# Appendix — Bronco Wine Co. v. Jolly

> Briefs, arguments, decisions, and more.

URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386016_0495%3A2

## Record

- **Collection:** Supreme Court brief
- **Document type:** Appendix
- **Published:** January 1, 2006
- **Citation:** 546 U.S. 1150

## Text

12a

107-108 [146 L. Ed. 2d 69, 120 S. Ct. 1135] (Locke);
Medtronic, Inc. v. Lohr (1996) 518 U.S. 470, 485 [135 L. Ed.
2d 700, 116 S. Ct. 2240] (Medtronic) oe. applies
both to the existence of preemption and the scope of
preemption]; Ray v. Atlantic Richfield Co. (1978) 435 U.S.
151, 157 [55 L. Ed. 2d 179, 98 S. Ct. 988] (Ray); Jones,
supra, 430 U.S. 519, 525, Florida Avocado, supra, 373 U.S.
132. 146; Allen-Bradley Local v. Board (1942) 315 U.S. 740,
749 [86 L. Ed. 1154, 62 S. Ct. 820); Napier v. Atlantic Coast
Line R. Co. (1926) 272 U.S. 605, 611 [71 L. Ed. 432, 47 S. Ct.
207], Savage v. Jones (1912) 225 U.S. 501, 533 et seq. [56 L.
Ed. 1182, 32 S. Ct. 715} (Savage), Reid v. Colorado (1902)
187 U.S. 137, 148 [47 L. Ed. 108, 23 S. Ct. 92].) As explained
in Jones, supra, 430 US. 519, 525, this venerable
presumption “provides assurance that ‘the federal-state
balance, . . . will not be disturbed unintentionally by
Congress or unnecessarily by the courts.” (Citation omitted;
see Olszewski v. Scripps Health (2003) 30 Cal.4th 798, 815
[135 Cal. Rptr. 2d 1, 69 P.3d 927} (Olszewski).)

The Department and the NVVA assert that the state
regulation at issue in this case directly implicates the
traditional police powers of the states to protect consumers
from deception in the marketing of food and beverages, and
to safeguard the integrity--and worldwide market--of a vital
California industry. (Sec, ¢.g., Florida Avocado, supra, 373
U.S. 132, 146 [sate police powers properly are employed
both to protect consumers’ health and to “prevent the
deception of consumers”); Pike v. Bruce Church, Inc. (1970)
397 US. 137, 143 [25 L. Ed. 2d 174, 90 S Ct. 844]
[recognizing a state's interest im protecting its reputation as a
reliable source of authentic, high-quality goods in al] markets
where its goods compete].) Indeed, we observed as much
conceming the California wire industry, more than 100 years
ago. (Ex parte Kohler (1887) 74 Cal. 38, 42-43 [15 P. 436]
{state wine labeling statute, designed to protect the health of

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consumers and the integrity of the wine industry, was a
proper exercise of the police power].)

Bronco and amici curiae on its behalf, Abundance
Vineyards et al.,'' assert, however, that no presumption
against preemption applies in this case because there is no
evidence that states traditionally have exercised their police
powers to regulate the labeling of wine.’ Specifically,
Bronco argues that prior to the August 1935 enactment of the

'' Counsel for am ci curiae represent, among other entities, more than 68
wineries m Alabama, Arizona, Arkansas, California, Georgia, Maine,
Massachusetts, Michigan, New Jersey, New Mexico, New York,
Oklahoma, Oregon, Pennsylvania, Tennessee, Texas, Virginia, and
Washington, as well as 47 wine grape growers in Califormia.

"? Bronco, relying upon two Eleventh Circuit Court of Appeals decisions
(Lewis v. Brunswick Corp. (11th Cir. 1997) 107 F.3d 1494, 1502, and
Taylor v. General Motors Corp. (1 lth Cir. 1989) 875 F.2d 816, 826), and,
to a lesser extent, two high court decisions (Geier v. American Honda
Motor Co. (2002) 529 U.S. 861, 870-874 [146 L. Ed 2d 914, 120 S. Ct
1913] (Geier), and Engine Manufacturers Association v. South Coast Air
Quality Management District (2004) US. ; [158 L. Ed 2d
529, 124 S. Ct. 1756, 1763) (Engine Manufacturers), also asserts, as a
preliminary matter, that the presumption against preemption is
categorically inapplicable in implied preemption cases such as this, in
which the question is whether state law would stand as an obstacle to the
accomplishment and execution of the full purposes and objectives of
Congress. The United States Supreme Court has not so heid, however,
and indeed has assumed otherwise. (Crosby, supra, 530 U.S. 363, 373-
374 & fn 8.) Geier, by contrast, did not even address the presumption-
against-preemption doctrine, and in Engine Manufacturers the court
simply found it unnecessary, because of its conclusion that the federal
legislation expressly preempted the relevant state law, to address the
presumption against preemption or even the legislative history of the
federa! statute. We disceri no persuasive reason why tne traditional
presumption against preemption should be categorically imapplicable m
the present circumstances, and until the high court directs otherwise, we
reject Bronco's view on this point. (See. e.g. Philip Morris Inc. v.
Harshbarger (ist Cir. 1997) 122 F.3d 58, 85-86 \applying a “strong
presumption against preemption” concerning state health and safety
regulations and finding those regulations not to frustrate congressional
purposes }.)

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FAA Act, 27 United States Code section 201 et seq., federal
regulation of wine labeling was “well-established,” whereas
the activity of the states in that enterprise was “limited.”
Bronco maintains that “although the states have played a
limited role in regu:ating wine labeling over the past century,
the federal government's presence in that field would negate
the application of any presumption against preemption in this
case.” Amici curiae assert, similarly and more emphatically,
that prior to enactment of the FAA Act in August 1935 “state
and lock}—authorities had exercised control over the
distribution and sale of liquor” but that “it was the federal
government that first comprehensively regulated the
packaging and labeling” of wine.

The Department and the NVVA, on the other hand, point
to early California statutes addressing wine labeling, isolated
statements in treatises and legal articles, and statements in
congressional reports and debates suggesting an intent by
Congress in 1935 that the FAA Act, including 27 United
states Code section 205(e) and the regulations that would be
expected to flow therefrom, would supplement state
regulation of wine labeling but not preempt it.

Prior to oral argument we solicited supplemental briefing
from the parties, asking them to address the effect, if any, of
numerous additional state statutes and regulations disclosed in
the course of our review of this case. Having considered
those materials and the parties’ supplemental briefs, we
conclude below that the historic record amply supports the
conclusion that a presumption against preemption applies in
this case because the protection of consumers from potentially
misleading brand names and labels of food and beverages in
general, and wine in particular, is a subject that traditionally
has been regulated by the states."”

'* At oral argument, as in the Department's briefs, the NVVA maintained
that the “relevant area” for purposes of determining whether the
presumption against preemption is applicable should be viewed as
consumer protection related to the labeling of foods and beverages in

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1. Regulation of wine labels prior to adoption of the FAA Act
in August 1935

Prior to the 20th century, federal legislation relating to
wine and alcohol focused essentially upon revenue collection-
-specifically, enforcement of federal tax laws. (See Byse,
Alcoholic Beverage Control Before Repeal (1940) 7 Law &
Contemp. Probs. 543, 552, fns. 57 & 58 (Alcoholic Beverage
Control Before Repeal).) By contrast, as disclosed below,
widespread legislation enacted by states in the mid to late
19th century, and continuing through adoption of the FAA Act
in August 1935, focused upon the substantive public problems
of “adulteration” and “misbranding™ (or “mislabeling™) of
wines and alcohol. This historic record supports the view that
prior to adoption of the federal act in 1935, states vigorously
exercised their police powers to regulate wine labeling.

a. The emergence of state “pure food” and labeling statutes

During the latter half of the 19th century, awareness
gradually increased throughout the nation concerning a
combination of related problems in the supply of food and
beverages. Some food and beverage products were mere
imitations or dilutions of what they purported to be; other
products, subject to spoilage, were “adulterated” by a
“soaring employment of chemical preservatives.” (Young,
Pure Food (1989) p. 126.) Many of these preservatives--such
as salicylic acid, employed as a preservative in wine (id., at p.

general or, more specifically, as consumer protection related to the
labeling of wines. Bronco, although generally challenging the
appropriateness of applying any presumption against preemption im this
case (see ante, fn. 12), does not contest the definition of the relevant area
for such an inquiry as proposed by the Department and the NVVA. For
purposes of this opinion, and consistently with the high court's approach
in such matters (see, ¢.g.. ARC America Corp. supra, 490 U.S. 93, 101 [in
addressing whether federal antitrust law preempts state law, defining the
relevant arca as “state common-law and statutory remedies against
monopolies and unfaiw business practices ’}), we view the relevant area as
being consumer protection related to food and beverage labeling, with

special emphasis upon wine labeling

16a

105)--were used in excessive quantities dangerous to health.
(/d., at pp. 110, 112, 126.) As a result, it was found that more
than “73 per cent of the milk in Buffalo [New York] was
watered, 69 of 171 samples of ground coffee collected in New
York were adulterated, 71 percent of the olive oils examined
in New York and Massachusetts were mixed with cotton seed
oil which had been shipped from the United States and
returned as ‘olive oil’[, and] [florty-six percent of candy
samples collected in Boston contained mineral pigments,
chiefly lead chromate.” (Hart, A History of the Adulteration
of Food Before 1906 (1952) 7 Food Drug Cosm. L.J. 5, 21);
see also McCumber, The Alarming Adulteration of Food and
Drugs (Jan. 5, 1905) The Independent, 28, 29-31 [listing
common adulterations of various products].) Wines too were
subject to abuses. Some were “made from cheap substances
and then doctored up.” (Regier, The Struggle for Federal
Food and Drugs Legislation (1933) 1 Law & Contemp.
Probs. 3, 8.) Others were mislabeled as to place of origin.
(Carosso, The California Wine Industry: A Study of the
Formative Years (1951) p. 25 (California Wine Industry); see
also Fanshawe, Liquor Legislation in the United States and
Canada (1892) p. 308.)

In response to the general threat to the food and beverage
supply, many if not most states exercised their traditional
police powers to regulate generally the marketing of impure
or deceptively labeled foods and beverages. (Sec, ¢.g., Digest
of the Pure Food and Drug Laws, Sen. Rep. No. 3, 57th
Cong., Ist Sess. (1901).)'* The vast majority of the resulting
general “pure food” statutes broadly covered liquors and
wines, as wel] as the mislabeling of those products.

* Some state laws of this era regulated the production and labeling of
specific items of food such as flour, butter, oleomargarine, and vinegar.
(E.g.. Hutt & Hutt, A History of Government Regulation of Adulteration
and Mishranding of Food (1984) 39 Food Drug Cosm. LJ 2, 42-44
(citing and describing early Virginia statutes}) During this same period,
Congress enacted similar laws concerning specific food ttems such as tea,
oleomargarine, and meats. (/d. af pp. 45-46.)

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For example, in 1879 Wisconsin enacted a general pure
food, drugs, and liquors statute, making it illegal to
manufacture or sell any food (defined to include “drink”),
accompanied by “any label, mark or device whatever, so as
and with intent to mislead or deceive as to the true name,
nature, kind and quality thereof... .” (1879 Wis. Laws, ch.
248, § 3, p. 502.) A similar labeling law was enacted in
North Dakota. (1903 N.D. Laws, ch. 6, §§ 1-2, pp. 9-10; 1905
N.D. Laws, ch. 11, §§ 1-2, pp. 19-20.) An Ohio statute,
enacted in 1884, made it illegal to manufacture or sell any
food (defined to include drink) “if by any means it is made to
appear better or of greater value than it really is,” or if it
contains any impure substance not “distinctly labeled” as
such. (1884 Ohio Laws, § 3, p. 67; 1890 Ohio Laws, § 3, p.
248.) Substantially similar labeling statutes were enacted in
Indiana, Massachusetts, Michigan, Pennsylvania, and
Washington. (1899 Ind. Acts, ch. 121, § 1, pp. 189-190; 1882
Mass. Acts, ch. 263, §§ 1-3, pp. 206-207; 1895 Mich. Pub.
Acts, No. 193, § 3, p. 358; 1895 Pa. Laws, No. 233, § 3, p.
317; 1899 Wash. Laws, ch. 113, §§ 1-3, pp. 183-184.) A
Maryland statute, enacted in 1890, required that food or drink
“be so manufactured . . . or sold, or offered for sale under its
true and appropriate name” and required that the purchaser be
“fully informed by the seller of the true name and ingredients
.. . Of such article of food or drink .. . .” (1890 Md. Laws,
ch. 604, § 1, p. 733.) Similar laws were enacted in
Connecticut, North Carolina, and Tennessee. (1895 Conn.
Pub. Acts, ch. 235, §§ 1, 2, p. 578; 1895 N.C. Sess. Laws, ch.
122, §§ 1, 2, 5, pp. 176-178; 1897 Tenn. Pub. Acts, ch. 45, §§
1, 4, pp. 177-178.) Finally, a New York statute (1893 N_Y.
Laws, ch. 338), subsequently amended in 1903 and 1905,
prohibited “adulterated or misbranded food.” The statute
defined as “misbranded”--and illegal--any food or beverage
“package . . . or label” that bore “any statement regarding the
ingredients or the substances contained therein, which
statement [is] false or misleading in any particular, or if the
same is falsely branded as to the state or territory in which it

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is manufactured or produced... .” (1903 N.Y. Laws, ch.
524, § 1, p. 1192, italics added; 1905 N.Y. Laws, ch. 100, § 1,
p. 141.) A substantially identical labeling law was enacted in
South Dakota. (§§ 1905 S.D. Laws, ch. 114, 6, 8 & 10, pp.
162-163.)"°

b. Early state wine labeling statutes

As early as 1860, California enacted a statute to penalize
the sale of “adulterated alcoholic or spirituous liquors, wines,
cider, beer, or other liquid used as a béVerage.” (Stats. 1860,
ch. 223, § 2, p. 186, currently Pen. Code, § 382.) But in the
face of rampant deception in the labeling of wines—including
the bottling of California wines under false foreign labels, and
the bottling of inferior foreign wines under California labels
(Cal. Wine Industry, supra, at p. 25) the California
Legislature in 1866 passed a resolution asking Congress to
enact nationwide legislation to curb the marketing of
“spurious” and “imitation” wines and alcohols. (Sen. Cone.
Res. No. 36, Stats. 1866 (approved Apr. 2, 1866) p. 908.)
After much effort during the ensuing two decades, this
endeavor ultimately failed in 1886. (See Cal. Wine Industry,
supra, at pp. 154-155.)

