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SANTA RITA v. U.S. DEPT. OF TREASURY

August 13, 2001

SOCIEDAD ANONIMA VINA SANTA RITA, PLAINTIFF,
V.
UNITED STATES DEPARTMENT OF THE TREASURY, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Kollar-kotelly, District Judge.

  MEMORANDUM OPINION

Before the Court is Plaintiff Sociedad Anonima Viña Santa Rita's Motion for Temporary Restraining Order and Preliminary Injunction,*fn1 in which Plaintiff challenges a final rule issued by the Department of the Treasury's Bureau of Alcohol, Tobacco and Firearms ("ATF" or "Bureau"). In that final rule, issued on May 31, 2001, the ATF recognizes "Santa Rita Hills," an area in Santa Barbara County, California, as an American viticultural area ("AVA"). In light of the region's status as an AVA, wines produced predominantly from grapes grown there may, with the ATF's approval, be sold with labels that employ the term "Santa Rita Hills" as an appellation of origin.*fn2

Plaintiff, a Chilean winery, sells a variety of wines around the world under the brand name "Santa Rita" and has done so for decades. In reaction to the ATF's final rule establishing the Santa Rita Hills AVA, Plaintiff filed suit and simultaneously requested that the Court issue a temporary restraining order or preliminary injunction suspending the effective date of the final rule.*fn3 Specifically, Plaintiff asserts that the ATF's issuance of the final rule amounts to arbitrary and capricious conduct in violation of the Administrative Procedure Act, that the final rule infringes on Plaintiff's trademark in the name "Santa Rita," and that it dilutes the value of that trademark. Upon consideration of Plaintiffs motion, the ATF's opposition thereto, Plaintiffs reply, Plaintiffs supplemental memorandum, the ATF's supplemental memorandum, Plaintiffs second supplemental memorandum, and the Administrative Record, the Court shall deny the motion and decline to grant preliminary injunctive relief.

I. STATUTORY AND REGULATORY FRAMEWORK

Soon after the Twenty-first Amendment to the Constitution was ratified and the country's experiment with prohibition ended, Congress enacted the Federal Alcohol Administration Act, 27 U.S.C. § 201 et seq. ("FAA" or "Act"), which, among other things, governs the bottling, packaging, and labeling of wine. Specifically, the FAA prohibits interstate commerce in wine unless the bottles are

labeled in conformity with such regulations, to be prescribed by the Secretary of the Treasury . . . (1) as will prohibit deception of the consumer . . . and as will prohibit, irrespective of falsity, such statements . . . 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 of the product; . . . (4) as will prohibit statements on the label that are . . . false [or] misleading; and (5) as will prevent deception of the consumer by use of a trade or brand name that is the name of any living individual of public prominence, or existing private or public organization. . . .

27 U.S.C. § 205(e); see also Wawszkiewicz v. Dep't of the Treasury, 670 F.2d 296, 297-98 (D.C.Cir. 1981). In order to ensure that all labels comply with this statutory mandate, Congress prohibits wineries and other affected entities from bottling their product or removing their product from customs until the Department of Treasury has issued a "certificate of label approval" ("COLA"). 27 U.S.C. § 205(e).

The Secretary of the Treasury has delegated its rule-making authority under the FAA to the ATF, see Bronco Wine Co. v. Dep't of Treasury, 997 F. Supp. 1309, 1311 (E.D.Cal. 1996), and the ATF has, in turn, promulgated a series of regulations.*fn4 In direct correlation to the prohibitions articulated in the FAA, the ATF's regulations prohibit labels that include statements that are, for example, false or untrue, misleading, disparaging of competitor's products, obscene or indecent. See 27 C.F.R. § 4.39(a). The regulations also mirror the statute by requiring that the ATF issue a COLA before an imported wine is released from customs or before a domestic wine is bottled or packed. See 27 C.F.R. § 4.40(a) (imported wines); 27 C.F.R. § 4.50(a) (domestic wines).

The regulations also require that labels on American wines state "the name of the bottler or packer and the address . . . of the place where the wine was bottled or packed." 27 C.F.R. § 4.35a(a). Likewise, labels on imported wines must include the words "imported by" followed by the name of the importer. 27 C.F.R. § 4.35a(b)(1). Additionally, foreign wine labels may indicate "the name and address of the principal place of business of the foreign producer," 27 C.F.R. § 4.35a(b)(2), and, under a Customs Service regulation, they must indicate the country of origin "in a conspicuous place as legibly, indelibly, and permanently as the nature of the article (or container) will permit." 19 C.F.R. § 134.11; see also 27 C.F.R. § 4.38(c).

Notably, wineries and bottlers are generally barred from using the name of an AVA as a brand name unless the wine in question meets the appellation of origin requirements for the geographic area in question. See 27 C.F.R. § 4.39(i)(1). Thus, for example, a winery may not employ the phrase "Napa Valley" in one of its wine's brands unless a specified percentage of the grapes from which the wine was made were grown within the Napa Valley AVA. This general rule does not apply to labels approved prior to July 7, 1986. Such grandfathered labels may use AVA names as brands as long as they include other information that "dispel[s] the impression that the geographic area suggested by the brand name is indicative of the origin of the wine." 27 C.F.R. § 4.39(i)(2)(iii).

