# Opposition Brief — Bronco Wine Co. v. Jolly

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URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386016_0495%3A3

## Record

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

## Text

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).

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386016_0495%3A3. Public record. Not legal advice.