Congress's inability to adopt a nationwide wine regulation
and labeling statute induced the three primary wine-producing
states--California, New York, and Ohio'®--as well as other

'* Citing only the 1895 North Carolina law, Bronco asserts that “some” of
these state laws were intended to apply only to food and beverages sold
within a given state. The North Carolina provision, however, is the only
such law of which we are aware to have intimated or specified such a
limitation; none of the other laws cited above was so confined, and most
instead broadly applied to foods and beverages that were “manufactured
for sale’’--wherever that sale would occur. But in any event, the relevant
point is that the states (most of them broadly, and in the case of North
Carolina, narrowly) exercised their traditional police powers by
specifically regulating the labeling of food products and beverages,
including wines.

'* As of 1890, those three states produced approximately 60, 10, and 8

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states with lesser wine industries (such as Arkansas,
Colorado, and Oregon)'’ to enact, under their traditional
police powers, specific and detailed statutes tailored to the
problems of impurity and deception in the production and
labeling of wines.

California--then, as now, by far the leading producer of
wine in the nation,'* and an acknowledged leader in quality as
well'’--apparently was the first state to adopt such a statute, in
March 1887. (Stats. 1887, ch. 36, p. 46 et seq.; see Ex parte
Kohler, supra, 74 Cal. 38, 42-43.) The California statute
defined as “pure wine” that which was made from only pure
grapes. (Stats. 1887, ch. 36, § 1, p. 46.) The statute further
defined “[d)jry wine” as that produced by “complete
fermentation of saccharine contained in [grape] must”;
“{s]weet wine” as that which contains “saccharine appreciable
to the taste”; “[flortified wine” as “wine to which distilled
spirits have been added”; and “[pjure champagne, or
sparkling wine” as that which “contains . . . effervescence
produced only by natural fermentation of saccharine matter of
[grape] must, or partially fermented wine in bottle.” (/d., § 1,
p. 47.) The statute prevented the use or introduction of

percent, respectively, of the wine produced im the United States. (US.
Dept. of Interior, Census Off., Rep. of Statistics of Agriculture im the U.S.
at the | ith Census: 1890 (18°95) p. 602.)

"” See Pinney, A History of Wine in America (1989) pages 404-405, 420-
422 (describing early winemaking in Arkansas and Oregon).

"* As observed ante, footnote 16, by 1890 California produced most of the
vone grown and made in the United States. Today, according to the Wine
| astitute, Califorma produces more than 90 percent of the nation's wine.
(See [as of Aug. 5, 2004).)

See, generally, California Wine Industry, supra, at pages 26 (“the
French viticultural journal, Rewwe Viticole, m 1862, credited California
with being the only wine-producing area of North America capable of
competing with the product from Europe”) and 133 (noting that 35 medals
were awarded to California wines at the Paris Exposition Universelle im
1889).

20a

impure “substitutes for grapes” or coloring, or foreign fruit
juices “not the pure product of grapes,” and further barred the
use of preservatives such as “salicylic acid, glycerin, alum, or
other chemical antiseptics.” (/d., § 2, p. 47.) The statute also
provided for inspection of wine samples and for the use of
bottleneck seals and label certificates (id., § 7, pp. 48-49), and
required either the statement “Pure California wine”
(together with the maker's name) or the label certificate to be
affixed to each bottle of pure wine. (/d., § 8, p. 49.)° This
court’s decision in Ex parte Kohler, supra, 74 Cal. 38,
rejected constitutional challenges to the act and concluded
that, like legislation designed to ensure the marketing of
puremilk and safe meats, the statute was a proper exercise of
the state’s police powers. (/d., at pp. 41-42.)

Colorado quickly followed in April 1887 with its own
statute regulating the “manufacture or sale” of wine and other
alcoholic beverages.” New York adopted its own wine
labeling statute in June 1887.” Two years later Ohio adopted

© In addition—and belying Bronco's claims that this and similar statutes
lacked detail—the statute contained various other provisions dealing
comprehensively with the production and labeling of wine. (See Stats.
1887, ch. 36, §§ 3-6, pp. 47-49.)

*' The Ex parte Kohler decision proceeded to construe the act's labeling
requirements as prohibiting the sale of wines not meeting the definition of
pure wines under the act, but as not subjecting to penalty a merchant who
sells wine that is pure but lacks the required labels. (£x parte Kohler,
supra, 74 Cal. at pp 44-45.\

= (1887 Colo. Sess. Laws, § 2, p. 18 et seq.) The legislation required that
wine be “pure”--defined as made from “the juice of the grape”--and
specified that “[njo vinous . . . liquors shall be offered or exposed for sale
in this State, unless the . . . package, containing such liquors, shall be
plainly” marked with “the we ” C.F.R. § 4:30(b)(1)) and
the cited comment, Congress had in mind only the authority of states,
pursuant to the Twenty-first Amendment, to impose additional labeling
requirements on alcoholic products imported for sale from other states,
and did not contemplate that a state would be permitted to impose
additional labeling requirements on wines destined for interstate
commerce. We find no persuasive evidence of any such intent, however.

*° Although on occasion we have questioned reliance upon the views of

individual legislators as a basis upon which to discern the intent of the
state Legislature (e.g., People v. Dennis (1998) 17 Cal.4th 468, SOT, fn. 7
[71 Cal. Rptr. 2d 680, 950 P.2d 1035], and cases cited), in the present
case Bronco does not chailenge Representative Cullen's statements on that
ground, and we recently observed in Dowhal, supra, 32 Cal.4th 910, that
statements by a single member of Congress “‘can provide evidence of
Congress’ intent.”” (/d., at p. 926, fn. 6.) Moreover, in the present case
there are strong reasons to rely upon the quoted statements.
Representative Cullen was the author of the FAA Act, and was looked
upon as an authority during the House debates, fielding many questions
from his colleagues. (E.g., Remarks of Rep. Doughton, 79 Cong. Rec.
(1935) 11713 [Rep. Doughton, author of a prior version of the bill,
observing on the House floor that Rep. Cullen “is more familiar with the
provisions of this bill than myself or perhaps any other member .. . . He
has given much study to the bill and is better qualified to explain it than I
am .. ."}; id., pp. 11715-11718, 11727-11730, 11737, 11790, 11792-
11793, 11797, 11799 [Rep. Cullen's various responses to questions, etc.].)
In addition, Representative Cullen's comments essentially reiterated that
which was set out in the House Report of the Ways and Means
Committee, cited in the text above (and later incorporated into the Senate
Report of the Committee on Finance on House Resolution No. 8870--see
Fed. Alcohol Control Admin., Legis. History of Fed. Alcohol Admin. Act
(Sept. 15, 1935), appen. IV, at p. 166), and hence the cited comments did
not amount merely to expressions cf personal opinion. (/n re Marriage of
Bouquet (1976) 16 Cal.3d 583, 590 [128 Cal. Rptr. 427, 546 P.2d 1371].)

43a

Based upon this legislative history, and in light of the
backdrop against which Congress acted--the prior decades of
state legislation regulating the labeling or “misbranding” of
wine as a general food and beverage product, or of wine
specifically--we conclude that Bronco has failed to establish
that Congress, at the time it enacted the FAA Act, acted with
the “clear or manifest” purpose of preempting state statutes
regulating wine labels.

2. Post-1935 congressional and regulatory agency intent to
preempt state wine label regulation

Bronco further suggests that subsequent to the enactment
of 27 United States Code section 205(e) in August 1935 and
the adoption, by agencies within the Department of the
Treasury, of implementing regulations, both Congress and the
federal regulators manifested intent that the federal wine
labeling regulations would preempt more stringent state wine
labeling regulations. Applying again, as we must, a
presumption against preemption in this context, we inquire
whether Congress or the regulatory arm established within the
Department of the Treasury evinced a clear and manifest
intent to preempt state wine labeling regulations such as
California’s section 25241. In so doing, we keep in mind the
entire history of state regulation of wine labeling and the
history and language of the FAA Act described above. As
explained below, after reviewing (i) the early federal
regulations and early state regulations that imposed standards
higher than the federal regulations, (ii) subsequent federal
regulations and pronouncements recognizing the applicability
of state labeling law, and state wine regulations enacted in the
mid-1970s (especially certain Oregon regulations, one of
which is substantively similar to the challenged section
25241), and (in) a 1988 amendment to the FAA Act,
concerning health warnings on alcoholic beverages, we
continue to find no evidence of any clear or manifest intent on
the part of Congress or the responsible federal agency to
preempt state wine labeling regulation such as section 25241.

44a .

Indeed, the evidence demonstrates that the federal agency has
long contemplated or at least acquiesced in concurrent and
stricter state regulation.

a. Federal and California regulations issued after passage of
the FAA Act

As noted above, prior to adoption of the FAA Act
California had in place, by December 1934, specific and
detailed wine regulations restricting, among other things, the
use of place names on wine labels. (See ante, pt. I1.B.1.e.) In
bulletins and reports issued in the years immediately
thereafter, the California Department of Public Health touted
its enforcement of those state regulations, which it described
as requiring the “honest labeling of wines.””’

In late December 1935, four months after adoption of the
FAA Act, and one year after California’s adoption of its own
post-Prohibition-repeal wine labeling regulations, valid
federal wine labeling regulations were approved, and those
regulations became effective on March |, 1936. (U.S. Dept.
Treas., Fed. Alcohol Admin., Regs. No. 4 Relating to
Labeling and Advertising of Wine (Dec. 30, 1935) arts. I-VII,
| Fed.Reg. 83 (Apr. 1, 1936) (hereafter Regulations No. 4);
see, generally, Controls Over Labeling, supra, 7 Law &
Contemp. Probs. 645, 652, fn. 25 et seq.)

The federal labeling regulations, as amended in 1938 (see
3 Fed.Reg. 2093 (Aug. 26, 1938)) and thereafter, presently
are designated 27 Code of Federal Regulations, sections 4.20
through 4.39. One key provision--Code of Federal
Regulations section 4.25(b)(1){i) and (iii)--states that a wine

*” See California Department of Public Health, Weekly Bulletin (Feb. 19,
1938) page 14; id, at page 13 (describing enforcement of the California
wine quality standards and noting their adoption by the beverage contro!
authorities in Oregon, Virginia, and Arizona); see also Thirty-sixth
Biennial Report of the California Department of Public Health (Sept.
1940) page 177; Thirty-fifth Biennial Report of the California Department
of Public Health (Sept. 1938) at page 142; Thirty-fourth Biennial Report
of the California Department of Public Health (Sept. 1936) page 100.

45a

is “entitled” to be described with an appellation of origin if
“{a]t least 75 percent of the wine is derived from fruit ...
grown in the appellation area indicated” and “it conforms to
the laws and regulations of the named appellation area
governing the composition, method of manufacture, and
designation of wines made in such place.” (Italics added.)

Soon after the adoption of this federal provision in 1938, a
California statute was enacted, and two regulations were
adopted, all three of which » “osed more stringent California
wine labeling requirements. First, in 1939, the Legislature
amended the state ABC Act (Bus. & Prof. Code, § 23000 et
seq.) to prohibit the use on wine labels of the phrase
“California Central Coast counties dry wine,” unless the wine
was in fact made entirely from grapes grown in specified
Central Coast counties. (Stats. 1939, ch. 1033, §§ 1-4, p.
2838; see Bus. & Prof. Code, §§ 25236-25238.) Second, by
1942, a regulation had been adopted imposing a similar i100
percent grape origin requirement for any wine labeled as

** “Composition” refers to the ingredients used to make a wine (27 C.F.R.
§ 4.34) and generally consists simply of grapes. “Method of manufacture”
refers to approved wine treatment materials and processes. (27 C.F.R.
§ 24.175 et seq.) * Designation of wines” is a concept distinct from brand
name or appellation; it refers to the class or type of wine rather than the
source or origin of the wine. (27 C-F.R. §§ 4.32(a)(2), 4.34.) For
example, a wine may be designated by class as a grape wine, sparkling
grape wine, or carbonated grape wine (27 C_F.R. § 4.2/), or by the grape
varietal. (27 C.F_R. §§ 4.23, 4.24, 4.28.)

As Bronco concedes, California long has enforced regulations that differ
from the federal regulations with respect to method of manufacture. (See,
e.g., Cal. Code Regs., tit. 17, $§ 17005 |providing, concerning “cellar
treatment,” that “[ijn case of conflict between Federal and State laws or
regulations the California law or regulation shall take precedence”), /70/0
{adopting regulations more restrictive than those contained in federal
reguiations concerning the use of sugar in the production or cellar
treatment of wine].) Bronco contrasts what it asserts are these and similar
permissible and _ specifically sanctioned departures from federal
regulations with what it contends are impermissible deviations from
federal /abeling standards--especially federal regulations concerning the
use of brand names on labels.

