Santa Rita v. U.S. Dept. of Treasury

• Decision Date: 13 August 2001
• Docket Number: No. CIV.A. 01-1573(CKK).,CIV.A. 01-1573(CKK).
• Citation: 193 F.Supp.2d 6
• Parties: SOCIEDAD ANONIMA VIÑA SANTA RITA, Plaintiff, v. UNITED STATES DEPARTMENT OF THE TREASURY, et al., Defendants.
• Court: U.S. District Court — District of Columbia

193 F.Supp.2d 6

SOCIEDAD ANONIMA VIÑA SANTA RITA, Plaintiff, v. UNITED STATES DEPARTMENT OF THE TREASURY, et al., Defendants.

No. CIV.A. 01-1573(CKK).

United States District Court, District of Columbia.

August 13, 2001.

COPYRIGHT MATERIAL OMITTED

Peter M. Brody, Ropes & Gray, Washington, DC, for Plaintiff.

Daniel Bensing, U.S. Department of Justice, Civil Division, Washington, DC, for Defendants.

MEMORANDUM OPINION

KOLLAR-KOTELLY, District Judge.

Before the Court is Plaintiff Sociedad Anonima Viña Santa Rita's Motion for Temporary Restraining Order and Preliminary Injunction,¹ in which Plaintiff challenges a final rule issued by the Department of the Treasury's Bureau of Alcohol, Tobacco and Firearms ("ATF" or "Bureau"). In that final rule, issued on May 31, 2001, the ATF recognizes "Santa Rita Hills," an area in Santa Barbara County, California, as an American viticultural area ("AVA"). In light of the region's status as an AVA, wines produced predominantly from grapes grown there may, with the ATF's approval, be sold with labels that employ the term "Santa Rita Hills" as an appellation of origin.²

Plaintiff, a Chilean winery, sells a variety of wines around the world under the brand name "Santa Rita" and has done so for decades. In reaction to the ATF's final rule establishing the Santa Rita Hills AVA, Plaintiff filed suit and simultaneously requested that the Court issue a temporary restraining order or preliminary injunction suspending the effective date of the final rule.³ Specifically, Plaintiff asserts that the ATF's issuance of the final rule amounts to arbitrary and capricious conduct in violation of the Administrative Procedure Act, that the final rule infringes on Plaintiff's trademark in the name "Santa Rita," and that it dilutes the value of that trademark. Upon consideration of Plaintiff's motion, the ATF's opposition thereto, Plaintiff's reply, Plaintiff's supplemental memorandum, the ATF's supplemental memorandum, Plaintiff's second supplemental memorandum, and the Administrative Record, the Court shall deny the motion and decline to grant preliminary injunctive relief.

I. STATUTORY AND REGULATORY FRAMEWORK

Soon after the Twenty-first Amendment to the Constitution was ratified and the country's experiment with prohibition ended, Congress enacted the Federal Alcohol Administration Act, 27 U.S.C. § 201 et seq. ("FAA" or "Act"), which, among other things, governs the bottling, packaging, and labeling of wine. Specifically, the FAA prohibits interstate commerce in wine unless the bottles are

labeled in conformity with such regulations, to be prescribed by the Secretary of the Treasury ... (1) as will prohibit deception of the consumer ... and as will prohibit, irrespective of falsity, such statements ... as the Secretary of the Treasury finds to be likely to mislead the consumer; (2) as will provide the consumer with adequate information as to the identity and quality of the products ... and the manufacturer or bottler or importer of the product; ... (4) as will prohibit statements on the label that are ... false [or] misleading; and (5) as will prevent deception of the consumer by use of a trade or brand name that is the name of any living individual of public prominence, or existing private or public organization....

27 U.S.C. § 205(e); see also Wawszkiewicz v. Dep't of the Treasury, 670 F.2d 296, 297-98 (D.C.Cir.1981). In order to ensure that all labels comply with this statutory mandate, Congress prohibits wineries and other affected entities from bottling their product or removing their product from customs until the Department of Treasury has issued a "certificate of label approval" ("COLA"). 27 U.S.C. § 205(e).

The Secretary of the Treasury has delegated its rule-making authority under the FAA to the ATF, see Bronco Wine Co. v. Dep't of Treasury, 997 F.Supp. 1309, 1311 (E.D.Cal.1996), and the ATF has, in turn, promulgated a series of regulations.⁴ In direct correlation to the prohibitions articulated in the FAA, the ATF's regulations prohibit labels that include statements that are, for example, false or untrue, misleading, disparaging of competitor's products, obscene or indecent. See 27 C.F.R. § 4.39(a). The regulations also mirror the statute by requiring that the ATF issue a COLA before an imported wine is released from customs or before a domestic wine is bottled or packed. See 27 C.F.R. § 4.40(a) (imported wines); 27 C.F.R. § 4.50(a) (domestic wines).

