Wineries and wine retailers win the day! Today, the U.S. District Court for the Eastern District of California ruled on the State’s motion to dismiss in Blue Sky Vineyards, LLC v. Tupy, a case I filed earlier this year with my co-counsel, Sean O’Leary. The Court denied the State’s motion as to our Commerce Clause claim, which is the heart of the case. Now we move on to discovery. Here’s the scoop about Blue Sky Vineyards:
What the case is about
We represent Blue Sky Vineyards, an award-winning winery in Makanda, Illinois, and The Wine Country, a boutique wine shop in Signal Hill, California. Last December, The Wine Country tried to order several of Blue Sky’s wines. Blue Sky could not fill the order.
Like most states, California regulates alcohol through a “three-tier system”: producers sell to wholesalers, wholesalers sell to retailers, and retailers sell to consumers. But California makes numerous exceptions for in-state wineries, which can skip the wholesaler and sell directly to both retailers and consumers. That’s because the way the Department of Alcoholic Beverage Control applies the law, the exception is available only to wineries licensed in California. Wineries licensed in other states must go through a California importer and wholesaler, substantially increasing their costs. Blue Sky contacted six, and none would carry its wines.
We contend this violates the Commerce Clause of the U.S. Constitution, which generally prevents states from favoring in-state businesses over their out-of-state competitors. The Supreme Court confirmed that this principle applies to alcohol in Granholm v. Heald (2005) and Tennessee Wine & Spirits Retailers Association v. Thomas (2019). We are not challenging the three-tier system itself. We are asking only that when California offers an exception, it offer that exception evenhandedly.
What the Court decided
The State argued that even if the Court ruled in our favor on the Commerce Clause claim, that would not actually fix our clients’ problem (a concept called “standing”) and that the claim fails as a matter of law. The Court disagreed on both points. It explained that whether the law discriminates, and whether California has a legitimate, non-protectionist reason for it, are factual questions that require evidence. The Court ruled that our clients are “entitled to offer evidence to support the claims asserted.”
The Court did dismiss our second claim, under the Privileges and Immunities Clause, because that clause protects individual citizens rather than companies. We may amend that claim and are evaluating whether to do so.
The Court has not decided who ultimately wins. It decided only that our clients are entitled to present their evidence.
Why it matters for California’s alcohol industry
For small wineries outside California, access to the nation’s largest wine market often depends on finding an importer or wholesaler willing to take them on, and the associated fees often reach 30 percent. For California retailers, direct purchasing would mean a wider, more distinctive selection to offer customers, which is particularly important for smaller retailers trying to distinguish themselves from chain stores. Importers and wholesalers would remain a vital part of the market, and many wineries and retailers will continue to rely on their expertise. The question is whether that should be the only route open to out-of-state wineries when in-state wineries have other options.
What comes next
The State will file a formal response to the complaint, and the Court will set a schedule. Then comes discovery, in which each side gathers evidence through document requests, written questions, and sworn deposition testimony. After that, we expect both sides to ask the Court to decide the case on the evidence through motions for “summary judgment,” meaning a decision without a trial.
I will share updates here as the case develops.
This post is for general informational purposes only and is not legal advice. Reading it does not create an attorney-client relationship. The ruling discussed above is a preliminary one and is not a guarantee or prediction of the outcome of this or any other matter. This post may be considered attorney advertising.