II. FACTUAL BACKGROUND

Plaintiff winery, Viña Santa Rita, was founded in 1880.*fn5 See Administrative Record ("AR"), Tab D(24) at 1-2 (Plaintiffs comments submitted to the ATF in opposition to the establishment of a Santa Rita Hills AVA). Using grapes grown in several regions of Chile, Plaintiff produces a variety of wines and exports them to markets around the world. See id., Tab D(24) at 2. In 1997, Plaintiff sold 255,000 cases of wine in the United States, and, in the first half of 1998, Plaintiff ranked as the third largest exporter of Chilean wines to this country. See id. Plaintiff owns several trademarks in the United States with respect to its wines, including registered trademarks for "Santa Rita Reservado MRC D. Fernandez Concha Santiago De Chile," "Casa Real," and "120." See id., Tab D(24), Attachment K (printout of trademarks). Notably, Plaintiff did not file an application for a trademark on the name "Santa Rita" until March 19, 1998. See id., Tab D(24), Attachment M (certification of application).*fn6

On March 31, 1998, the supporters of the proposed Santa Rita Hills AVA submitted a formal petition to the ATF seeking recognition. See id., Tab A (Petition to Establish `Santa Rita Hills' AVA). In addition to the letters of support, the petitioners included documentation of nineteenth-century land grants demonstrating the region was known by the name "Santa Rita" when it was the subject of a federal grant in 1845. See id., Tab A, Ex. 1 at 14. The petitioners also provided the ATF with maps, book excerpts, and other historical texts in an effort to satisfy the evidentiary requirements for AVA approval. See id., Tab A. After receiving the petition, the ATF published a notice in the Federal Register describing the proposal and "request[ing] comments from all interested parties." See id., Tab C (Notice No. 866, published at 63 Fed. Reg. 48,658 (Sept. 11, 1998)). In aggregate, the ATF received thirty-five public comments, eleven of which supported the petition and twenty-four of which opposed it. See id., Tabs B, D. Among the opposing comments was a massive submission prepared by Plaintiff, which argued strenuously that the name of the proposed AVA was confusingly similar to its own brand name. See id., Tab D(24).

Many of the comments in opposition objected only to the name of the proposed AVA, while implicitly acknowledging that the geographic designation may be meritorious. For instance, one distributor of Vina Santa Rita "urged" the ATF to "find another and more suitable name for this [AVA]." AR, Tab D(12). Another comment acknowledged that, "while a new viticultural area should be considered, certainly a different appellation name should be used." Id., Tab D(13). A third "suggested that you name this entirely unfamiliar area Gallo Hills," sarcastically proposing that the petitioners name their proposed AVA after "an even better known winery." Id., Tab D(17). The same opponent's comment exhorted the petitioners to "use another local geographical landmark as their name; one that does not infringe on the hard work and integrity with which Vina Santa Rita has promoted Chilean wines in the United States." Id., Tab D(17). Likewise, a South Carolinian wine wholesaler commented as follows: "Please understand that I am not opposed to this particular delineated A.V.A. — only the name you are considering for it." Id., Tab D(19).

The ATF received each of these comments during the formal comment period that the ATF established in its September 11, 1998, Notice announcing the proposed AVA. After the formal comment period had closed, however, the ATF received a notable comment from the one of the petitioning wineries on July 25, 2000. In pertinent part, the comment provided as follows:

Considering the challenges brought forth by the Santa Rita Winery of Chile, and after great thought, we feel the confusion that may occur between the Chilean winery and our appellation would only prove to deter our marketing efforts in this country, and abroad.
Therefore, in an effort to specifically clarify our geographic location, we propose the following appellation name change to:

SANTA RITA HILLS of SANTA BARBARA

Id., Tab F(4) (emphasis in original). The cover sheet that accompanied this comment indicated that "[t]he name proposed in the letter is only an option at this time, since the meeting to discuss the name change with the other pertinent wineries is not scheduled until August 9th." Id. Nonetheless, the cover sheet indicated that the petitioners "would truly appreciate [the ATF's] guidance with this process," and the comment letter itself requested "immediate consideration in this matter" and stated that the petitioners "look[ed] forward to [the ATF's] positive response" regarding the proposed name change. Id.

