(CN) - The 1st Circuit upheld an order barring Massachusetts from enforcing a 2006 wine-distribution law, saying it has unconstitutional effect of favoring smaller in-state wineries and burdening larger out-of-state competitors.
The law separates wineries into two categories: "small" wineries that produce 30,000 gallons or less of grape wine a year, and "large" wineries that produce more than 30,000 gallons a year.
All of the wineries in Massachusetts are "small" wineries.
Small wineries can obtain a shipping license that lets them sell their wines by shipping directly to customers, and through wholesale and retail distribution.
Large wineries, however, must choose between wholesale distribution and applying for a "large winery shipping license" to sell directly to customers. They can't use both methods, and they can't sell wines directly to retailers.
A group of California winemakers and Massachusetts residents claimed that these restrictions were designed to favor in-state wineries in violation of the Commerce Clause.
Massachusetts argued that there wasn't a legitimate alternative, and that the 21st Amendment protects state laws from scrutiny unless they discriminate on the face.
But in November 2008, a federal judge enjoined enforcement of the law on the grounds that it violates the Commerce Clause.
The Boston-based appeals court agreed, saying the law is "apparently motivated by a desire to shield in-state interests."
Chief Judge Sandra Lynch called the 30,000-gallon cap "very particular," as it encompasses all in-state wineries, which produce between 200 gallons and 24,000 gallons annually.
"And the record demonstrates - and Massachusetts does not contest - that legislators were well aware of these figures," Lynch noted.
She said the state's true motivation is even more apparent with the law's exclusion of fruit wine, which does not count toward the 30,000 gallons annually.
"The main effect of the fruit wine exception was to guarantee that [the state's largest winery], like all other Massachusetts wineries, could take advantage of [the law's] beneficial distribution rules for 'small' wineries," Lynch wrote.
The three-judge panel upheld the lower court's injunction.
Read the Top 8
Sign up for the Top 8, a roundup of the day's top stories delivered directly to your inbox Monday through Friday.