California Supreme Court Hears Case on Use of 'Napa' in Wine Names

Suit pits Bronco, which owns Napa-named brands made without Napa grapes, against Napa vintners who want to protect their appellation's reputation.

Daniel Sogg
Posted: May 27, 2004

The name "Napa" conjures market magic like no other wine region in the United States. On Monday, a high-stakes dispute about who can use that name in wine brands was considered by the Supreme Court of California, which heard oral arguments in the case Bronco Wine Co. v. Jolly.

The case, which has been in the court system for almost four years, pits Bronco CEO Fred Franzia, the owner of more than two-dozen wine brands, against California state authorities (Jolly is the current director of the California Alcohol Beverage Control Board) and the Napa Valley Vintners, a marketing organization representing more than 200 Napa producers.

At the heart of the controversy is a state law passed in September 2000 that affected three Franzia brands -- Napa Ridge, Napa Creek and Rutherford Vintners -- that, despite their names, do not necessarily contain Napa grapes, but are often made with grapes mostly from California's less-reputable Central Valley, where Franzia owns 35,000 acres of vines. The law would have required the wines to either be made largely with grapes from Napa -- which are more expensive -- or change their names. Bronco challenged the law and a California appeals court overturned it in 2002.

The law was an attempt to close a massive loophole in wine-labeling regulations. Federal authorities require that a wine with a geographic brand name, such as Napa Ridge, be made with at least 75 percent grapes from the named region. But brands created prior to July 7, 1986, are exempted under a grandfather clause.

While the Napa Valley Vintners contend that Bronco's brand names mislead consumers, the case might come down to a question of state versus federal jurisdiction over wine labels.

Attorneys for both parties tried to address that issue during the 30 minutes each side had to present their respective cases and respond to questions from the panel of seven justices.

Napa-based attorney Richard Mendelson, representing the Napa Valley Vintners, argued that there is a long tradition of state wine regulations, and that the disputed state law does not contravene federal authority. "It's fundamentally a question of federal intent," he said, later adding that "the federal government makes the nationwide rules and the local government can pass remedial regulations."

Representing Bronco, Peter Brody of Washington, D.C., insisted that wine-labeling regulations have historically been federal purview, and that California doesn't have the authority to enact a law that he characterized as at odds with established federal authority. The Bronco brands in question were given a certificate of label approval (COLA) by the U.S. Bureau of Alcohol, Tobacco and Firearms, and the grandfather clause was included specifically to protect established brands, said Brody.

When posing questions, the judges appeared more skeptical of Bronco's position. Chief Justice Ronald George challenged the foundations of Brody's arguments. "I'm having trouble with your characterization that there's very little state regulation and all this federal regulation, when I find it to be the opposite," he said.

Nonetheless, Brody was unfazed. "The state cannot prohibit what the federal government has specifically allowed," he said.

Chief Justice George and Associate Justice Joyce Kennard also questioned Bronco's motives in the case. If the wines in the brands are made with grapes from Lodi rather than Napa, "Why not call it Lodi Ridge or Lodi Creek. Why does [Bronco] want to keep this label if the intent is not to deceive [the consumer]?" asked Kennard.

Franzia is a very savvy businessman -- he owns the enormously successful Charles Shaw label, better known as Two-Buck Chuck -- and has been able to capitalize on loopholes and grey zones in wine-labeling regulations. He acquired the Napa Creek brand in 1993, 12 years after its introduction. In 1994, Bronco purchased Rutherford Vintners, which dates from the 1970s. The Napa Ridge brand, begun in 1986, was bought for $40 million from Beringer Wine Estates in January 2000. Franzia also built an 18-million-case bottling facility within Napa County, which allows him to legally label wines as "cellared and bottled in Napa, Calif." even if they are not made with Napa grapes.

Bronco has a lot at risk in the case. Apart from the $40 million spent for Napa Ridge, court documents indicate that the three brands generate about $17 million in annual revenues from sales of approximately 300,000 cases. Despite the high stakes, Franzia, clad in a blue blazer, gray pants and white tennis shoes, appeared uninterested in the proceedings from his seat in the gallery. He declined comment after the hearing, waving off questions from reporters.

Both attorneys agreed that it is dangerous to guess at the court's likely ruling based on the tone of the justices' questions. "That's reading tea leaves," Brody said.

A decision is expected within 90 days of oral arguments. Whatever the ruling, it might not be the final word, because the losing party can appeal to the U.S. Supreme Court.

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