In February, I announced a lawsuit that I filed with my co-counsel, Gillian Garrett, on behalf of Blue Sky Vineyards (an Illinois winery) and The Wine Country (a California retailer in Signal Hill). The case asks a focused question: when California allows in-state wineries to sell wine directly to California retailers, can it constitutionally deny that same option to wineries from other states? The case has now moved into its first round of substantive briefing, and I want to share where things stand.

A quick recap[1]

To understand the dispute, it helps to know how California regulates wine. Like most states, California originally had what is called a “three-tier system”: producers (wineries) sold to wholesalers, wholesalers sold to retailers, and retailers sold to consumers. The system was meant to prevent any one company from controlling the entire chain.

But California carved out a series of important exceptions for in-state wineries. In particular, under California Business and Professions Code Section 23358(a)(1), a California-licensed winery can sell wine directly to a California retailer, skipping the wholesale step. The State has not extended that same option to wineries based outside California, which generally must go through a licensed importer/wholesaler to reach California retailers. The added cost is a significant barrier to the market, particularly for newer and smaller producers. Our complaint challenges that practice as inconsistent with the Commerce Clause and the Privileges and Immunities Clause of the U.S. Constitution.

The State’s motion to dismiss

In April, the California Attorney General’s Office, on behalf of the Department of Alcoholic Beverage Control, filed a motion to dismiss the case. The motion makes two main arguments.

First, the State argues that our clients lack “standing” — the legal requirement that a court be able to grant relief that would actually redress the plaintiff’s injury. The State’s position is that even if the Court agreed with our clients on the constitutional question, other parts of California’s alcohol code would still stand in the way of the transaction Blue Sky and The Wine Country want to complete.

Second, the State argues that California’s rules are not discriminatory. To the extent they treat in-state and out-of-state wineries differently, the State argues that difference is necessary to preserve the three-tier system. The State relies heavily on a recent Ninth Circuit decision called Day v. Henry, which upheld an Arizona law requiring wine retailers to maintain a physical presence in Arizona.

Plaintiffs’ opposition

We filed our opposition in late April. We argue that our complaint does have standing because the language of Section 23358(a) itself — which says winegrowers may exercise their privileges “notwithstanding any other provisions of this division” — means that other parts of the alcohol code do not block sales made under that section.

On the merits, we argue that this case is governed by two Supreme Court decisions, Granholm v. Heald (2005) and Tennessee Wine & Spirits Retailers Ass’n v. Thomas (2019), both of which emphasize that states can’t make exceptions to their three-tier systems that benefit in-state alcohol businesses only.

Our position is that California can’t justify its discrimination against out-of-state wineries based on a purported desire to maintain the three-tier system because California no longer has a three-tier system for wine. California wineries can sell wine to wholesalers, retailers of all kinds, and consumers. They can also own separate, additional licenses to operate in all three tiers — winery, import, distribution, and retail. Under these circumstances, California cannot credibly justify differential treatment as a defense of its “three-tier system.”

California already allows out-of-state wineries to ship wine directly to California consumers under separate provisions of state law — showing the State can regulate out-of-state wineries on evenhanded terms without harming consumers or the State’s ability to oversee the industry. Blue Sky Vineyards is requesting to ship produce to retailers, not consumers, which will provide the State with greater oversight than it already has for direct-to-consumer sales.

Moreover, Day v. Henry is meaningfully different from this case because Day involved retailers, while our case involves wineries. In addition, Day involves Arizona law whereas this case involves California law, which has a long history of benefitting the California wine industry.

The State’s reply

The State filed a reply in early May, reiterating its core arguments and disputing our reading of the “notwithstanding” language in Section 23358(a) as mere surplusage. The motion is now fully briefed and is set for hearing on June 2, 2026, before Judge John A. Mendez in the Eastern District of California.

Why this matters

California is the largest wine market in the country, and how the State regulates direct-to-retailer access has practical consequences across the industry. For small and mid-sized wineries outside California, access to the California retail tier can be the difference between being available to consumers in the state and not. For California retailers like The Wine Country that specialize in unusual or small-production wines, the rules shape what they can stock and how much they can differentiate themselves from their competitors. And for California wineries, the current rules confer a meaningful advantage over out-of-state peers when selling to in-state retailers.

The case also fits into a broader national conversation. Courts in other circuits have been wrestling with similar questions about state alcohol laws, and the U.S. Supreme Court has been asked to weigh in on the Day v. Henry case from Arizona. Whatever the Court decides here, the ruling will add to a developing body of law about how the Commerce Clause applies to state alcohol distribution rules in the years since Granholm and Tennessee Wine.

What’s next

After the June 2 hearing, the Court will issue a ruling on the motion to dismiss. If the Court denies the motion, the case will move forward into discovery and, eventually, summary judgment briefing. If the Court grants the motion in whole or in part, our clients will evaluate their options, including amendment and any available appeal.

As counsel for the plaintiffs, Gillian and I look forward to the Court’s consideration of our clients’ position. I will continue to share updates on this blog as the case develops, and I welcome questions from anyone in the industry who wants to better understand how this case may affect them.

 

 

[1] I am co-authoring this blog post with my co-counsel, Gillian Garrett, https://www.gilliangarrettlaw.com/