certain maximum size that are properly licensed in their own states. See the initial report of the case here and further analysis here for perspective on its potential long-range importance.

The district court judge adopted a far-reaching analysis in rejecting the state’s argument that it could eliminate discrimination by applying the same on-site-only rule to all wineries, noting the real-world discrimination against a much larger number of wineries in states far from Kentucky than in neighboring states and the unique nature of wine, which supports a right in consumers to purchase from distant producers. His August order removed the instate location and fruit production requirements from licensing a “farm winery,” which is the category of producer entitled to retail to Kentucky consumers, but did not remove the requirement that licensees be located on a “farm with a producing vineyard” or the 25,000-gallon annual production cap. The order also enjoins application of the criminal penalty statute against out-of-state wineries that ship to consumers, if they qualify as small farm wineries.

The motion for judgment on the pleadings that produced the August opinion and order did not require the court to rule on the constitutionality of enacted Senate Bill 82, which is now the subject of further summary judgment motions. If not blocked by the court, the bill will be effective on January 1, 2007, purporting to reinstate the on-site requirement and raise the production cap to 50,000 gallons.

The rationale of the August 2006 opinion would invalidate the new law’s on-site limitation, but the ruling of current motions could be differently reasoned after the extensive briefing that has taken place. If the judge rules consistently with the previous order and is sustained on appeal, the case will represent a significant advance for freer interstate trade by banning the level-down prohibitionist strategy of a uniform on-site only rule.

In a December 20, 2006 ruling, the court granted the intervening wholesaler trade association until December 22, 2006 to file its reply brief to the plaintiff winery’s response to the wholesalers’ motion for summary judgment, rather than January 2, 2007, as the intervenor had requested, and an attorney for the plaintiff has reported that the judge intends to rule by December 31st. The December 20th ruling also disposed of various procedural rulings. Another substantive motion in the district court, to stay or suspend the August injunction, is also pending and will likely be decided (or dismissed as moot) in the year-end ruling, but stays in the appellate court remain a possibility.