The Alcohol and Tobacco Tax and Trade Bureau (“TTB”) has accepted for formal review a petition to create another American Viticultural Area in Idaho. The proposed new Willow Creek Idaho AVA would be subdivided from Idaho’s existing Snake River Valley AVA. The petition was prepared by Martha Cunningham of 3 Horse Ranch Vineyards.
Governor Kitzhaber signed the “Growler Bill” into law Thursday. The new law amends ORS chapter 471 and allows wineries, local groceries, and other retail licensees to sell wine to consumers in growlers. Wineries are increasing the use of kegs and the bill is touted by proponents as responding to changing trends and promoting sustainable packaging. This new sales structure opens up a new market for wineries and retailers but before the filling begins, licensees should confirm their new activities meet federal as well as state licensing requirements.
If you plan to be in Napa, California, this week, we encourage you to join Stoel Rives partner Chris Hermann and other presenters in their discussion of risks and rewards of winery operations at the 7th Annual Best Practices in Winery Operations this Thursday and Friday.
On Friday, Chris will discuss the pitfalls of relying upon custom and practice, expired/unsigned/incomplete contracts and oral contracts pertaining to winemaking, alternating proprietors, custom crush and vendors during the Contract Winemaking session.
Additional seminar topics will include:
- Social Intelligence and New Technology
- Legal and Regulatory Update
- Insurance Considerations
- Human Resources
- Stewardship for the Land/Vineyard Conversion
- The Do’s and Don’ts of Winery Events
- Brand Management
- Trade Practices
- Tax Issues
- Changes and Improvements to Wineries and Vineyards
The event will be held at:
Napa River Inn
500 Main Street
Napa, CA 94559
For more information visit: http://www.theseminargroup.net/seminar.lasso?seminar=13.WINECA
On February 5, 2013, the Alcohol and Tobacco Tax and Trade Bureau (“TTB”) published a final rule establishing the 74,900-acre "Elkton Oregon" American viticultural area in Douglas County, Oregon. TTB issued this regulation in response to a petition filed by local vintners and grape growers and will allow the use of the name "Elkton, OR" for this new viticultural area. The new Elkton Oregon viticultural area is located entirely within the existing larger Umpqua Valley viticultural area , which, in turn, is located entirely within the Southern Oregon viticultural area .
This final rule is effective on March 7, 2013.
Litigation concerning the direct shipment of wine has garnered a significant amount of attention in the years since the United States Supreme Court’s seminal decision in Granholm v. Heald. Generally speaking, these disputes have played out in the federal courts, far removed from the typical family winery.
Although direct shipment will remain an important issue both for wineries and for the attorneys who represent them—indeed, it is one of the topics covered in Stoel Rives’ Law of Wine treatise—a winery’s long-term financial success may be just as likely to hinge on the outcomes of lower-profile controversies litigated in front of local government bodies. Depending on the state and locality, these local governments may have the power to prohibit the construction of new tasting rooms or restaurants—a growing source of revenue for many wineries1 —or to regulate the number and character of marketing events held by a winery.Continue Reading...
The town of Beaune is regarded as the wine capital of Burgundy and is home to some of the world’s most famous producers. The Hospices de Beaune has for 152 years been one of the premier wine auctions in the world.
Although wineries have always been required to meet food safety standards and follow proper sanitation practices, many have not received an official food safety inspection in years. Recently, however, wineries throughout the U.S. have seen an uptick in the number of facility inspections being performed by Food and Drug Administration (FDA) officials.
According to a report from Wine Spectator, during 2011, the FDA performed 261 winery inspections nationwide, either directly or through state agencies, compared with 132 in 2009-2010. Washington state wineries alone received 23 inspections from state agencies under contract with FDA during the 2011–12 fiscal year.
FDA spokeswoman Patricia El-Hinnawy explained that the increase in inspections can be attributed to the new inspection and compliance mandates under the FDA Food Safety Modernization Act (FSMA). Signed into law on January 4, 2011, FSMA now requires inspections to be based on risk, and the frequency of inspections to increase. Specifically, it calls for all high-risk domestic food facilities to be inspected within five years of the bill’s signing and then at least once every three years after that. Further, all other domestic food facilities, including low risk facilities like wineries, are to be inspected within seven years of the bill’s signing and then at least once every five years thereafter.
