Alexis Bailly Vineyard, Inc. v. John Harrington

United States Court of Appeals

For the Eighth Circuit

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No. 18-1846

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Alexis Bailly Vineyard, Inc., a Minnesota corporation; The Next Chapter Winery,

LLC, a Minnesota limited liability company

lllllllllllllllllllllPlaintiffs - Appellants

v.

John Harrington, in his official capacity as Commissioner of the Minnesota

Department of Public Safety1

lllllllllllllllllllllDefendant - Appellee

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Adam Ruhland

lllllllllllllllllllllAmicus on Behalf of Appellant(s)

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Appeal from United States District Court

for the District of Minnesota - Minneapolis

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Submitted: March 14, 2019

Filed: July 29, 2019

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1

John Harrington has been appointed to serve as Commissioner of the

Minnesota Department of Public Safety, and is substituted as appellee pursuant to

Federal Rule of Appellate Procedure 43(c).

Before SHEPHERD, ERICKSON, and KOBES, Circuit Judges.

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KOBES, Circuit Judge.

Alexis Bailly Vineyard, Inc. and The Next Chapter Winery, LLC (collectively,

Farm Wineries) appeal from an order granting summary judgment to the

Commissioner of the Minnesota Department of Public Safety (Commissioner). The

district court held that the Farm Wineries lack standing to challenge a Minnesota

statute that requires them to manufacture their wine with a majority of the ingredients

grown or produced in Minnesota. On appeal, the Farm Wineries claim that the

district court erred by granting summary judgment to the Commissioner and ask us

to consider the merits of the dispute. We reverse the district court’s order granting

summary judgment and remand for further proceedings.

I.

Minnesota uses a three-tiered alcohol distribution system that separates the

functions of manufacturer, wholesaler, and retailer. Retailers cannot manufacture

alcohol and manufacturers cannot sell their product directly to retailers or the general

public. See Minn. Stat. §§ 340A.301, 340A.401. Alternatively, Minnesota offers a

“farm winery” license that allows manufacturers of wine or cider to sell their products

directly to retailers and consumers. Minn. Stat. § 340A.315, subd. 2. The Minnesota

Farm Wineries Act is part of an effort by Minnesota to “encourage and support the

fledgling farm winery industry . . . [and to] nurture grape growing and winemaking.”

RESEARCH DEPARTMENT, MINN. HOUSE OF REPRESENTATIVES, FARM WINERIES, at

1 (June 2012), https://www.house.leg.state.mn.us/hrd/pubs/farmwine.pdf. To qualify

as a farm winery, license holders must pay an annual license fee of $50, produce less

than 75,000 gallons of wine annually, and be located on agricultural land. Minn. Stat.

§ 340A.315, subds. 1, 2, 9. The Act also mandates that a farm winery produce wine

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“with a majority of the ingredients grown or produced in Minnesota.” Id.

§ 340A.101, subd. 11.

Minnesota recognizes that growing grapes in northern climates is difficult and

it may not be possible in some years for farm wineries to source more than half of

their ingredients from Minnesota suppliers. So, the Act provides for an “affidavit

exception” to the in-state requirement. Farm wineries may file an affidavit stating

that “Minnesota-produced or -grown grapes, grape juice, other fruit bases or honey

is not available in quantities sufficient to constitute a majority of the . . . wine

produced by a farm winery.” Minn. Stat. § 340A.315, subd. 4. If the Commissioner

agrees, “the farm winery may use imported products” for one year, “after which time

the farm winery must use the required amount of Minnesota products . . . unless the

farm winery [] files a new affidavit.” Id.

The Commissioner has never denied an affidavit request, but he does

investigate them and the process is more than a rubber stamp. The Commissioner

requires farm wineries to explain why they require an exemption from the in-state

requirement and occasionally conducts site visits to ensure compliance. Farm

wineries have historically filed affidavit requests when in-state growing conditions

made it difficult or impossible for them to purchase enough ingredients from

Minnesota growers.

