California Supreme Court Rules That Napa-Named Wines Must Come from Napa

In the ongoing battle that pits mass-market producer Bronco Wine Co. against California state authorities and Napa Valley wineries, the Napa vintners won a round today. The Supreme Court of California issued a decision that, at least for now, upholds the state's authority to require wines with geographic brand names—such as Napa Ridge—to be made with grapes from the named region.

"We think it's a great day for Napa Valley and the consumer. If you stop and think about it, it's a very simple matter. If a wine says Napa on the label, it ought to be Napa in the bottle," said Linda Reiff, executive director of the Napa Valley Vintners, a marketing group representing 250 wineries.

The case, Bronco v. Jolly, has been in the courts for four years. It originated in September 2000, when the California state legislature passed a law meant to close a massive loophole in wine labeling regulations.

Federal regulations require that 75 percent of the grapes in a wine with a geographic brand name come from the region referenced. But under a grandfather clause, geographic brands established prior to July 7, 1986, are exempt from that rule. (However, at least 85 percent of any wine bearing an American Viticultural Area designation, such as Napa Valley, must come from grapes grown in the named region.)

California's 2000 law sought to nullify that grandfather clause and mandated that all labels referring to Napa meet the 75 percent requirement. The Napa Valley Vintners pushed for this change to protect their region's reputation, arguing that consumers could easily become confused by wine-label terminology and mistakenly think they are purchasing a wine from Napa if they don't read the fine print.

Ceres, Calif.-based Bronco owns more than two dozen inexpensively priced brands, including Napa Creek, Napa Ridge and Rutherford Vintners, which do not necessarily contain Napa grapes. Often they are made with grapes from California's less-prestigious Central Valley, where CEO Fred Franzia owns 35,000 acres of vines. Under the September 2000 law, he would either have to discontinue those labels or make them with more expensive Napa grapes. So Bronco, which spent $40 million to purchase Napa Ridge in January 2000 and currently earns about $17 million a year from sales of the three labels mentioned above, has doggedly fought the law.

But the Supreme Court's unanimous ruling rejected Bronco's claims that the federal grandfather clause preempted California authority and that wine labeling has traditionally been federal, not state, purview.

"Based upon our review of the relevant history, we conclude that, from the mid to late 19th century until shortly after the repeal of Prohibition, the states' exercise of their traditional police power to regulate the labeling of food—including wine and other alcoholic beverages—was both extensive and dominant," wrote Chief Justice Ronald George in the opinion posted today.

The decision is not surprising, because the justices seemed quite skeptical of the Bronco arguments while questioning the attorneys in San Francisco on May 24. But from a practical standpoint, the ruling does not limit Bronco's ability to continue to sell the brands in dispute, because in 2002, a California appeals court instituted a stay against enforcing the state law.

"We're researching now how and when to have the stay lifted, and of course we'd love to have it lifted as soon as possible," said Reiff.

Although this decision represents a setback for Bronco, the last shot has not yet been fired. In its initial case, Bronco challenged the California law on four separate constitutional grounds. In 2002, California's 3rd District Court of Appeals ruled in Bronco's favor and struck down the law on only one of those four issues—the question of federal preemption.

The case is now remanded back to the appeals court to consider the three remaining Bronco claims: that the law violates the Commerce Clause of the U.S. Constitution; that it curtails Bronco's First Amendment right to free speech; and that it violates due process, by taking Bronco's brand value without just compensation.

Bronco attorney Peter Brody, of Washington, D.C. firm Ropes & Gray, emphasized that they can also petition the U.S. Supreme Court to hear the case. "Obviously we disagree with the [California Supreme Court] reasoning and think it's fairly straightforward principal of law that when a federal regulatory agency authorizes certain conduct, it's not in the province of the state to overturn that judgment," he said.

Neither Brody nor Richard Mendelson, attorney for the Napa Valley Vintners, could estimate when Bronco v. Jolly will ultimately be resolved. Also uncertain is whether the U.S. Supreme Court would consider an appeal of today's ruling, especially while a lower court continues to consider other aspects of the case.

Read more about this controversy: