On January 17, 2012, Governor Chris Christie signed into law a bill allowing out-of-state winemakers to sell directly to New Jersey consumers and retailers. The bill was in response to the Third Court’s decision in Freeman v. Corzine, which we reviewed on this blog a year ago. The decision invalidated a New Jersey law allowing certain New Jersey farmers and wineries to skip wholesalers and sell directly to retailers and consumers. The Court determined that the law ran afoul of the Constitution’s Dormant Commerce Clause because it imposed restrictions benefiting in-state wineries and farmers at the expense of their out-of-state competitors. This new law is intended to balance the competing rights of in-state and out-of-state wineries.
The Third Circuit ordered the case remanded to the District Court to remedy the constitutional violation. In short, the District Court was being asked to choose between (1) extending the same in-state privileges to out-of-state wineries and farms, or (2) nullifying the privileges enjoyed by in-state wineries and farms. Rather than leaving the matter with the courts, state legislators introduced several competing bills aimed at resolving the violation. On July 25, 2011, at the request of all parties, the District Court ordered the case “administratively terminated” through March 2012 in anticipation of a legislative resolution.
After months of back and forth negotiations, the new law finally garnered enough votes to pass on the final day of the 2010-2011 legislative session. The law is a compromise measure that will resolve the constitutional issues identified in Freeman v. Corzine and protect New Jersey wine growers’ right to sell directly to consumers. As a result, the District Court litigation has been rendered moot.
Specifically, the new law creates a new “Out-of-State winery license,” available to applicants that do not produce more than 250,000 gallons of wine per year and are duly licensed in another state. The new license permits direct sales to New Jersey consumers, including internet sales. Out-of-State licensees will also be permitted to sell directly to consumers at up to 16 tasting-room locations in the State (compared to 15 locations for In-State wineries). Direct sales and distribution to retailers are also permitted for an additional fee. The new law will take effect on May 1, 2012.
Brett S. Theisen is an Associate in the Gibbons Financial Restructuring and Creditor's Rights Department.