Bronco Wine Company v. Jolly, S113136.

• Decision Date: 05 August 2004
• Docket Number: No. S113136.,S113136.
• Citation: 95 P.3d 422,33 Cal.4th 943,17 Cal.Rptr.3d 180
• Court: California Supreme Court
• Parties: BRONCO WINE COMPANY et al., Petitioners, v. Jerry R. JOLLY, as Director, etc., et al., Respondents; Napa Valley Vintners Association, Intervener.

17 Cal.Rptr.3d 180

95 P.3d 422

33 Cal.4th 943

BRONCO WINE COMPANY et al., Petitioners, v. Jerry R. JOLLY, as Director, etc., et al., Respondents;

Napa Valley Vintners Association, Intervener.

No. S113136.

Supreme Court of California.

August 5, 2004.

As Modified on Denial of Rehearing October 13, 2004.¹

Certiorari Denied March 21, 2005.

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

Hinman & Carmichael, John A. Hinman, San Francisco, Beth Aboulafia and Barry Strike for 68 wineries, 47 winegrowers and 3 interested parties as Amici Curiae on behalf of Petitioners.

Bill Lockyer, Attorney General, David S. Chaney, Assistant Attorney General, Damon M. Connolly, Miguel A. Neri, Fiel Tigno and Terry Senne, Deputy Attorneys General, for Respondent. Dickenson, Peatman & Fogarty, Richard P. Mendelson, Deborah E. Quick, Napa; Keker & Van Nest, John W. Keker, Henry C. Bunsow, James M. Emery, Ragesh K. Tangri, Daniel Purcell, San Francisco; Horvitz & Levy and Ellis Horvitz, Encino, for Intervener.

Pillsbury Winthrop, Kevin M. Fong and James M. Seff, San Francisco, for Jordan Vineyard & Winery and North Coast Winegrowers Association et al., as Amici Curiae on behalf of Respondent and Intervener.

Certiorari Denied March 21, 2005. See 125 S.Ct. 1646.

GEORGE, C.J.

This case concerns three brand-name labels (Napa Ridge, Napa Creek Winery, and Rutherford Vintners) appearing on wine bottled and marketed by petitioners Bronco Wine Company and Barrel Ten Quarter Circle, Inc. (hereafter Bronco). These wines are made not from grapes grown in Napa County, or in the Rutherford viticultural (wine grape growing) region of Napa County,² but instead from grapes grown in areas far from Napa, such as Stanislaus County and the environs of the City of Lodi — areas where the cost of grapes, and often their perceived quality as well, is considerably lower. The challenged bottle labels have been approved by the federal agency charged by Congress with enforcing federal labeling law but violate a four-year-old California wine labeling statute, which requires that, when the word "Napa" (or any federally recognized viticultural region within Napa County) appears on a brand label, at least 75 percent of the grapes used to make that wine must be from Napa County. (Bus. & Prof.Code, § 25241 (hereafter section 25241).) We granted review to consider the Court of Appeal's conclusion that federal law preempts the state law. We conclude that the state labeling statute is not preempted by federal law and hence that the judgment rendered by the Court of Appeal must be reversed.

I.

Bronco asserts that it specializes in "premium wines at affordable prices." Some of Bronco's wine is bottled at its facilities in Ceres (near Modesto, in Stanislaus County) and in Sonoma County; other Bronco wines are bottled by petitioner Barrel Ten Quarter Circle, Inc., at a recently completed facility in the City of Napa, in Napa County. The latter plant is capable of producing approximately 18 million 12-bottle cases per year — output that would be more than double the current annual production of Napa-grown wines.

Bronco sells wines under approximately 30 labels or brand names. A representative label for the three challenged brand names (Napa Ridge, Napa Creek Winery, and Rutherford Vintners) is set forth in the appendix.³ As can be seen, with regard to the representative Napa Ridge label, the label lists (in smaller lettering and below the brand name) the "designation" of the wine (the varietal name White Merlot), followed underneath by the "appellation of origin" — the geographic source of the grapes (Lodi). The representative Napa Creek Winery label lists (in smaller lettering and below the brand name) the appellation of origin (Lodi), followed underneath by the varietal name (Chardonnay). The representative Rutherford Vintners label lists (in smaller lettering and below the brand name) the appellation of origin (Stanislaus County), followed underneath by the varietal name (Merlot). The "back label" of each states that the wine was "vinted and bottled" by the named winery in "Napa, CA" or in "Napa, California."⁴ In addition, many of the Napa Ridge wines include the word "Napa" on bottleneck collars, and some include that word on branded corks.