The Farm Wineries hold farm winery licenses and want to expand their

operations. Specifically, the Farm Wineries want to create new varieties, work with

higher quality ingredients and more reliable suppliers, and increase the quantity of

wine they produce. They argue that the in-state requirement prevents them from

doing so.

In this pre-enforcement action, the Farm Wineries seek a declaration that the

Act’s in-state requirement violates the dormant Commerce Clause. Following

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discovery, the parties filed cross-motions for summary judgment. The district court

granted the Commissioner’s motion, holding that the Farm Wineries did not have

standing to challenge the Act. Despite finding that the inability to grow their

businesses constituted an injury in fact, the court determined that the Farm Wineries

caused their own injuries when they chose to seek a farm winery license instead of

a wine manufacturer license. The court therefore held that the Farm Wineries’

injuries were not fairly traceable to the statute and that they lacked standing. The

Farm Wineries timely appealed.

II.

We review the district court’s standing analysis de novo. Disability Support

All. v. Heartwood Enters., LLC, 885 F.3d 543, 545 (8th Cir. 2018). To establish

standing, a plaintiff must show: “(1) a concrete and particularized injury, that (2) is

fairly traceable to the challenged conduct, and (3) is likely to be redressed by a

favorable decision.” Va. House of Delegates v. Bethune Hill, 139 S. Ct. 1945, 1950

(2019). When a plaintiff is the object of government action, “there is ordinarily little

question that the action or inaction has caused him injury, and that a judgment

preventing or requiring the action will redress it.” Lujan v. Defs. of Wildlife, 504 U.S.

555, 561–62 (1992). Because the Farm Wineries are the objects of the Farm Wineries

Act and subject to future enforcement actions brought by the Commissioner, we find

that they have standing to challenge the Act’s constitutionality.

A.

Injury in fact is “an injury to a legally protected interest that is ‘concrete,

particularized, and either actual or imminent.’” United States v. Metro. St. Louis

Sewer Dist., 569 F.3d 829, 834 (8th Cir. 2009) (quoting Curry v. Regents of the Univ.

of Minn., 167 F.3d 420, 422 (8th Cir. 1999)). Courts “do not require a plaintiff to

expose himself to liability before bringing suit to challenge the basis for the threat.”

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MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 128–29 (2007). In pre-

enforcement cases like this one, injury in fact exists when the plaintiffs allege “an

intention to engage in a course of conduct arguably affected with a constitutional

interest, but proscribed by statute, and there exists a credible threat of prosecution

thereunder.” Susan B. Anthony List v. Driehaus, 573 U.S. 149, 159 (2014) (quoting

Babbitt v. Farm Workers, 442 U.S. 289, 298 (1979)). As the district court correctly

found, the Farm Wineries have established injury in fact.

The Farm Wineries introduced evidence that they intend to increase their

production by purchasing out-of-state ingredients. This conduct is “arguably affected

with a constitutional interest,” id., because the dormant Commerce Clause protects

individuals and businesses from “differential treatment of in-state and out-of-state

economic interests that benefits the former and burdens the latter,” Or. Waste Sys.,

Inc. v. Dep’t of Envtl. Quality of Or., 511 U.S. 93, 99 (1994); see also S.D. Farm

Bureau, Inc. v. Hazeltine, 340 F.3d 583, 593 (8th Cir. 2003).

The Act prohibits the Farm Wineries from increasing production by using out-

of-state ingredients and they face a credible threat of prosecution if they disregard

that fact. The Commissioner argues that the affidavit exception, along with a lack of

prior enforcement, establishes that the threat of prosecution is not credible. Although

Minnesota’s enforcement history is relevant to our analysis, it is not determinative.

Rather, when a course of action is within the plain text of a statute, a “credible threat

of prosecution” exists. See North Dakota v. Heydinger, 825 F.3d 912, 917 (8th Cir.

