Outcome of federal court case could sour New Jersey's wine industry

Author's note: I wrote this story in 2011 for The Press of Atlantic City. There were a number of times while I was at The Press that I stumbled upon a story and essentially became the only reporter in the entire state regularly covering that topic. The legal and regulatory battle affecting New Jersey wineries from 2003 to 2012 was one of those ongoing stories I came to own.

The New Jersey wine industry has just experienced a decade of unprecedented growth. Garden State winemakers have begun winning awards in national competitions, and 2010 may be the best vintage year in the state's history.

And local growers could not be more worried.

The future of New Jersey's wine producers depends on a federal court case and a piece of state legislation that could either expand the wine market here or make it impossible for all but a few vineyards to operate.

"It's everything we've worked for and poured into financially," said Ollie Tomasello Jr., winemaker at Plagido's Winery in Hammonton, "and then the bottom could just fall out."

In December, a federal appeals court struck down the state's law that allows wineries to sell their products directly to consumers in their tasting rooms and off-site retail shops, saying it unconstitutionally forbids out-of-state producers from opening their own retail operations here.

To resolve the issue, a federal district court judge will have to determine how to level the playing field: either by allowing all U.S. wineries to sell their wines directly to New Jersey consumers, or allowing none at all and effectively closing the dozens of retail shops state winemakers currently operate.

The latter would handcuff the majority of N.J. wineries that are too small to distribute their wines through wholesalers. Since state law currently bans vineyards from shipping directly to consumers, they would have few practical ways to sell their wines.

"I would say 90 percent of the state's wineries would be out of business," said Scott Donnini, co-owner of Auburn Road Vineyards in Pilesgrove Township, Salem County, who also serves as in-house counsel for the Garden State Wine Growers Association."I think that's probably a conservative estimate," he said. "It's a very, very serious problem."

"In essence, it would shut us down entirely," echoed Kenton Nice, co-owner of the Coda Rossa winery in Franklin Township, Gloucester County.State legislators hope they can pass a law to address those issues prior to the court's decision. They are amending a bill that has sat in the Assembly since last spring that would allow direct shipments from wineries in New Jersey and across the country to consumers here.

By permitting direct wine shipments to customers' homes, as well as allowing wine producers both in-state and out of state to open retail shops in New Jersey, legislators think they can remedy the issue.

But the state's liquor distributors have fervently fought the measure, which they believe would put them at a disadvantage since it would allow companies to bypass wholesalers.

"Wine growers want markets to work," said Assemblyman John Burzichelli, D-Salem, Gloucester, Cumberland, who is sponsoring the wine distribution law, "but wholesalers want to control the markets entirely. I don't think that's going to be the case much longer."

Whatever happens, New Jersey consumers will be able to buy wine differently by the end of this year. It remains to be seen whether they will have more or fewer choices.

Laws sprung from court case

The case that has catalyzed the recent moves to change state laws, Freeman v. Corzine, began in 2003 when a group of New Jersey wine enthusiasts and a California winery joined to sue the state and have its regulations declared unconstitutional.

At that time, the state allowed in-state producers to ship directly to consumers, but not out-of-state companies.

Before that case could be decided, the U.S. Supreme Court ruled in 2005 that states could not discriminate in favor of local wine producers by making only out-of-state producers go through wholesalers in what's called the "three-tier system" - producers sell to wholesalers, wholesalers to retailers, retailers to consumers.

While some states responded by allowing all wine producers to ship into and out of their borders - which 37 states currently do - New Jersey had preemptively disallowed all wine shipments in 2004, ending a 23-year-old practice.

On Dec. 17, a three-member panel of the U.S. District Court of Appeals for the Third Circuit ruled that while that aspect of state law is constitutional, the regulations governing wineries' retail operations are not.

Currently, wineries can sell their products on-site in tasting rooms as well as at up to six off-site locations statewide and at additional joint locations with other wineries. These often take the form of small shops at BYOB restaurants or even individual storefronts.

For example, Donnini's winery has an off-site retail shop in Lavalette, Ocean County, more than 80 miles away from its vineyard in rural Salem County."

