Opposition Brief — Bronco Wine Co. v. Jolly

3

ing and misbranding of wine that exceeded the requirements

of federal law. /d. 31a, 35a-36a.

By contrast, until the Nineteen Thirties, there was rela-

tively limited federal activity on the subject of wine labeling

and misbranding. The federal role focused primarily on

taxation and was not significant compared to that of the

States. No enforceable federal regulations existed regarding

wine and no federal agency had the authority to regulate

alcoholic beverage labeling.’ /d. 22a-29a, 35a.

Congress’s Intent To Supplement, Not Supplant, State

Regulation of Wine Labeling, and BATF’s Understanding

that States Could Impose More Stringent Standards

Congress entered the field of wine label regulation only

in the Nineteen Thirties, most importantly by enacting the

Federal Alcohol Administration Act (“FAA Act”), Pub. L.

No. 74-401, 49 Stat. 977 (1935) (codified as amended 27

U.S.C. §§ 201-211). The FAA Act bars misleading state-

ments on wine labels and requires wine producers to obtain

for each label a certificate of label approval, or “COLA,”

evidencing its compliance with federal standards. The

Bureau of Alcohol, Tobacco and Firearms (“BATF”)}—the

office within the U.S. Department of Treasury formerly

charged with enforcing the FAA Act’—has enacted a series

of regulations regarding wine labeling through notice-and-

comment rulemaking. However, neither Congress, through

' Certain “food standards” adopted by the US. Secretary of Agriculture

in 1904, which included wine standards, were merely advisory and not

legally binding, and a “Food Inspection Decision” issued by three federal

department secretanes in 1910 actually deferred to and acquiesced in the

applicable State wine statute. App. 24a-26a.

* Under the Homeland Security Act of 2002, Pub. L. No. 107-296,

§ LEEI¢d), 116 Stat. 2135, 2275 (2002), BATF’s functions under the FAA

Act are now performed by the Alcohol and Tobacco Tax and Trade Bu-

reau. See also 68 Fed. Reg. 3744 (Jan. 24, 2003). For consistency, both

will be referred to as BATF.

4

the FAA Act, nor BATF, through its regulations, has ex-

pressed any intent to supersede the States’ concurrent or more

powers.

Nothing in the language or legislative history of the FAA

Act reveals a congressional intent to preempt State wine

regulations. Representative Cullen of New York, the author

of the Act, remarked in the floor debates that its purpose was

“to supplement legislation by the States to carr, out their own

policies” because the States “alone cannot do the whole job.”

79 Cong. Rec. 11,714 (July 27, 1935) (statement of Rep.

Cullen); accord H.R. Rep. No. 74-1542, at 2-3 (1935). At the

same time he added that “[n]o power is taken away from the

States to provide such safeguards as they deem best for their

own protection.” 79 Cong. Rec. 11,714 (statement of Rep.

Cullen).

By December 1934, California also had specific and de-

tailed wine regulations restricting the use of place names on

wine labels. After passage of the FAA Act in 1935, Califor-

nia’s requirements continued to exceed federal requirements.

The first regulations under the FAA Act became effective in

1936. See | Fed. Reg. 83 (Apr. 1, 1936). As amended in

1938, they stated that a wine is entitled to be described with

an “appellation of origin” (the geographic source of the

grapes) if “at least 75 percent of the wine is derived from fruit

. . » grown in the appellation area indicated” and “it con-

forms to the [State and local] laws and regulations of the

named appellation area governing the composition, method of

manufacture, and designation of wines made in such state.”

3 Fed. Reg. 2093 (Aug. 26, 1938) (codified at 27 C.F.R.

§§ 4.25(b)(1)(i), (iii). Soon thereafter, California enacted a

statute strengthening certain wine labeling requirements. See

Act of July 22, 1939, ch. 1033, §§ 1-4, 1939 Cal. Stat. 2838

(codified at Cal. Bus. & Prof. Code §§ 25236-25238). It also

promulgated regulations imposing a 100 percent grape-origin

requirement for any wine labeled as “‘California’ or any

5

geographical subdivision thereof.” App. 45a-46a. In these

and other instances, the California Legislaturauthorized

State wine regulations that were stricter than federal wine

regulations. App. 46a.

The federal government consistently has recognized the

States’ authority to impose different or stricter standards for

wine labeling. In 1978, BATF adopted rules concerning

appellations of origin for a new subcategory known as

“viticultural areas,” see 43 Fed. Reg. 37,672, 37,674, 37,678

(Aug. 23, 1978), which are “grape growing region(s]

distinguishable by geographic features, the boundaries of

which have been recognized and defined” by BATF, see 27

C.F.R. § 4.25(e)(1 (i). Under these regulations, a “viticultural

area” could be mentioned on a wine label only if at least 85

percent of the grapes used to make the wine were grown in

that viticultural area. Jd. The 1978 federal regulations ex-

pressly recognized State authority, however, by making the

right to p_ace a “viticultural area” designation on a wine label

also contingent on compliance with “the laws and regulations

of all the states contained in the viticultural area.” 27 C.F.R.

§ 4.2Sa(e)(3 iv) (1978-1981); Id. § 4.25a(e3)(v) (1981-1986)

(emphasis added).

The 1978 federal regulation, for example, left in place an

Oregon geographic brand name that was stricter than the

federal rule. The Oregon rule provided that the names of

Oregon counties or wine-producing regions could not be used

in a brand name “unless 100 percent of the grapes used to

produce that wine were grown within the boundaries of that

appellation of origin.” See Or. Admin. R. 845-10-292(6)(c)\(2)

(1977) (currently codified at Or. Admin. R. 845-010-

0920(2)). Since Oregon’s adoption of the regulation in 1977,

BATF has expressed no hostility to Oregon’s stricter rule,

which remains in force today. In 1986, in the course of

repealing former 27 C.F.R. § 4.25a(e)(3)(v) concerning com-

pliance with State regulations, BATF repeatedly acknowl-

edged the existence and enforceability of Oregon’s “more

6

Stringent” wine labeling regulations. BATF observed that

“regulations of Oregon and Washington differ greatly regard-

ing the production and labeling of wine. Oregon regulations

are more stringent than Federal regulations.” 51 Fed. Reg.

3773, 3774 (Jan. 30, 1986) (emphasis added).

BATF repealed former § 4.2S5a(e)(3)(v) because it was too

burdensome for the federal government to enforce all of the

States’ laws and regulations. BATF observed:

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 . . . . State laws and

regulations of the state in which the wine was fermented

or finished will, of course, continue to apply to the

producing winery. These state laws and regulations are

enforced by the state involved.

51 Fed. Reg. 3773. Underscoring the point, BATF stated,

“[t}he State laws and regulations remain in effect and con-

tinue to be enforced by the agencies of the states involved in

winemaking.” /d. BATF thus made clear that States may

impose more stringent labeling rules.”

The Federal “Grandfather Clause” in BATF’s 1986

Regulation

In July 1986, six months after BATF affirmed that State

laws and regulations are enforced by the State involved,

> Where Congress and BATF have desired to preempt State labeling

regulations on alcoholic beverages, they have done so expressly. In 1988,

Congress amended the FAA Act to require that wine and other alcoholic

beverages carry a health warning on the back label. Alcoholic Beverage

Labeling Act of 198%, Pub. L. No. 100-690, § 8001(a)(3), 102 Stat. 4518

(1988) (codified at 27 U.S.C. §§ 213-219a). Congress expressly provided

for federal preemption of such health warnings on alcoholic beverage

labels. 27 U.S.C. §213. BATF adopted implementing regulations that

expressly reaffirmed the preemptive effect of that regulation. See 27

C.F.R. § 16.32. In contrast, nether Congress nor BATF has ever indi-

cated an intent to preempt State wine labeling laws such as § 25241.

7

BATF adopted revised regulations regarding geographic

brand names. BATF explicitly determined that consumers

believe that a geographic brand name on a wine label indi-

cates the source of the grapes. 51 Fed. Reg. 20,480, 20,481

(June 5, 1986) (“In the case of a geographic brand name of

viticultural significance, ATF believes that such a name on a

label indicates the origin of the wine, that is, the place where

the grapes are grown.”). It further found that the inclusion of

an accurate appellation of origin on the front label was in-

sufficient to dispel the misimpression created by a misleading

geographic brand name. /d. The 1986 federal regulation

avoids such consumer confusion by prohibiting the use of a

label bearing a geographic brand name unless the wine meets

the appellation of origin requirements for the geographic area

named. See 27 C.F.R. § 4.39(i)(1); see also id. § 4.25(6\(1 Ki).

