The opinion of the court was delivered by: GESELL
Plaintiffs, three sophisticated wine consumers,
challenge a rule promulgated by the Department of the Treasury regulating the labeling and advertising of wine. 27 C.F.R. § 4.1 et seq. (1979). They claim that the regulation, by failing to require accurate and sufficient representations as to the identity of the wine producer and the varieties and geographic origins of the grapes used, violates requirements of truthfulness and disclosure set forth in the enabling statute. 27 U.S.C. § 205(e) (1976). Cross-motions for summary judgment have been fully briefed and argued by both sides. This Court has subject matter jurisdiction under 27 U.S.C. § 205(e); plaintiffs have standing as parties "adversely affected or aggrieved by agency action."
5 U.S.C. § 702 (1976). See Barlow v. Collins, 397 U.S. 159, 90 S. Ct. 832, 25 L. Ed. 2d 192 (1970); Association of Data Processing Serv. Orgs. v. Camp, 397 U.S. 150, 90 S. Ct. 827, 25 L. Ed. 2d 184 (1970). After examining the motion papers and reviewing the agency's voluminous administrative record of the rulemaking hearings, no genuine issues of material fact are apparent. The Court must determine whether or not certain provisions of the challenged regulation are invalid either because they are inconsistent with the statutory mandate, or arbitrary, capricious and an abuse of discretion. 5 U.S.C. § 706(2)(A), (C) (1976).
The Federal Alcohol Administration Act, Pub.L. No. 74-401, 49 Stat. 977 (1935) ("FAA Act"), enacted shortly after repeal of Prohibition, imposed a comprehensive regulatory scheme on the business of liquor distribution and production. As part of the Act, Congress required all wines in interstate commerce to carry labels that are
in conformity with such regulations, to be prescribed by the Secretary of the Treasury, . . . (1) as will prohibit deception of the consumer with respect to such products or the quantity thereof and as will prohibit, irrespective of falsity, such statements relating to age, manufacturing processes, analyses, guarantees, and scientific or irrelevant matters as the Secretary of the Treasury finds to be likely to mislead the consumer; (2) as will provide the consumer with adequate information as to the identity and quality of the products . . . and the manufacturer or bottler or importer . . . (and) (4) as will prohibit statements on the label that are . . . false (or) misleading . . . .
The Secretary of the Treasury issued regulations pursuant to § 205(e) in December, 1935; these regulations remained in effect for over forty years. The new regulations, which are substantially similar to
the original ones, were promulgated by the Bureau of Alcohol, Tobacco and Firearms ("BATF")
pursuant to the informal rulemaking requirements of the Administrative Procedure Act. 5 U.S.C. § 553 (1976). They were approved in final form on August 16, 1978, (See 43 Fed.Reg. 37,678, Aug. 23, 1978), following four notices of proposed rulemaking
and three sets of public hearings held in Washington, D.C., and San Francisco.
Plaintiffs focus their challenge on three specific aspects of the final regulation. They complain first of the "varietal rule," which allows wine labels to carry the name of a single grape type or variety (E. g. "Chardonnay" or "Pinot Noir") without disclosing that other possibly inferior grape varieties may compose up to 25 percent of the volume (49 percent until January 1, 1983). See 27 C.F.R. §§ 4.23, 4.23a. Next they cite the "geographic rules," which permit wines to be represented as made from grapes grown entirely within one geographic region (E. g. "Sonoma County," "Napa Valley") with no disclosure that as much as 25 percent
of the volume may derive from grapes grown in other, perhaps less celebrated regions. See 27 C.F.R. §§ 4.25(a), 4.25a. Finally, plaintiffs attack the provisions allowing a winery to represent that it "produced" a certain wine while fermenting and clarifying as little as 75 percent of the volume, and to claim that it "made" a wine when in fact it may have received the wine from elsewhere for cursory treatment in its cellars. See 27 C.F.R. § 4.35(a)(1), (2).