Although no one looks forward to an FDA inspection, it is a necessary part of selling food and beverage products in the U.S. Accordingly, it is important to always be prepared and know what to expect. On the day of inspection, an FDA investigator will meet with the top management official at the facility, if available, and conduct a thorough inspection of the facility, accompanied by one or more employees. The inspector must present an FDA Notice of Inspection. After the inspection, a facility will receive a report indicating the inspector’s observations including any objectionable conditions or violations.
There are certain things you can do to help the inspection go as smoothly as possible. First, it is critical for food and beverage facilities to perform internal compliance checks on a regular basis. Make sure the facility is in full compliance with all applicable FDA regulations by performing mock inspections. Second, maintain a set of written standard operating procedures and follow them. Third, organize a team of two or more persons to serve as point persons to accompany an FDA representative during the inspection. Lastly, on inspection day, make sure to remember the following: “Be calm, be courteous, be cooperative.”
Stoel Rives summer associates and attorneys from the firm’s alcohol beverage group adventured into the Willamette Valley on a Saturday to visit Domaine Drouhin Oregon, Argyle, and Grand Cru Estate. At Domaine Drouhin, the group was treated to a side-by-side tasting of Oregon and French wines on the property’s newly expanded deck space, which was perfect for taking in the sun and scenery.
Then at Argyle, the group experienced a variety of Oregon wines ranging from 2001 Extended Tirage to the 25th Anniversary silver series. Ending at Grand Cru, the group toured the winery’s solar power installation and other eco-friendly features.
The Alcohol and Tobacco Tax and Trade Bureau (TTB) has experienced some difficult times in the last several years due to reduced staffing and declining budgets. These factors have made it difficult for the agency to accomplish two of its major functions; Permitting and Approving Labels.
TTB has attempted to address the Label Approval issue by instituting two recent changes. First in April 2011, the agency announced that would discontinue evaluating labels for purposes of ensuring that the labels conform to all applicable legibility and type size requirements (including characters per inch and contrasting background). As always, the responsible industry member is obligated to ensure proper labeling for their products and this new procedure ensures new label approvals will contain a statement to that effect.
Then on July 5, 2012, TTB published a revised version of TTB Form 5100.31, Application for and Certification/Exemption of Label/Bottle Approval, also known as a certificate of label approval or COLA. The most significant change made was to expand the list of items that may be changed on an alcohol beverage label without TTB approval. Highlights of the new revisions include the following. Holders of approved labels may:Continue Reading...
Stoel Rives LLP is pleased to announce that the firm's Wine, Beer and Distilled Spirits group has been recognized by Chambers USA as a nationwide leader in the category of "Food & Beverages: Alcohol." Stoel Rives is one of only 10 firms nationwide to be ranked in this category.
Stoel Rives partner and founding chair of the Wine Law group, Chris Hermann, was also individually ranked nationwide in the Food & Beverages: Alcohol category.
Stoel Rives has represented U.S. and international wineries for over 30 years."Our clients trust us to serve as counsel to them on the day-to-day issues they face," said Hermann. "It is an honor to receive this praise from our clients and industry professionals."
Through industry presentations and publications and this blog, our attorneys are dedicated to helping you stay informed about legal developments that most affect your business.
In a recent 3-0 decision, a California Appeals Court sided with Freemark Abbey Winery in its attempt to move its wine store and tasting room into a building in St. Helena which already contained a restaurant. The decision reversed the district courts granting of a preliminary injunction which would have stopped Freemark’s move entirely until a trial.
The building is owned by Freemark and the move was challenged by Silverado Brewing Co., the current operator of the existing restaurant. The challenge stems from Silverado’s lease, which gives it exclusive rights to run a restaurant in the building. Silverado claimed that moving Freemark’s tasting room into the same building would violate that exclusivity.
The court based its decision on the word “purvey” which, it stated, in this context simply meant selling. Any other reading, said the court, would lead to “absurd results.” The decision remanded the case back to district court with an order to vacate the broad preliminary injunction the district court had previously granted and an order to institute a new narrow injunction which would “prohibit[s] Freemark Abbey from selling food or beverages for consumption on the premises in any portion of the building” pending trial.