A “grandfather clause” appended to the federal regulation,

however, does not apply these more stringent labeling stan-

dards if the lebels were in use prior to July 7, 1986, so long

as an accurate appellation of origin is also included. /d.

§ 4.39121). BATF made no finding that geographically

misdescriptive brand names in use prior to July 7, 1986 were

any less misleading than those that came into use on or after

that date and gave no reason for promulgating a lower stan-

dard for such brands. Moreover, BATF did not consider or

take into account local conditions affecting the use of specific

geographic brand names or the misuse of Napa brand names

in particular, ‘The language that Petitioners quote from the

Federal Register notice to suggest that BATF viewed the

“grandfather clause” as still protecting consumers (Pet. 4)

(italicized words) actually refers broadly to the entire “final

rule” and not specifically to BATF’s (unexplained) creation

of a “grandfather clause.”

* Petitioners’ assertion that BATF set a lower standard for “existing

geographic brand names” because it believed that consumers “understood

that the brand names did not identify the wine's origin” (Pet. 4) is wholly

BATF continues to acknowledge the States’ concurrent

authority to regulate wine labeling, including through stricter

regulations than BATF has imposed. In 1993, BATF specifi-

cally approved a California regulation requiring that 100% of

the grapes in wine with a “California” appellation be grown

in the State, even though federal regulations expressly permit

a State appellation of origin where only 75% of the grapes are

grown there. See 58 Fed. Reg. 65,295 (Dec. 14, 1993).

BATF-Issued COLAs Show Only Compliance with

Federal Regulations

BATF prohibits bottling or distribution of wine in interstate

commerce unless BATF has issued a COLA for the wine. A

COLA, by BATF’s own proclamation, indicates only compli-

ance with specific federal laws and regulation. BATF’s

COLA form (TTB F5100.31 (2-2003)) reads in pertinent part:

“We collect this information to verify your compliance with

the Federal laws and regulations we administer for the

labeling of alcoholic beverages” (emphasis added).

In its Final Rule concerning revocation of COLAs, BATF

reiterated this point.

The certificate of label approval was never intended to

convey any type of proprietary interest to the certificate

holder. On the contrary, Paragraph | of Form 5100.31

provides that “This certificate is issued for ATF use

only... .” The certificate of label approval is a statuto-

rily mandated tool used to help ATF in its enforcement

of the labeling requirements of the FAA Act.

64 Fed. Reg. 2122, 2123 (Jan. 13, 1999) (emphasis added);

see also Boller Beverages, Inc. v. Davis, 183 A.2d 64, 69

(N.J. 1962) (“[A COLA] goes no further than evidencing

specious and not supported by BATF’s rulemaking notice. To the con-

trary, BATF specifically found that geographic brand names did indicate

the wine's origin and that the use of an accurate appellation of origin was

insufficient to correct the misimpression created by geographically mis-

descriptive brand names. 5! Fed. Reg. 20,480, 20,481 (June 5, 1986).

9

compliance with [federal regulatory] standards imposed only

for the purposes mentioned in the valid exercise of federal

authority.”).

BATF’s labeling staff does not make any individualized

determination that “grandfathered” brand names are not mis-

leading before issuing COLAs. It merely confirms that the

use of “grandfathered” brands complies with the grandfather

clause. App. 70a; 27 C.F.R. § 4.39(i). The record contains

no evidence that BATF specifically concluded that Bronco’s

misdescriptive “Napa” labels do not mislead consumers. The

issuance of such COLAs therefore is not an indication that

States cannot impose more stringent labeling requirements.

B. Bronco’s Misleading Use of Napa Brand Names.

For well over a century, Napa County has been known for

producing the finest and most prestigious wines in the United

States. Its reputation is attributable in large part to the dis-

tinctiveness and uniformly high quality of the grapes grown

there. Petitioners make wines from grapes grown not in Napa

County but in other areas where the cost of grapes and their

quality are considerably lower. Bronco then sells its wines

under Napa brand names—Napa Ridge, Napa Creek and

Rutherford Vintners*—that mislead consumers into believing

that the wine is made from the higher-quality and higher-

priced grapes grown in Napa County.”

ilies

* Bronco has attempted to exploit the “grandfather clause” and create

an unanticipated market in non-Napa wines using Napa brand names.

Bronco purchased the Napa Creek brand in 1993 and the Rutherford

Vintners brand in 1994. App. 3a. All of the wines marketed by the prior

owner under the Napa Creek brand and most wines marketed by the prior

owner under the Rutherford Vintners brand had been made from Napa

County grapes. /d. at 3a-4a.

* Bronco has a history of misdescribing its wine to consumers. See

Bronco Wine Co. v. U.S. Dep't of Treasury, 997 F. Supp. 1309, 1317

(E.D. Cal. 1996) (upholding federal regulators’ action prohibiting Bronco

from wrongly using its Rutherford Vineyards brand name for wine not

made from grapes grown in Rutherford). Moreover, Bronco pleaded nolo

10

Bronco prominently features its Napa brand names on the

front labels of its wines, followed at the bottom of the label

and in smaller lettering by the appellation of origin. Repre-

sentative front labels of Bronco’s wines are included in the

California Court of Appeal’s December 18, 2002 decision.

App. 134a. The back label of cach states that the wine was

“vinted and bottled” in “Napa, CA” or in “Napa, California.”

In addition, many of the Napa Ridge wines include the word

“Napa™ on the bottleneck collar label, and some include that

word on branded corks.

In furtherance of its long-established role in regulating

wine produced within the State, and in the face of Bronco's

practice of purchasing “grandfathered” Napa brand names to

produce and market wines made from non-Napa grapes, the

California Legislature in 2000 addressed the problem of the

misleading use of Napa brand names by enacting § 25241 of

the California Business and Professions Code.’ The Legisla-

ture held hearings and received substantial public comment

which revealed that consumers were misled by wines that

bore Napa brand names but were made from non-Napa

grapes." App. 4a, 85a-86a. The testimony and public com-

contendere, and its owner, Fred Franzia, pleaded guilty to federal fraud

charges for deceptively passing off less expensive grapes as Zinfande!

grapes from 1987 to 1992. Bronco and Franzia were fined heavily, and

Franzia was banned for five years from sitting on Bronco's board of

directors or from holding a position with responsibility for compliance

with federal wine regulations. NVVA App. 358-400, filed Feb. 28, 2001,

Cr. Ct. App., in present case.

” In addition to Bronco’s Napa brand names, there are 32 other Napa-

related “grandfathered” brands that could be used to deceive consumers

into buying Napa-branded wines not made from Napa grapes. NVVA

App. 227-28, filed Feb. 28, 2001, Cal. Ct. App., in present case.

* The Legislature also received evidence of Bronco’s future intent or

willingness to sell its geographically misdescnptive Napa brands on a far

greater scale, as indicated by its completion of a facility in the City of

Napa, Napa County, that is capable of producing approximately 18

Il

ment were not just from Napa Valley vintners and growers,

but also from consumers, retailers, and others. /d. at 86a

n.10. In addition to this evidence, the Legislature considered

a survey indicating that Napa brand names for wine made

from ‘non-Napa grapes are deceptive and confusing to con-

sumers.’ Based on the evidence, the Legislature found that

“certain producers are using Napa appellations on labels . .

for wines that are not made from grapes grown in Naps

County, and that consumers are confused and deceived by

these practices.” Cal. Bus. & Prof. Code § 25241(a\(2). Con-

cluding that legislation was necessary to eliminate these mis-

leading practices, the Legislature declared its “intent. . . to

assure consumers that the wines produced or sold in the state

with brand names . . . referring to Napa appellations in fact

qualify for the Napa County appellation of origin.” /d.

§ 25241(a\(3).

In furtherance of that objective, § 25241(b) provides that

no wine produced or marketed in California shall use a brand

name or have a label bear ng the word “Napa” (or any feder-

ally recognized viticultural area within Napa County) unless

the wine qualifies for, and includes, the appellation Napa

County or the appellation of a viticultural area located en-

tirely within Napa County. Pursuant to federal regulations, a

wine does not qualify for a county appellation of origin unless

at least 75 percent of the grapes are from that county, 27

C.F.R. § 4.25(b)(1), and does not qualify for a viticultural

million | 2-bottle cases a year-—output that would be more than double the

current annual production of all Napa-grown wines. App. 4a n.4.

* The survey showed that 99 percent of those interviewed thought a

wine with the brand name “Napa Vi sy Caves” was from Napa Valley;

81 percent believed it was confusing if the brand name included the word

“Napa” but the wine was not sourced with Napa grapes; 9! percent felt it

was deceptive to use a brand name based on geographic region known for

wine when the wine was made with grepes from another region, and 82

percent indicated the brand name is important when purchasing wine.