2016) (“[The company’s] concern that the statute will prohibit or sharply curtail its

out-of-state transactions is well-grounded in the statute’s plain text.”). Additionally,

although the Commissioner has never yet denied one, the Farm Wineries introduced

evidence that shows the affidavits are seriously investigated and waivers granted

based on the growing conditions in Minnesota during the covered period. As one

state employee explained in an email produced during discovery, “Exemptions are

intended to address one-time unforeseeable events.” JA 82. There is no reason to

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think that the Commissioner would be willing or able to grant a perpetual exception

to the in-state requirement.

The Commissioner advances two other arguments for why the Farm Wineries

have not been injured by the statute. Each misses the mark. First, he argues that

under Clapper v. Amnesty Intern. USA, 568 U.S. 398, 409 (2013), the Farm Wineries

cannot demonstrate that their injury is “certainly impending” in order to establish

standing. Clapper dealt with a challenge to a surveillance program by plaintiffs who,

while not themselves the target of surveillance, believed that they communicated with

individuals who were or likely would be targeted. Id. at 406. The Court held that in

such cases, where the connection between a statute and a plaintiff is based on a

“highly attenuated chain of possibilities,” a court must find that the plaintiff has not

been injured and lacks standing. Id. at 410. But Clapper did not upset the well-

settled standing inquiry for plaintiffs, like the Farm Wineries, that are themselves the

objects of a challenged statute. In this case, the Farm Wineries must merely allege

“an intention to engage in a course of conduct arguably affected with a constitutional

interest, but proscribed by a statute, [where] there exists a credible threat of

prosecution thereunder.” Susan B. Anthony List, 573 U.S. at 159 (quoting Babbitt,

442 U.S. at 298). They have done so.

Second, the Commissioner argues the Farm Wineries cannot show injury in the

form of concrete economic loss because they have historically complied with the Act.

Setting aside the fact that in this pre-enforcement challenge the Farm Wineries do not

need to show economic loss, this argument additionally fails because they can make

such a showing. The Farm Wineries have experienced reduced borrowing power,

operational efficiencies, and marketing opportunities. As the district court

recognized, “it is economically imprudent [for the Farm Wineries] to base substantial

business investments on the mere likelihood of receiving future exemptions from state

law.” Alexis Bailly Vineyard, Inc. v. Dohman, No. 17-913, 2018 WL 5619979, at *3

(D. Minn. Apr. 9, 2018).

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The Commissioner nevertheless contrasts this case with two cases where we

found injury based on economic losses, S.D. Farm Bureau, Inc. v. Hazeltine, 340 F.3d

583 (8th Cir. 2003) and Jones v. Gale, 470 F.3d 1261 (8th Cir. 2006), because both

those cases involved losses resulting from the enactment of new statutes. This

difference is immaterial because the injuries alleged by the Farm Wineries resemble

the injuries in Hazeltine and Jones. In Jones, for example, we held that the owner of

a feedlot had been injured by a Nebraska law that “reduced [his] fiscal and

operational management efficiencies, marketing opportunities, and borrowing power,

as well as increased administration expenses and federal estate taxes.” Id. at 1266.

Neither Hazeltine nor Jones suggests that challenges to the constitutionality of a law

can only be brought against new laws. The Farm Wineries allege that they are

presently injured by the Farm Wineries Act because they cannot plan for and expand

their businesses. As in Hazeltine and Jones, that is enough to establish injury in fact.

B.

Although the district court correctly held that the Farm Wineries had

established injury in fact, the court further held that their injuries are not “fairly

traceable” to the in-state requirement. We respectfully disagree. An injury is “fairly

traceable” to a challenged statute when there is a “causal connection” between the

two. Lujan, 504 U.S. at 560. Typically, we have considered an injury to be “fairly

traceable” where “the named defendants . . . possess the authority to enforce the

complained-of provision.” Digital Recognition Network, Inc. v. Hutchinson, 803 F.3d

952, 958 (8th Cir. 2015) (quotations omitted). Here, the Commissioner has the

authority to enforce the Act against the Farm Wineries.

