Bronco Wine Co. v. U.S. Dept. of Treasury

• Decision Date: 24 December 1996
• Docket Number: No. CV-F-96-6354-REC/DLB.,CV-F-96-6354-REC/DLB.
• Citation: 997 F.Supp. 1309
• Court: U.S. District Court — Eastern District of California
• Parties: BRONCO WINE COMPANY, Plaintiff, v. UNITED STATES DEPARTMENT OF TREASURY, The Bureau of Alcohol, Tobacco & Firearms, et al., Defendants.

997 F.Supp. 1309

BRONCO WINE COMPANY, Plaintiff, v. UNITED STATES DEPARTMENT OF TREASURY, The Bureau of Alcohol, Tobacco & Firearms, et al., Defendants.

No. CV-F-96-6354-REC/DLB.

United States District Court, E.D. California.

December 24, 1996.

Malcolm S. Segal, Segal & Kirby, Sacramento, CA, Frank C. Damrell, Jr., Damrell, Nelson, Schrimp, Pallios, and Ladine, Modesto, CA, E. Vincent O'Brien, Buchman and O'Brien, for Plaintiff.

D. E. Bensing, U.S. Dept. of Justice, Washington, DC, for Defendants.

ORDER DENYING PLAINTIFF'S MOTION FOR TEMPORARY RESTRAINING ORDER

COYLE, District Judge.

Plaintiff Bronco Wine Company ("Bronco" or "Plaintiff") moves for a Temporary Restraining Order ("TRO") to prevent the United States Department of Treasury, Bureau of Alcohol, Tobacco and Firearms ("BATF" or "the Agency") from restricting the sale and distribution of its wines across the nation. Plaintiff argues that without a TRO, it will suffer irreparable and substantial injury, and that eventually, its underlying challenge is likely to succeed on the merits. Upon due consideration of the oral and written record, Plaintiff's motion is hereby denied.

I. Introduction

This action for injunctive relief arises out of a dispute over Bronco's right to bottle, package, sell, and market wine in the United States under the "Rutherford Vineyards" label. In 1994, Bronco purchased the Rutherford Vineyards trade name, and in the same year, one of its bottlers applied for and received approval from the BATF of Certificates of Label Authority ("COLAs") to produce wine under the Rutherford Vineyards trade name. In 1995, the same bottler applied for and received a total of eleven (11) COLAs from the BATF for Rutherford Vineyards' wine labels bearing "California"— what Bronco claims to be is the appellation of origin. In reliance on these approvals, Bronco claims it invested more than $750,000.00 on packaging and more than $1,000,000.00 on marketing and promotion of its Rutherford Vineyards wine.

In October 1996, the BATF issued a detention order and seized approximately 32,000 cases of Rutherford Vineyards wine. The BATF later released the detained wine, but issued a formal warning to Bronco and its bottling companies that any further bottling of Rutherford Vineyards wine or sales in interstate or foreign commerce would be considered a willful violation of federal law, particularly 27 C.F.R. § 4.39(i). Notwithstanding attempts by Bronco to resolve this issue directly with the BATF, on December 11, 1996, the BATF issued its final decision confirming its restrictions against the sales of Rutherford Vineyards wines. In the meantime, Plaintiff notes that the BATF has admitted that there are 15 or 20 other wineries whose labels may violate federal law, but none, to the best of Plaintiff's knowledge, who have faced restrictions similar to those imposed on Plaintiff. Plaintiff has not, however, provided the court with any evidence confirming such allegations.

Plaintiff urges the court to recognize that all these events transpired shortly before the single highest volume selling period of the year, the period between Thanksgiving and New Year's Eve. Furthermore, Bronco avers that the success of wine sales during the holiday season greatly affects a product's marketability in the following year. Moreover, according to Plaintiff, the BATF's restrictions on the sales of Rutherford Vineyards wines have severely damaged Bronco's reputation with its customers, some of whom have even ceased purchasing other Bronco wines, citing their lack of trust in Bronco's ability to ship its wines as the reason. Simply stated, Bronco argues that it has suffered, and continues to suffer severe, irreparable harm because of the restrictions imposed by the BATF.

Bronco bases the instant suit on several grounds. First, Plaintiff argues that the BATF has effectively deprived Bronco of its property rights without a hearing, infringing its rights under the Due Process Clause of the Fifth Amendment. Furthermore, Plaintiff contends that the BATF's action constitutes a taking without just compensation in violation of the Takings Clause of the Fifth Amendment. Moreover, Plaintiff argues that the BATF also violated the Administrative Procedure Act ("APA"), 5 U.S.C. § 500 et seq., because its actions have been "arbitrary and capricious." Finally, Plaintiff asserts that the regulation upon which the BATF based its decision is inconsistent with international agreements entered into by the United States.