App. 88a 0.17.

12

area appellation of origin unless at least 85 percent of the

grapes are from that area, id. § 4.25(e)(3)ii).

Section 25241 therefore prohibits wine producers like

Bronco from misleading consumers by selling wine made

from non-Napa grapes under Napa brand names. It does not,

however, prohibit anyone from using Napa brand names to

sell wine made from Napa grapes. Nor does it prohibit

anyone from using non-Napa grapes to sell wine under any

non-Napa brand name.

C. Bronco’s Unsuccessful State Court Action and the

California Supreme Court's Unanimous Decision.

Bronco filed an original petition for a writ of mandate in

the California Court of Appeal seeking to prohibit the Cali-

fornia Department of Alcohol Beverage Control (the “Depart-

ment”) and its director from enforcing § 25241 with respect

to Bronco’s wines on the ground that the statute violated the

First Amendment, Supremacy Clause, Commerce Clause, and

Takings Clause of the United States Constitution. Intervenor

Napa Valley Vintners Association (“NV VA”) joined with the

Department in defending the validity of the statute. The

Court of Appeal held that § 25241 is preempted by federal

law but did not reach the other federal law issues.

The California Supreme Court granted review and, ad-

dressing only the preemption issue, unanimously reversed the

judgment of the Court of Appeal. Speaking for the court,

Chief Justice George rejected every aspect of Petitioners’

preemption argument. The California Supreme Court con-

cluded that protection of consumers against misleading brand

names and labels was a subject that traditionally had been

regulated by the States and that it was therefore appropriate to

apply the presumption against preemption. App. |4a. It held

that § 25241 was not preempted because the objective of the

FAA Act and BATF’s federal regulations was to supplement,

not supplant, State regulation and BATF had long operated on

13

the understanding that States may and would continue to im-

pose their own stricter wine labeling regulations. /d. 64a-67a.

The California Supreme Court a\so rejected Bronco's claim

that a federal COLA is the equivalent of a federal nght,

license, or permit to market wine in interstate commerce. /d.

67a-70a. It noted that neither Congress nor BATF has ever so

implied, and that, to the contrary, a COLA signifies nothing

more than compliance with federal labeling law and does not

exempt the COLA holder from State laws. /d. 70a. The

Court therefore remanded the case to the Court of Appeal to

consider Bronco's remaining federal claims.

Petitioners thereafter filed a petition for certiorari with

this Court, seeking review of the California Supreme Court's

ments presented in the instant petition. Respondents opposed

the petition, arguing that the California Supreme Court's

decision was correct and that the decision was not final

under 28 U.S.C. § 1257. This Court denied the petition. See

125 S. Ct. 1646 (Mar. 21, 2005).

California Court of Appeal’s Decision on Remand

On remand, the California Court of Appeal unanimously

upheld the constitutionality of § 25241. The Court of Appeal

found that § 25241 does not violate the First Amendment

because the statute is “a regulation of deceptive and mislead-

ing commercial speech that is not entitled to First Amend-

ment protection.” App. 80a; id. 81a-96a. The Court of Appeal

also rejected Petitioners’ claims under the Commerce and

Takings Clauses of the Constitution.

Petitioners then filed a petition for review in the California

Supreme Court, contending that the Court of Appeal erred in

concluding that § 25241! did not violate the First Amendment

or the Commerce Clause. The California Supreme Court

denied the petition. App. 172a.

14

REASONS FOR DENYING THE WRIT

I. The California Supreme Court's Holding that

Federal Law Does Not Preempt § 25241 Raises No

Issue Meriting This Court's Review.

The California Supreme Court's decision presents a straight-

forward application of well-settled principles of preemption

law. Petitioners do not contest (i) that the FAA Act and regu-

lations do not expressly preempt State wine labeling laws;

(ii) that the FAA Act and regulations do not “occupy the

field” of wine labeling regulation; and (iii) that compliance

with both federal law and § 2524! is possible. See Pet. 11.

They argue instead that § 25241 is preempted because it al-

legedly frustrates the objectives of BATF’s so-called “grand-

father clause,” 27 C.F.R. § 4.39(i)(2), and the COLAs issued

to Petitioners under that regulation. Pet. 11-16. Petitioners

also argue that the California Supreme Court erred in apply-

ing @ presumption against preemption, Pet. 16-23, even though

wine labeling is a field traditionally occupied by the States.

A. Neither BATF’s “Grandfather Clause” Nor

Any COLA Preempts Stricter State Regulation

of Misleading Wine Labels.

In rejecting Petitioners’ arguments, the California Supreme

Court applied the standard this Court consistently applies in

such cases. App. 9a-10a. It asked whether “under the cir-

cumstances of this particular case, [the challenged state law]

stands as an obstacle to the accomplishment and execution of

the full purposes and objectives of Congress,” Hines v.

Davidowitz, 312 U.S. 52, 67 (1941),'® and concluded it did

" Accord Crosby v. Nat'l Foreign Trade Council, $90 U.S. 363, 373

(2000) (“What is a sufficient obstacle is a matter of judgment, to be in-

formed by examining the federal statute as a whole and identifying its

purpose and intended effects.”), Sprietsma v. Mercury Marine, 537 U.S.

51, 64-65 (2002), Geier v. Am Honda Motor Co., 529 US. 861, 873

(2000), Hillsborough County v. Automated Med. Labs., Inc., 47\ U.S.

707, 713 (1985).

15

not. Petitioners’ contention that the court’s conclusion is

incorrect, Pet. 11, is not an adequate basis for granting certio-

rari. See U.S. Sup. Ct. R. 10; Ross v. Moffitt, 417 U.S. 600,

616-17 (1974).

In any event, the California Supreme Court correctly de-

cided the preemption issue. It is beyond dispute that the

overriding purpose of the FAA Act and the BATF regulations

is to prevent consumer deception in labeling of alcoholic bev-

erages. App. 64a-65a. Section 25241 furthers that very

objective. The California Legislature found that labels like

those of Petitioners, whose Napa brand names belie their non-

Napa contents, mislead consumers and enacted

§ 25241 to ban their use on wines produced jn the State.

App. 4a. The California Supreme Court correctly

concluded that the federal statute and regulations and the

California statute serve harmonious purposes. App. 65a.

1. The federal “grandfather clause” does not

preempt § 25241.

Contrary to Petitioners’ suggestion, BATF’s “grancfather

clause” cannot fairly be construed as a federal authorization

to employ labels that confuse and deceive consumers regard-

ing the contents of the wine—in essence, a license to mis-

lead—-and to do so free from State interference or regulation.

Such a construction cannot possibly be reconciled with the

overriding federal policy of the FAA Act: to prevent wine

producers from misleading consumers. In promulgating its

1986 labeling regulation, BATF expressly found that geo-

graphic brand names necessarily convey to consumers the

source of the grapes used to make the wine and thus the inclu-

sion of a correct appellation of origin on the label does not

dispel the confusion created by a geographically misdescrip-

tive brand name. 51 Fed. Reg. 20,480, 20,481 (June 5, 1986).

There is simply no indication that BATF intended to prevent

States from banning the use of geographically misdescriptive

—

16

labels that mislead consumers regarding the source of the

grapes used to make the wines.

BATF’s 1986 regulation merely sets minimum federal stan-

dards for use of geographic brand names on wine labels.

Brands in use after July 7, 1986 are subject to one standard

(§ 4.39(1)(1)); brands in use prior to that date are subject to a

less stringent standard (§ 4.39(i)(2)). But in setting these

federal minima, the regulators nowhere indicated an intent to

preclude stricter State standards—whether for grandfathered

or non-grandfathered brands. See supra pp. 5-6, 8. To the

contrary, as the California Supreme Court observed, “BATF

long has been aware of these stricter state law brand-name

labeling regulations, and, far from suggesting that their en-

forcement would frustrate any federal purpose, . .. BATF has

* stated its understanding that such labeling regulation will be

enforced by the states.” App. 65a-66a (footnote omitted).

When amending its labeling regulations only a few months

before the “grandfather clause” was put into effect, BATF

recognized, “State laws and regulations of the state in which

the wine was fermented or finished will, of course, continue

to apply to the producing winery. These state laws and regu-

lations are enforced by the state involved.” 51 Fed. Reg.

3773, 3774 (Jan. 30, 1986).

As the California Supreme Court unanimously found, the

record is entirely devoid of evidence supporting Petitioners’

contention that the BATF regulation was intended to preempt

State regulations. “We find nothing in the history of the un-

derlying 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

locai concerns.” App. 66a.

17

A federe! law establishing certain minimum standards does

not imply that States are precluded from applying more

stringent standards when the federal government has not

occupied the field or otherwise indicated an intent to preempt.