It is true that the Farm Wineries do not have a right to sell alcohol outside of

Minnesota’s statutory framework and that they could have chosen to operate as wine

manufacturers instead of farm wineries. But that is irrelevant to the traceability of

their injuries. Minnesota is free to offer or not offer the farm winery license, or to

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establish other license options for the production and sale of alcohol. What it cannot

do—and what the Farm Wineries allege it has done—is condition a license on

compliance with unconstitutional discrimination against out-of-state grape growers.

See Tenn. Wine and Spirits Retailers Assoc’n v. Thomas, 139 S. Ct. 2449, 2470

(2019) (“[T]he Court has acknowledged that § 2 [of the Twenty-first Amendment]

grants states latitude with respect to the regulation of alcohol, but the Court has

repeatedly declined to read § 2 as allowing the states to violate the ‘nondiscrimination

principle.’”). The Farm Wineries, who wish to operate unencumbered by the

allegedly unconstitutional constraint imposed by the in-state requirement, have

alleged injuries that are fairly traceable to that provision.

The district court, relying on McConnell v. Fed. Election Comm’n, 540 U.S.

93 (2003), overruled on other grounds by Citizens United v. Fed. Election Comm’n,

558 U.S. 310 (2010), nevertheless held that the Farm Wineries’ injuries were the self-

inflicted results of their choices to operate under the Act. In our view, however,

McConnell is inapposite. In McConnell, several lawmakers brought suit after

Congress raised the legal limit on campaign contributions to politicians. They alleged

that because of their “‘wish’ not to solicit or accept large contributions, i.e., their

personal choice,” they would be at a disadvantage against candidates willing to accept

the maximum legal contribution from donors. 540 U.S. at 228. The Supreme Court

held that such an injury was not “fairly traceable” to the statute because the real cause

of the harm was the lawmakers’ choice not to participate in the statutory scheme. Id.

By contrast, the Farm Wineries have fully participated in this statutory scheme.

They do not object to others having restraints removed from their businesses, they

object to the restraints on their own. They are more like the plaintiffs in Granholm

v. Heald, 544 U.S. 460, 466 (2005), who could not, because their businesses were

located in other states, sell wine directly to consumers in Michigan and New York.

Similarly, the Farm Wineries want to operate under Minnesota’s farm winery program

without the imposition of allegedly unconstitutional restraints.

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* * *

The Farm Wineries have injuries that are traceable to the in-state requirement.

For the same reason their injuries are traceable, they would be redressed by a

declaratory judgment. We hold that the Farm Wineries have standing to bring this

suit.

III.

The Farm Wineries urge us to reach the merits and hold that the Act is

unconstitutional because it affords “differential treatment of in-state and out-of-state

economic interests that benefits the former and burdens the latter.” Hazeltine, 340

F.3d at 593 (quotations omitted). Although the issue was briefed before the district

court, the district court did not reach it and it is our practice to remand such claims

“[w]hen it would be beneficial for the district court to consider an . . . argument in the

first instance.” BNSF Ry. Co. v. Seats, Inc., 900 F.3d 545, 549 (8th Cir. 2018)

(quoting Loftness Specialized Farm Equip., Inc. v. Twiestmeyer & Assocs., 742 F.3d

845, 851 (8th Cir. 2014)). “We believe that in this instance the better practice is for

the district court to have the first opportunity to evaluate” the Farm Wineries’

arguments. Phelps-Roper v. Troutman, 712 F.3d 412, 416 (8th Cir. 2013).

We reverse the district court’s order dismissing the case for lack of standing

and remand to the district court to consider the Farm Wineries’ challenge to the Act’s

in-state requirement.

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