46a

California’ or any geographical subdivision thereof.” (See
Cal. Dept. of Pub. Health, Regs. Establishing Stds. of
Identity, Quality, Purity and Sanitation and Governing the
Labeling and Advertising of Wine in Calif. (May 23, 1942)
art. I, § 2(aa)”” (hereafter 1942 Regulations), presently Cal.
Code Regs., tit. 17, § 17015, subd. (a)(1).) Third, by 1942, a
California regulation barred the “sale” of wines labeled with
so-called coined (or semi-generic) brand names if the “brand
designation resembles an established wine type name such as
... Madeira, ... Port, ... Claret, [or] Burgundy, etc. ... .” (See
1942 Regs., art. II, § 8.) Under this and subsequent versions
of the same regulation, a label such as “Burgundy brand” was
long barred in California.”

oes

The first two California labeling rules described above
plainly imposed (and still impose) a more stringent standard
than the 75 percent requirement set forth in the federal
appellation-of-origin regulation. (Regs. No. 4, § 25, as
revised, 3 Fed. Reg. 2093, 2096 (Aug. 26, 1938), presently 27

This requirement may have gone into effect earlier than 1942. A
predecessor to the regulations of 1942 had been adopted in April 1940.
(See 1942 Regs., cover page (“These regulations supersede the Definitions
and Standards--Wine., adopted December 1934, as amended, and Rules
Governing California Vintage Wines, adopted April 6, 1940"].) The
December 1934 regulations, as amended through January 18, 1936, have
been described ante, part I1.B.1.d. Despite the efforts of librarians
throughout the state, we have been unabie to locate the intervening
regulations--if indeed there were any--or the 1940 “Rules Governing
California Vintage Wines.”

Article Ill, section 12(1) of the 1942 Regulations also provided,
consistently with many of the prior statutes and regulations described
earlier, that wine labels “shall not contain (1) any statement, design,
device or representation which is false or misleading in any material
particular.” (Italics added.)

® That California regulation, as adopted in the early 1940s, was in force
until the mid-1980s. (See former Cal. Admin. Code, tit. 17, §§ 17001 (a)
& 17075(c\2) (1978).) Oregon as well had a similar “coined” brand-
name provision until the mid-1980s. (See Or. Admin. R. 845-10-
285(3)(a) (1978).)

47a

C.F.R. § 4.25(b)(1)(i).) The third provision described above
prohibited name types that the federal regulations have
permitted since 1941 upon a proper showing. (See 27 C.F.R
$ 4.33(b), as revised, 6 Fed.Reg. 2874 (June 13, 1941)
[disallowing such a geographic name un/ess a federa) officer
finds the name, either qualified by word “brand” or otherwise,
“conveys no erroneous impressions as to the ... origin ... of
the product”}.)

Although the parties dispute whether the first two state
rules cited above are sanctioned by Code of Federal
Regulations section 4.25(b)(/)(iii)--the federal provision that
expressly authorizes state regulation concerning the
“composition” (the grape ingredients) or “designation” of
wine (the ciass or type of wine, as distinct from its source or
origin)--the third California regulation, the “coined” brand-
name provision, cannot be so distinguished. That state
regulation plainly controlled, more strictly than the federal
rules, not the mere composition or designation of wines, but
the brand-name labeling of wines.

In any event, there is no indication that any question
previously has arisen concerning the authority or
enforceability of the California statute’’ or of either
regulation. Indeed, since mid-1939, the California
Legislature has authorized state wine regulations that are
stricter than federal wine regulations,** and for nearly the past

The appellation “California Central Coast counties” has since fallen
into disuse. (See Regulation of American Wine Labeling, supra, \1 U.C.
Davis L. Rev. at p. 143.)

* See Statutes 1939, chapter 60 (establishing the Health & Safety Code),
page 992 (enacting former § 2654/, requiring that certain state food and
distilled spirits regulations not impose a standard higher than certain
federal regulations--but mo requiring such conformity with regard to state
wine regulations); Statutes 1941, chapter 1042, section 3, page 2698
(enacting former § 26540.2, authorizing the State Board of Health to
promulgate wine regulations), and section 4, page 2699 (amending §
26541 to specify that the section's general prohibition on imposition of
higher state standards concerning food and distilled spirits “shail not apply

48a

35 years, the Legislature expressly has authorized state wine
regulations to “differ from or be inconsistent with” federal
wine regulations (Health & Saf. Code, § 110525, italics
added);° yet there is no indication the federal government has
taken issue with this long-standing assertion of broad state
authority.”

The history of the early post-Prohibition-repeal California
and federal wine labeling regulations reveals no evidence of
any Clear or manifest intent on the part of Congress, or the

to wine”). (Italics added.) Former section 2654!'s exemption of state
wine regulations from the general rule against imposition of higher state
standards relating to other foods and distilled spirits continued through
various amendments of that former section, until that exemption
ultimately was recast in 1970 as a positive right of state regulators to
“differ from or be inconsistent with” corresponding federal wine
regulations. (Stats. 1970, ch. 1573, § 5, p. 3255; see post, fn. 53 [quoting
current Health & Saf. Code, § 110525). cf. 44 Ops.Cal.Atty.Gen. 122, 125
(1964) [discussing similar history of Health & Saf. Code, former §
26542].)

> In 1970, Health and Safety Code former section 2651/5 was amended to
specify: “Standards of identity and quality for wine adopted pursuant to
this section may differ from or be inconsistent with the standards
promulgated by [the federal regulators in the Department of the
Treasury].” (Stats. 1970, ch. 1573, § 5, p. 3255, italics added.) The
statute today provides the same. (Health & Saf. Code, § 110525
[“Standards of identity and quality for wine adopted pursuant to this
section may differ from or be inconsistent with the standards promulgated
by the Secretary of the Treasury pursuant to the Federal Alcohol
Administration Act’}.)

“ Indeed, other jurisdictions, since 1976, expressly have recognized and

incorporated California's more stringent “100 percent rule” into their own
state wine regulations (see 16 Tex. Admin. Code, § 45.45(b) & (c) (eff.
Jan. 1976) [“all grape wine bearing labels showing ‘California’ as the
origin of such wine shall be derived 100 % from grapes grown and wine
from such grapes fermented within the State of California”]; Wash.
Admin. Code, § 314-24-003(5) [same]), and the federal regulating body
' itself has recognized California's “100 percent rule” as a valid exercise of
state regulatory power. (See 5& / ed Reg. 65295, 65297 (Dec. 14, 1993)
{acknowledging “California's authority- to enforce its own labeling
requirements within the area of its jurisdiction” }.)

49a

regulatory agency charged with executing the relevant law, to
preen’™ state wine labeling regulation such as section 2524].
This| \ ory suggests, instead, the opposite.

b. Modification of federal regulations in the 1970s and 1980s,
and adoption by Oregon of its more stringent wine labeling
regulations

Beginning in the mid-!970s, the BATF, which in 1972
had been delegated the task of creating and enforcing federal
regulations (see ante, fn. 43), began to consider proposals to
further define and regulate appellations of origin. In
connection with that inquiry, the BATF also began to
consider how better to regulate the use in brand names of
terms of “geographic or viticultural significance.” (42
Fed. Reg. 30517, 30518 (June 15, 1977). In 1978 the
BATF adopted, but then postponed enforcement of, new
brand-name rules, and it also adopted new regulations

** Under the then existing federal regulations, use of geographic brand
names was permitted if (i) the word “brand” appeared after the brand
name (27 C.F.R. § 4.33(b) (1976)) or (ii) at least 75 percent of the grapes
originated in the appellation suggested by the brand name (id., § 4.25
(1976)).

56

Although the BATF in 1978 adopted new rules regulating the use in
brand names of terms of geographic or viticultural significance, it delayed
implementation of those rules, first unti] 1983 and ultimately until 1986.
(43 Fed.Reg. 37672, 37674, 37678 (Aug. 23, 1978).) The brand-name
rules that were aclopted in 1978 (but that never became effective) would
have provided: “A brand name of viticultural significance may not be used
unless the bottling winery is located within the geographical area used in
the brand name, and the wine meets the appellation of origin requirements
for the area named” (meaning at least 75 percent of the grapes used to
make the wine must be from that area). (43 Fed. Reg. 37672, 37678 (Aug.
23, 1978).) Alternatively, the 1978 regulation, as initially adopted, would
have permitted use of a brand name of viticultural significance if “the
brand name is qualified by the word ‘brand’ immediately foilowing the
brand name in the same size of type and as conspicuous as the brand name
itself.” (/bid.)

As noted, implementation of the brand-name: aspects of the rules
repeatedly was delayed. (See 48 Fed Reg. 2762 (Jan. 21, 1983); 50

50a

concerning appellations of origin-- including a new
subcategory within appellations of origin known as
“viticultural areas.” (43 Fed Reg. 37672, 37674, 37678 (Aug.
23, 1978).)’ The 1978 federal appellations of origin
regulation expressly recognized the enforceability of state
laws in relation to placing a “viticultural area” designation on
a wine label, making the right to so label a wine contingent on
compliance with, among other things, “the laws and
regulations of all of the States contained in the viticultural
area.” (27 C.F.R. former § 4.25a(e)(3)(iv) (1978-1981); id.,
former § 4.25a(e)(3)(v) (1981-1986), italics added.)™*

Prior to and during this same period of federal regulatory
action and consideration of geographic brand-name
regulations (see ante, fn. 56), in 1977 the State of Oregon
departed from the federal tabeling regulations in substantia]
ways, imposing more stringent state rules concerning matters

Fed.Reg. 758 (Jan. 7, 1985).) Meanwhile, in 1984 the BATF retreated
from its 1978 proposal concemming the use of brand narnes and proposed
instead to address the issue by adopting either that plan, or one of three
alternative plans. (49 Fed Reg. 19330, 1933/-19332 (May 7, 1984); see
post, fn. 70 [describing the BATF's 1984 comments concerning proposed —
branding rules}.) As explained below, based upon further review and the
comments concerning its 1984 proposal, the BATF ultimately adopted,
effective July 7, 1986, the regulation at issue in the present case. (5/
Fed. Reg. 20480 (June 5, 1986).)

*” An “appellation of origin” was, and continues to be, defined as a

political division or subdision--for example, a state, or group of states,
cr a county, or group of counties—in which grapes used to make a wine
‘are grown. (See 27 CFR. § 4.25(a)(1)(i)-(vi).)_ A “viticultural area,” by
contrast, is a special subcategory within an appellation of origin (see 27
C.F.R. § 4.25(a)(1)(vi)) demarked not by political boundaries, but by
geographic terms and characteristics.

*® The other requirements for “viticultural area appellation” labeling were
(and remain) (t) that the area be recognized under part 9 of 27 Code of
Federal] Regulations, (ii) that the wine be made from at least 85 percent
grapes grown in that viticultural area; and (ii) that the wine be fully
“finished” within the state (or one of the states) of the viticultural area.
(27 C.F.R. § 4.25(eH 3), (i) & fiv).)

Sla

such as percentage content of Oregon appellation wines,” use
of “semi-generic” place names,” percentage content of
varietal wines,”' use of the term “estate bottled,” and the use

* An administrative regulation of the Oregon Liquor Control

Commission (former Or. Admin. R. 845-10-292(6)(c), eff. Mar. 1, 1977,
currently Or. Admin. R. 845-010-0920(1) & (2) (2004)), requires: “(1) An
appellation of origin must appear on every wine brand label in direct
conjunction with, and in lettering as conspicuous as, the wine's class or
type designation. The lettering must be at least two millimeters in height.
(2) No person may sell or offer to sell a wine, claiming or implying a
certain appellation of origin anywhere on its label, unless 100 percent of
the grapes used in its production grew within the legal boundaries of that
appellation of origin. .. .” The corresponding federal regulations, by
contrast, impose only a 75 percent rule for appellations of origin (27
C.F.R. § 4.25(b)(1)(i)), an 85 percent rule for American viticultural areas
(27 CFR. § 4.25(e)(3 Hii), and a 95 percent rule for individual vineyard
appeliations (27 C.F.R. § 4.39(m)).

60

Compare Oregon Administrative Rule 845-|10-292(5), effective
March |, 1977, currently Oregon Administrative Rule 845-010-0930
(2004) (barring use of “semi-generic” place names [such as Burgundy,
Chablis, and Chianti] on Oregon wine iabels) with Regulations 27 Code of
Federal section 4.24(b)(2) (permitting those same names on federally
approved labels).

*' Compare Oregon Administrative Rule 845-10-292(3)(a), effective
March |, 1977, currently Oregon Administrative Rule 845-010-0915(1)
(2004) (a varietal name [such as Chardonnay or Pinot Noir} may not be
used on an Oregon wine label unless at least 90 percent of the wine's
grapes are of that varietal) with 27 Code of Federal Regulations section
4.23(b) (permitting use of a varietal name on federally approved labels if
only 75 percent of the wine's grapes are of that varietal).

é>

Compare Oregon Administrative Rule 845-10-292(4\(c), effective
March |, 1977, currently Oregon Admumnistrative Rule 845-010-0925
(2004) (barring use of the term “estate bottled” on Oregon wine labels
unless, among other things, the wine's grapes were grown within five
miles of the winery) with 27 Code of Federal Regulations section 4.26
(permitting the term “estate bottled” on federally approved labels without
requiring that the wine's grapes have been grown within five miles of the
winery).

52a

of geographic brand names.” In each of these respects,
Oregon reserved the right to disapprove wine labels that had
been granted a valid federal certificate of label approval.”

For present purposes, the most relevant of these various
departures from federal wine labeling regulations concerns
Oregon’s geographic brand-name rule.