See Hillsborough County, 471i U.S. at 721 (more stringent

local ordinance related to health and safety not preempted by

federal regulations when federal regulators expressed intent

not to displace state law); see also Sprietsma, 537 U.S. at 67

(though federal decision not to regulate was “intentional and

carefully considered,” it failed to convey an authoritative mes-

sage of federal policy preventing States from regulating).

More specifically, by excluding certain behavior from a

more general prohibition—as BATF did here when it im-

posed lower minimum standards on “grandfathered” brand

names—the federal government does not thereby preclude

stricter state regulation of that behavior. See Exxon Corp. v.

Governor of Md., 437 U.S. 117, 132 (1978) (“{I]}t is illogical

to infer that by excluding certain . . . behavior from [a]

general ban . . . , Congress intended to pre-empt the States’

power to prohibit any conduct within that exclusion.”);

Chevron U.S.A., Inc. v. Hammond, 726 F.2d 483, 498 (9th

Cir. 1984) (“A finding of preemption is particularly inap-

propriate when the state is regulating conduct permitted by

federal regulation, but only as an exception to a broad federal

prohibition.”), quoted in Malabed v. N. Slope Borough, 335

F.3d 864, 872 (9th Cir. 2003); cf Medtronic, Inc. v. Lohr, 518

U.S. 470, 494 (1996) (federal grandfather provisions not in-

tended to displace status quo allowing State-law negligence

claims).

The cases relied on by Petitioners are readily distinguish-

able because each involved a clear federal policy to preclude

State interference with a federa] program or instrumentality.

In Crosby, for example, the Court found that Congress did not

intend to delegate to the States any aspect of its carefully

calibrated policy regarding relationships with Burma. 530

U.S. at 377-78. In Geier, the Court discerned a federal policy

18

of fostering experimentation and innovation in the develop-

ment of passive restraint devices without interference by the

States. 529 U.S. at 880-81. In Barnett Bank of Marion

County, N.A. v. Nelson, 517 U.S. 25 (1996), a federal statute

expressly empowered national banks to sell insurance. C/.

Fid. Fed. Sav. & Loon Ass'n v. de la Cuesta, 458 U.S. 141,

154 (1982) (holding that a federal regulation stating “that a

federal savings and loan ‘continues to have the power’ to in-

clude a due-on-sale clause in a loan instrument and to enforce

that clause ‘at its option’” preempted a state prohibition on

due-on-sale clauses).'' None of these decisions dictates, or

even supports, federal preemption of State regulation of wine

iabeling.

2. Federal COLAs do not preempt § 25241.

Petitioners additionally claim that California’s § 25241 is

unlawful because it “impair[s] the exercise of a license or

permit issued under a federal regulatory scheme”—to wit, a

COLA. Pet. 12. Petitioners’ argument—which would invali-

date every State labeling law that exceeds federal require-

ments—fundamentally misapprehends the nature and purpose

of COLAs issued by BATF.

As the California Supreme Court noted, “nowhere in the

separate COLA procedures set forth in [the FAA Act], or the

extensive COLA regulations, does Congress or the BATF

even imply that a COLA constitutes a license or permit.

Quite the contrary.” App. 69a (citations omitted). BATF has

explained that a COLA “was never intended to convey any

type of proprietary interest to [its] holder.” 64 Fed. Reg.

2122, 2123 (Jan. 13, 1999). It “is issued for [BJATF use

only.” /d. Consistent with the dual scheme of regulation,

BATF’s COLA application form specifies that the informa-

'' Another case relied on by Petitioners, McDermott v. Wisconsin, 228

U.S. 115, 133-34 (1913), invalidated a State labeling law that required

physical removal of labels meeting federal specifications, thereby

frustrating federal officials’ ability to ensure compliance with federal law.

19

tion can be shared with State regulators “to aid in the per-

formance of their duties.” App. 69a (citation omitted). A

COLA therefore demonstrates only that a particular wine

label satisfies the federal government’s minimum require-

ments; it does not exempt the label from additional State

regulation.

This Court repeatedly has recognized that States may im-

pose additional regulations even after an entity has obtained a

certificate of compliance with federal regulations. See, e.g.,

Medtronic, 518 U.S. 470; Cal. Coastal Comm'n v. Granite

Rock Co., 480 U.S. 572 (1987); Pac. Gas & Elec. Co. v. State

Energy Res. Conserv. & Dev. Comm'n, 461 U.S. 190 (1983).

That is all that has happened here—California has imposed a

stricter labeling requirement than federal law mandates, and

producers now must comply with both.

B. The California Supreme Court’s Application

of the Presumption Against Preemption Is

Consistent with Decisions of This Court and the

Federal Courts of Appeals.

Petitioners pose the question “whether the presumption

against preemption ever applies in conflict preemption cases

and whether, if it does, evidence of preemptive intent on the

part of Congress or a federal agency is necessary to avoid or

overcome the presumption.” Pet. 20-21. As an initial matter,

as shown above, even without applying the presumption,

there is no preemption in this case because § 25241 does not

stand as an obstacle to federal purposes. See supra Part 1.A.

Because the California Supreme Court came to the same con-

clusion, App. 64a-66a, its decision did not turn on application

of the presumption. Thus, this is not an appropriate case for

reviewing the presumption’s application. See, e.g., Herb v.

Pitcairn, 324 U.S. 117, 126 (1945) (declining to review a

state-court judgment because “if the same judgment would be

rendered by the state court after we corrected its views of

federal laws, our review could amount to nothing more than

20

an advisory opinion”). In all events, the California Supreme

Court properly applied the presumption against preemption.

i. The Presumption Applies Where, as Here,

the State Has Traditionally Occupied the

Field To Be Regulated.

For at least a hundred years, this Court has recognized that

a presumption against preemption applies when Congress

legislates in a field traditionally occupied by the States. See,

e.g., Bates v. Dow Agrosciences LLC, 544 U.S. __, 125 S. Ct.

1788, 1801 (2005); New York v. FERC, 535 US. 1}, 17-18

(2002); Cipollone v. Liggett Group, 505 U.S. 504, 516, 523

(1992); id. at 532 (Blackmun, J., concurring in part, concur-

ring in the judgment, and disseniing in part); Hillsborough

County, 471 U.S. at 715; Savage v. Jones, 225 U.S. 501, 537

(1912); Reid v. Colorado, 187 U.S. 137, 148 (1902).'? As the

Court has explained:

In all pre-emption cases, and particularly in those in

which Congress has “legislated . . . in a field which the

States have traditionally occupied,” Rice v. Santa Fe

Elevator Corp., 331 U.S. 218, 230 (1947), we “start with

the assumption that the historic police powers of the

States were not to be superseded by the Federal Act

unless that was the clear and manifest purpose of

Congress.” IJbid.; Hillsborough Cty., 471 U.S. at 715-

716; cf Fort Halifax Packing Co. v. Coyne, 482 U.S. 1,

22 (1987).

Medtronic, 518 U.S. at 485 (alterations in original).

The California Supreme Court thus properly applied the

presumption against preemption because, as it correctly found,

protecting consumers from misleading brand names and

"2 See also Allen-Bradley Local No. 1111 v. Wis. Employment Rela-

tions Bd., 315 U.S, 740, 749 (1942) (stating that the Court had “/ong in-

sisted that an intention of Congress to exclude States from exerting their

police power must be clearly manifested” (emphasis added; internal quo-

tation marks omitted)).

21

labels on alcoholic beverages, including wine, historically has

been regulated by the States through the exercise of their

traditional police powers. App. 14a. See supra pp. 2-3.

2. This Court Has Recognized the Presumption

in Conflict-Preemption Cases.

Petitioners wrongly assert that this Court has refused to

apply the presumption against preemption in cases involving

a claim of implied conflict preemption. The very opposite

is the case. See, e.g., Hillsborough County, 471 U.S. at 716

(“Appellee must . . . present a showing of implicit pre-

emption of the whole field, or of a conflict between a particu-

lar local provision and the federal scheme, that is strong

enough to overcome the presumption that state and local

regulation of health and safety matters can constitutionally

coexist with federal regulation.”). In New York v. FERC, this

Court recently made clear that a presumption applies in con-

flict preemption cases: “The Court has most often stated a

‘presumption against pre-emption’ when a controversy con-

cerned .. . whether a given state authority conflicts with, and

thus has been displaced by, the existence of Federal Govern-

ment authority.” 535 U.S. at 17-18 (emphasis added) (quot-

ing Hillsborough County, 471 U.S. at 715)."° The decision

below is fully in accord with this Court’s decisions.

