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From the legal team of the Garden State Wine Growers Association:

Talking Points regarding Retail Outlets and Direct Distribution of Wine for Wineries in New Jersey

INTRODUCTION

On Friday December 17, the Third Circuit Court of Appeals issued a decision, Freeman v. Corzine, stating that the ability of New Jersey wineries to have retail outlets and the ability of those wineries to distribute their product directly to retailers in the state violates the U.S. Constitution, specifically the Dormant Commerce Clause. The Appeals Court remanded to the Federal District Court to craft a remedy. This is a serious issue in that, without the ability to sell retail and directly distribute in the manner presently permitted, the wine industry in the New Jersey would be essentially destroyed. It should be noted that the wine industry is not presently a party to this lawsuit and as such have not presented the wineries’ positions to the court relying instead on the state, as defendants in this matter, to defend the case on their behalf. Despite not being a party, it is the wine industry that stands to suffer the greatest damage as a result of this decision.

We are working to come up with a resolution that will resolve the constitutional inequities between in-state and out-of-state wineries while continuing to further the state’s legitimate interests in preserving the wine industry in the state and therefore provide an adequate remedy to the District Court to resolve this matter. It is important to note that the passing of direct shipping alone will not solve the matter and protect the New Jersey wine industry. It is also important to remember that whatever resolution is crafted legislatively to solve this problem will need to be acceptable as passing constitutional muster with the District Court to whom this case has been remanded.

DORMANT COMMERCE CLAUSE

The “Dormant” Commerce Clause under the U.S. Constitution ultimately means that because Congress has been given power over interstate commerce, states cannot discriminate against interstate commerce nor can they unduly burden interstate commerce, even in the absence of federal legislation regulating the activity.

Any state law which affects interstate commerce must be:

(1) rationally related to a legitimate state concern and

(2) the burden on interstate commerce must be outweighed by the benefit to the state’s interests.

In determining whether the burden is outweighed by the benefits, a court must examine whether the state objective could be achieved by a means less restrictive on interstate commerce. Furthermore, it is important to note that promoting the economic interest of its own citizens at the expense of out-of-state citizens is not a legitimate state objective.

NEW JERSEY’S “LEGITIMATE STATE OBJECTIVE”

To satisfy the exception to the Dormant Commerce Clause set forth above, the state has to express a “legitimate state concern”. New Jersey in this matter has a legitimate state objective to promote agriculture, agri-tourism and to protect small agriculturally based businesses.

New Jersey has a legitimate state concern to promote agriculture, agri-tourism and to protect small agriculturally based businesses. As opposed to most other forms of agriculture in New Jersey, viticulture has been steadily growing. Where the trend in recent times has been the sale of farms for residential or industrial development, the farming of grapes has become a very viable alternative for local farmers. In fact, many farms that had traditionally grown other crops are now turning to growing grapes and becoming wineries. And even more importantly, as wineries begin to grow and produce more wine, their need for local fruit exceeds their ability to grow it and thus, in the past few years, there has been great increase in the amount of acreage being cultivated for grapes to satisfy that demand. Therefore not only do the wineries themselves preserve the agricultural character of the state, but they promote the development of satellite growers to provide grapes to continue to help that growth. There is in fact a scarcity of local grapes and new vineyards are starting every year to help meet that need. This is also small parcel agriculture, that is to say, small business, which is the foundation of all strong, sound and self sustaining local and regional economies. There is also the agri-tourism aspect that the existence of wineries bring to this state. When tourists come from both in and out of state to visit a winery, they eat at local restaurants, stay at local hotels and bed & breakfasts, visit local historical sites, buy local goods and services and so on. In order to protect the legitimate state interest of protecting agriculture, agri-tourism, and small agriculturally based businesses, New Jersey has a legitimate state interest nurturing its infant wine industry.

SUMMARY

It is important if contacted by the press to make sure to express what an adverse outcome in this matter would mean to your business particularly. It is very likely that is what they want to know about from the individual wineries. (for example: Would your business be able to survive if forced to go exclusively through the 3 tier system? What would be the impact to your winery? ) They can get the legal arguments and other details by contacting the Association directly and you can feel free to send them there if there are questions that you don’t want to answer or about which you are unsure of the details. The Association press release, which will be coming out at the beginning of the week, will also contain a lot of information.