LET THEM MAKE WINE: DOES THE MINNESOTA FARM WINERY ACT VIOLATE THE DORMANT COMMERCE CLAUSE?

By: Jenni Oprosko, Volume 104 Staff Member

Minnesota has a long and complex history with liquor laws. In the 1800’s, Minneapolis created a quasi-zoning scheme to create areas where existing anti-salon laws would not apply.[1] In 1919 a Minnesotan, Andrew Volstead, introduced the act in the House of Representatives that eventually became the prohibition amendment.[2] For more recent examples, it was not until 2017 that Minnesotans could purchase alcohol on Sundays and Minnesota is currently the only state that still limits grocery stores to selling beer with at most a 3.2% alcohol content.[3] Recently, two wineries challenged the constitutionality of a Minnesota liquor law that requires farm wineries in Minnesota to source 51% of the ingredients for their wines from Minnesota growers.[4] Not only does this requirement appear to be an odd restriction on wineries, especially when you consider Minnesota’s climate is not the most hospitable to grapes, but the restriction may also violate the dormant commerce clause because it discriminates against out of state grape growers.

I.  MAKING SENSE OF THE MINNESOTA FARM WINERIES ACT

Minnesota has a three-tier system for their alcohol laws that requires a separate license to manufacture, wholesale, and retail alcohol.[5] Generally an individual can only have a license for one of the three, but there are several exceptions to the rule.[6] One such exception is for farm wineries[7], which allows them to manufacture their wine and sell their wine directly to consumers on their premises (an act that would be otherwise classified as retail).[8] To qualify for this exception, the farm winery must obtain a farm winery license and a majority of the ingredients for their wine must have been grown or produced in Minnesota.[9] If the farm winery is unable to source sufficient quantities of the necessary ingredients from Minnesota growers they are able to apply for an exemption with the commissioner.[10] If their application is approved then it is effective for one year, after which the farm winery must again meet the Minnesota-majority requirement or apply for the exemption again.[11] As of April 2018, no exemption request has been denied.[12]

Two wineries, Alexis Bailly Vineyards and The Next Chapter Winery, have challenged the Minnesota-majority requirement for being unconstitutional under the dormant commerce clause.[13] The District Court dismissed the case for lack of standing,[14] but the Eight Circuit reversed the holding and remanded the case to address the constitutional dormant commerce clause question.[15]

II.  THE IN-STATE RESTRICTION LIKELY VIOLATES THE DORMANT COMMERCE CLAUSE

The Commerce Clause is a clause in Article 1 of the U.S. constitution that grants Congress the power “to regulate commerce . . . among the several states.”[16] In interpreting the Commerce Clause the Supreme Court has derived an implicit restriction on states that prevents them from treating in-state and out-of-state businesses differently.[17] This implicit restriction is called the Dormant Commerce Clause and reflects a goal of the Constitution; to remove trade barriers between states.[18] Under the Dormant Commerce Clause “Minnesota is free to offer or not offer the farm winery license . . . .[but it cannot] condition a license on compliance with unconstitutional discrimination against out-of-state grape growers.”[19]

To determine whether the Minnesota-majority restriction is an “unconstitutional discrimination” the court will apply a two-pronged test.[20] The court will first ask whether the law “discriminates on its face against interstate commerce.”[21] A state is discriminating in this context if they treat out-of-state businesses differently than in-state businesses.[22] Based on this definition of discrimination, the Minnesota-majority restriction almost undoubtedly discriminates. It favors Minnesota grape growers (and other ingredient providers) over all out-of-state grape growers by forcing farm wineries to purchase a majority of their grapes from Minnesota growers. While this law does not directly impact the actions out-of-state grape growers can take, it does restrict their market because it makes Minnesota customers less likely to buy from them.