II. The Federal Alcohol Administration Act

The Federal Alcohol Administration Act ("FAAA"), codified in 27 U.S.C. § 201, et seq., establishes the regulatory scheme which governs the bottling, packaging, and labeling of wine. Passed in 1935, this statute was intended to prohibit practices in the alcoholic beverages industry "that Congress had judged to be unfair and deceptive, resulting in harm to both competitors and consumers." Adolph Coors Co. v. Brady, 944 F.2d 1543, 1547 (10th Cir.1991).

The BATF is the agency authorized by the FAAA to promulgate regulations which further the policies expressed in the statute. These regulations, found in Title 27 of the Code of Federal Regulations, compel the BATF to reject labels which convey erroneous information as to the age, identity, origin or other characteristics of the product in question. 27 C.F.R. § 5.34.

The regulations in Title 27 set forth the conditions for use of an appellation of origin on a wine label. Section 4.25a(e) provides that an American viticultural area¹ may be used as an appellation of origin only if the appellation has been approved under Part 9 of the regulations, and not less than 85 percent of the wine is derived from grapes grown within the boundaries of the viticultural area. The name "Rutherford" was approved as an American viticultural area in 1993. See 27 C.F.R. § 9.133. Thus, under the regulations, Rutherford may not be used as an appellation of origin on a wine label unless 85 percent of the wine in question was derived from grapes grown within the recognized boundaries of the Rutherford viticultural area.

Section 4.39(i) regulates the use of brand names of viticultural significance. "Rutherford Vineyards" is one such brand name, since it incorporates the name of a viticultural area as part of the brand name. Section 4.39(i) provides:

(1) Except as provided in subparagraph 2, a brand name of viticultural significance may not be used unless the wine meets the appellation of origin requirements for the geographic name.

(2) For brand names used in existing certificates of label approval [COLAs] issued prior to July 7, 1986:

(i) The wine shall meet the appellation of origin requirements for the geographic area named; or

(ii) The wine shall be labeled with an appellation of origin, in accordance with § 4.34(b) as to location and size of type of either:

(A) A county or viticultural area, if the brand name bears the name of a geographic area smaller than a State, or

(B) A state, a county, or a viticultural area, if the brand name bears a state name; or

(iii) The wine shall be labeled with some other statement which the Director [of the BATF] finds to be sufficient to dispel the impression that the geographic area suggested by the brand name is indicative of the origin of the wine. (emphasis added).

Simply stated, this section provides that a brand name of viticultural significance may not be used unless the wine either (1) meets the appellation of origin requirements for the geographic area named; (2) is "grandfathered" in that the brand name is one for which a COLA was issued prior to July 7, 1986, and is qualified with an appellation of origin; or (3) is grandfathered (in the same manner described above), and the Director of the BATF decides that some other statement is sufficient to dispel the suggestion that the geographic area suggested by the brand name is indicative of the origin of the wine.

III. The BATF's Decision

The BATF based its decision to restrict the sales of Rutherford Vineyards wines on the requirements of Section 4.39(i). Specifically, the BATF noted that the Rutherford wines with the "California" designations did not meet the appellation of origin requirements of the Rutherford viticultural area. (Damrell Decl., Exhibit I). Furthermore, the Agency notified Bronco that the Rutherford Vineyards brand wine had capsule labels with the word "Rutherford" and that such labels were not part of the approved COLAs and accordingly violated 27 C.F.R. § 4.50. The BATF also notified Bronco that neither of the grandfathering provisions applied to Rutherford Vineyards since the BATF's search revealed that no brand name of "Rutherford Vineyards" was ever used on COLAs issued prior to July 7, 1986. Id. But the BATF did not stop there. The agency informed Bronco that even if the grandfathering provisions did apply to the brand name Rutherford Vineyards, the winery would still be in violation of Section 4.39(i). The fact that the labels in question do not bear a county or viticultural area appellation of origin,² or any other statement sufficient to dispel the suggestion that the wines are from the Rutherford area, meant that Bronco was not in compliance with the FAAA even under the more lenient grandfathering provisions. Id. Accordingly, the BATF explained that the Rutherford Vineyards brand name can only be used to label wines entitled to the Rutherford appellation of origin. Put another way, the name "Rutherford Vineyards" may not be used unless 85 percent of the wine in question is derived from grapes grown within Rutherford. This, Bronco conceded, was simply impossible. Finally, Plaintiff was informed that the FAAA did not apply to intrastate commerce or sales for export purposes. Thus, even now, Bronco may export the Rutherford Vineyards brand wines as well as sell them in California.

The BATF thus concluded that none of the wines with the "Rutherford Vineyards" brand name were...