The regulations also require that labels on American wines state "the name of the bottler or packer and the address ... of the place where the wine was bottled or packed." 27 C.F.R. § 4.35a(a). Likewise, labels on imported wines must include the words "imported by" followed by the name of the importer. 27 C.F.R. § 4.35a(b)(1). Additionally, foreign wine labels may indicate "the name and address of the principal place of business of the foreign producer," 27 C.F.R. § 4.35a(b)(2), and, under a Customs Service regulation, they must indicate the country of origin "in a conspicuous place as legibly, indelibly, and permanently as the nature of the article (or container) will permit." 19 C.F.R. § 134.11; see also 27 C.F.R. § 4.38(c).

Of particular importance to this case, the ATF may establish an "American viticultural area" ("AVA") upon receipt of a qualifying petition from "any interested party." 27 C.F.R. § 4.25a(e)(2). To qualify, a petition must include a variety of "evidence" relating to the region in question, including information demonstrating that the name in question "is locally and/or nationally known as referring to the area specified," that the boundaries indicated in the petition are accurate, and that the viticultural features of the area are distinct from those found in surrounding regions. See 27 C.F.R. § 9.3(b). In the federal register entry that accompanies the final rule at issue in this case, the ATF explained why AVA approval is desirable for wineries and others involved in interstate commerce in wine. Specifically, the ATF noted that "[t]he regulations allow the name of an approved AVA to be used as an appellation of origin in the labeling and advertising of wine." Establishment of Santa Rita Hills Viticultural Area, 66 Fed. Reg. 29,476, 29,476 (May 31, 2001) (included in Administrative Record ("AR") at Tab I) [hereinafter "Final Rule"]; see also 27 C.F.R. § 4.25a(e)(3)(ii).

Notably, wineries and bottlers are generally barred from using the name of an AVA as a brand name unless the wine in question meets the appellation of origin requirements for the geographic area in question. See 27 C.F.R. § 4.39(i)(1). Thus, for example, a winery may not employ the phrase "Napa Valley" in one of its wine's brands unless a specified percentage of the grapes from which the wine was made were grown within the Napa Valley AVA. This general rule does not apply to labels approved prior to July 7, 1986. Such grandfathered labels may use AVA names as brands as long as they include other information that "dispel[s] the impression that the geographic area suggested by the brand name is indicative of the origin of the wine." 27 C.F.R. § 4.39(i)(2)(iii).

II. FACTUAL BACKGROUND

Plaintiff winery, Viña Santa Rita, was founded in 1880.⁵ See Administrative Record ("AR"), Tab D(24) at 1-2 (Plaintiff's comments submitted to the ATF in opposition to the establishment of a Santa Rita Hills AVA). Using grapes grown in several regions of Chile, Plaintiff produces a variety of wines and exports them to markets around the world. See id., Tab D(24) at 2. In 1997, Plaintiff sold 255,000 cases of wine in the United States, and, in the first half of 1998, Plaintiff ranked as the third largest exporter of Chilean wines to this country. See id. Plaintiff owns several trademarks in the United States with respect to its wines, including registered trademarks for "Santa Rita Reservado MRC D. Fernandez Concha Santiago De Chile," "Casa Real," and "120." See id., Tab D(24), Attachment K (printout of trademarks). Notably, Plaintiff did not file an application for a trademark on the name "Santa Rita" until March 19, 1998. See id., Tab D(24), Attachment M (certification of application).⁶

Not long before Plaintiff first sought formal statutory trademark protection for the name "Santa Rita" in the Spring of 1998, a group of wineries and other interested parties located in Santa Barbara County, California, began gathering support for the formation of an AVA under the name "Santa Rita Hills." See id., Tab B(1)-(11). The mayor of Lompoc, California, wrote a letter of support in August 1997, see id., Tab B(2), and, in February 1998, the Chair of the Santa Barbara County Board of Supervisors wrote to the ATF and stated that "[t]he Santa Rita Hills region of our County has been recognized viticulturally and enologically for producing world class cool-climate grapes." Id., Tab B(1).

On March 31, 1998, the supporters of the proposed Santa Rita Hills AVA submitted a formal petition to the ATF seeking recognition. See id., Tab A (Petition to Establish `Santa Rita Hills' AVA). In addition to the letters of support, the petitioners included documentation of nineteenth-century land grants demonstrating the region was known by the name "Santa Rita" when it was the subject of a federal grant in 1845. See id., Tab A, Ex. 1 at 1-4. The petitioners also provided the ATF with maps, book excerpts, and other historical texts in an effort to satisfy the evidentiary requirements for AVA approval. See id., Tab A. After receiving the petition, the ATF published a notice in the Federal Register describing the proposal and "request[ing] comments from all interested parties." See id., Tab C (Notice No. 866, published at 63 Fed.Reg. 48,658 (Sept. 11, 1998)). In aggregate, the ATF received thirty-five public comments, eleven of which supported the petition and twenty-four of which opposed it. See id., Tabs B, D. Among the opposing comments was a massive submission prepared by Plain...