If the statute is found to be facially discriminatory, then for the second part of the test the court will ask whether this statute is the only way for the state to regulate matters of “legitimate local concern.”[23] The court applies strict scrutiny to the analysis of this question, making it more difficult for the statute to be upheld.[24]  For the Minnesota-majority exception, the state has argued that the restriction regulates a matter of local concern because it “fosters and promotes an agro-tourism industry for wine growers and producers on Minnesota farmland.”[25] The state’s argument is supported by Pike v. Bruce Church, Inc., finding that a statute’s purpose to protect the reputation of growers was a legitimate state interest.[26] The statute in Pike was found to be unconstitutional, despite the legitimate interest, because it placed too large of a burden on businesses.[27] It is therefore likely the analysis of the Minnesota-majority restriction will come down to whether the burden of the restriction on farm wineries outweighs the state’s interest in promoting agro-tourism.

III.  THE ANALYSIS CONTINUES BECAUSE THE TWENTY-FIRST AMENDMENT MAY ALSO PROTECT THE RESTRICTION

Alcohol is a heavily regulated industry, and so there has been frequent litigation challenging alcohol statutes on the basis of them violating the dormant commerce clause.[28] In these suits there is an added layer of analysis because section 2 of the Twenty-first Amendment grants states explicit power to regulate the transportation and importation of “intoxicating liquors.”[29] When a statute falls within a state’s power under § 2, even if the statute fails the dormant commerce clause test it may still be upheld if the statute’s purpose goes beyond protectionism and is to protect the public health and safety of its citizens.[30]

In analyzing the impact of the Twenty-first Amendment on the Minnesota-majority restriction, it is first important to consider that the amendment may not apply to this statute. Most of the litigation in this space has been surrounding the retail sale of liquor, which is a regulation activity that has been determined to be clearly within the states’ § 2 power.[31] The courts have not been clear on what other activities fall under § 2 though, but over time have narrowed the power granted to states under § 2.[32] The restriction is arguably regulating the creation of the wine and does not impact the transportation of the wine, and so the Twenty-first Amendment may not apply.

If the Minnesota-majority restriction is found to be within Minnesota’s Twenty-first Amendment § 2 power, then Minnesota will still need to show that the restriction addresses public health and safety issues. In Tenn. Wine and Spirits Retailer Ass’n v. Thomas the Supreme Court held that the state’s interest in ensuring only law-abiding citizens could sell alcohol was not enough to justify a law that requires a person to have two years of residency in a state before obtaining an alcohol retail license.[33] The Minnesota-majority restriction arguably has even less of connection to public health and safety. Considering the statute still allows out-of-state grapes to be used, it would be hard to argue using 100% instead of 49% of such grapes would suddenly pose a health and safety issue. Mere speculation that this much use of out-of-state grapes would somehow harm the public health or safety would also not be enough, as Minnesota would need to show supported assertions that the statute protects public health and safety.[34]

CONCLUSION

It is more likely than not that the Minnesota-majority restriction will be found to be a violation of the dormant commerce clause and therefore is unconstitutional. No matter which way the court comes down, the holding on the constitutionality of the restriction in Alexis Bailly Vineyard, Inc. v. Dohman is likely to have far reaching consequences. One such example is it will not only impact wineries. Recently a growing trend in Minnesota has been cideries, businesses that manufacture hard ciders and operate taprooms to sell them in.[35] Cideries are subject to the same laws as wineries and must get 51% of their apples from Minnesota growers so the holding of Alexis Bailly Vineyard will effect them as well.[36] If the Minnesota-majority requirement is held to be unconstitutional there may also be the positive consequence that it will serve as the push Minnesota needs to finally change its liquor laws to reflect modern alcohol consumption instead of a post-prohibition mentality.

 

[1] Erik Tormoen, Minnesota Alcohol Laws: A Brief History, Minnesota Monthly (Jan. 17, 2020), https://www.minnesotamonthly.com/food-drink/drinks-cocktails/minnesotas-alcohol-laws-a-brief-history/.

[2] Id.

[3] Id.

[4] Alexis Bailly Vineyard, Inc. v. Dohman, No. 17-cv-0913, 2018 WL 5619979 (D. Minn. Apr. 9, 2018).