Each of these issues was sharply raised during the rulemaking proceeding in which many consumers, including plaintiffs, were active participants.
Plaintiffs do not contend here that the agency should require 100 percent purity for wines designated by a particular geographic region or variety of grape.
They argue instead that the statutory mandate for truthfulness and adequacy of disclosure is not satisfied by regulations which permit labels to bear such incomplete and misleading representations; in their view the mandate can only be met by defining the terms "producer" and "maker" on a wine label and by expressly identifying precise percentages for all grape varieties and geographic regions contributing to the wine labeled. In addition, they claim that since the agency's final statement in the rulemaking record fails to provide a basis for allowing deceptive and uninformative usage of certain key words, the regulation is arbitrary, capricious, and an abuse of discretion.
In examining an agency's interpretation of statutory provisions, the Court confronts questions of law which it is required to decide. See Train v. Natural Resources Defense Council, 421 U.S. 60, 87, 95 S. Ct. 1470, 43 L. Ed. 2d 731 (1975). Although a reviewing court should accord considerable weight to the interpretation rendered by the agency charged with a statute's administration, Udall v. Tallman, 380 U.S. 1, 16, 85 S. Ct. 792, 13 L. Ed. 2d 616 (1965), courts are the final authorities on matters of statutory construction. Volkswagenwerk Aktiengesellschaft v. Federal Maritime Comm., 390 U.S. 261, 272, 88 S. Ct. 929, 19 L. Ed. 2d 1090; Modified on other grounds, 392 U.S. 901, 88 S. Ct. 2049, 20 L. Ed. 2d 1361 (1968). As part of its independent judicial review, this Court must therefore determine De novo whether the agency has acted consistent with statutory authority. It should not lightly substitute its own legal judgment for that of the agency, particularly where, as here, the agency interpretation is long-standing; but it must do so if it finds that the agency construction conflicts with the plain meaning of the legislation itself. Wilderness Society v. Morton, 156 U.S.App.D.C. 121, 144, 479 F.2d 842, 865 (D.C. Cir.), Cert. denied, 411 U.S. 917, 93 S. Ct. 1550, 36 L. Ed. 2d 309 (1973); Federation of Homemakers v. Butz, 151 U.S.App.D.C. 291, 293, 466 F.2d 462, 464 (D.C. Cir. 1973). See also United States v. Cartwright, 411 U.S. 546, 550, 93 S. Ct. 1713, 36 L. Ed. 2d 528 (1973); Red Lion Broadcasting Co. v. FCC, 395 U.S. 367, 381, 89 S. Ct. 1794, 23 L. Ed. 2d 371 (1969).
Section 205(e) of the FAA Act requires that the Secretary's labeling regulations prohibit false, misleading, or deceptive statements. The statutory language is clear and direct. The first question presented is thus whether the label "Chardonnay," for example, applied without any explanatory disclosure to a product that is made from as little as 75 percent Chardonnay variety grapes, is false or misleading; if so, the challenged regulation must be invalidated. Federation of Homemakers v. Butz, supra, 466 F.2d at 464.
In determining this question, the Court will rely to the extent possible on the ordinary meaning of the words used, as it is the understanding of the ordinary consumer which must control. Armour & Co. v. Freeman, 113 U.S.App.D.C. 37, 43, 304 F.2d 404, 410 (D.C. Cir.) (Prettyman, J., concurring), Cert. denied, 370 U.S. 920, 82 S. Ct. 1559, 8 L. Ed. 2d 500 (1962). See also 62 Cases of Jam v. United States, 340 U.S. 593, 599, 71 S. Ct. 515, 95 L. Ed. 566 (1951). An agency may of course assign specific meaning to certain words, even if the meaning departs slightly from what would otherwise be common usage. But if words are not assigned their ordinary meaning, false and deceptive communication can be avoided only by requiring labels which give notice of the agency's underlying definitional determinations.