Petitioners’ lengthy quotation from Geier, Pet. 16-17, re-

flects nothing more than the Court’s refusal to require “an

express statement of pre-emptive intent.” Geier, 529 U.S. at

'? The Court in Crosby did not, as Petitioners claim, Pet. 18, raise any

question about the gemeral applicability of the presumption in conflict pre-

emption cases. 530 U.S. at 3740.8. Rather, it merely deferred the ques-

tion of the presumption’s application in the specific “context” of that case,

which concerned international relations. /d. (citing United States v. Locke,

529 U.S. 89, 108 (2000)). In any event, the Court has since reaffirmed the

applicability of the presumption in conflict-preemption cases. See New

York v. FERC, 535 U.S. at 17-18; Egethoff v. Egelhoff, $32 U.S. 141, 151

(2003).

22

884 (emphasis added). That refusal, however, has no bearing

on whether a presumption against preemption applies and is

irrelevant here, where the California Supreme Court did not

require such an express statement of preemptive intent by

Congress or BATF.'* Indeed, the Couz: in Geier did not

address the presumption against preemption other than to ac-

knowledge its existence, stating: “While we certainly accept

the dissent’s basic position that a court should not find pre-

emption too readily in the absence of clear evidence of a

conflict, for the reasons set out above, we find such evidence

here.” Geier, 529 U.S. at 885 (internal citation omitted).

3. The Federal Courts of Appeals Have Recog-

nized the Presumption in Conflict Preemp-

tion Cases.

The California Supreme Court’s decision is also consistent

with decisions of the federal Courts of Appeals, including the

Fifth and Eleventh Circuits. Petitioners’ attempt to demon-

strate a conflict among the Circuit courts misapprehends the

case law.

The Fifth Circuit applies the presumption against preemp-

tion, including in conflict preemption cases. See Planned

Parenthood of Houston & Se. Tex. v. Sanchez, 403 F.3d 324,

336 (Sth Cir. 2005) (stating, in obstacle-preemption case,

that court starts with presumption that state statute is valid);

Astraea Aviation Servs., Inc. v. Nations Air Inc., 172 F.3d

390, 395 (Sth Cir. 1999) (holding the plaintiff “must over-

come the presumption against preemption,” where state regu-

* Notably, Justice Breyer, the author of the Court’s opinion in Geier,

expressly acknowledged in a subsequent opinion that when, as here, the

question is whether a State statute stands as an obstacle to congressional

purposes, “we must remember that petitioner has to overcome a strong

presumption against pre-emption.” Egelhoff, 532 U.S. at 157 (Breyer, J.,

dissenting) (emphasis in original). The Court in Egelhoff similarly ac-

knowiedged that “[t]here is indeed a presumption against pre-emption in

areas of traditional state regulation.” /d. at 151 (majority opinion).

23

lation allegedly would “thwart the policy behind [the] federal

regulation”). os

Similarly, in a case raising both express and implied con-

flict preemption, the Eleventh Circuit recently stated: “When

we consider issues that arise under the Supremacy Clause

(i.¢., preemption issues), we start with the assumption that the

historic police powers of the states are not superseded by

federal law unless preemption is the clear and manifest pur-

pose cf Congress.” Cliff v. Payco Gen. Am. Credits, Inc., 363

F.3d 1113, 1122 (11th Cir. 2004);"° see also Fla. E. Coast Ry.

Co. v. City of W. Palm Beach, 266 F.3d 1324, 1327-28, 1329

n.3 (11th Cir. 2001) (starting with “the basic assumption that

Congress did not intend to displace state law” and finding that

the state law did not stand as an obstacle to congressional

objectives (quotation marks omitted)).

The older Eleventh Circuit decisions cited by Petitioners

have been superseded by more recent decisions. Taylor v.

General Motors Corp., 875 F.2d 816 (11th Cir. 1989), and

Lewis v. Brunswick Corp., 107 F.3d 1494 (11th Cir. 1997)—

on which the later decision cited by Petitioners relies, see

Pharm. Research & Mfrs. of Am. v. Meadows, 304 F.3d 1197,

1206 (11th Cir. 2002)—are no longer good law in light of

subsequent decisions. See Sprietsma v. Mercury Marine, 537

U.S. 51, 55 n.3 (2002); Myrick v. Freuhauf Corp., 13 F.3d

1516, 1521-22 (11th Cir. 1994), aff'd sub nom. Freightliner

'S The Fifth Circuit did not, as Petitioners claim, “reject[{] the notion

that plaintiffs had to show preemptive intent,” Pet. 17, in Wells Fargo

Bank v. James, 321 F.3d 488 (Sth Cir. 2003). Rather, the Wells Fargo

court started with the premise that in assessing preemption the “para-

mount concern is to effectuate the intent of Congress,” id. at 491, but held

that where preemption is based on an agency regulation, the court must

determine whether the agency had authority to supplant state law, id. at

493.

© Contrary to Petitioners’ suggestion, Pet. 19, the Cliff court did not

limit this principle to field preemption, as opposed to conflict preemption.

363 F.3d at 1122.

24

Corp. v. Myrick, 514 U.S. 280 (1995). In Myrick, 13 F.3d at

1521-22, the Eleventh Circuit explicitly acknowledged the

applicability of the presumption against preemption: “‘In the

interest of avoiding unintended encroachment on the au-

thority of the States .. . a court interpreting a federal statute

pertaining to a subject traditionally governed by state law will

be reluctant to find pre-emption. Thus, pre-emption will not

lic unless it is “the clear and manifest purpose of Con-

gress.””” Jd. at 1524 (quoting CSX Transp., Inc. v. Easter-

wood, 507 U.S. 658 (1993) (quoting Rice v. Santa Fe Eleva-

tor Corp., 331 U.S. 218, 230 (1947))) (alterations in original).

4. The California Supreme Court Did Not

Apply the Presumption in a Field Tradition-

ally Occupied by the F ederal Government.

Petitioners next argue that any presumption should not apply

where there has been a history of significant federal regula-

tion. Pet. 21. After an exhaustive review of the history of

both federal and State regulation, App. 15a-59a, however, the

California Supreme Court unanimously concluded that there

was historically “very little federal regulation,” of food and

beverage labeling, including alcoholic beverage labeling, id.

at | la, and that “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,” id. at 14a.

Unable to refute the California Supreme Court's detailed

analysis, Petitioners attempt to turn a footnote into a basis for

certiorari. Petitioners grossly distort the court’s opinion by

arguing that it “require[d] proof of a substantial federal pres-

ence dating back to the ‘beginning of our Republic’ to avoid

application of the presumption against preemption.” Pet. 22.

Not so. The court below merely quoted in a footnote from

United States v. Locke, 529 U.S. 89, 99 (2000), on which

Petitioners had relied and which involved a field in which the

federal government's role had, in this Court’s words, dated

25

from “the beginning of our Republic.” It nowhere indicated

that such a showing was necessary to defeat a presumption

Il. Bronco’s First Amendment Challenge Does Not

Warrant Review.

The California Court of Appeal’s decision is based on the

well-settled principle that false and misleading speech is not

protected by the First Amendment. Bronco’s brand names

convey objectively false information—that the wine is made

with Napa-grown grapes when, in fact, it is not—and thus are

not protected by the First Amendment. This case raises no

controversial, new, or even difficult issues that merit this

Court’s review.

A. There Is Ne Conflict Among the Courts: False

and Misleading Commercial Speech Is Not

Protected by the First Amendment.

It has long been settled that false, inaccurate, or misleading

commercial speech is accorded no protection under the First

Amendment. See, e.g., Va. State Bd. of Pharmacy v. Va.

Citizens Consumer Council, 425 U.S. 748, 771-72 (1976);

Bates v. State Bar of Ariz., 433 U.S. 350, 383 (1977); .

Zauderer v. Office of Disciplinary Counsel, 471 U.S. 626,

638 (1985). As this Court explained in Central Hudson Gas

& Electric Corp. v. Public Service Commission, 447 U.S. 557

(1980): “The First Amendment’s concern for commercial

speech is based on the informational function of advertising.”

Id. at 563. No protection exists for commercial speech if it

does “not accurately inform the public.” /d. at 563. Thus, to

come within the ambit of the First Amendment, commercial

speech “at least must concern lawful activity and not be

misleading.” /d. at 566. “The government may ban forms of

communication more likely to deceive the public than to

inform it.” /d. at 563 (internal citation omitted).

There can be no serious dispute that Bronco uses its Napa

brand names to convey inaccurate information to consumers.