Wineries are fairly remote places, so this allows us to get to our customers," Donnini said.But because out-of-state producers are barred from opening such operations, the court deemed the state's law in violation of the Constitution's Commerce Clause.

Neither the plaintiffs, nor the state, nor the intervening liquor distributors thoroughly argued whether to completely include or exclude wineries from such sales, so the court remanded the case to the New Jersey District Court for that decision to be made.

Fearing an exclusionary ruling that would all but eradicate the state's boutique wineries, the Garden State Wine Growers Association filed a motion to intervene in the case and hired a high-profile northern New Jersey law firm to argue its case.

The state Attorney General's office has also filed a petition for a rehearing, arguing in part that allowing on-site wine sales does not put out-of-state wineries at a disadvantage, and that any remedy should be made by the legislature rather than the judiciary.

Burzichelli said he hopes to have agreement on the assembly bill amendments in the next month, with both liquor distributors and wine growers involved in the process.

"If we're not able to strike something, the court's going to speak," he said.

Issue splits industry

Jeffrey Warsh, executive director and general counsel for the New Jersey Wine & Spirits Wholesalers Association, said he expects his group to approve this month its proposals for the state's bill.

He said his coalition of wholesalers, package stores, bars and even some wineries are opposed to allowing direct shipment, something that he said could cost them revenue and jobs by allowing wineries from all over the country to deliver here directly.

And he argued that provisions to keep wine deliveries out of underage hands - such as labeling boxes, requiring adults to sign for packages and not allowing deliverers to leave packages on doorsteps - would be unenforceable.

While he agrees in some aspect that customers should have freedom of choice in the Internet age, he said ordering alcohol online is a lot different than getting a pair of jeans delivered.

"It requires a whole other level of responsibility," he said.

Steve Some, spokesperson for Uncork NJ, an advocacy group that seeks to loosen the state's wine regulations, argued that there is little evidence of such projected problems in the dozens of other states that permit the practice.

Instead, he said, state residents should have the same opportunities to buy wine that most of those other states afford.

"Is New Jersey some special place that's not a part of America?" he said. "That we wouldn't have the same types of taste and want the same types of wine?"

The case that has stirred all this debate originally intended to focus only on wine shipment laws, but its effect could be the inadvertent altering of a variety of other regulations.

"We didn't bring this to hurt the New Jersey wineries," said Gary Redish, the co-counsel for Robert and Judy Freeman, who originally sought to allow out-of-state wine shipments to their home. "We never thought about it."

Meanwhile, many local vintners are willing to keep the ban on direct shipping if it means approving a law that continues to permit their retail operations, which are currently the lifeblood of the industry.

"If the choice would be between dumping shipping and saving my winery, then I don't care about shipping," said Darren Hessington, winemaker at Cape May Winery. "We're putting the shipping issue on the backburner."

Likewise, Donnini said that given the currently successful track that the industry has been on, his group simply wants to maintain the status quo.

"Really, what we're asking for is no more or no less than what we have," he said.

For winemakers like Ollie Tomasello, what's at stake is much more than a job.His great-grandfather, Plagido Tomasello, emigrated from Italy in the 19th century and first owned the land where his family now grows grapes on North 1st Road in Hammonton.

For generations the family grew a variety of fruits and vegetables, until Ollie Tomasello Sr. planted the first vines in 1999. Tomasello Jr.'s father took pride in the wine the company started selling in 2007 until he died at age 66 on Dec. 3, 2009.

Now Tomasello Jr. said the 10-acre vineyard is just beginning to gain momentum, fresh off earning gold medal honors at a high-profile competition in San Francisco and with plans to debut new varieties this year.

But at the same time, he has to worry about whether he will be soon be disallowed from selling wines in his tasting room or the two restaurants in southern Ocean County that feature his bottles.

Without those outlets, he'll lose hundreds of thousands of dollars of money his family has invested, but also - and more importantly - the business that was intended to be his father's legacy.

"I think it's got us all a little stirred up," he said.