A copy of the court decision can be seen here.
On March 8 and 9, Stoel Rives cosponsored, with Kennedy/Jenks Consultants, the 6th Annual Best Practices for Owning and Operating a Winery, held in Napa, CA. The well attended event covered such topics as valuation, water, energy, and branding. Stoel attorney’s Chris Hermann, John McKinsey, and Jake Storms were all panel speakers with John McKinsey acting as emcee for the second day of the conference.
Please join us for our inaugural Washington Winery, Brewery & Distillery law seminar at the Columbia Winery in Woodinville, Washington on Thursday, March 15.
Panels to include these hot topics, plus much more:
- Employment Laws
- Tasting Room Operations
For more information and registration visit: http://www.stoel.com/showevent.aspx?Show=9199
Please join us for our inaugural Idaho Wine, Beer & Distillers law seminar at the Boise Centre in Boise, ID on Thursday, March 1, 2012.
Panels to include these hot topics, plus much more:
- Start-ups (licensing, permitting and business formation)
- Trademarks (protecting your investment)
- Distribution and other key contracts
- Land use issues
- Employee matters
For registration visit: http://www.stoel.com/showevent.aspx?Show=9156
Please join us for our 5th Annual Oregon Wine Law Seminar at the Allison Inn and Spa in Newberg, Oregon on Thursday, February 16.
Topics and panels include start-ups, trademark registration, employment, privatization of OLCC liquor sales, land use and a panel discussion on alternating premises (wine/beer/spirits). This seminar is complimentary to all industry members. Topics will apply to wineries, breweries and distilleries.
For agenda and registration visit: http://www.stoel.com/showevent.aspx?Show=9155
The State of Idaho is most infamously know for the potato but the recently reenergized Idaho Wine Commission, vintners, and wineries across the state hope to soon add Idaho Wines to the Gem State's reputation.
Idaho wines regularly net honors in regional and national competitions, and the media are increasingly taking notice. "They want something new to write about, and that's us," says Executive Director of the Idaho Wine Commission, Moya Shatz. The October issue of Sunset magazine sports a feature story headlined: "Discover new wine country: In Idaho's low-key Snake River Valley, the wine is getting seriously good."
Idaho is steadily earning a reputation for growing and producing vinifera wine grape varieties such as syrah and viognier, as well as classic varieties including merlot, cabernet sauvignon, chardonnay and riesling.Continue Reading...
On December 5, 2011, the TTB published a Notice of Proposed Rulemaking (Notice No. 125) regarding the establishment of the Inwood Valley Viticultural Area in Shasta, California. If established, the new AVA would consist of a 28,000 acre area, the vast majority of which is currently not dedicated to, or known for, vineyards. The TTB invites comments on the proposed rulemaking, with any comments due on or before February 3, 2012. A full version of the Notice and the documents relating to the underlying Petition can be found here.
In the 2005 case Granholm v. Held, the U.S. Supreme Court struck down Michigan and New York laws that effectively prevented out-of-state wineries from shipping directly to in-state consumers but that allowed in-state wineries to conclude in-state direct sales. The Court held that these laws violated the U.S. Constitution’s Commerce Clause. Since then, lower federal courts around the country have had the tools to strike down similar state laws that facially discriminate against out-of-state producers without a permissible justification. For example, federal courts have struck down or enjoined facially discriminatory statutes—or selected provisions of such laws—in states such as Indiana, Kentucky, Massachusetts, New Jersey, Pennsylvania, Tennessee, and Texas.
But these rulings do not apply consistently across the country. For example, although the Sixth Circuit held unconstitutional Kentucky’s law requiring direct sales to be made only pursuant to in-person purchases, Indiana’s law requiring similar in-person sales remains on the books. And a number of other states retain laws restricting direct sales that appear legally dubious in the wake of Granholm and its progeny. But Granholm also has spurred Congressional attempts to restrict its reach. In 2010 and 2011, legislators introduced the Community Alcohol Regulatory Effectiveness (“CARE”) Act in the U.S. House of Representatives. In its latest iteration the bill aims to eliminate the federal statutory requirement that imported alcohol be subject to state laws “to the same extent and in the same manner” as alcohol produced in-state. The original version of the CARE Act did not survive the life of the last Congress, and it is unclear if the current version will find any more support in the present one. But notwithstanding this threat to direct shipping by out-of-state producers, overly restrictive state laws favoring in-state direct sellers remain ripe targets for litigation seeking to enforce Granholm and its reading of the Commerce Clause.
