LOS ANGELES (Reuters) - Napa Valley wineries claimed a legal victory on Monday when the U.S. Supreme Court (news - web sites) declined to review a state court ruling which upheld a law limiting the use of the exclusive term "Napa" on wine labels.The Supreme Court action was a setback for Bronco Wine Co., California's largest vineyard operator, which went to court to preserve its ability to sell lower-cost, Napa-branded wines that do not contain grapes from the region.

Bronco's Charles Shaw wine, which sells through the Trader Joe's grocery chain for $1.99 a bottle, created a stir when it launched in 2002 and earned the nickname "Two-Buck Chuck." At issue is a law passed by California legislators in 2000 to limit the use of the "Napa" label to wines made from at least 75 percent Napa-grown grapes. "Wine is of place, and that's what makes it interesting and romantic and even more enjoyable," said Linda Reiff, executive director of the Napa Valley Vintners, which had argued in favor of the state law.

Privately held Bronco, which brought a new cachet to bargain-basement wines with its Charles Shaw label, won a stay in 2001 that kept the California law from taking effect as the issue made its way through the courts. Federal regulations also place limitations on wine labels that refer to specific regions but allow exceptions for brands that were launched before 1986. Bronco had argued that federal law preempted the California law with regard to its labels, which include the Napa Ridge and Napa Creek wine brands.

A lawyer for Bronco could not be immediately reached for comment. The Ceres, California-based firm had no comment on the action by the U.S. Supreme Court, which was made without comment by the justices. Bronco, which is headed by Fred Franzia, nephew of wine legend Ernest Gallo, owns about 35,000 acres of California vineyards, including large operations in the state's Central Valley. Tom Dresslar, a spokesman for the California Attorney General's office, said the Supreme Court recognized the state's "traditional interest in protecting consumers and markets."

A California appeals court had sided with Bronco, but the California Supreme Court had ruled unanimously that the state law was not preempted by federal law. "We're please that the Supreme Court has let that ruling stand," Dresslar said. The California Court of Appeal in Sacramento is scheduled to hear arguments on April 20 on remaining issues in Bronco's challenge, including whether the state labeling law usurps its free speech rights or represents an illegal bar to interstate commerce. "For the Supreme Court to deny review is a great victory for us, but it's bittersweet because we know the fight is not over," said Reiff, whose group represents 265 Napa Valley wineries.

Wine analyst Jon Fredrikson said Bronco, which has its own sales force, would have to shift to buying Napa-grown bulk grapes to keep its labels if it lost the coming rounds in the courts. But he noted that the issue had become a cause for Bronco's Franzia, who has a track record for bucking the conventional wisdom in the wine industry. They push the envelope all the time, that's their style," Fredrikson said. "And now its a matter of principle probably."