Bronco acquired these three brand names, and the right to use these labels, from predecessor owners of wineries located in Napa County. The Napa Ridge brand, which Bronco acquired in January 2000 from Beringer Wine Estates for more than $40 million, had been in use since the early 1980s. The Napa Creek Winery brand, introduced in 1981, was acquired by Bronco in 1993. The Rutherford Vintners brand originated in the early 1970s, and was acquired by Bronco in 1994.

The prior owner of the Napa Ridge brand had used that name and label for wines made from grapes grown in California's Central Coast, North Coast, and Lodi appellation areas, as well as from Napa County. All of the wines previously marketed by the prior owner under the Napa Creek Winery brand and most wines previously marketed by the prior owner under the Rutherford Vintners brand had been made from Napa County grapes. Under Bronco's ownership, all three of these brands have been used almost exclusively to sell wines made from grapes grown outside Napa County.

The bill that became section 25241 was introduced in the California Legislature in February 2000 (Assem. Bill No. 683 (1999-2000 Reg. Sess.). After receiving substantial public comment and holding hearings,⁵ the Legislature found: "(a)(1) . . . [F]or 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), added by Stats.2000, ch. 831, § 1.)⁶

The resulting legislation, section 25241, provides in relevant part that no wine produced or marketed in California shall use a brand name or have a label bearing the word "Napa" (or any federally recognized viticultural area within Napa County) unless at least 75 percent of the grapes from which the wine was made was grown in Napa County. (Id., subd. (b).)⁷

The legislative history discloses that section 25241 was designed to close what some legislators termed a "loophole" created by an exception in a federal wine labeling regulation. As discussed more fully below, federal law, the Federal Alcohol Administration Act, or FAA Act (27 U.S.C. § 201 et seq.), enacted by Congress in 1935, bars misleading statements on wine labels (id., § 205(e)) and requires federal approval of each label via a certificate of label approval (hereafter sometimes COLA) before that label may be used in interstate or foreign commerce. A 1986 federal regulation, also described more fully below, designed to implement 27 United States Code section 205(e), generally prohibits the use of a label bearing a brand name that implies the wine was made from grapes grown in the area suggested by the brand, unless at least 75 percent of the grapes used to make the wine was in fact grown in that area (27 C.F.R. § 4.39(i)(1)). But a "grandfather clause" appended to the federal regulation exempts from the federal regulation's prohibition an otherwise misleading geographic brand name if the brand name was in use prior to July 7, 1986, and the front label also discloses the true geographic source of the grapes used to make the wine contained in the bottle. (Id., § 4.39(i)(2)(ii).)⁸ In other words, the state statute prohibits, with respect to Napa County, what the federal regulation's grandfather clause does not prohibit.⁹

In late December 2000, shortly before section 25241 was to become effective, Bronco filed an original petition for a writ of mandamus in the Court of Appeal,¹⁰ seeking to prohibit respondents (the Department of Alcoholic Beverage Control and its then Interim Director, Manuel R. Espinoza, currently Jerry R. Jolly, Director) (hereafter the Department) from enforcing section 25241 with respect to Bronco's wines, on the ground that the state statute — to the extent it applies to wine destined for interstate or foreign commerce — is preempted by the grandfather clause contained in the federal law. Bronco also claimed that the California statute violates the First Amendment, the commerce clause, and the takings clause of the United States Constitution. Intervener Napa Valley Vintners Association (the NVVA) joined with the Department in defending the validity of the state enactment. The Court of Appeal issued an alternative writ and granted a stay of enforcement of section 25241. As noted above, that court ultimately concluded that section 25241 is preempted by federal law, and to date that statute has not been enforced. We granted review to address the preemption issue only.

II.

A.

The basic rules of preemption are not in dispute: Under the supremacy clause of the United States Constitution (art. VI, cl.2), Congress has the power to preempt state law concerning matters that lie within the...