I recently attended the UC Davis Wine Law Conference, held at the UC Davis School of Law. The conference's main focus was intellectual property and European imports/exports, as well as the affects of recent changes in the European Union rules regarding wine IP, with a specific focus on Italy. Panelists also discussed the affects of international beverage counterfeiting and how multinational parties can and should reach consensus on trade rules. The discussions were frank, sometimes even contentious, but overall very productive. The conference drew numerous high-level attendees, including members of the legal community, industry stakeholders, and regulatory agencies from both the United States and abroad.
The IRS recently issued a new Audit Technique Guide (“ATG”, available here) applicable to winery and vineyard operations. As with previous IRS guidance, the new ATG is meant to be used by IRS examiners; however the IRS anticipates the industry will rely upon the publication as a guide. It should be noted, the ATG should not be cited as the IRS's technical position.
Many of the issues in the new publication have been previously covered in prior IRS guidance. In this ATG, however, the IRS appears to streamline many of its positions. For example, the UNICAP rules, to which wineries are subject, have evolved since the 1995 guidance. While previously cited as only temporary, these rules have since been finalized, and additional UNICAP rules have been added.
While the streamlining in the new guidance is mainly procedural, the ATG does reflect some significant developments. One such change is the IRS's acknowledgement that vineyards may qualify for Section 179 deductions. Currently, Section 179 allows a $500,000 deduction to taxpayers who place over $2 million of property in service by the end of 2011. For 2012, Section 179 reduces those numbers to a $125,000 deduction for placing over $500,000 of property in service during that year. The deduction will be further reduced to $25,000 for tax years beyond 2012. The ATG states that, based on changes to the definition of property subject to the Section 179 deduction, "[c]ertain practitioners are taking the position that this new definition includes vineyards and are taking [the Section] 179 deduction."
In addition, the ATG addresses and essentially blesses an income deferral method rejected in a 1996 case. The ATG describes the case as involving an accounting structure in which a farmer, using cash method accounting and operating a vineyard as a division of a winery, would sell grapes to the winery without receiving payment until the wine was sold, up to two or three years later. As a result of using cash method accounting, the vineyard would defer income until such time as the wine was sold. The ATG states that in 1997, the IRS published treasury regulations allowing this accounting practice.
To learn more about the issues discussed above as well as other developments addressed in the ATG, please contact:
Carl Lewis at firstname.lastname@example.org
Nikki Dobay at email@example.com
Jake Storms at firstname.lastname@example.org
This post was created in conjunction with Nikki Dobay.
On April 15th, a California Superior Court Judge denied a challenge to San Diego County’s new Winery Ordinance. The Ordinance, passed in 2010 and available here, eases restrictions on tasting rooms and sales for smaller producers and allows others to essentially “fast-track” registration as a “small winery” with such designation allowing for pre-approved events, such as weddings.
The challengers claimed that the Ordinance’s Environmental Impact Report (“EIR”) under the California Environmental Quality Act (“CEQA”) was inadequate. Judge Timothy Taylor disagreed, stating “[t]he Board of Supervisors was, by the EIR, adequately informed about the consequences of its decisions. The public (including petitioner) was provided with adequate information regarding the decisions of their elected leaders.”
The challengers have 30 days from the issuance of the ruling to appeal.
This past week, Stoel Rives partners Chris Hermann and John McKinsey and associate Jake Storms all participated as panel speakers at the Best Practices for Owning and Operating a Winery conference, held at the Hyatt Vineyard Creek in Santa Rosa, CA. John also acted as co-host of the conference, which covered a wide variety of topics affecting wineries and vineyards, from siting and permitting and valuation to how to build a brand and protect trademarks.
