SAN FRANCISCO - There is nothing illegal about an Arizona law giving special privileges to small wineries, a federal appeals court ruled Tuesday.
The 9th U.S. Circuit Court of Appeals rejected arguments by a Michigan winery that the 2006 law illegally discriminates against out-of-state companies.
Judge Stephen Trott, writing for the unanimous three-judge panel of the court, said the law treats everyone in similar circumstances the same, even if that means some wineries are in a better position to sell their products in Arizona.
Tuesday's ruling is a setback not only for the out-of-state company but also for several Arizona wine lovers who joined the lawsuit, including John Norton, who served as undersecretary of agriculture in the Reagan administration.
Norton, founder of the J.R. Norton Co., a Phoenix-based agricultural firm, said the law hurts Arizonans who want specialty wines that are not sold here.
Kent Callaghan, owner of well-known Callaghan Vineyards in Elgin, said he is torn about Tuesday's ruling because he, too, likes to buy out-of-state specialty wines.
But he said the law's production cap is beneficial for smaller in-state wineries.
"I am glad they upheld it because there are a lot of people in this state that depend on being able to distribute their own wine," Callaghan said.
Central to the dispute is Arizona's three-tiered system: Manufacturers sell only to wholesalers; retailers can buy only from wholesalers; and consumers can buy only from retailers.
A 1982 law designed to help the state's nascent wine industry created an exception: Arizona wineries producing less than 75,000 gallons a year could sell directly to consumers.
The law also let them ship directly to retailers and consumers, bypassing wholesalers. That got around the concern that many wholesalers would not bother with the Arizona wines.
All went well until the U.S. Supreme Court in 2005 voided similar laws in other states, saying special privileges granted by legislators violate the U.S. Constitution's Commerce Clause.
In response, Arizona altered its law to allow any winery, anywhere, that produces less than 20,000 gallons a year to ship directly to Arizona customers and retailers.
Black Star Farms, a Michigan winery that produces about 35,000 gallons a year, filed suit, with Norton and others joining in. They argued that this law also infringed on interstate commerce. They said it was discriminatory because all Arizona operations, with the exception of Kokopelli Winery, fit the small winery definition.
Wineries too big for the exception, but still too small to be handled by Arizona wholesalers, were denied access to Arizona stores and consumers, they argued.
Trott said that argument is based on speculation.
The judge said there are many more small wineries outside of Arizona that can take advantage of the law than those in-state. Many of these already obtained the necessary licenses, he said.
The court concluded that any effect on interstate commerce for larger wineries was incidental.
On Tuesday, told of the new ruling, Norton appeared resolved to accept it, saying, "At some point, do you have the energy to fight the bureaucracy forever?"
DID YOU KNOW
Wine has been produced in Arizona since the 1700s by the Spanish Missionaries, but the modern era of Arizona wine started in 1973 in Sonoita, says the Arizona Wine Growers Association.
There are now nearly 40 licensed and bonded wineries throughout Arizona.
"Arizona's high desert produces a climate similar to Mendoza, Argentina - hot daytime temperatures cooling off at night, the perfect recipe for a happy grape," the association says.
The group lists these master growers and winemakers in the Sonoita region southeast of Tucson:
Callaghan Vineyards, Canelo Hills Vineyard & Winery, Charron Vineyard & Winery, Doz Cabezas Wineworks, Kief-Joshua Vineyards, Lightning Ridge Cellars, Rancho Rossa Vineyards, Sonoita Vineyards, Wilhelm Family Vineyards and the Village of Elgin Winery.
Ian Friedman, NASA Space Grant intern at the Star, contributed to this report.