Effective March |, 1977, Oregon Administrative Rule
845-10-292(6)(e) provided that appellation names--including
the names of Oregon counties, and the names of Oregon
wine-producing regions Willamette Valley, Umpqua Valley,
and Rogue Valley--"shall not be used in a brand name, in the
name of a winery or in any other manner on a label unless
100 percent of the grapes used to produce the wine were
grown within the boundaries of that appellation of origin.”
(Italics added.) The regulation included a grandfather clause
permitting “use by a winery of a brand name which has been
in use by that winery on its approved labels prior to January
1, 1977.” (Or. Admin. R. 845-10-292(6)(e) (1977), italics
added.) Like the other Oregon labeling rules that
specifically exceed the federal regulations, this Oregon

*? See Oregon Administrative Rule 845-10-292(6)(e), effective March 1,
1977, currently Oregon Administrative Rule 845-010-0920(4)(f) (2004),
discussed in the text, post.

“ See Oregon Administrative Rule 845-10-290(2) (1977), currently
Oregon Administrative Rule 845-01 0-0290(2) (2004) (providing that each
wine label must (i) receive a federal COLA and (ii) comply with the more
stringent Oregon rules concerning percentage contents for appellations of
origin, semi-generic names, grape content of varietal wines, brand names,
and use of the term “estate bottled”).

** We note the narrowness of this grandfather provision compared with
the federal grandfather clause that we consider in the present case. In
addition to the earlier cutoff date (1977 under the state regulatidn, as
compared with 1986 under the federal regulation), the phrasing of the
provision suggests that the right of grandfathered use may not be
transferred to another entity, as wes done in the present case. (Cf.
Comment, On Vino Veritas? Clarifving the Use of Geographic References
on American Wine Labels (2001) 89 Cai. L. Rev. 1881, 1912-1913.)

53a

geographic brand regulation remains in force today, more
than a quarter-century after its adoption. (See Or. Admin. R.
845-010-0920(4)(f) (2004)).°°

We find these Oregon regulations relevant to our current
inquiry in three interrelated respects.°’ First, the state

“ As most recently amended, the regulation provides that appellation

names--again including the names of Oregon counties, and the names of
Oregon wine-producing regions Willamette Valley, Umpqua Valley, and
Rogue Valley or “words that may be mistaken for an approved appellation
of origin in a brand name [or] in a winery name, or in any other manner on
a wine label” may not be used “unless the wine meets the requirements for
use of that appellation of origin” (Or. Admin. R. 845-010-0920(4)(f)
(2004)), that is, “100 percent of the grapes used in its production grew
within the legal boundaries of that appellation of origin.” (/d., 845-010-
0920(2) (2004).) Like the original version of the regulation, the provision
also retains a restrictive grandfather clause: “A winery may continue to
use any brand name that it has used on its approved label since before
January |, 1977.” (d., 845-010-0920(4)(f) (2004), italics added.)

*’ We reject Bronco's preliminary argument, raised in its supplemental

briefs, that Oregon Administrative Rule 845-010-0280 implicitly nullifies
Oregon wine regulations discussed above, such as the estate-bottled
provision and the geographic brand-name provision.

The cited rule addresses “Standards of Identity and Prohibited Practices
Concerning Wine” and provides that Oregon regulations concerning those
two topics, set forth in Oregon Administrative Rule “845-010-0905
{definitions} and 845-010-0940 [use of water, wine spirits and other
sweetening agents],” shall prevail over any less stringent or restrictive
federal law. (Or. Admin. R. 845-010-0280 (2004), italics added.) As
Bronco observes, in an introductory sentence the regulation a/so states:
“The Commission adopts, by reference, 27 CFR [parts] 4 [the federal wine
labeling regulations} and 24{] [wineries and wine-making regulations]
(1986). These regulations of the Bureau of Alcohol, Tobacco [} and
Firearms of the United States Department of Treasury apply to all wine
sold in Oregon by a Commission licensee.” (/hid.)

Bronco reads this language as adopting generally the federal regulations
concermming, for example, the use of the term “estate bottled” and
geographic brand names for all Oregon wines sold in that state--and hence
as implicitly repealing or at least superseding those Oregon rules insofar
as in-state sales of Oregon wines are concerned. Bronco's interpretation of
the Oregon rules is belied by Oregon Administrative Rule 845-010-

54a

regulations-- especially the strict geographic brand-name rule,
and the estate-bottled rule--demonstrate that Oregon has long
imposed labeling rules that are both (i) more stringent than
the federal rules and (ii) go far beyond 27 Code of Federal
Regulations section 4.25(b)(1)(iii)’s authorization for states to
regulate the “composition, method of manufacture, [or]
designation of wines... .”

Second, it is clear that the BATF has long been aware of
these stricter Oregon rules and apparently views them as
enforceable. The Oregon regulations had been in place for
approximately 16 months at the time the RATF adopted its
1978 regulation concerning the use of “viticultural area”
appellations on wine labels. That 1978 BATF regulation, as
noted above, expressly acknowledged and _ required
compliance with “the laws and regulations of all the States
contained in the viticultural area.” (27 C.F.R. former §
4.25a(eX3\iv) (1978-1981); id, former § 4.25a(e)3\(v)
(1981-1986), italics added.) By so providing, the BATF, as
of 1978, acknowledged the propriety and enforceability of the
more stringent labeling rules promulgated by the states.

Indeed, any doubt in this regard is dispelled by the
BATF’s action and comments seven years later (in late
January 1986) when, in the course of repealing as a federal
requirement 27 Code of Federal Regulations former section
4.2S5a(e\(3\(v)'s rule concerning compliance with state
regulations relating to viticultural areas, the BATF expressly
and repeatedly acknowledged both the existence and the
enforceability of Oregon's “more stringent” wine labeling
regulations.” The BATF explained that although it had

0910(2) (2004), which plainly states that Oregon Administrative Rules
“845-010-0905 through 845-010-0940 [i.e.. including Oregon's estate-
bottled and geographic brand-name provisions} apply to al] grape wines
produced or bottled in Oregon . . .”—that is, regardless where such wines
are sold-and that “[‘}hese rules prevail_in any conflict between . . . other
rules in Chapter 845, Division 010." (Ntalics added.)

“ As the BATF explained, prior to adoption of its 1978 appellation rules,

5Sa

decided, with regard to viticultural areas, to eliminate
compliance with state laws as a federal requirement, the
underlying substantive state law requirements relating to
viticultural areas would remain, to be enforced solely by the
respective states. The BATF observed: “State laws and
regulations of the state in which the wine was fermented or
finished will, of course, continue to apply to the producing

appellations of origin relating to American wines generally were
characterized as regions or places delimited by political boundaries, such
as states or counties. As served ante, at footnote 57, the 1978
appellation rules expanded the concept of appellations of origin by
additionally including under that term “viticultural areas”--that is, grape
growing regions--defined by geographic features, and not political lines.
Because some of these viticultural areas straddled states, a problem
eventually arose concerning the federal requirement, then set out in 27
Code of Federal Regulations former section 4.25a(e)(3)(v) (1981-1986),
ihat in order to employ a viticultural area designation, a winery must
“conform[] to the laws and regulations of all the States contained in the
viticultural area.” Specifically, the BATF noted (5/ Fed. Reg. 3773, 3774
(Jan. 30, 1986)), if a wine were to use the viticultural area designation
“Columbia Valley” (a federally recognized viticultural area straddling
Oregon and Washington), the winery producing the wine would be
required to comply with Oregon's state regulations, even if the grapes
were grown in the Washington part of the Columbia Valley and the wine
was made and finished only in Washington. Moreover, the BATF
observed, “regulations of Oregon and Washington differ greatly regarding
the production and labeling of wine. Oregon regulations are more
stringent than Federal regulations.” (51 Fed.Reg. 3773, 3774 (Jan. 30,
1986), italics added.) The BATF observed that because former section
“4.25a(e)(3\(v) required compliance with laws and regulations of all states
within a multistate viticultural area, regardless of where the wine is
fermented or finished, wine made from grapes originating and fermented
in Washington, and finished and bottled within Washington was,
nevertheless, subjected to Oregon law and regulations if the wine claimed
a multistate viticultural area appellation such as Columbia Valley.” (5/
Fed Reg. 3773, 3774 (Jan. 30, 1986).) And yet, the BATF determined,
“{a] Federal requirement for compliance with State laws and regulations
is both unnecessary and difficult for the Federal Government to enforce
due to the multitude of state and local laws and regulations.” (Jbid.,
italics added.) Accordingly, the BATF concluded, it did not “believe that
Federal regulation should impose the State laws or regulations of one state
upon transactions occurring in other states.” (/bid.)

56a

winery. These state laws and regulations are enforced by the.
state involved.” (51 Fed.Reg. 3773, 3774 (Jan. 30, 1986),
italics added. )” x

Third and finally, the Oregon geographic brand-name
regulation, in particular, sheds light upon the BATF’s
apparent understanding cf the grandfather clause at issue in
this case. Almost 10 years after Oregon adopted its restrictive
geographic brand-name labeling regulation, the BATF, after
considering various options over the preceding decade (sed
ante, fn. 56, and post, fn. 70), amended 27 Code of Federal
Regulations section 4.39(i)(1) in the manner at issue in this
case, to prohibit the use of labels with brand names implying
that a wine was made with grapes grown in the area suggested
by the brand name, unless at least 75 percent of the grapes
used to make the wine were in fact from that area. But, as
noted above, the new federal regulation also contained a
grandfather clause that lies at the center of the controversy in
this case, under which such otherwise misleading labels are
not prohibited, so long as the label was in use prior to July
1986 and the label discloses the true appellation of origin of
at least 75 percent of the grapes actually used to make the
wine inside the bottle. (/d., § 4.39(i)(2)(ii).)”°

* Underscoring this point, the BATF observed in the summary of its

decision that although “the requirement to comply with State laws and
regulations is removed as a Federal requirement,” still, “{t]he State laws
and regulations remain in effect and will continue to be enforced by the
agencies of the states involved in winemaking.” (51 Fed.Reg. 3773 (Jan.
30, 1986). italics added.)

Ww

See 27 Code of Federal Regulations section 4.39(i), quoted in full ante,
at footnote 7. As Bronco observes, in a notice of proposed rulemaking
issued in !984--two years prior to the BATF's adoption of the present
brand-name provision and its grandfather clause-the BATF stated that it
did not wish to adopt a regulation that “may be too restrictive.” (49
Fed Reg. 19330, 19331 (May 7, 1984).) After outlining four possible
regulatory responses to the brand-name problem, the BATF stated, in
reference to a possible rule strictly regulating the use of terms of
viticultural significance in brand names, its “belic|f that] the wine industry
should be allowed flexibility in selecting brand names under which to

S7a

In view of the BATF’s explicit acknowledgement, only
four months prior to its adoption of the provision at issue in
the present case, that the Oregon labeling regulations are
proper and enforceable (see 5/ Fed Reg. 3773, 3774 (Jan. 30,
1986)), it is reasonable to assume that the BATF, when it
adopted the grandfather clause, was aware of Oregon’s “more
stringent” geographic brand-name labeling rule. And yet the
BATF said nothing in its new provision or in its discussion of
that new rule to suggest that the new rule preempted Oregon’s
long-standing, closely related, and more stringent brand-name

labeling rule.

Accordingly, contrary to Bronco’s theory that the BATF
itself viewed or views its wine labeling regulations as
preempting more stringent state regulations, we conclude that
the history of the federal and Oregon wine labeling
regulations in the mid-1970s through the present reveals no
evidence of any such intent. Instead, that history strongly
indicates that the BATF has long contemplated that the states
will enforce their own stricter labeling requirements, and that
the agency did not and does not view its labeling regulations
aS preempting more stringent state regulations such as section
2524].

c. Amendment of the FAA Act in 1988, and corresponding
regulations, requiring health warning labels and expressly
preempting state regulation of such labels

market their products without having a whole class of brand names
become totally unusable.” (/d., at pp. 19331-19332, italics added.) As
explained post, part 11.D.1, Bronco suggests that this language supports a
conclusion that two years later, when the BATF adopted 27 Code o/
Federal Regulations section 4.39/i)(2)(ii) and concluded that the new rule
“will provide the industry with sufficient flexibility in designing their
labels, while at the same time providing consumers with protection from
any misleading impressions that might arise from the use of geographic
brand names” (5/ Fed Reg. 20480, 20482 (June 5, 1986)), the BATF, in
SO acting, engaged in a “careful balancing of federal policy objectives”
and intended to a//ow the kind of brand-name labeling here at issue.

58a

In 1988, Congress amended the FAA Act to require that
all wine labels (and the labels of other alcoholic beverages)
contain a warming on the back label, as follows:
“GOVERNMENT WARNING: (1) According to the Surgeon
General, women should not drink alcoholic beverages during
pregnancy because of the risk of birth defects. (2)
Consumption of alcoholic beverages impairs your ability to
drive a car or operate machinery, and may cause health
problems.” (27 U.S.C. § 2/5(a).) Congress gave the BATF
authority to issue appropriate regulations to enforce
Congress's will (id. § 2/5(b) & (d)), and, stressing the
perceived need in this particular area for Congress to
“exercise the full reach of the Federal Government's
constitutional powers in order to establish a comprehensive
Federal program” (27 U.S.C. § 2/3), further provided
expressly for federal preemption of such health warnings on
alcoholic beverage labels: ““No statement relating to alcoholic
beverages and health, other than the statement required by
section 215 of this title, shall be required under State law to
be placed on any container of an alcoholic beverage ... .” (/d.,
§ 2/6.) The BATF responded by adopting implementing
regulations (see 27 C.F.R. § 16.20 et seq.) as well as a
provision expressly reaffirming the preemptive effect of that
regulation. (/d., § 16.32.)

