‘Moral character’ law restricting out-of-state winery sales triggers lawsuit

By: - July 26, 2023 4:35 pm

A state law that restricts out-of-state wineries from direct sales in Iowa through a "moral character" clause is being challenged in court. (Photo via Canva)

A small Oregon winery is suing the state of Iowa over a law that says only Iowans can be considered of sufficient “moral character” to sell wine directly to retailers.

Pheasant Court Winery of Philomath, Oregon, produces 300 cases of wine annually and sells directly to consumers and retailers. In a lawsuit filed this week in U.S. District Court for the Southern District of Iowa, the company says it wants to distribute its wine directly to retailers, restaurants and bars in Iowa.

The lawsuit alleges that Iowa law authorizes the issuance of a Class A wine manufacturing permit to operate a winery, if the applicant is a citizen of Iowa, for a fee of $750. The law allows for the issuance of such a license only if the applicant is a person of good moral character, and further provides that a person may be deemed of good moral character only if they are a resident of Iowa and meet other criteria, the lawsuit states.

The law in question, Chapter 123.3 (40) of the Code of Iowa, specifies that in order to be deemed of good moral character for the purpose of obtaining a license, an individual must be “a resident of this state.”

There are roughly 100 Iowa wineries that hold a Class A license and can thus act as their own wholesalers and distribute their wine directly to retailers in Iowa, according to the lawsuit. Pheasant Court, by virtue of its location in Oregon, is ineligible for a Class A license. The company alleges that no other type of license or permit is available so it can distribute wine directly to Iowa retailers, restaurants and bars with no involvement by a third-party wholesaler.


In its lawsuit, Pheasant Court notes that wholesalers charge fees to distribute wine, so the use of a separate, third-party wholesaler raises the cost of wine to the purchaser and reduces profits for the manufacturer. Self-distribution, the company argues, gives producers greater control over the costs and delivery schedule and ensures consumer access even if no wholesalers are willing to help distribute the product.

Pheasant Court claims it has lost profits and the opportunity to expand its business because of the ban on direct distribution to Iowa retailers. Iowa law, the company alleges, gives in-state wineries a competitive advantage over producers in other states, discriminates against out-of-state entities, and shields Iowa wineries from interstate competition in violation of the commerce clause of the U.S. Constitution.

The prohibition against self-distribution by out-of-state wine producers advances no public health or safety purpose, the lawsuit alleges.

The lawsuit seeks a court injunction that would block the state from enforcing the residency restrictions for license-holders, as well as a judgment declaring as unconstitutional the law’s claim that only a resident of Iowa qualifies as a person of good moral character.

Named as defendants are Mary Mosiman, director of the Iowa Department of Revenue; Stephen Larson, the administrator of the Alcoholic Beverages Division of the Department of Revenue; Brenna Bird, the Iowa attorney general; and Stephan K. Bayens, commissioner of the Iowa Department of Public Safety.

The state has yet to file a response to the lawsuit. Representatives of the Iowa Department of Revenue and Attorney General’s Office declined to comment on Wednesday.


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Clark Kauffman
Clark Kauffman

Deputy Editor Clark Kauffman has worked during the past 30 years as both an investigative reporter and editorial writer at two of Iowa’s largest newspapers, the Des Moines Register and the Quad-City Times. He has won numerous state and national awards for reporting and editorial writing.