Like most states, Minnesota has a three-tier system for distributing alcoholic beverages – the manufacturer sells to a wholesaler who sells to a retailer. Minnesota allows local wineries to apply for a farm winery license, which permits the holder to sell direct to both retailers and consumers. The catch is that the winery must use more than 50% of its grape juice from grapes produced in Minnesota. A winery may obtain a one-year dispensation from this requirement if it certifies that sufficient supplies of Minnesota grapes are impossible to obtain.
Two farm wineries sued the Minnesota Commissioner of Public Safety, who enforces the statute, alleging that it violates the dormant commerce clause by discriminating against out-of-state grape juice. The District Court granted the Commissioner’s motion for summary judgment. The Court acknowledged that the statute caused plaintiffs injury in fact, because it interfered with their ability to expand their businesses. But it reasoned that, if plaintiffs wanted to use more out-of-state grapes, they could apply for a wine manufacturing license, which imposes no such limitation. Thus, the injury they sustained was the product of their own voluntary business decision. The catch, however, is that a wine manufacturer must use the three-tier distribution system. It cannot sell directly to either retailers or consumers.
Plaintiffs appealed. They argued that the District Court’s finding that the statute interfered with plaintiffs’ fiscal planning in and of itself established that the injury was fairly traceable to the statute. According to plaintiffs, the District Court’s holding would force them to operate a different business than the one they prefer to. They want to operate as farm wineries, due to the efficiencies in distribution that status allows, but the statute prevents them from doing so unless they use a majority of Minnesota grapes. This theory, they assert, would allow states to discriminate against out-of-state commerce with impunity by authorizing an alternative, less desirable way of doing business.
The Commissioner argued that plaintiffs lacked standing for three separate reasons. First, the Commissioner argued that there had never been an enforcement action against a winery for using out-of-state grapes or threatened to do so. She also claimed that her office had never denied an application for exemption. Thus, she claimed that there was no credible threat of injury to the plaintiffs.
Plaintiffs responded that a history of enforcement or threatened enforcement has never been the standard for standing to file a pre-enforcement challenge. Rather, it is enough that there is a substantial risk of enforcement. Here, plaintiffs have not faced a threat of enforcement because they have complied with a statute they believe to be unconstitutional. The Commissioner has never renounced any intention to enforce the law. And if she has no intent to do so, one wonders why she resists the lawsuit.
As for the exemption, it is limited to one year and it facially restricts exemptions to years in which plaintiffs cannot buy enough Minnesota grapes. Plaintiffs emphasized that they cannot rely on one-year exemptions, which may or may not be granted in future years, as a basis for planning their business.
The Commissioner’s second argument is that plaintiffs have not suffered any tangible economic harm as a result of the statute. The statute was in place when both plaintiffs began selling wine, so it did not cause them to terminate contracts or alter their business practices. The Commissioner also claimed that Minnesota could constitutionally impose its three-tier distribution system, so plaintiffs’ inability to operate their business as they chose is not legal injury.
Plaintiffs respond that the statute has limited their ability to expand their business and plan for the future and that is sufficient economic injury to support standing. They acknowledge they have no right to be free of the three-tier system, but argue if Minnesota wishes to makes an exception to that distribution method it must do so in conformity with the Constitution.
Plaintiffs also assert that the Commissioner’s theory would authorize numerous forms of discrimination. A church would lack standing to challenge its exclusion from a state grant if it could obtain the necessary funds by private donation. A public employee would lack standing to allege discrimination against her if she could find a comparable job in the private sector.
The Commissioner’s third argument is that whatever injury plaintiffs sustained is not fairly traceable to the statute because they could have obtained a wine manufacturer’s license that would allow unlimited use of out-of-state grapes. Plaintiffs respond that their injury – their inability to use non-Minnesota grapes within a farm winery license – is fairly traceable because, but for the statute, the injury would not exist. They argue that they are facing a Hobson’s choice of continued compliance with an unconstitutional statute and risking prosecution.
On the merits, plaintiffs argued that the statute violates the dormant commerce clause, because it facially discriminates against out-of-state grapes – i.e., it prohibits farm wineries from purchasing more than 50% of those grapes. The Supreme Court has long held that such discrimination is unconstitutional unless the state can establish a compelling state interest that cannot be satisfied by any lesser means – a very high standard that has rarely been met. In proceedings before the District Court, the Commissioner acknowledged that she could not satisfy that burden.
The Commissioner had very little to say about the merits. She argued that there was no overt discrimination because the law only regulates wineries in the state of Minnesota. As plaintiffs made clear in their reply, that is irrelevant, because the way in which Minnesota regulates those in-state wineries is limiting the amount of grapes they can procure from other states. That is clearly discrimination against interstate commerce.
Based on the oral argument we expect the Eighth Circuit to reverse. The panel addressed virtually no questions of the plaintiffs. The questions directed to the Commissioner clearly suggested that the judges thought the inability to expand plaintiffs’ businesses was concrete harm and it was directly related to the limit on out-of-state grapes.