As the United States Supreme Court has observed, “‘an
express definition of the pre-emptive reach of a statute ...
supports a reasonable inference ... that Congress did not
intend to pre-empt other matters.”” (Lorillard Tobacco Co. v.
Reilly (2001) 533 U.S. 525, 541 [150 L. Ed. 2d 532, 121 S.
Ct. 2404], quoting Freightliner Corp. v. Myrick (1995) 514
U.S. 280, 288 [131 L. Ed. 2d 385, 115 S. Ct. 1483]; accord,
Bass River Associates v. Mayor, Tp. Com'r (3d Cir. 1984)
743 F.2d 159, 162 [“it is of some interest and no smal]
significance that a provision in the same title does provide for
federal preemption of state and local laws or regulations ...
A

59a

This inference and these observations are especially apt
here, in light of the history described above, which strongly
suggests (i) no intent on the part of Congress, in 1935 or
thereafter, to preempt any other category of state wine label
laws and (ii) the BATF’s acknowledgement of, and apparent -
acquiescence in, the more stringent wine labeling laws of the
states, and specifically those of Oregon. Indeed if Congress,
as Bronco asserts, by enactment of the FAA Act in 1935,
already had generally preempted state regulation of wine
labels, there would have been no need for any express
preemption clause or preemption regulation with respect to
the 1988 health warnings for wine labels.

Once again, this history reveals no evidence of any clear
or manifest intent on the part of Congress or the BATF to
preempt state wine labeling regulation such as section 25241.
Instead, the history supports an opposite inference that neither
Congress nor the BATF intended to preempt state wine
labeling laws such as section 25241.

D.

Having concluded that Bronco has failed to carry its
burden of establishing clear or manifest intent on the part of
Congress, or congressional intent as interpreted by the BA1F,
to preempt the traditional exercise of state police power such
as the wine labeling regulation found in section 25241], we
proceed under the presumption that no such preemption was
intended. We bear this presumption in mind when we
consider below Bronco’s assertion that section 25241, by
imposing a labeling requirement that is more exacting than
the federal requirement, is impiiedly preempted by federal
law.

1. Does section 25241, by prohibiting, with respect to Napa
County, what the federal grandfather clause does not
prohibit, stand as an obstacle to the accomplishment and
execution of the full purposes and objectives of Congress?

60a

In support of its assertion that section 25241 frustrates the
full purposes and objectives of federal law, Bronco cites
various cases in which courts have made such (or similar)
findings in other contexts. (Geier, supra, 529 U.S. 861, 881
[state tort action based upon failure to equip automobile with
airbags would frustrate federal highway safety standards
permitting car makers to employ passive restraint devices
other than airbags]; Barnett Bank, supra, 517 U.S. 25, 31
[state statute barring national bank from selling insurance
would obstruct federal statute that permitted, but did not
require, national banks to sell insurance]; Lawrence County,
supra, 469 U.S. 256, 260-268 [state law requiring certain
method of distribution of federal funds held to obstruct
federal statute that was designed to provide local governments
freedom to spend those federal funds “as they saw fit”);
McDermott v. Wisconsin (1913) 228 U.S. 115, 129 [57 L. Ed.
754, 33 S. Ct. 431] [state statute that required removal of
certain labels on syrup was preempted by federal statute
under which such labels had been approved}; Dowhal, supra,
32 Cal.4th 910, 929, 935 [state law warnings concerning
nicotine frustrated the purposes of the federal Food, Drug &
Cosmetic Act).)

The Department and the NVVA, by contrast, distinguish
each of these cases and rely instead primarily upon Sprietsma
v. Mercury Marine (2002) 537 U.S. 51, 68-70 [154 L. Ed. 2d
466, 123 S. Ct. 518], in which the high court declined to find
preemption of a state tort action seeking to impose standards
for boat propeller guards, even in the ace of a decision by
federal authorities not to impose any general or universal
propeller guard requirements. See also, e.g., California
Coastal Comm'n v. Granite Rock Co. (1987) 480 U.S. 572,
582-584 [94 L. Ed. 2d 577, 107 S. Ct. 1419] (Granite Rock
Co.) [federal approval of mining project was not frustrated by
California’s stricter environmental requirements; indeed, the
federal regulations assumed the applicability of the state
regulations}; Hillsborough County v. Automated Medical

6la

Labs. (1985) 471 U.S. 707, 720-721 [85 L. Ed. 2d 714, 105 S.
Ct. 2371] (Hillsborough County) {stricter local regulations
concerning plasma donors posed no serious obstacle to related
federal regulations}; cf. Exxon Corp. v. Governor of
Maryland (1978) 437 U.S. 117, 132 [57 L. Ed. 2d 91, 98 S.
Ct. 2207] (Exxon) (no preemption of state discriminatory
pricing regulations barring conduct that triggered a limited
defense under federal law].)

Bronco asserts that section 2524] frustrates the purposes
of Congress, or at least of the BATF’s regulation establishing
a grandfather clause (§ C.F.R. 4.39(i)(2)(ii)), in “four
interrelated ways.” Bronco argues: (i) Section 2524] prohibits
precisely what the regulation establishing the grandfather
clause “expressly and unambiguously authorizes”, (ii) the
regulation establishing the grandfather clause “embodies a
specific determination by federal regulators that the use of
established geographical brand names for wines from a
variety of appellation areas would not be misleading ifthe
labels also featured the true appellation of origin”; (iii) the
regulation establishing the grandfather clause “reflects a
careful balancing of federal policy objectives” and a
determination by the BATF that the regulations should not
render a “whole class” of established brand names “totally
unusable” (see ante, fn. 70); and (iv) the BATF, in adopting
its rule and regulation establishing a grandfather clause,
expressly rejected as “too restrictive” a general rule that
would have confined the use of established geographic brand
names to wines made from the region referred to in the brand
name.

-In reply, the Department and the NVVA assert that
section 25241 is in aid of, and consistent with, Congress's
general and overriding purpose in adopting United States
Code section 205(e) in 1935--namely, the prevention of
consumer deception relating to wine labeling. The
Department and the NVVA claim that Bronco has failed to
identify any congressional purpose with-which section 25241

62a

interferes. In this respect, the NVVA argues, “[t]he assertion
that the grandfather clause represents a ‘deliberate federal
policy determination’ or ‘regulatory balance’ assumes that
Congress or [the] BATF identified some affirmative reason
that the government of the United States wanted Bronco to be
able to sell wine made from non-Napa grapes under labels
saying “Napa.’” The Department asserts there is no support
for the proposition that federal regulators have concluded that
in all cases, the presence of a true appellation of origin dispels
the effects of misrepresentations reflected in a brand name.

Both the Department and the NVVA acknowledge that in
1984 the BATF, in discussing various options for addressing
the problems posed by geographic brand names, asserted that
it did not believe it appropriate to issue regulations that “may
be too restrictive” or render “totally unusable” a “whole
class” of brand-name labels. (See ante, fn. 70.) But, the
Department and the NVAA argue, those statements suggest at
most that the BATF did not believe it prudent to impose a
national, or total, ban on the use of existing brand labels that
suggested an origin of wine different from the a. ual origin of
the grapes used in making the wine. The Department and the
NVVA argue that the circumstance that the BATF did not see
fit “totally” to eliminate a “wh« — class” of existing labels on
a national basis without regard to the policies of a particular
state does not provide evidence establishing that section
25241 frustrates any significant federal purpose. In this
respect, the NVVA asserts that when, as here, the objectives
of the state legislature are identical to the overriding purpose
of section 205(e) of the FAA Act (protecting consumers from
misleading wine labels), “in the absence of preemptive intent,
the fact that [the] BATF may have balanced federal policies
and arrived at a particular result does not prevent California
from considering its own local policies and needs and passing
its own [more stringent} laws.” Finally, the Department and
the NVVA observe that the BATF apparently never
contemplated, much less rejected, any area-specific

63a

exemption from the federal grandfather clause, such as ts
found in section 2524/°s special Napa County labeling rule.
The NVVA concludes, “There is no evidence that [the] BATF
consicered the limited consumer protection provided by the
grandfather clause to be sufficient to protect consumers in alli
cases, or intended to prevent states from preventing the kind
of abuses which Bronco and other opportunistic winemakers
could perpetuate under the grandfather clause.”

In view of Bronco’s repeated suggestions that we should
be influenced in our assessment "y the circumstance that the
federal regulations at issue are part of a comprehensive
scheme, in resolving these conflicting views concerning
whether section 25241 stands as an obstacle to the
accomplishment and execution of the full purposes and
objectives of Congress we bear in mind the high court’s
admonition in Hillsborough County, supra, 471 U.S. 707,
717: “We are even more reluctant to infer pre-emption from
the comprehensiveness of regulations than from the
comprehensiveness of statutes. As a result of their
specialized functions, agencies normally deal with problems
in far more detail than does Congress. To infer pre-emption
whenever an agency deals with a problem comprehensively is
virtually tantamount to saying that whenever a federal agency
decides to step into a field, its regulations will be exclusive.
Such a rule, of course, would be inconsistent with the federal-
state balance embodied in our Supremacy Clause
jurisprudence. See Jones/, supra], 430 U.S. [519] at 525.
Moreover, because agencies normally address problems in a
detailed manner and can speak through a variety of means,
including regulations, preambles, interpretive siatements, and
responses to comments, we can expect that they will make
their intentions clear if they intend for their regulations to be
exclusive.” (Italics added.)

In addition, we are guided by the high court’s observation
in Crosby, supra, 530 U.S. 363, 373, that what constitutes a
“sufficient obstacle [for a finding of implied preemption] is a

64a

matter of judgment, to be informed by examining the federal
statute as a whole and identifying its purpose and intended
effects.” (Italics added.) The high court also has explained
that our inquiry in this regard “requires us to consider the
relationship between state and federal laws as they are
interpreted and applied, not merely as they are written.”
(Jones, supra, 430 U.S. 519, 526, italics added.)

We question Bronco's characterization of the state statute
as prohibiting “precisely what [the regulation establishing the
grandfather clause] authorizes.” (Italics added.) As the
NVVA asserted at oral argument and as we observed in Cel-
Tech Communications, Inc. v. Los Angeles Cellular
Telephone Co. (1999) 20 Cal.4th 163, 183 [83 Cal. Rptr. 2d
548, 973 P.2d 527], “[t}here is a difference between (1) not
making an activity unlawful, and (2) making that activity
lawful.” In our view it is more accurate to characterize the
State statute as prohibiting--with respect to Napa County--
what the federal regulation’s grandfather clause does not
prohibit.

In any event, Bronco's repeated emphasis upon an alleged
federal “authorization” presents a myopic and oversimplified
analysis. The crucial question is, instead, whether the state
rule would stand as an obstacle to the accomplishment and
execution of the full purposes and objectives of Congress.
Tuming to that question, we agree with the Department and
the NVVA that section 2524/ is consistent with Congress's
overall purpose in enacting 27 United States Code section
205(e)--that is, to “insure that the purchaser should get what
he thought he was getting, [and] that the representations both
on labels and in advertising should be honest and
straightforward and truthful.” (Hearings before House Com.
on Ways and Means on H.R. No. 8539 [Fed. Alcohol Control
Act] (1935), testimony of Joseph H. Choate, former Chairman
of the FAC Admin., 74th Cong., Ist Sess., at p. 10; H.R. Rep.
No. 1542, 74th Cong., Ist Sess., p. 3 (1935) [highlighting
deceptive labeling practices}; 79 Cong. Rec. (1935) 11714

65a

[same].) The state statute also is consistent with the
recognition that the FAA Act was necessary in order to “do
something to supplement legislation by the States to carry out
their own policies” because the states “alone cannot do the
whole job.” (Remarks of Rep. Cullen on H.R. No. 8539, 74th
Cong., Ist Sess., 79 Cong. Rec. (1935) 11714.) For the
reasons set forth above by the Department and the NVVA, we
find that section 2524] does not stand as an obstacle to the
accomplishment and execution of the full purposes and
objectives of Congress.

In reaching this determination, we also are persuaded by
the apparent congressional and regulatory acquiescence in
California's long-standing regulations applicable to the
labeling of wines produced in California. This acquiescence
militates against concluding that California’s section 25241,
enacted in 2000, constitutes a “sufficient obstacle” supporting
a finding of implied preemption based upon a theory of
frustration of federal purpose. Indeed, any doubt that we may
have had in this regard is dispelled by the related history of
Oregon's corresponding geographic brand-name labeling
regulation, which, as explained above, since 1977 has
imposed a rule far stricter than the federal rule that existed in
the mid-1970s and, like the California statute now under
review, also established a regulation far more stringent than
that set forth, effective in 1986, under the federal grandfather
clause. In other words, like the California statute, the Oregon
brand-name regulation prohibits for certain Oregon names
what the federal grandfather does not prohibit.

As explained above, the BATF long has been aware of
these stricter state law brand-name labeling regulations, and,
far from suggesting that their enforcement would frustrate any

federal purpose, the BATF expressly has stated its
understanding that such labeling regulation will be enforced

”” We note that the BATF has not been reluctant to commit its thoughts to
public view through publication of proposed rules and related comments
in the Federal Register

66a

by the states. In this setting, the BATF’s failure to question
the enforcement of these more stringent state regulations
while instead acknowledging generally the propriety of such
regulations--suggests that the BATF, the expert body charged
with the enforcement of 27 United States Code section
205(e), does not view these state regulations as being
preempted by federal law, and also does not view them as
posing an obstacle to the accomplishment and execution of
the full purposes and objectives of Congress. (See, ¢.g.,
Hillsborough County, supra, 471 U.S. 707, 721 [because “the
agency has not suggested that the county ordinances interfere
with federal goals, we are reluctant in the absence of strong
evidence to find a threat to the federal goal of ensuring
sufficient plasma™]; accord, Granite Rock Co., supra, 480
U.S. 572, 582-583 [“If, as Granite Rock claims, it is the
federal intent that Granite Rock conduct its mining
unhindered by state environmentai regulation, one would
expect to find the expression of this intent in these Forest
Service regulations” ].)