26

Even Brorizo has described its Napa brand names as “geo-

graphically misdescriptive.” Cal. Pet. 9.'’ Bronco argues

that they are nonetheless protected speech. But the Court’s

post-Central Hudson cases discussing truthful, but “potentially

misleading” speech did not alter the basic principle that inac-

curate commercial speech lacks First Amendment protection

and may be prohibited."* As the Court explained in In re

R.M.J., 455 U.S. 191 (1982):

Truthful advertising related to lawful activities is entitled

to the protections of the First Amendment. But when the

particular content or method of the advertising suggests

that it is inherently misleading or when experience has

proved that in fact such advertising is subject to abuse,

the States may impose appropriate restrictions.

Id. at 203 (emphases added). Bronco ignores entirely the

States’ right to restrict commercial speech when experience

has proved it to be subject to abuse or actually misleading in

practice, id. at 202, 203, 207——as the Legislature found to be

the case with respect to Napa brand names, App. 4a, 85-86a.

'? “Cal Pet.” refers to Petitioners’ July 6, 2005 Petition for Review

before the California Supreme Court.

"* See Ibanez v. Fla. Dep’t of Bus. & Prof'l Regulation, 512 U.S. 136,

142 (1994) (holding that “[bjecause ‘disclosure of truthful, relevant infor-

mation is more likely to make a positive contribution to decisionmaking

than is concealment of such information,’” such information may not be

banned, but “false, deceptive, or misleading commercial speech may be

banned”) (emphasis added; quoting Peel v. Attorney Registration & Disci-

plinary Comm'n, 496 U.S. 91, 108 (1990)); Shapero v. Ky. Bar Ass'n, 486

U.S. 466, 472 (1988) (““Commercia! speech that is not false or deceptive

and does not concern unlawful activities . . . may be restricted only in the

service of a substantial governmental interest, and only through means

that directly advance thet interest.’”) (alteration in original; quoting

Zauderer, 471 U.S. at 638); Zauderer, 471 U.S. at 638 (“The States and

the Federal Government are free to prevent the dissemination of com-

mercial speech that is false, deceptive, or misleading .. . .); In re R.MJ.,

455 U.S. at 203 (“Misleading advertising may be prohibited entirely.”).

27

The cases on which Bronco relies regarding speech that is

merely “potentially misleading” are fundamentally different

from this case because they all involved attempts to convey

accurate information, which is protected by the First Amend-

ment, unlike Bronco's false and misleading brand names."

The R.M.J. Court's discussion of “potentially misleading”

speech that “may be presented in a way that is not deceptive,”

455 U.S. at 203, makes clear that the Court is describing

accurate speech that has the potential to mislead, such as “a

listing of areas of practice.” /d. Because the speech at issue

in these cases was accurate, it fulfilled the informational

function of the First Amendment, and thus was protected

even though it had the potential to mislead.

Bronco's heavy emphasis on the “presumption favoring

disclosure over concealment,” Pet. 23-24, is similarly mis-

placed. That presumption has no role in cases where, as here,

the “conceal[ed]” speech is itself false and misleading; rather,

the “concealment” to be avoided is of accurate information.

As explained by this Court:

[D]isclosure of truthful, relevant information is more

likely to make a positive contribution to

than is concealment of such information. Even if we

assume that petitioner's [speech] may be potentially mis-

leading to some consumers, that potential does not

satisfy the State’s heavy burden of justifying a categori-

cal prohibition against the dissemination of accurate

factual information to the public.

"" See Ibanez, 512 U.S. at 138 (addressing “truthful” representation that

an attorney was a Certified Public Accountant and a Certified Financial

Planner); Peel, 496 U.S. at 100-101, 106 (addressing prohibition on

attomey letterhead that stated the “true and verifiable” fact of certification

by the National Board of Trial Advocacy); Zauderer, 471 U.S. at 639,

65. 52 (addressing “entirely accurate” attorney advertisement regarding

Dalkon Shield claims); Bates, 433 U.S. at 372-73, 384 (addressing “whether

the State may prevent the publication in a newspaper of appellants’

truthful advertisement”).

28

Peel, 496 U.S. at 108-09 (emphasis added & internal citations

omitted).

Nor is there any conflict in the Circuits or State courts.

Pet. 26-27. The cases from New York and the Tenth Circuit

that Bronco cites in fact reiterate the principle that false and

misleading speech receives no First Amendment protection.

See Revo v. Disciplinary Bd. of the Supreme Court, 106 F 3d

929, 932 (10th Cir. 1997); In re von Wiegen, 470 N.E.2d 838,

843 (N.Y. 1984). Like the cases above, they apply First

Amendment protection to the dissemination of accurate in-

formation, and do not suggest that false or misleading speech

is protected. See Revo, 106 F.3d at 931 n.2, 932 (addressing

ban on direct mail solicitation by attorneys and finding letters

at issue were not misleading); /n re von Wiegen, 470 N.E.2d

* at 838 (invalidating general prohibition on direct mail

solicitation by attorneys, but finding that letters at issue were

misleading, could be prohibited, and “there was no need to

establish that the letters actually mislead the recipients”).”°

False or misleading speech is not entitled to First Amend-

ment protection, as Bronco suggests, simply because the

speaker can simultaneously contradict it. Pet. 27. If poten-

.ially misleading speech is clarified to convey accurate and

non-misleading information, then the clarified, accurate infor-

mation is entitled to First Amendment protection. However,

this Court has never held that disclaimers are adequate to cure

false or misleading commercial speech. Here, the Court of

Appeal properly found that the use of Napa brand names for

non-Napa wine is not protected by the First Amendment.

* Pearson v. Shalala, also relied on by Bronco, Pet. 26, likewise ad-

dressed the dissemination of information that was not false, but merely

had the potential to mislead. 164 F.3d 650 (D.C. Cir. 1999) (“The gov-

emment does not assert here that appellants’ health claims convey no

factual information, only that the factual information conveyed is mis-

leading.” (emphasis in original).

29

B. The Court of Appeal Did Not Defer Too Much

to the California Legislature Nor Toe Little to

BATF.

Bronco argues that the California Court of Appeal “wrongly

deferred heavily to the California Legislature's” finding that

Bronco's brand names are misleading, Pet. 27-28. In fact, the

Court of Appea: did not “defer” to the Legislature’s findings,

but rather analyzed whether they were “supported by an

adequate factual basis,” App. 85a. The court found that they

were. /d. at 85a-86a. In coming to this conclusion, the court

thoroughly reviewed the Legislature’s findings, the BATF

regulatory history, regulations from other states, and the

evidence submitted by the parties. App. 86a-92a. Bronco’s

characterization of the court’s decision as “defer[ring] heav-

ily” (Pet. 27) to the Legislature is simply incorrect.

Bronco’s description of the decision below as “effectively

disregard{ing)” (Pet. 28) the regulatory history also is wrong.

The court expressly considered the regulatory history, App.

88a-90a, including the fact that “[flederal regulators have also

found that brand names of viticultural significance are mis-

leading when the brand name does not accurately reflect the

wine’s true origin,” App. 88a-89a. The Court of Appeal

correctly concluded that there was no “finding” that labels

with grandfathered brand names were not misleading. App.

89a-90a; see also supra p. 9.

In any event, Bronco admits that federal regulatory find-

ings “do not automatically ‘override’ the [State] Legislature’s

contrary determination,” but fails to explain what the court

should have done differently to “defer” appropriately, other

than simply acquiesce in the alleged contrary determination

of the regulators. Pet. 30. Nor does Bronco explain why

such deference would be proper when, as it also argues, the

court must exercise de novo review. Pet. 28. Bronco essen-

tially argues that an agency’s failure to prohibit speech

accords it special status under the First Amendment. As

discussed above, supra pp. 14-19, however, nothing in the

30

federal regulations prevents states “from adopting more

stringent brand-name labeling requirements as necessary to

address local concerns.” App. 66a. Unlike BATF, the Cali-

fornia Legislature heard evidence on the specific issue of

Napa brand names, found that Napa brand names are mis-

leading if the wine is not made from Napa grapes, and further

found that these labels pose a particular concern because of

the well-known reputation of the Napa region for premium

wines. Cal. Bus. & Prof. Code § 25241(a); App. 4a, 85a-86a.

The misleading labeling of Napa wines is thus a classic exam-

ple of “when experience has proved that in fact such advertis-

ing is subject to abuse,” and California’s § 25241 is an ap-

propriate restriction. R.M.J., 455 U.S. at 203. California

plainly has the ability to regulate such misleading brand

names, despite BATF’s failure to do so, or any federal failure

to regulate would hamstring the States’ ability to address

local concerns.

CONCLUSION

The petition should be denied.

Respectfully submitted,

KATHLEEN M. SULLIVAN JOHN J. BUCKLEY, JR. *

QUINN EMANUEL URQUHART CRAIG D. SINGER

OLIVER & HEDGES, LLP BETH A, LEVENE

555 Twin Dolphin Drive WILLIAMS & CONNOLLY LLP

Suite 560 725 Twelfth Street, N.W.