[5] Minn. Stat. § 340A.301 (2019). The three-tier system was enacted by many states in the 1930s to keep organized crime out of the liquor industry after prohibition. Despite this goal being long achieved most states still have the system in place. Lisa Lucas, A New Approach to the Wine Wars: Reconciling the Twenty-first Amendment With the Commerce Clause, 52 UCLA L. Rev. 899, 902 (2005).

[6] Minn. Stat. § 340A.301, subd. 8 (2019).

[7] Minn. Stat. § 340A.101, Subd. 11 (2019) (defining farm wineries).

[8] Minn. Stat. § 340A.315 (2019).

[9] Minn. Stat. § 340A.101, Subd. 11 (2019).

[10] Minn. Stat. § 340A.315, Subd. 4.

[11] Id.

[12] Alexis Bailly Vineyard, 2018 WL 5619979 at *3.

[13] Id. at *1.

[14] Id. at *11.

[15] Alexis Bailly Vineyard, Inc. v. Harrington, 931 F.3d 774, 780 (8th Cir. 2019).

[16] U.S. Const. art. 1, § 8, cl. 3.

[17] United Haulers Ass’n v. Oneida-Herkimer Solid Waste Mgmt. Auth., 550 U.S. 330, 338 (2007).

[18] Tenn. Wine and Spirits Retailer Ass’n v. Thomas, 139 S.Ct. 2449, 2460 (2019)

[19] Alexis Bailly Vineyard, 931 F.3d at 779.

[20] Lucas, supra note 5, at 902.

[21] United Haulers Ass’n, 550 U.S. at 338.

[22] Id.

[23] Maine v. Taylor, 477 U.S. 131, 137 (1986).

[24] Id. at 138.

[25] Brief of Defendant-Appellee at 17, Alexis Bailly Vineyard, Inc. v. Harrington, 931 F.3d 774 (8th Cir. 2019) (No. 18-1846) 2018 WL 3477311, at *17.

[26] 397 U.S. 137, 143 (1970).

[27] Id. at 146.

[28] See, e.g., Paul Knettel, Constitutional Mixologists: Muddling the Analysis of Protectionist Alcoholic Beverage Laws after Granholm v. Heald, 93 Wash. U. L. Rev. 1071 (2016).

[29] U.S. Const. amend. XXI, § 2.

[30] Tenn. Wine and Spirits Retailer Ass’n v. Thomas, 139 S.Ct. 2449, 2457 (2019) (“It gives each State leeway in choosing the alcohol-related public health and safety measures that its citizens find desirable. But § 2 is not a license to impose all manner of protectionist restrictions on commerce in alcoholic beverages.”). Some Justices have argued for a broader definition of public health and safety for § 2 and do not think the Court should be so quick to hold alcohol-related discriminatory statutes as unconstitutional. See id. at 2482–2483 (Gorsuch, J., dissenting).

[31] See Marc Aaron Melzer, A Vintage Conflict Uncorked: The 21st Amendment, the Commerce Clause, and the Fully-ripened Fight Over Interstate Wine and Liquor Sales, 7 J. Const. L. 279 (2004).

[32] Id. at 288–93.

[33] Tenn. Wine and Spirits Retailer Ass’n, 139 S. Ct. at 2474–75.

[34] Id. at 2474 (“Section 2 [of the Twenty-first Amendment] gives the States regulatory authority that they would not otherwise enjoy, but as we pointed out in Granholm, mere speculation or unsupported assertions are insufficient to sustain a law that would otherwise violate the Commerce Clause.” (internal quotations omitted)).

[35] Michael Agnew, What to Know About the Rapidly Growing Hard Cider Scene in Minnesota, StarTribune (June 5, 2019), http://www.startribune.com/what-to-know-about-the-rapidly-growing-hard-cider-scene-in-minnesota/510867252/.

[36] Brian Kaufenberg, The Growler’s Field Guide to Cider, Chapter 6: Cider in The North, The Growler (Aug. 30, 2018), https://growlermag.com/the-growlers-field-guide-to-cider-chapter-6-cider-in-the-north/.