We find nothing in the history of the underlying federal
statute or the federal regulations suggesting that, although the
BATF may have determined that as a general matter its
grandfather clause was appropriate so as to avoid destroying
an “entire class” of brand-name labels, states would or should
be precluded from adopting more stringent brand-name
labeling requirements as necessary to address local concerns.
See Olszewski, supra, 30 Cal.4th 798, 815 [the presumption
against preemption “‘reinforces the appropriateness of a
narrow reading of” assertedly preempting language]; accord,
Cipollone v. Liggett Group, Inc. (1992) 505 U.S. 504, 518
[120 L. Ed. 2d 407, 112 S. Ct. 2608]; Medtronic, supra, 518
U.S. 470, 485; cf. Exxon, supra, 437 U.S. 117, 132 [“it is
illogical to infer that by excluding certain competitive
behavior from the general ban against discriminatory pricing,
Congress intended to pre-empt the States’ power to prohibit
any conduct within that exclusion”].) or the reasons set forth

67a

above, we conclude that the state labeling rule in question
does not frustrate Congress's intent or stand as an obstacle to
the accomplishment and execution of the full purposes and
objectives of Congress.”

2. Does section 25241, by imposing additional conditions not
required for the issuance of a federal COLA, stand as an
obstacle to the accomplishment and execution of the full
purposes and objectives of Congress?

Bronco also asserts that section 2524/ is impliedly
preempted because, it is claimed, the statute imposes
additional conditions not required by federal COLAs and
thereby nullifies an asserted “right” or federal “license” to
market wine in interstate and foreign commerce. In support,
Bronco relies upon numerous cases holding, on the facts
presented, that a state may not, by its own regulations, impair
rights granted under a federal license or permit. E.g.,
Gibbons v. Ogden (1824) 22 U.S. 1 [6 L. Ed. 23] {federal
steamboat license preempted New York statute barring
passage between New Jersey and New York]; Ray, supra, 435
U.S. 151, 164-165 [federal permit authorizing a vessel to
carry cargo in United States waters prevails over the contrary
state judgment); Sperry v. Florida (1963) 373 U.S. 379, 385
[10 L. Ed. 2d 428, 83 §. Ct. 1322, 1963 Dec. Comm'r Pat.
211] (state statute barring unauthorized practice of law could
not be applied to nonlawyers licensed under federal law to
prosecute patents]; Leslie Miller, Inc. v. Arkansas (1956) 352
U.S. 187, 188-190 [1 L. Ed. 2d 231, 77 S. Ct. 257] {state
licensing law could not be applied so as to effectively allow

" For similar reasons, we find unpersuasive the related arguments of
amici curiae on behalf of Bronco, that section 25241] stands as an obstacle
to the accomplishment and execution of the full purposes and objectives
of Congress, because the statute assertedly (i) “impairs the long-standing
national policy favoring uniform and consistent federal wine labeling
regulations,” (ii) “impairs the consistent federal policy permitting
continued use of established brands,” and (iii) “will frustrate the United
States’ ability to protect established brands and trademarks in ongoing
trade nego’. . ons.”

68a

state to declare “irresponsible” a contractor certified by the
federal government as “responsible”)}; Castle v. Hayes Freight
Lines, Inc. (1954) 348 U.S. 61, 64 [99 L. Ed. 68, 75 S. Ct.
191] {state could not bar federally licensed truck driver from
its roads for repeated violations of state traffic laws]; First
lowa Coop. v. Power Comm'n (1946) 328 U.S. 152, 164-167
[90 L. Ed. 1143, 66 S. Ct. 906] [federal permit issued for
interstate utility project precluded state attempt to proscribe
project}.)

The Department and the NVVA, asserting that these cases
are distinguishable, rely upon other high court cases holding
that, in certain circumstances, possession of a federal license
does not confer immunity “from the operation of the normal
incidents of local police power.” (Huron Cement Co. v.
Detroit (1960) 362 U.S. 440, 447 [4 L. Ed. 2d 852, 80S. Ct.
8/3] [upholding enforcement of city’s smoke abatement
ordinance against federally licensed vessels]; see also
Florida Avocado, supra, 373 U.S. 132, 141 [upholding
California’s right to enforce regulations prohibiting the sale of
certain federally approved Florida avocados]; Medtronic,
supra, 518 U.S. 470, 492-494 [federal approval of medical
device did not preempt state action claiming the approved
device was defectively designed]; Granite Rock Co., supra,
480 U.S. 572, 582-583 (federal approval of mining project did
not preempt California’s _ stricter environmental
requirements]; Pacific Gas & Elec. v. Energy Resources
Comm'n (1983) 461 U.S. 190, 222-223 [75 L. Ed. 2d 752.
103 S. Ct. 1713] (federal nuclear power plant license did not
preempt stricter state licensing requirements].)

These licensing cases in essence present the same issue
discussed above, namely, whether the state regulation stands
as an obstacle to the accomplishment and execution of the full
purposes and objectives of Congress. But as both the
Department and the NVVA observe, it is quite doubtful that a
federal COLA issued pursuant to 27 United States Code
section 205(e) and the corresponding wine label certificate

-69a

regulations (27 C.F.R. § 4.50 et seq.) are equivalent to the
licenses or permits at issue in the cases upon which Bronco
relies, and Bronco does not provide any convincing authority
suggesting that a COLA constitutes a license or permit as
understood in those cases. Indeed, it is apparent from the
FAA Act itself, and from the corresponding regulations, that
both Congress and the BATF well understand the distinction
between a license or permit, on one hand, and a COLA, on -
the other. Congress requires wine importers, producers, and
wholesalers to secure a “basic permit” (27 U.S.C. § 203(a)-
(c); see also id., § 204 (setting forth permit procedures]), and
the BATF has adopted extensive corresponding regulations
concerning such permits (27 C.F.R. §§ /.20-1.59). By
contrast, nowhere in the separate COLA procedures set forth
in 27 United States Code section 205(e), or the extensive
COLA regulations (27 C.F.R. §§ 4.50-4.52, 13.1-13.92), does
Congress or the BATF even imply that a COLA constitutes a
license or permit. Quite the contrary.

As explained above, it is evident that the BATF envisions
that states will enforce their own labeling laws to the extent
they impose more stringent requirements, and that BATF
generally views its role as being confined to ensuring
compliance with the bare terms of federal labeling law. (See,
e.g., 51 Fed Reg. 3773, 3774, discussed ante, at pt. I1.C.2.b.)
As the NVVA observes, the BATF itself has confirmed this
view of its enforcement authority and of any resulting COLA
that it issues by noting, on its COLA application form, that
the BATF uses the form only for its own federal enforcement
duties but that it may share the information supplied to state
regulators “to aid in the performance of their duties.” (Dept.
of Treas., Alcohol and Tobacco Tax Trade Bur., Application
for and Certification/Exemption of Label/Bottle Approval,
TTB F 5100.31 (4/2004), p. 3 [as of Aug. 5, 2004].)

Nor, contrary to the assertions of Bronco and suggestions
by the Court of Appeal below, can a COLA properly be

70a

viewed as conferring a “right” on the holder to market wines
in interstate or foreign commerce so long as the bare BATF
labeling regulations are satisfied. The BATF itself has
observed that a “certificate of label approval was never
intended to convey any type of proprietary interest to the
certificate holder” and that a certificate “‘is issued for
[BJATF use only...’ The certificate of label approval is a
statutorily mandated tool used to help the [B]ATF in its
enforcement of the labeling requirements of the FAA Act.”
(64 Fed. Reg. 2122, 2123 (Jan. 13, 1999).) As the New Jersey
Supreme Court observed in a related context, a COLA “goes
no further than evidencing compliance with [federal
regulatory} standards imposed only for the purposes
mentioned in the valid exercise of federal authority.” (Boller
Beverages, Inc. v. Davis (1962) 38 N.J. 138 [183 A.2d 64,
69].)
Ill.

Bronco has failed to carry its burden of demonstrating
federal preemption of a long-established and legitimate
exercise of state police power with respect to the subject
regulated by section 2524]. As we have seen, there is no
express preemption in the present context, and Bronco’s
assertions of implied preemption are contradicted by the long
history we have described of concurrent state and federal
regulation of wine labels including, historically, the
“epresentations appearing on labels suggesting the place of
origin of the grapes used to make wine. Nor has “ronco
succeeded in providing any persuasive indication that this
long-standing concurrent regulatory scheme no longer is
compatible with Congress’s overall purposes which have
been to support the states’ efforts to protect consumers from
misleading labeling, not to permit the type of labeling at issue
here. Finally, Bronco has not established that, by purchasing
a brand name that had been used prior to 1986, it acquired a
federally recognized right or license exempting it from stricter
State regulation.

Tla

California is recognized as a preeminent producer of
wine, and the geographic source of its wines reflecting the
attributes of distinctive locales, particularly the Napa Valley--
forms a very significant basis upon which consumers
worldwide evaluate expected quality when making a
purchase. We do not find it surprising that Congress, in its
effort to provide minimum standards for wine labels, would
not foreclose a state with particular expertise and interest
from providing stricter protection for consumers in order to
ensure the integrity of its wine industry.

For the reasons set forth above, we reverse the judgment
of the Court of Appeal and remand the case to that court to
enable it to address Bronco’s remaining claims.

Kennard, J., Baxter, J., Chin J., Brown, J., Moreno, J., and
Swager, J.P.T., concurred.

APPENDIX

72a
APPENDIX B

29 Cal. Rptr. 3d 462

IN THE COURT OF APPEAL OF THE STATE OF
CALIFORNIA
THIRD APPELLATE DISTRICT
(Sacramento)

BRONCO WINE COMPANY et al.,
Petitioners,
Vv.
JERRY R. JOLLY, as Director, etc., et al.,
Respondents: ,
NAPA VALLEY VINTNERS ASSOCIATION,
Intervenor.

| No. C037254.

May 26, 2005.
OPINION ON REMAND
AS MODIFIED ON DENIAL OF REHEARING, JUNE 20,
2005
PETITION FOR REVIEW DENIED, AUGUST 24, 2005

ORIGINAL PROCEEDING: Application for Writ of
Mandate. Writ denied.

Howard, Rice, Nemerovski, Canady, Falk & Rabkin,
Jerome B. Falk, Jr., Steven L. Mayer; Ropes & Gray, Peter
M. Brody, for Petitioners.

Bill Lockyer, Attorney General, Miguel A. Neri, Fiel
Tigno, Supervising Deputy Attorneys General, Terry Senne,
Deputy Attorney General, for Respondents.

Dickenson, Peatman & Fogarty, Richard P.
Mendelson and Deborah E. Quick; Horvitz & Levy, Ellis J.
Horvitz; Kathleen M. Sullivan, for Intervenor.

73a

Bronco Wine Company and Barrel Ten Quarter
Circle, Inc. (collectively Bronco) filed a petition for writ of
mandate, invoking our origina! jurisdiction. It seeks
declaratory and injunctive relief barring application of the
labeling requirements of Business and Professions Code
section 25241 to wines produced by Bronco that are destined
for interstate commerce because the section is in conflict with
Bronco’s federally approved certificates of label approval
(COLA). '

Bronco possesses COLAs for the brand names “Napa
Ridge,” “Rutherford Vintners,” and “Napa Creek Winery,”
which authorize the distribution in interstate commerce of
wine bearing these brand names if the true appellation of
origin of the grapes used in making the wine appears on the
label.”

Section 25241 prohibits the use of a brand name with
the word “Napa,” or any federally recognized viticultural
region within Napa County, on the label, packaging material,
or advertising of wine produced, bottled, labeled, offered for
sale or sold in California, unless at least 75 percent of the
grapes used to make the wine are from Napa County, or 85
percent of the grapes used to make the wine are from a
viticultural region within Napa County. The statute applies to
wine destined for both intrastate and interstate commerce.

We issued a judgment invalidating section 25241 as
preempted by federal law because it was in conflict with
Bronco’s federally approved COLAs. The Supreme Court
reversed the judgment and remanded the case for
consideration of Bronco’s remaining claims that section
25241 violates the free speech provisions of the state and

' All further section references are to the Business and Professions Code

unless otherwise specified.
2

An appellation of origin specifies the geographic area where the grapes
used to produce the wine are grown. (Bronco Wine, supra, 33 Cal.4th at
p. 951.)

74a

federal constitutions and the commerce and takings clauses of
the federal constitution. Bronco Wine Company v. Jolly
(2004) 33 Cal.4th 943 (hereafter Bronco Wine).)

We shall deny Bronco’s free speech claims on the
ground section 25241 is a valid regulation of inherently
misleading commercial speech.

We shall deny Bronco’s claim the commerce clause
invalidates section 25241 on two allied grounds. First, as
construed by Bronco Wine, supra, the federal law authorizes
or contemplates that California may establish stricter wine
labeling requirements for wine destined for interstate
distribution. Second, the state’s interests in protecting
California wine consumers from misleading brand names of
viticultural significance and in preserving and maintaining the
reputation and integrity of its wine industry in out-of-state
and foreign markets outweigh the indirect effect of section
25241 on interstate commerce.

Failing its commerce clause and free speech claims,
Bronco claims section 25241 effects a total taking of its
federal COLAs, in violation of the takings ciause of the
federal constitution, because it effectively nullifies the total
value of the COLAs issued for any brand name that contains a
true appellation of origin outside Napa County. We shall
deny the challenge because section 25241 does not bar
Bronco from using its brand names under all circumstances
and because Bronco has failed to establish the statute has
destroyed the substantial economic value of the brand names.

