Bronco Wine Co. v. Jolly

• Decision Date: 26 May 2005
• Docket Number: No. C037254.,C037254.
• Citation: 29 Cal.Rptr.3d 462,129 Cal.App.4th 988
• Court: California Court of Appeals Court of Appeals
• Parties: BRONCO WINE COMPANY et al., Petitioners, v. Jerry R. JOLLY, as Director, etc., et al., Respondents; Napa Valley Vintners Association, Intervenor.

29 Cal.Rptr.3d 462

129 Cal.App.4th 988

BRONCO WINE COMPANY et al., Petitioners, v. Jerry R. JOLLY, as Director, etc., et al., Respondents Napa Valley Vintners Association, Intervenor.

No. C037254.

Court of Appeal, Third District.

May 26, 2005.

As Modified on Denial of Rehearing June 20, 2005.

Review Denied August 24, 2005.^*

Certiorari Denied January 23, 2006. See 126 S.Ct. 1169.

Howard, Rice, Nemerovski, Canady, Falk & Rabkin, Jerome B. Falk, Jr., San Francisco, Steven L. Mayer; Ropes & Gray, Peter M. Brody for Petitioners.

Bill Lockyer, Attorney General, Miguel A. Neri, Fiel Tigno, Supervising Deputy Attorneys General, Terry Senne, Deputy Attorney General, for Respondents.

Dickenson, Peatman & Fogarty, Richard P. Mendelson and Deborah E. Quick, Napa; Horvitz & Levy, Ellis J. Horvitz, Encino; Kathleen M. Sullivan for Intervener.

OPINION

BLEASE, Acting P.J.

Bronco Wine Company and Barrel Ten Quarter Circle, Inc. (collectively Bronco) filed a petition for writ of mandate, invoking our original jurisdiction. It seeks declaratory and injunctive relief barring application of the labeling requirements of Business and Professions Code section 25241 to wines produced by Bronco that are destined for interstate commerce because the section is in conflict with Bronco's federally approved certificates of label approval (COLA).¹

Bronco possesses COLAs for the brand names "Napa Ridge," "Rutherford Vintners," and "Napa Creek Winery," which authorize the distribution in interstate commerce of wine bearing these brand names if the true appellation of origin of the grapes used in making the wine appears on the label.²

Section 25241 prohibits the use of a brand name with the word "Napa," or any federally recognized viticultural region within Napa County, on the label, packaging material, or advertising of wine produced, bottled, labeled, offered for sale or sold in California, unless at least 75 percent of the grapes used to make the wine are from Napa County, or 85 percent of the grapes used to make the wine are from a viticultural region within Napa County. The statute applies to wine destined for both intrastate and interstate commerce.

We issued a judgment invalidating section 25241 as preempted by federal law because it was in conflict with Bronco's federally approved COLAs. The Supreme Court reversed the judgment and remanded the case for consideration of Bronco's remaining claims that section 25241 violates the free speech provisions of the state and federal Constitutions and the commerce and takings clauses of the federal Constitution. (Bronco Wine Company v. Jolly (2004) 33 Cal.4th 943, 17 Cal.Rptr.3d 180, 95 P.3d 422 (hereafter Bronco Wine).)

We shall deny Bronco's free speech claims on the ground section 25241 is a valid regulation of inherently misleading commercial speech.

We shall deny Bronco's claim the commerce clause invalidates section 25241 on two allied grounds. First, as construed by Bronco Wine, supra, the federal law authorizes or contemplates that California may establish stricter wine labeling requirements for wine destined for interstate distribution. Second, the state's interests in protecting California wine consumers from misleading brand names of viticultural significance and in preserving and maintaining the reputation and integrity of its wine industry in out-of-state and foreign markets outweigh the indirect effect of section 25241 on interstate commerce.

Failing its commerce clause and free speech claims, Bronco claims section 25241 effects a total taking of its federal COLAs, in violation of the takings clause of the federal Constitution, because it effectively nullifies the total value of the COLAs issued for any brand name that contains a true appellation of origin outside Napa County. We shall deny the challenge because section 25241 does not bar Bronco from using its brand names under all circumstances and because Bronco has failed to establish the statute has destroyed the substantial economic value of the brand names.

FACTUAL AND PROCEDURAL BACKGROUND

According to Bronco, it specializes in "premium wines at affordable prices." Some of Bronco's wine is bottled at its wineries in Ceres and Sonoma County; other Bronco wines are bottled under contract by Barrel Ten Quarter Circle, Inc. at a recently completed winery in Napa, California. Bronco sells its wine to wholesalers, and much of it is destined for interstate commerce.