Redwood Shores, CA 94065 Washington, D.C. 20005

(650) 801-5000 (202) 434-5000

RICHARD MENDELSON

DICKENSON, PEATMAN &

FOGARTY

809 Coombs Street

Napa, CA 94559-2977

* Counsel of Record (707) 252-7122

Counsel for Respondent Napa Valley Vintners Association

December 23, 2005

BRONCO WINE COMPANY and

BARREL TEN QUARTER CIRCLE, INC.,

Petitioners,

Vv.

JERRY R. JOLLY, Director of the California

Department of Alcoholic Beverage Control;

CALIFORNIA DEPART**ENT OF

ALCOHOLIC BEVERAGE CONTROL; and the

NAPA VALLEY VINTNERS ASSOCIATION,

Respondents.

«

On Petition For A Writ Of Certiorari

To The Supreme Court Of The

State Of California

S

BRIEF FOR RESPONDENTS JERRY R. JOLLY,

DIRECTOR OF THE CALIFORNIA DEPARTMENT

OF ALCOHOLIC BEVERAGE CONTROL AND THE

CALIFORNIA DEPARTMENT OF ALCOHOLIC

BEVERAGE CONTROL IN OPPOSITION

¢

BILL LOCKYER

Attorney General of the

State of California

MIGUEL A. NERI

FIEL TIGNO

Supervising Deputy Attorneys

General

TERRY SENNE

Counsel of Record

Deputy Attorney General

1515 Clay Street, Suite 2000

P. O. Box 70550

Oakland, California 94612-0550

Telephone (510) 622-2118

—=~.

COCKLE LAW BRIEF PRINTING C() (800) 225-6964

OR CALL COLLECT (402) 312-2831

II.

QUESTIONS PRESENTED

Whether a California statute prohibiting wine pro-

ducers from mislabeling non-Napa wine as Napa wine

is impliedly preempted by federal regulations.

Whether a statute prohibiting as false and misleading

the mislabeling of non-Napa wine as Napa wine vio-

lates the First Amendment.

ii

TABLE OF CONTENTS

Page

QUESTIONS PRESENTED ..............cceccecceeceeeeeeesceees i

Re Oe Cr a icccrcnccestiincneenieniicnniiiiiae ii

TABLE OF AUTHORITIES. ...........cccccccsssssecorrseseeeees iv

STATEMENT OF THE CASE ..............sscccccceseeeesereees 1

REASONS FOR DENYING THE WRIT.................... 6

I. THE CALIFORNIA SUPREME COURT'S

HOLDING THAT NEITHER THE “GRAND-

FATHER CLAUSE” NOR A COLA PRE-

EMPTS SECTION 25241 IS HARMONIOUS

WITH DECISIONS OF THIS COURT AND

THE COURTS OF APPEALS .............ccccceseeee 6

A. The California Supreme Court’s Decision

Is Consistent With This Court’s Implied

Conflict Preemption Cases....................... 7

B. The Application Of A Presumption Against

Preemption Is Soundly Grounded In Federal

FORE cccctceviiinstsvivineviimiatieninminaas 12

II. THE CALIFORNIA COURT OF APPEAL’S

HOLDING IS CONSISTENT WITH FED-

ERAL AUTHORITY THAT THE FIRST

AMENDMENT PROVIDES NO REFUGE

FOR COMMERCIAL SPEECH THAT IN-

HERENTLY TENDS TO MISLEAD, CON-

FUSE AND DECEIVE CONSUMERS ............ 17

A. Bronco’s “Napa Ridge,” “Napa Creek

Winery” and “Rutherford Vintners”

Brand Names Are Inherently Misleading

When Used In Wines Made From Non-

De GI, cccevsintccttectesttiasinmniniamiamnntes 17

iii

TABLE OF CONTENTS -— Continued

Page

B. No Distinction Between Inherently And

Potentially Misleading Speech Confers

First Amendment Protection On Decep-

SN I sciiensancnniientvosnemnesecendnntapecats 19

C. BATF Made No Findings That Bronco’s

Subject Labels Are Not Misleading As To

ED denascessscussedscitucenincsecseeninnte icieninesoneiiones 20

Re ccscecencninctasndvensescnscesnbtonsssecns etamnewensnen 22

iv -

TABLE OF AUTHORITIES

Page

CASES

Arkansas Elec. Coop. Corp. v. Arkansas Pub. Serv.

SN ic Se hls EP Ce entecevcecscccorcscssteccsceséuetenzseeies 6

Barnett Bank, N.A. v. Nelson, 517 U.S. 25 (1996)............ 10

California v. ARC America Corp., 490 US. 93

«EE On ea eT ae NON CE ANB aoe 12

Central Hudson Gas & Electric Corp. v. Public

Service Comm’n, 447 U.S. 557 (1980) .........ccceceeeceeeeeeees 17

Cliff v. Payco General America Credits, Inc., 875

as ET ETE, STII nec ccchicihdcticrlitnbadindanisenaddoaaginindal 15

Federal Power Comm’n v. Southern Cal. Edison

ig See Ry Se I duicccsveneusesdoaterdieniacsnniddenabiaaibastelias 16

FTC v. Colgate-Palmolive Co., 380 U.S. 374 (1965)......... 18

First Iowa Hydro-Electric Coop. v. Federal Power

CIE, Se Ge eile I Ci Dccceructccesidoncsntcscdbentiansdadseens 10

Florida Lime & Avocado Growers, Inc. v. Paul, 373

tt. EL See ae mie bene enor ae, 13, 14

Geier v. American Honda Motor Co., 529 U.S. 861

EITC a Ree CLO EN ORE aaa DS eERe ae NT ee 8,14

Hillsborough County v. Automated Med. Labs, Inc.,

ee ee, PE EE winicenncshinsecndiinttenastadédedadancabidacnmeiiagaa 13

Hines v. Davidowitz, 312 U.S. 52 (1941)........ ce eeeeeeeeeeeeeeees 6

Hunt v. Washington State Apple Advertising Comm'n,

ais SET UP icouicdacicenticisdatcmdiieuscdshiadadadandaiaiueaniied 13

Ibanez v. Florida Dept. of Bus. & Prof’l Regulation,

I re ea 19

Leslie Miller v. Arkansas, 352 U.S. 187 (1956)................. 10

TABLE OF AUTHORITIES — Continued

Page

McDermott v. Wisconsin, 228 U.S. 115 (1913).................... ]

Medtronic, Inc. v. Lohr, 518 U.S. 470 (1996).......... Rilceiieiiaie 6

New York State Dept. of Social Services v. Dublino,

I i 13, 15

Penn Dairies, Inc. v. Milk Control Comm’n, 318

RE Ee ance ae ee ne 6

Pharmaceutical Research and Manufacturers of

America v. Meadows, 304 F.3d 1197 (11th Cir.

ES REN eR eM es Mn ome ee Se meee 15

Pharmaceutical Research and Manufacturers of

America v. Walsh, 538 U.S. 644 (2003)...............0000. 6,13

Pike v. Bruce Church, Inc., 397 U.S. 137 (1970)............... 14

Pinney v. Nokia, Inc., 402 F.3d 430 (4th Cir. 2005).......... 16

Planned Parenthood of Houston & SE Tex. v.

Sanchez, 403 F.3d 324 (5th Cir. 2005) .............cc.cccceceees 14

Public Util. Dist. No. 1 v. IDACORP Inc., 379 F.3d

fo EE See ee 16

Ray v. Atlantic Richfield Co., 435 U.S. 151 (1978)..... 10, 12

Rice v. Santa Fe Elevator Corp., 331 U.S. 218

EELS EE Ny oe MM olen ko ee 12

Sligh v. Kirkwood, 237 U.S. 52 (1915) ............cccccccceeeeeeeees 14

Sperry v. Florida, 373 U.S. 379 (1963) ..............s0.cceeeeeeeees 10

Sprietsma v. Mercury Marine, 537 U.S. 51 (2002) ......... 7,8

UPS v. Flores-Galarza, 318 F.3d 323 (2003) .................0. 16

United States v. Locke, 529 U.S. 89 (2000)....................06. 16

Wachovia Bank, N.A. v. Burke, 414 F.3d 305 (2d

ee 16

TABLE OF AUTHORITIES -— Continued

Page

Wells Fargo Bank v. James, 321 F.3d 488 (5th Cir.

STEED ccharrtslecndiinhitareciepnitebiataninrtaeaniitiiaeadiliipmeatlacaiiaeiatideidali date ia 14

Wisconsin Bell, Inc. v. Bie, 340 F.3d 441 (7th Cir.

