Napa Vintners Toast California’s Justices

The California Supreme Court dealt a setback to maverick winemaker Fred Franzia on Thursday, much to the delight of his Napa Valley rivals.

The state high court, saying that it wanted to “provide stricter protection to consumers,” forbade all winemakers from using a regional name such as “Napa” on their labels unless 75% of the grapes in the bottle were actually grown in the place in question.

Although the ruling sounds sweeping, its immediate effect is quite limited: Only one company, Franzia’s Bronco Wine Co., is believed to have taken advantage of a federal loophole allowing a relative handful of vintners to use place-name designations even when most of the grapes were harvested elsewhere.

The decision could require Bronco, one of the nation’s largest producers of bulk wines, to change the names of three of its products: Napa Ridge, Napa Creek Winery and Rutherford Vintners -- or to start using more grapes grown in Napa County.

Peter M. Brody, a lawyer for Bronco, said the company would continue to challenge the labeling requirement on constitutional grounds, including commercial free-speech rights. The court’s ruling will not be enforced until those challenges play out.

More than 68 wineries, most of them from out of state, have supported Bronco’s position.

Thursday’s decision was applauded by Napa winemakers, who have been incensed at Franzia’s unabashed efforts to capitalize on the valley’s cachet while using cheaper grapes from other locales.

“Fred Franzia is more aggressive than anyone imagined,” said Tom Shelton, chief executive of Joseph Phelps Vineyards in St. Helena, Calif. “He has done so many things up here that are calculated to get under our skin.”

The battle stemmed from a 1986 federal law that prohibited winemakers from using geographic brand names unless three-quarters of the grapes were grown in that region. The law, however, included a provision allowing 36 brands that already used regional names to skirt the 75% requirement. Of those, it is believed that only the Bronco brands exploited the grandfather clause.

In 2000, at the behest of the Napa Valley Vintners Assn., the state Legislature passed a law that effectively closed the loophole. At issue before the California Supreme Court was which statute applied -- federal or state.

In overturning a 2002 appeals court decision, the high court came down squarely on the side of the state law. “California is recognized as a preeminent producer of wine, and the geographic source of its wines ... forms a very significant basis upon which consumers worldwide evaluate expected quality when making a purchase,” Chief Justice Ronald M. George wrote for the court.

He noted that California had “particular expertise and interest” in the wine market and should be permitted to provide stricter consumer protection “in order to ensure the integrity of its wine industry.”

Napa winemakers stressed that the court’s decision was important because it promised a measure of protection against others who might have come in, bought up one or more of the remaining 33 grandfathered brands and followed Bronco’s strategy.

“This case has much broader implications than three brands,” said attorney Richard P. Mendelson, who represented the Napa Valley Vintners Assn. “To use any Napa name on a label in the future, you have to have Napa grapes.”

Shelton agreed that the case was far-reaching. “The potential for abuse was huge,” he said.

Still, on some level, the dispute has always been as much about sour grapes as Napa grapes.

Over the last two years, during a time when most of the industry was mired in a slump, Franzia forced prices down and stole market share from his competitors by introducing Charles Shaw, a $1.99-a-bottle brand that is sold in Trader Joe’s stores. Bronco sells 6 million cases a year of Charles Shaw, also known as “Two-Buck Chuck,” making it one of the most popular of all California wines.

A nephew of industry pioneer Ernest Gallo, Franzia is widely seen as the bad boy of California wine. He has long stirred resentment among his more staid peers for his aggressive marketing.

In December 1993, Franzia pleaded guilty to mislabeling 5,000 tons of grapes over a five-year period, a felony. Bronco paid a $2.5-million fine, and Franzia personally coughed up $500,000 in penalties. Just a few years later, Franzia rankled Joseph Phelps Vineyards when a picture of a Phelps vineyard appeared in ads for a Bronco product. He ran afoul of labeling laws again in 1999 and was cited by the federal Bureau of Alcohol, Tobacco and Firearms.

More recently, Franzia built a bottling plant with an 18 million-case capacity near Napa Airport. That’s about double the bottling capacity of the rest of the entire Napa Valley. The facility allows Bronco to legally bottle Charles Shaw and wine from anywhere in California with labels that proclaim: “Cellared and bottled in Napa.”

Franzia “is always looking for a marketing angle, and that’s what upsets people,” said Greg Popovich, chief executive of Castle Rock Winery.

In the place-names case, Bronco maintained that it was not misleading consumers because its labels do say where the wine was made.

But the court said some buyers would nonetheless be confused. Those who order wine at restaurants, George wrote, generally do not have an opportunity to inspect a label before ordering.

The three wines sold by Bronco were made with grapes “grown in areas far from Napa, such as Stanislaus County and the environs of the city of Lodi -- areas where the cost of grapes, and often their perceived quality as well, is considerably lower,” George noted.

Even if Bronco has to change the way it makes or markets the three wines, the effect on its bottom line might be relatively small. In all, about 300,000 cases, worth $17 million, of the three brands are sold annually. By comparison, Bronco sells about $110 million of Charles Shaw a year.

Thursday’s ruling will still leave Napa Valley wineries facing an inconsistency in the labeling rules.

Wineries named after a district, such as Stags’ Leap, can sell wines with grapes from other parts of Napa. Consumers, therefore, might think they are buying a wine from Stags Leap District, which is known for its distinctive Cabernet Sauvignons, though the grapes could come from Rutherford or elsewhere in the county.