Bronco's wines are bottled and distributed under some 30 labels or brand names. All of the labels have been reviewed and approved by federal regulators from the Bureau of Alcohol, Tobacco, and Firearms (BATF) and COLAs were issued authorizing the use of the labels. (27 C.F.R. §§ 13.1-13.92 (2002)³.) We discuss the nature of a COLA in greater detail in part III of the discussion.

Among Bronco's brands that fall within the class of "brand names of viticultural significance" are "Napa Ridge," "Napa Creek Winery," and "Rutherford Vintners" (hereafter Brands). The Brands collectively appear on hundreds of federally approved labels. Examples of current labels used by petitioners bearing these brand names can be seen in the appendix to Bronco Wine, supra, 33 Cal.4th at page 998, 17 Cal.Rptr.3d 180, 95 P.3d 422. The brand name appears prominently at the top of each label. Below the brand name appears the designation of the wine, i.e. the grape varietal (White Merlot, Chardonnay, and Merlot respectively), and below that appears the appellation of origin of the grapes used in the wine (Lodi, Lodi, and Stanislaus County respectively).

Bronco acquired the brand names and the labels on which they appear from predecessor owners.⁴ The Napa Creek Winery brand name was introduced in 1981 and was acquired by Bronco in 1993. Rutherford Vintners originated in the early 1970s and was acquired by Bronco in 1994. The Napa Ridge brand name has been in trade since the early 1980's. Bronco purchased that name from Beringer Wine Estates in January 2000 for over $40 million.

Beringer was granted COLAs for Napa Ridge and used that name with wines made from grapes grown in the Central Coast, North Coast, and Lodi appellation areas, as well as the Napa Valley appellation area.⁵ The labels on the Beringer wines displayed a true and correct appellation of origin disclosing the place where the grapes used to produce the wine were grown. The wine sold by the prior owner of the Napa Creek Winery brand name and most of the wines previously sold by the prior owner of the Rutherford Vintners brand name had been made from Napa County grapes. (See Bronco Wine, supra, 33 Cal.4th at p. 951, 17 Cal.Rptr.3d 180, 95 P.3d 422.)

By contrast, Bronco has marketed its wine under all three Brands with wine made from grapes grown entirely outside Napa County. (Bronco Wine, supra, 33 Cal.4th at pp. 951-952, 17 Cal.Rptr.3d 180, 95 P.3d 422.) Bronco's annual sales of wines under these Brands amount to 300,000 cases with annual gross revenues of $17 million. Of this amount, approximately 28 percent is attributable to sales within California and the remaining 72 percent is attributable to sales outside California.

More recently, the Bronco bottling facility in Napa County was completed and will have an annual production capacity of 44.8 million gallons of wine or 18 million cases when the facility is at full capacity. Although that level has not yet been reached, the potential output is double the nine million cases of wine produced annually by Napa Valley wineries. (See Bronco Wine, supra, 33 Cal.4th at p. 950, 17 Cal.Rptr.3d 180, 95 P.3d 422.)

Prior to 2000 California generally incorporated the federal standards for wine labels for all purposes. (Cal.Code Regs. tit. 17, § 17075.) In 2000, the Legislature enacted section 25241 after receiving substantial public comment and conducting public hearings. (Stats.2000, ch. 831, § 1.) The operative provision states in pertinent part: "No wine produced, bottled, labeled, offered for sale or sold in California shall use, in a brand name or otherwise, on any label, packaging material, or advertising, any of the names of viticultural significance listed in subdivision (c), unless that wine qualifies under Section 4.25a [now section 4.25⁶] of Title 27 of the Code of Federal Regulations for the appellation of origin Napa County and includes on the label, packaging material, and advertising that appellation or a viticultural area appellation of origin that is located entirely within Napa County, subject to compliance with Section 25240." (§ 25241, subd. (b).)

In support of this enactment, the Legislature made the following findings: "(a)(1) . . . for more than a century, Napa Valley and Napa County have been widely recognized for producing grapes and wine of the highest quality. Both consumers and the wine industry understand the name Napa County and the viticultural area appellations of origin contained within Napa County (collectively `Napa appellations') as denoting that the wine was created with the distinctive grapes grown in Napa County. [¶] (2) The Legislature finds, however, that certain producers are using Napa appellations on labels, on packaging materials, and in advertising for wines that are not made from grapes grown in Napa County, and that consumers are confused and deceived by these practices. [¶] (3) The Legislature further finds that legislation is necessary to eliminate these misleading practices. It is the intent of the Legislature to assure consumers that the wines produced or sold in the state with brand names, packaging materials, or advertising referring to Napa appellations in fact qualify for the Napa County appellation of origin." (§ 25241, subd. (a).)

The Legislative history discloses that section 25241 was designed to halt the sale and advertisement of wine bearing the prohibited Brands by closing a so-called loophole created by an exception in the federal wine labeling regulatory scheme, referred to as the "grandfather clause." (...