Factual and Procedural Background

According to Bronco, it specializes in “premium
wines at affordable prices.” Some of Bronco’s wine is bottled
at its wineries in Ceres and Sonoma County; other Bronco
wines are bottled under contract by Barrel Ten Quarter Circle,
Inc. at a recently completed winery in Napa, California.

7Sa

Bronco sells its wine to wholesalers and much of it is destined
for interstate commerce.

Bronco’s wines are bottled and distributed under some
30 labels or brand names. All of the labels have been
reviewed and approved by federal regulators from the Bureau
of Alcohol, Tobacco, and Firearms (BATF) and COLAs were
issued authorizing the use of the labels. (27 C.F.R. §§ 13.1-
13.92 (2002)’.) We discuss the nature of a COLA in greater
detail in Part [I] of the Discussion.

Among Bronco’s brands that fall within the class of
“brand names of viticultural significance” are “Napa Ridge,”
“Napa Creek Winery,” and “Rutherford Vintners” (hereafter
Brands). The Brands collectively appear on hundreds of
federally approved labels. Examples of current labels used by
petitioners bearing these Brand names can be seen in the
appendix to Bronco Wine, supra, 33 Cal.4th at page 998. The
brand name appears prominently at the top of each label.
Below the brand name appears the designation of the wine,
i.e. the grape varietal (White Merlot, Chardonnay, and Merlot
respectively), and below that appears the appellation of origin
of the grapes used in the wine (Lodi, Lodi, and Stanislaus
County respectively).

Bronco acquired the Brand names and the labels on
which they appear from predecessor owners. The Napa
Creek Winery brand name was introduced in 1981 and was
acquired by Bronco in 1993. Rutherford Vintners originated
in the early 1970s and was acquired by Bronco in 1994. The
Napa Ridge brand name has been in trade since the early
1980's. Bronco purchased that name from Beringer Wine
Estates in January 2000 for over $40 million.

Beringer was granted COLAs -for Napa Ridge and

* All further citations to the Code of Federal Regulations are to the 2003
edition unless otherwise noted.

* Bronco owns federal trademark registrations for “Napa Ridge” and
“Napa Creek Winery.”

76a

used that name with wines made from grapes grown in the
Central Coast, North Coast, and Lodi appellation areas, as
well as the Napa Valley appellation area.’ The labels on the
Beringer wines displayed a true and correct appellation of
origin disclosing the place where the grapes used to produce
the wine were grown. The wine sold by the prior owner of
the Napa Creek Winery brand name and most of the wines
previously sold by the prior owner of the Rutherford Vintners
brand name had been made from Napa County grapes. (See
Bronco Wine, supra, 33 Cal.4th at p. 951.)

By contrast, Bronco has marketed its wine under all
three Brands with wine made from grapes grown entirely
outside Napa County. (Bronco Wine, supra, 33 Cal.4th at pp.
951-952.) Bronco’s annual sales of wines under these Brands
amount to 300,000 cases with annual gross revenues of $17
million. Of this amount, approximately 28 percent is
attributable to sales within California and the remaining 72
percent is attributable to sales outside California.

More recently, the Bronco bottling facility in Napa
County was completed and will have an annual production
capacity of 44.8 million gallons of wine or 18 million cases
when the facility is at full capacity. Although that level has
not yet been reached, the potential output is double the 9
million cases of wine produced annually by Napa Valley
wineries. (See Bronco Wine, supra, 33 Cal.4th at p. 950.)

Prior to 2000 California generally incorporated the
federal standards for wine labels for all purposes. (Cal. Code
Regs. tit. 17, § 17075. In 2000, the Legislature enacted
section 25241 after receiving substantial public comment and
conducting public hearings. (Stats. 2000, ch. 831, § 1.) The
operative provision states in pertinent part: “No wine

* At oral argument counsel for Bronco asserted that Beringer marketed a
high volume of wine made from non-Napa County grapes under the Napa
Ridge label. However, counsel failed to provide a citation to the record to
confirm thts claim. We decline to consider it.

77a

produced, bottled, labeled, offered for sale or sold in
California shall use, in a brand name or otherwise, on any
label, packaging material, or advertising, any of the names of
viticultural significance listed in subdivision (c), unless that
wine qualifies under Section 4.25a (now section 4.25°} of
Title 27 of the Code of Federal Regulations for the
appellation of origin Napa County and includes on the label,
packaging material, and advertising that appellation or a
viticultural area appellation of origin that is located entirely
within Napa County, subject to compliance with Section
25240.” (§ 25241, subd. (b).)

In support of this enactment, the Legislature made the
following findings: “(a)(1) . . . for more than a century, Napa
Valley and Napa County have been widely recognized for
producing grapes and wine of the highest quality. Both
consumers and the wine industry understand the name Napa
County and the viticultural area appellations of origin
contained within Napa County (collectively ‘Napa
appellations’) as denoting that the wine was created with the
distinctive grapes grown in Napa County. [{] (2) The
Legislature finds, however, that certain producers are using
Napa appellations on labels, on packaging materials, and in
advertising for wines that are not made from grapes grown in
Napa County, and that consumers are confused and deceived
by these practices. [§] (3) The Legislature further finds that
legislation is necessary to eliminate these misleading
practices. It is the intent of the Legislature to assure
consumers that the wines produced or sold in the state with
brand names, packaging materials, or advertising referring to
Napa appellations in fact qualify for the Napa County
appellation of origin.” (§ 25241, subd. (a).)

6

Under the federal regulations, an American Viticultural Area (AVA) is
defined as “{a] delimited grape growing region distinguishable by
geographical features, the boundaries of which have been recognized and
defined... . (27 C.F.R. § 4.25(e)(1){i).) To qualify to use an AVA ona
wine label, no less than 85 percent of the wine must be made with grapes
grown within that viticultural avea. (27 C.F.R. § 4.25(e)(3)(11).)

78a

The Legislative history discloses that section 2524]
was designed to halt the sale and advertisement of wine
bearing the prohibited Brands by closing a so-called
“loophole” created by an exception in the federal wine
labeling regulatory scheme, referred to as the “grandfather
clause.” (Bronco Wine, supra, 33 Cal.4th at p. 953.) While
the federal regulations governing brand names are generally
coextensive with the prohibition expressed in section 2524]
(see 27 C.F.R. § 4.39(i)(1) [“ . . . a brand name of viticultural
significance may not be used unless the wine meets the
appellation of origin requirements for the geographic area
named”}), the federal regulations except from this rule “brand
names used in existing certificates of label approval issued
prior to July 7, 1986.” (27 C.F.R. § 4.39(i)(2).) These
excepted brand names may be used as long as the label states
the correct appeliation of origin or some other statement that
is “sufficient to dispel the impression that the geographic area
suggested by the brand name is indicative of the origin of the
wine.” (27 C.F.R. § 4.39(i)(2)(B)(iii).) Petitioners’ labels
comply with this exception by specifying the correct
appellation of origin, i.c., Lodi or Stanislaus County.

Pursuant to an inquiry by Bronco made after passage
of section 25241, the Department of Alcoholic Beverage
Control (the Department) advised Bronco that it intended “to
enforce Section 25241 pursuant to its terms” and that if
Bronco continues to use its labels in violation of section
25241, “the Department may take disciplinary action against
the license of Bronco Wine Company, up to and including
revocation of [Bronco's] license.”

On December 22, 2000, Bronco filed an original
petition for writ of mandate in this court seeking to enjoin
respondents (the Department and its then Interim Director,
Manuel R. Espinoza, currently Jerry R. Jolly, Director) from

’ The legislative history is repicte with statements regarding the

worldwide reputation of Napa Valley wines and the necessity of closing
the federa! loophoie to protect that reputation.

79a

enforcing section 25241. Bronco asserted that section 25241
was preempted by the grandfather clause of 27 Code of
Federal Regulations section 4.39(1)(2), and that it violated its
rights of free speech under the California and United States
Constitutions, the commerce clause, and the takings clause of
the Fifth Amendment to the United States Constitution.
Without addressing the last three claims, we issued a
peremptory writ of mandate after finding that section 25241 is
preempted by federal law.

On respondent's petition for review, the California
Supreme Court reve the judgment, finding that section
25241 prohibits what| federal law does not prohibit and
concluding the section does not stand as an obstacle to the
accomplishment and execution of the purpose and objectives
of federal law because there is a long history of concurrent
state and federal regulation of wine labels, including the
regulation of brand names that suggest the place of origin of
the grapes used in making the wine. (Bronco Wine, supra, 33
Cal.4th at pp. 992, 995-997.) The court reversed the
judgment and remanded the case to this court to address
Bronco’s remaining constitutional claims. (Bronco Wine,
supra, 33 Cal.4th at p. 997.)

We do so.

Discussion
I
Free Speech

We begin with the free speech claims because the
analysis of the interests served by the California legislation
are a predicate to the analysis of the commerce clause and
takings claims.

Bronco contends section 25241 violates its free speech
rights under the United States and California Constitutions.” It

* Citing few California cases and without engaging in any meaningful
analysis under California law, Bronco claims section 25241 violates its

80a

argues the Legislature had insufficient evidence before it to
reasonably conclude that its brand names of viticultural
significance are misleading or ihat Bronco’s labels are
inherently misleading. It further argues that section 25241 is
a content-based regulation subject to strict scrutiny, but also
fails the less rigorous test applied to commercial speech under
Central Hudson Gas & Electric Corporation v. Public
Service Commission of New York (1980) 447 U.S. 557 [65
L.Ed.2d 341] (Central Hudson).

Respondents contend section 25241 is a regulation of
deceptive and misleading commercial speech that is not
entitled to First Amendment protection. We agree with
respondent.

Under the First Amendment to the United States
Constitution,’ commercial speech is entitled to protection
from governmental regulation (Virginia State Board of
Pharmacy v. Virginia Citizens Consumer Council (1976) 425
U.S. 748, 762 [48 L.Ed.2d 346, 358-359]), although it is
entitled to less protection than other constitutionally
guaranteed speech. (Central Hudson, supra, 447 U.S. at pp.
563, 566 [65 L.Ed.2d 349, 351]; Lorillard Tobacco Company
v. Reilly et al. (2001) 533 U.S. 525, 555 [150 L.Ed.2d 532,
559] (Lorillard Tobacco Co.)

Commercial speech is “expression related solely to the
economic interests of the speaker and its audience” (Central

free speech rights under the California Constitution. While the California
provision protecting free speech rights (art. I, § 2, subd. (a)), has been
construed as “*more definitive and inclusive than the First Amendment"
(Robins v. Pruneyard Shopping Center (1979) 23 Cal.3d 899, 908, quoting
Wilson v. Superior Court (1975) 13 Cal.3d 652, 658), Bronco cites no
California cases holding the California provision broader with respect to
false, deceptive, or misleading commercial speech. Because this case
involves inherently misleading commercial speech, we will confine our
analysis to petitioners’ First Amendment claims.

* The First Amendment provides in pertinent part: “Congress shall make
no law . . . abridging the freedom of speech . . . (U.S. Const., Ist Amend.)

8la

Hudson, supra, 447 U.S. at p. 5€ [65 L.Ed.2d at p. 348]) and
“does no more than propose a .ommercial transaction... .”
(Va. State Ed. of Pharmacy v. Va. Citizens Consumer
Council, supra, 425 U.S. at p. 776 [48 L.Ed.2d at p. 367].)
To that end, it serves the economic interests of the speaker,
while assisting consumers and furthering the societal interest
in the free flow of commercial information. (/d. at pp. 765 [p.
360].)

The court in Central Hudson set forth a four-part
analysis for evaluating the constitutionality of restrictions on
commercial speech. The first inquiry is “whether the
expression is protected by the First Amendment. For
commercial speech to come within that provision, it at least
must concern lawful activity and not be misleading. Next, we
ask whether the asserted governmental interest is substantial.
If both inquiries yield positive answers, we must determine
whether the regulation directly advances the governmental
interest asserted, and whether it is not more extensive than is
necessary to serve that interest.” (Central Hudson, supra, 447
U.S. at p. 566 (65 L.Ed.2d at p. 351].)

As the Supreme Court has recently made clear,
commercial speech is not subject to the test of strict scrutiny.
(Lorillard Tobacco Company, supra, 533 U.S. at pp. 554-555
[150 L.Ed.2d at p. 559].) “{Tjhe leeway for untruthful or
misleading expression that has been allowed in other contexts
has little force in the commercial arena.” (Bates v. State Bar
of Arizona (1977) 433 U.S. 350, 383 [53 L.Ed.2d 810, 835].)
“The First Amendment’s concern for commercial speech is
based on the informational function of advertising. [Citations
omitted.] Consequeritly, there can be no constitutional
objection to the suppression of commercial messages that do
not accurately inform the public about lawful activity. The
government may ban forms of communication more likely to
deceive the public than to inform it... .” (Central Hudson,
supra, 447 U.S. at p. 563 [65 L.Ed.2d at p. 349], italics
added.)

82a

Thus, our inquiry is whether the speech regulated by
section 25241 is unlawful or misleading. Where it is claimed
the speech is misicading, the Supreme Court has
distinguished between “inherently misleading” speech and
“potentially misleading” speech. (/n Re R.M.J. (1982) 455
U.S. 191, 203 [71 L.Ed.2d 64, 74]; Zauderer v. Office of
Disciplinary Counsel of the Supreme Court of Ohio (1985)
471 U.S. 626, 638 [85 L.Ed.2d 652, 664) (Zauderer).) If
“advertising is inherently likely to deceive or where the
record indicates that a particular form or method of
advertising has in fact been deceptive,” the speech is
unprotected. (/n Re R.M.J., supra, at p. 202 [71 L.Ed.2d at p.
73}.) If the speech is only “potentially misleading,” because
“the information also may be presented in a way that is not
deceptive,” the regulation must satisfy the remaining three
factors specified in Central Hudson. (/d. at p. 203 [p. 74].)