STEED sviicsscinciesbiciitaincsiiiitaealinidiaiadtinintinidicabdaidnd aia daeiieleataaisdae 16

Zauderer v. Office of Disciplinary Counsel, 471 U.S.

ne GUNN witslivtieitecinitstoninunacibetinhniedilnitehiriiiitiehentiiailciaaaiiiaimiahieda, 18

FEDERAL STATUTES

ae a OF ee ciinctilinaciniinttitcenntassiiilcaiapditadatanameatietiitailtdeadeiaess 13

FEDERAL REGULATIONS

Be es Oe ee eitichinetinncticnaesiticinaiilniilaiamiteSpnraeitianiening 2, 3,5

FT 8 Se eee er 2, 3, 21

FEDERAL ADMINISTRATIVE MATERIALS

ey Hy Se CI ciiccsicccnnseccsetsininsteniennteatintibteastinition 2

51 Fed. Reg. 20,481 (1986) ...............ccccceeeeeeeeeees 2, 11, 12, 18

66 Fed. Reg. 29,476 (May 31, 2001).............ccccceeeeeeeeceeeeees 21

STATE STATUTES

Ee as ae, eae passim

OTHER SOURCES

VINCENT P. CAROSSO, THE CALIFORNIA WINE INDUSTRY:

A STUDY OF THE FORMATIVE YEARS (1951) ............. ES 1

STATEMENT OF THE CASE

No o ‘oubts that Napa County is the most famous

wine-grov _ region in the United States and the crown

jewel of California’s multi-billion dollar wine industry.’

This case represents petitioners’ (collectively “Bronco”)

second attempt before this Court to secure a shield against

regulation of their deceptive labeling of non-Napa wine as

Napa wine.’ In a unanimous opinion, the California

Supreme Court rejected Bronco’s claim of preemption.

Chief Justice George wrote that “we find nothing in the

history of the underlying federal statute or the federal

regulations suggesting that ... states would or should be

precluded from adopting more stringent brand-name

labeling requirements as necessary to address local

concerns.” App. 66a. A unanimous California Court of

Appeal rejected Bronco’s First Amendment claim, holding

that the First Amendment secures no right to label wine

with a brand name falsely suggestive of a Napa Courity

origin.”

Modern federal wine regulations prohibit wine

producers from using brand names of viticultural signifi-

cance “unless the wine meets the appellation of origin

requirements for the geographic area named.” 27 C.F.R.

’ In California, by 1860 grapes ranked as one of the “three major

agricultural products of the state,” along with wheat and barley.

VINCENT P. CaRosSO, THE CALIFORNIA WINE INDUSTRY: A STUDY OF THE

FORMATIVE YEARS (1951) p. 74.

* While Napa-grown grapes are the most costly in the State,

Bronco’s subject wines are typically made from the least expensive

grapes available in all of California. App. 87a.

* The Court of Appeal also rejected Bronco’s dormant Commerce

Clause and Fifth Amendment Takings Clause arguments, but Bronco

has abandoned those claims.

2

§ 4.39(i)(1).‘ Thus, to be entitled to use a state or county

appellation of origin in a brand name, at least 75 percent

of the wine must be made from grapes in the named

appellation, or, if an American Viticultural Area (AVA) is

named, the percentage requirement rises to 85%. 27 C.F B.

§§ 4.25a(b)(1\iii) & 4.25a(eX3). If these compositional

requirements are not met, the federal regulations

simply prohibit the use of a brand name of viticul-

tural significance, no matter what disclaimers might be

appended elsewhere on the labeling regarding the identity

and origin of the wine. The federal agency, the Bureau of

Alcohol, Tobacco & Firearms’ (BATF), has spoken clearly

regarding the rationale for this prohibition. “In the case of

a geographic brand name of viticultural significance, ATF

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. 20,480, 20,481 (1986).

However, 27 C.F.R. § 4.39(i)(2), commonly referred to

as the “grandfather clause,” exempts geographic brand

names first used on wine labels before July 7, 1986, from

the requirement that the wine be sourced from the named

appellation. The grandfather clause was enacted by BATF

with scant explanation.

* For American wine, an appellation of origin can be the United

States, a state, a county, a combination of two or three states or

counties, or a viticultural area. 27 C.F.R. § 4.25a(aX1). A viticultural

area in turn is defined as a geographical grape growing area recognized

in the federal regulatory scheme. 27 C.F.R. § 4.25a(e)(1Xi).

* This brief will refer to the applicable federal agency as BATF,

although its functions are now performed by the Alcohol and Tobacco

Tax and Trade Bureau.

3

Bronco is selling wines made from non-Napa grapes

under Napa brand names,* a practice that would not be

tolerated under the modern federal regulatory scheme (27

C.F.R. §§4.25a and 4.39(i)(1)) but which escapes federal

prohibition by virtue of the grandfather clause (27 C.F.R.

§ 4.39(i2)). Without question, Bronco has the capacity,

and apparent intention, to flood the market with wines

bearing its misleading Napa brand names. In his testi-

mony before the California Senate, Bronco’s principal, Mr.

Fred Franzia, confirmed that his newly-built bottling

facility (petitioner Barrel Ten Quarter Circle) would have

a capacity of 44.8 million gallons of wine annually (RA

014),’ multiples in excess of the total annual wine produc-

tion of the whole of Napa County. When asked whether

this increased production capacity would 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 I could sell 18 million cases of Napa

Ridge, I'd be one happy guy.” RA 014. There also exist

dozens of other grandfathered Napa brand names that,

while now apparently quiescent, can be purchased and

used at any time, whether by Bronco or others in like

manner. RA 0290-0291. The risks these conditions pose to

the integrity, value and stability of California’s wine

industry are formidable.

* Bronco’s grandfathered brand names are “Napa Ridge,” “Napa

Creek Winery,” and “Rutherford Vintners.” All of these grandfathered

brand names, which Bronco purchased, are marketed largely as

impostors on wines that are not made with Napa County grapes.

” Respondents’ Appendix in the California Court of Appeal is

designated “RA.”

It became apparent to the California Legislature that

this regulatory exception was operating with intolerable

and pernicious effect upon Napa County, California’s

uniquely famous wine-growing region. By virtue of its

historic and preeminent role in the wine industry, the

land, grapes, wines and name of Napa have unparalleled

value. In June and August of 2000, the California Legisla-

ture held open debates and took testimony from numerous

witnesses, including representatives of the Napa Valley

Vintners Association, the California Retailers Association,

Family Wine Makers of California, wine retailers, winery

owners, and Petitioners and their attorneys. RA 1-7. The

Legislature received legal memoranda supporting and

criticizing the proposed statute as well as numerous

communications from constituents including wine produc-

ers, retailers, the Napa County Board of Supervisors, and

restaurants. RA 042-059, 153-172, 182, 198, 299, 301, 308,

320, 322, 324 and 331. The Legislature made appropriate

findings:

The Legislature finds and declares that for more

than a century, Napa Valley and Napa County

have been widely recognized for producing

grapes and wine of the highest quality. Both con-

sumers and the wine industry understand the

name Napa County and the viticultural area ap-

pellations of origin contained within Napa

County (collectively “Napa appellations”) as de-

noting that the wine was created with the dis-

tinctive grapes grown in Napa County.

The Legislature finds, however, that certain pro-

ducers are using Napa appellations on labels, on

packaging materials, and in advertising for

wines that are not made from grapes grown in

5

Napa County, and that consumers are confused

and deceived by these practices.

The Legislature further finds that legislation is

necessary to eliminate these misleading prac-

tices. 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.

Cal. Bus. & Prof. Code § 25241(a). Thus, § 25241 was

enacted, forbidding the use of a Napa name unless the

wine in fact qualifies for the Napa County appellation of

origin under the operative provisions of 27 C.F.R. § 4.25a.

Section 25241 creates a narrowly focused requirement

that wines bearing Napa brand names’ contain real Napa

wine, but it does not otherwise seek to limit the domain of

the federal grandfather clause either in California or

nationally. It is undisputed that Bronco can conform to

both federal and state laws governing the composition of

wines bearing Napa brand names. Complying with Section

25241 would not put any regulated entity in conflict with

any federal requirement.

* The statute applies to the name “Napa,” and “[ajny viticultural

area appellation of origin ... that is located entirely within Napa

County” (§ 25241(c)). For ease of reference, we shall refer to the

proscribed names collectively as “Napa names” or “Napa brand names.”

“No wine produced, bottled, labeled, offered for sale or sold in Califor-

nia” shall use the prohibited names “in a brand name or otherwise, on

any label, packaging material, or advertising.” § 25241(b).