While the final rule and the remainder of the Administrative Record include no reference to this proposed name change, the ATF has explained that the proposed change was the tentative product of only one of the petitioners who supported the AVA.*fn7 See Defs.' Suppl. Mem. at 1-2; Decl. of Joyce Drake ¶ 2(d); Decl. of Marge Garcia Loehr ¶ 4. After a representative of that single winery submitted the tentative proposal, representatives from all of the pertinent wineries met to discuss the idea. See Defs.' Suppl. Mem. at 1-2; Drake Decl. 2(a), (b); Loehr Decl. ¶ 5. They ultimately decided to maintain their original application for an AVA under the name "Santa Rita Hills." See Defs.' Suppl. Mem. at 1-2; Drake Decl. 2(e); Loehr Decl. ¶ 5. Therefore, the representative of the original winery contacted the appropriate ATF representative to inform her that the petitioners did not wish to alter their application. See Defs.' Suppl. Mem. at 1-2; Drake Decl. 2(e); Loehr Decl. ¶ 6. Thus, while one opponent cynically suggested changing the name to "Gallo Hills" and while one of petitioner submitted (and subsequently withdrew) a tentative proposed change, the ATF never received any genuine and legitimate proposals for alternative names.

On May 31, 2001, roughly ten months after receiving the informal suggestion of a name change, the ATF issued its final rule in which it approved the AVA under the name "Santa Rita Hills." See Final Rule, 66 Fed. Reg. 29,476. In the Federal Register entry accompanying the issuance of the final rule, the ATF described the thirty-five comments it had received and concluded that, notwithstanding the opponents' arguments, the petitioners' request for AVA approval satisfied each of the statutory and regulatory criteria. Id. at 29,476-77. Specifically, the ATF determined that the "maps, land records, reports, and various texts" attached to the application demonstrated that "[t]he name `Santa Rita Hills' is locally and/or nationally known as referring to the specified area." Id. at 29,477. The Bureau also engaged in a careful analysis of the potential for consumer confusion and concluded that the "ATF does not foresee a likelihood of consumer confusion between the `Santa Rita Hills' AVA and other geographic areas of the same name." Id. In support of this conclusion, the ATF observed that it has already approved several labels bearing the name "Santa Rita" for wines produced outside of Chile and that there has been "no reported consumer confusion as to the respective products' origins." Id. at 29,478. Additionally, the ATF noted that confusion is unlikely because the labels on imported wines, like those produced by Plaintiff, must bear the words "Imported by," followed by the name and address of the importer, and the words "Product of" followed by the country of origin. See id. With regard to the numerous comments suggesting that the proposed name would violate Plaintiffs trademark rights under the Lanham Trademark Act, the ATF stated that "these issues are matters of private dispute that do not restrict [the] ATF's authority to establish a viticultural area under the [FAA]." Id.

In response to the ATF's approval of the Santa Rita Hills AVA, Plaintiff filed suit on July 19, 2001, and simultaneously requested that this Court grant preliminary injunctive relief by ordering the ATF to suspend the effective date of the final rule. In its Amended Complaint and motion, Plaintiff asserts that the ATF's approval of the final rule amounts to arbitrary and capricious conduct in violation of section 706(2)(A) of the Administrative Procedures Act, that the approval infringes on Plaintiffs trademark in the name "Santa Rita," and that it dilutes the value of that trademark. On July 26, 2001, the ATF filed the Administrative Record and an opposition to Plaintiff's motion for preliminary injunctive relief. After Plaintiff filed its reply on August 2, 2001, the Court issued an Order requesting additional information from the parties regarding the scope of the ATF's consideration (or lack of consideration) of alternative names proposed by the commenters and, more importantly, by one of the petitioners. Each of the parties submitted a supplemental memorandum on August 6, 2001. Plaintiff filed a second supplemental memorandum on August 9, 2001.

III. DISCUSSION

A. Injunctive Relief Standard

In assessing whether to grant preliminary injunctive relief, which is considered an extraordinary remedy in this circuit, see Dorfmann v. Boozer, 414 F.2d 1168, 1173 (D.C.Cir. 1969); Mylan Pharm. Inc. v. Henney, 94 F. Supp.2d 36, 58 (D.C. 2000), a court must balance four factors: (1) whether the movant is substantially likely to succeed on the merits; (2) whether the movant would suffer irreparable injury if the injunction were not granted; (3) whether an injunction would substantially injure other interested parties; and (4) whether the public interest would be furthered by the injunction. See Mova Pharm. Corp. v. Shalala, 140 F.3d 1060, 1066 (D.C.Cir. 1998) (citing CityFed Fin. Corp. v. Office of Thrift Supervision, 58 F.3d 738, 746 (D.C.Cir. 1995)).

In applying this four-factored standard, district courts employ a sliding scale under which a particularly strong showing in one area can compensate for weakness in another. See CityFed Fin., 58 F.3d at 747. Thus, "[a]n injunction may be justified, for example, where there is a particularly strong likelihood of success on the merits even if there is a relatively slight showing of irreparable injury." Id. Notwithstanding the fluid nature of this familiar four-part inquiry, "it is particularly important for the [movant] to demonstrate a substantial likelihood of success on the merits." Barton v. Dist. of Columbia, 131 F. Supp.2d 236, 242 (D.C. 2001) (citing Benten v. Kessler, 505 U.S. 1084, 1085, 112 S.Ct. 2929, 120 L.Ed.2d 926 (1992)). If the movant fails to do so, "it would ...


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