On May 9, 2019, we blogged about the challenge to the Minnesota farm winery statute. The statute allows Minnesota farms to bypass the traditional three-tier method of distributing alcoholic beverages and sell directly to retailers and consumers. To qualify as a farm winery, however, more than 50% of the grapes it uses must be grown in Minnesota. Two farm wineries argued that the statute violated the dormant commerce clause by discriminating against out-of-state grape growers.

The District Court held that the wineries lacked standing to sue, because they had voluntarily chosen to seek a farm winery license.  If they wanted to use more out-of-state grapes, they were free to obtain a wine manufacturing license.  That license, however, would not permit direct sales to retailers or consumers.

As we predicted in the May 9 post, the Eighth Circuit has reversed.  The appellate court agreed with the District Court that plaintiffs had established injury in fact:  they wanted to expand and diversify their sales by using out-of-state grapes but were prohibited from doing so.

The Court rejected Minnesota’s argument that plaintiffs could rely on a discretionary annual exemption from the 50% requirement.  The state takes the requirements for that exemption seriously and does not just rubber stamp applications for it. Thus, plaintiffs faced a realistic threat of prosecution if they violated the 50% requirement.

The Court rejected the state’s two other arguments against injury in fact. The plaintiffs were themselves the target of the statute, so there was nothing indirect about their injury. The plaintiffs had suffered economic injury despite complying with the statute, because they had to forego their desired pursuit of additional sales.

The Eighth Circuit also disagreed with the District Court’s holding that the wineries’ injuries were self-inflicted because they could have sought a different form of license. Relying on the Supreme Court’s recent opinion in the Tennessee alcohol distribution case (about which we blogged on July 1, 2019), the Eighth Circuit held that the state could not condition the issuance of a license on unconstitutional discrimination against interstate commerce.  Thus, the wineries’ injury was fairly traceably to the statute and the requested declaratory relief would redress it.

The wineries asked the Eighth Circuit to address the merits.  Because the District Court had not addressed the merits, the Eighth Circuit held that it would not do so either. Rather, it remanded the case for the District Court to address the merits for the first time.

We think it highly likely that the District Court will strike down the 50% requirement.  On its face, the requirement favors in-state grape growers and disfavors out-of-state growers. That is the exact kind of facial discrimination that the dormant commerce clause prohibits.