Once it is determined that commercial speech is
inherently misleading, our inquiry ends. (Central Hudson,
supra, 447 U.S. at p. 566 [65 L.Ed.2d at p. 351); In Re R. MJ,
supra, 455 U.S. at p. 203 [71 L.Ed.2d at p. 74); Zauderer,
supra, 47\ U.S. at p. 638 [85 L.Ed.2d at p. 664); Friedman v.
Rogers (1979) 440 US. 1, 9 [S9 LEd2d 100, 110)
(Friedman).) in such a case there is no First Amendment
interest at stake and the tests which measure the validity of
the state's interest in regulating free speech do not apply.

Friedman, supra, 440 US. | [59 L.Ed.2d 100], is
instructive. The court held that Texas could prohibit the
deceptive use of trade names by optometrists. It said the use
of a trade name in connection with an optometrical practice is
a form of commercial speech that has no intrinsic meaning.
This is so because a trade name conveys no information about
the price or nature of the services offered until it acquires
meaning over time when the public forms associations
between the name and some standard of price or quality. (/d.
at pp. 11-12 [pp. 111-112].) For that reason “the restriction
on the use of trade names has only the most incidental effect

83a

on the content of the commercial speech .. . .” (/d. at pp. 15-
16 (pp. 113-114.]

The court in Friedman found the possibilities for
deception numerous, citing as an example the fact that a trade
name of an optometrical practice may remain unchanged
despite changes in staff whose degree of skill and care
patients have come to rely upon. “[T]he public may be
attracted by a trade name that reflects the reputation of an
optometrist no longer associated with the practice.” (440 U.S.
at p. 13 [$9 L.Ed.2d at p. 112].) The court found the concerns
of the Texas legislature about the deceptive and misleading
use of trade names were not speculative or hypothetical but
were based upon specific practices that the legislature was
familiar with. (/bid_)

Bronco does not dispute that brand names are
commercial speech. Indeed, brand names, like the trade
names at issue in Friedman, supra, have no intrinsic meaning.
Since they are transferable they do not necessarily reflect the
continued quality of the product offered and need not convey
information about the nature, quality, or origin of the product
unless associations have been made by the public over time.
(Friedman, supra, 440 U.S. at p. 12 [S9 L.Ed.2d at p. 111.)

While a brand name generally does not have intrinsic
meaning, a brand name of geographic or viticultural
significance conveys information about the geographic source
of the grapes used to make the wine. For that reason a orand
name of geographic significance is entitled to First
Amendment protection as commercial speech only if the
information about the source of the wine is accurate. To the
extent a brand name of geographic significance is more likely
to deceive the public than to inform it because it is suggestive
of a false or misleading source of the grapes used in making
the wine, it is inherently misleading and its use may be
prohibited. (Central Hudson, supra, 447 U.S. at p. 563 [65
L.Ed.2d at p. 349]; Lorillard Tobacco Company, supra, 533
U.S. at pp. 554-555 [150 L.Ed.2d at p. 559].)

84a

Section 25241 imposes restrictions on brand names by
prohibiting the use of the word “Napa,” or the name of any
federally recognized viticultural area within Napa County in a
brand name unless the wine is sourced with grapes from Napa
County. (§ 25241, subd. (b).) In enacting the section, the
Legislature found that‘Napa Valley and Napa County have
been widely recognized for producing grapes of the highest
quality” and that “consumers and the wine industry
understand the name Napa County and the viticultural area
appellations of origin contained within Napa County . . . as
denoting that the wine was created with the distinctive grapes
grown in Napa County.” (§ 25241, subd. (a)(1).) The
Legislature further found that consumers are confused and
deceived by wine labels, packaging, or advertisements that
bear Napa appellation brand names on wines not made from
grapes grown in Napa County. (§ 25241, subd. (a)(2).) Thus,
the purpose of section 25241 is to eliminate the use of
inherently misleading geographic brand names.

Bronco contends the Legislature had no evidence of
consumer confusion when it enacted section 25241. It would
require trial-type evidence as the measure whether Bronco’s
labels are misleading. Bronco has misunderstood the posture
of the case. This is a facial attack on a statute. The test is
whether the Legislature could reasonably conclude, on the
basis of the record before it, that the particular brand names of
geographic or viticultural significance concerning Napa
County “are more likely to deceive the public than inform it”
about the origin of the grapes used to produce the wine when
the grapes are not grown in the area signified.

It is true that facts about Bronco’s purchase and use of
brand names and COLAs were at the center of the
Legislature’s concerns when it enacted section 25241.
However, that does not change the question before us,
whether the Legislature had a sufficient factual basis for
making its findings. Because the Legislature may consider
specific practices that come to its attention when legislating to

- 85a

remedy a problem (Friedman, supra, 440 U.S. at p. 13 [59
L.Ed.2d at p. 112]), the standard of review remains the same
and we may consider those practices as part of the record
considered by the Legislature.

When reviewing an enactment to determine whether it
is supported by an adequate factual] basis, the courts look to
the legislative record relevant to the provision. (United States
v. Playboy Entertainment Group, Inc. (2000) 529 U.S. 803,
820-822 [146 L.Ed.2d 865, 883-885] [record inadequate
where no legislative record to support a floor amendment].)
The record may include consumer surveys, studies, and
anecdotal evidence (FTC v. Brown & Williamson Tobacco
Corp. (D.C. Cir. 1985) 778 F.2d 35, 40-41; Florida Bar v.
Went for It, Inc. (1995) 515 U.S. 618, 628 [132 L.Ed.2d 541,
552); Edenfield v. Fane (1993) 507 U.S. 761, 771 [123
L.Ed.2d 543, 556]), and specific practices of which the
Legislature was aware. (Friedman, supra, 440 U.S. at p. 13
[59 L.Ed.2d at p. 112].) Where the possibility of deception is
self-evident, the state need not conduct a survey of the public
before the court may determine that the prohibited speech is
misleading. (Zauderer, supra, 47\ U.S. at p. 653 [85 L.Ed.2d
at p. 673); see also FTC v. Brown & Williamson Tobacco
Corp., supra, 778 F.2d at p. 40.) “[Ejven . . . a case applying
[a] strict scrutiny” test of the validity of restrictions on speech
may be “based solely on history, consensus, and ‘simple
common sense.’” (Florida Bar v. Went for It, Inc., supra, 515
U.S. at p. 628 [at p. 552] quoting Burson v. Freeman (1992)
504 U.S. 191, 211 [119 L.Ed.2d 5, 22; Renton v. Playtime
Theatres, Inc. (1986) 475 U.S. 41, 50-51 [89 L.Ed.2d 29,
40].)

Prior to enactment of section 25241, the Legislature
held hearings, took testimony, and made findings of fact,
concluding that the names Napa or any appellation suggesting
a viticultural region within Napa County on labels of wine
made from non-Napa grown grapes are likely to mislead
consumers. (§ 25241, subd. (a)(2).) This finding is supported

86a

by the regulatory history of brand names of geographic
significance, as well as the testimony'’ and survey considered
by the Legislature.

Indeed, Bronco’s claim the Legislature's finding of
fact is unsupported by the evidence ignores the significance
of appellations of origin. It is beyond dispute the place where
the grapes are grown is a significant factor contributing to the
quality of wine made from the grapes and is one of two
factors considered by consumers when purchasing wine.'' It
is also beyond dispute that Napa grapes are known for their
premium quality. As a result, wines made from Napa

‘* The Legislature heard testimony given by representatives of the Napa
Valley Vintners Association (NVVA), the California Retailers
Association, the Family Wine Makers of California, wine retailers, winery
owners, and representatives of Bronco and its attorneys. Communications
from constituents were received on behalf of wine producers, retailers, the
Napa County Board of Supervisors, and restaurants, all expressing
concern about the misuse of geographic brand names that imply the wine
is sourced with grapes grown in the Napa Valley when in fact it is not.

'' The evidence established that the location where the grapes are grown
is very significant to the quality of the wine produced and is of grcat
concern to wine consumers who have developed an expectation as to the
qualities and characteristics of the grapes from a particular appellation.
One wine retailer testified that the consumer asks two questions when
selecting wine; one relating to the type of wine, the other relating to the
location or source of the wine.

Volker Eisele, President of the Napa Valley Grape Growers
Association, testified that the unique conditions present in the Napa
Valley produce grapes of exceptional quality. The ice-cold Japan air
stream in the Pacific provides the necessary cooling without which the
grapes would not have their character, color, and intensity. The enormous
diversity of microclimates and soils allow grape growers to plant many
different varieties of grapes with outstanding results, from cooler areas
where Pinot Noir and Chardonnay thrive to the warmer locatigns where
Cabernet Sauvignon and its relatives have achieved worldwide
recognition. Globally, few regions have comparable growing conditions.
Napa Valley's unique conditions have turned its wine industry into “the
locomotive” that pulls the rest of the state's wine industry. As a result of
Napa Valley's worldwide reputation as a preeminent wine-producing
region, Napa Valley wines command premium prices.

87a

Valley grapes command a premium price."

Because there is a causal link between the quality of
the wine and the grape’s origin and a semantic link between
Napa County and quality wine, a brand name such as Napa
Ridge or Napa Creek Winery is naturally associated with
grapes from the Napa Valley. The clear implication from
such brand names is that the wine is made from Napa Valley
grapes and is of premium quality. If it were otherwise,
Bronco would not have spent $40 million dollars for the
brand name Napa Ridge and built a bottling facility in
Sonoma with the capacity to bottle 18 million cases of wine
annually.'* Indeed, Bronco did not purchase the vineyards or
winery that produced Napa Riuge wine. It only purchased the
brand name. It is reasonable to assume Bronco concluded the
name Napa Ridge, by itself, is valuable because it has name
recognition that signifies quality. '°

However, if the wine produced under such a name is
not made with Napa Valley grapes, it is marketed as
something it is not while benefiting from the reputation of

'* Testimony at one of the legislative committee hea:ings established that
in 1999, the average price for Napa Valley Cabernet Sauvignon grapes
was $2,500 a ton compared to Lodi Cabernet Sauvignon grapes, which
sold for $600 a ton. The largest harvest of Cabernet Sauvignon grapes in
the state is grown in Lodi, an amount substantially larger than that grown
in Napa Valley.

When testifying before the Senate testimony, Fred Franzia, Chief
Financial Officer of Bronco Wine Company, was asked whether the
increased production capacity was going to be used to mislead consumers
into buying wine with a Napa name but made from grapes grown
elsewhere. He replied: “Let me tell you what. If | could sell 18 million
cases of Napa Ridge, I'd be one happy guy.” Franzia advised the
committee that his “basic premise m doing things is to make money and
I'm putting that operation up there at the request of customers to bottle
wines there in addition to our other ones and we'll be in the money-
making business.”

'® This is the implied ground upon which Bronco makes a brand equity
argument supporting its takings claim.

88a

Napa Valley wine. Bronco’s actions belie its claim that using
its Brands on wine produced with non-Napa Valley wine is
not misleading. This conclusion is confirmed by survey
evidence commissioned by intervenor that was before the
Legislature.'° The survey concluded that the use of the name
“Napa Valley” in a brand name led the survey respondent to
believe the wine was sourced from grapes grown in Napa
Vailey.'’ Thus, it is clear from the record before the
Legislature that the use of the word Napa in a brand name
causes the consumer to believe the wine is made from grapes
grown in the Napa area.

Looking to other jurisdictions, we find that in 1977,
Oregon adopted an administrative regulation similar to
section 25241. (Former Or. Admin. R. 845-010-0292 (6)(e)
(1977); see Bronco Wine, supra, 33 Cal.4th at p. 984.) As
currently formulated and renumbered, it prohibits the use of
an appellation of origin, including names of Oregon counties
and viticultural areas located wholly or partially in Oregon
(such as Willamette Valley, Umpqua Valley and Rogue
Valley) “that may be mistaken for an approved appellation of
origin in a brand name, in a winery name, or in any other
manner on a wine label unless the wine meets the
requirements for use of that appellation of origin.” (Or.
Admin. R. 845-010-0920(3) and (4)(f) (2005).)

Federal regulators have also found that brand names

'* Although Bronco complains that respondents have failed to submit
copies of this survey, the United States Supreme Court has stated that
copies of the actual survey need not be provided to the court when
justifying restrictions on speech. (Florida Bar v. Went for It, Inc., supra,
515 U.S. at p. 628 [132 L.Ed.2d at p. 552].)

'’ The results of that poll show that 99 percent of those polled thought a
wine with the brand name “Napa Valley Caves” was from Napa Valley;
81 percent believed it was confusing if the brand name included the word
“Napa™ but the grapes did not come from Napa Valley; 91 percent felt it
was deceptive to use a geographic region known for wine in a brand name
even if the grapes came from another region; 82 percent indicated the
brand name is important when purchasing wine.

89a

of viticultura) significance are misleading when the brand
name does not accurately reflect the wine's true origin. In
1986, the BATF promulgated new regulations relating to
brand names of geographic significance. For new brand
names, the regulations prohibit the use of a brand name of
geographic significance “unless the wine meets the
appellation of origin requirements for the geographic area
named.” (27 C.F.R. § 4.39(i(1).) The BATF found “[t}he
brand name, usually the most prominent item on a wine label,
in certain instances conveys information to the consumer. In
the case of a geographic brand name of viticultural
significance, [BJATF believes that such a name on a label
indicates the origin of the wine, that is, the place where the
grapes were grown.” (51 Fed. Reg. 20480, 20481 (June 5,
1986).) The BATF concluded the use of the word “brand” or
the specificat

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386016_0495%3A2. Public record. Not legal advice.