Michigan Winery Loses Challenge to Ariz. Rules

(CN) - The 9th Circuit upheld Arizona's regulations on wine shipments, saying they do not favor in-state wineries, as a Michigan winery claimed.

Black Star Farms sued Arizona's Department of Liquor License and Control, claiming the state's regulations on direct-to-consumer shipments effectively discriminated against out-of-state wineries.

Most wine sold in Arizona must pass through a three-tiered system comprised of producers, wholesalers and retailers.

The state has carved out two exceptions: wineries that produce less than 20,000 gallons of wine a year can ship directly to consumers; and all wineries can ship two cases of wine per year directly to consumers who buy wine at the winery.

Black Star Farms said these exceptions effectively favored in-state wineries. The Michigan winery produced about 35,000 gallons of wine in 2006, so it wasn't eligible for the small winery exception, but its production is too low to attract Arizona wholesalers.

Under the second exception -- dubbed the "in person" exception -- Black Star Farms can only ship two cases of wine directly to Arizona residents who visit its winery in Michigan.

Arizona wine drinkers said it was "economically and practically impossible ... to undertake the time and expense to visit wineries located far from Arizona, including those in Michigan, Napa, and Oregon, in order to purchase wine in person and have it shipped home."

The district court ruled against Black Star Farms, and the 9th Circuit agreed that the state's regulatory scheme was "facially neutral," and that Black Star Farms failed to show evidence of "an actual discriminatory effect."

"In other words, prove it, or lose it," Judge Stephen Trott wrote for the three-judge panel. "When challenged in its briefs to do so, Black Star Farms' answer in its reply brief effectively is, we don't have to, it should be obvious.

"Based upon precedent and logic, we disagree," the court ruled.

"The proof of the pudding here must be in the eating, not in the picture on the box as seen through the partial eyes of the beholder - which is especially true in a case where neither facial economic discrimination nor improper purpose is an issue," Trott wrote.

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