Chris, Chair of Stoel’s Winery and Vineyard Management group, spoke on custom crush agreements and the pitfalls that can affect those who do not adequately protect themselves. John, California Co-Chair of Stoel’s Winery and Vineyard Management group, educated attendees on energy use and utilizing renewable electricity sources. Jake, an associate in the group, spoke on industry trends and California-specific legislative and project actions, including AB 605 and the California High-speed Rail.
The event was well attended, with over 40 stakeholders present at the two-day event. This marks the fifth year of the event, which was sponsored by Stoel Rives and Kennedy/Jenks Consultants, along with industry mainstay, Wines & Vines.
Stoel Rives partner and wine attorney Chris Hermann was one of two recipients of the Industry Partner award at the 2011 Oregon Wine Industry Symposium in Eugene, Oregon. This award is presented to a vendor or service provider to the industry who, in the course of doing business, has significantly assisted the growth and success of the wine industry and its members. Mark Freund of Silicon Valley Bank was the other award recipient.
The Alcohol and Tobacco Tax and Trade Bureau (TTB) has, in a final rule/treasury decision (available here), issued new and revised regulations with respect to three formerly confusing areas pertaining to American Viticultural Areas (AVAs): brand names that conflict with AVA designations, the AVA application process, and the existence of smaller AVAs inside currently existing or proposed AVAs, aka "nested" AVAs.
The new rules are considered less stringent than were originally proposed by the agency. The originally proposed rules were widely rejected by members of the wine industry and were subject to a resolution of opposition by the California legislature, authored by two lawmakers from the Napa Valley.
The TTB had originally proposed adding a "grandfather" clause for brand names that had received the proper Certification of Label Approval (COLA) but contained the name of a potential or recently established AVA. After receiving comments, the TTB reversed its proposed rules and did not adopt a standard grandfather clause, believing that its current "case-by-case" analysis and flexibility of remedies was preferable.
Establishment of AVAs
The new/revised rule codifies long-standing agency practice and clarifies the process and evidence required in petitioning for a new AVA. The new section 9.12 (27 Code of Federal Regulations, Part 9) sets forth exact requirements, which include very distinct name and boundary evidence, distinguishing features, and detailed maps. The new section 9.13 also spells out in greater detail the actual rule-making process of applying for an AVA. In addition, the TTB stated that while "sufficient viticulture" must exist in order to establish an AVA, it would not establish a rule identifying a minimum acreage site or vineyard density.
The new Part 9 also directly deals with the issue of smaller AVAs surrounded by larger AVAs or "nested" AVAs. There had been a proposal to prospectively prohibit the creation of "nested" AVAs but the TTB rejected an outright ban and instead set forth regulations regarding evidentiary proof for their establishment. Section 9.12(b) states that when a petitioner is requesting the creation of a smaller AVA within an already existing larger AVA or the creation of a larger AVA that would envelop the smaller AVA, the petitioner must state, in the petition itself, why the proposed AVA is "sufficiently distinct" from the existing one and must explain why the "establishment of the [new] AVA is acceptable."
The TTB also declined to implement standing regulations regarding which AVA a winery in a "nested" AVA could use on its labels, concluding that its current "case-by-case" basis was better than a standing rule.
This post was written in collaboration with Lee Smith, a partner in Stoel’s Sacramento office.
The Oregon chapter of the Confrérie des Chevaliers du Tastevin, Sous-Commanderie de Portland held its first event on November 29 at Park Kitchen in downtown Portland. Chapter member Scott
Wright of Scott Paul Wines presented "A Graduate Course: Burgundy 501." We tasted four flights of White and Red Burgundy from Chablis and the Cote d'Or. The presentation was superb and the food and wines presented, as well as the wines brought by the members, were delicious (the '07 Bonneau de Martray Corton Charlemagne was magnificent...thanks Scott!).
I look forward to our next meeting, perhaps with a White Burgundy focus in the Spring.
P.S Thanks very much to David Beck of Crawford Beck Vineyard for the picture.
California High-Speed Rail: Vineyards in California's Central Valley Could be Impacted by its Tracks
A legal update from our colleague Stacy Gillespie.
The California High-Speed Rail Authority (“Authority”) will announce at its December 2, 2010 meeting which segment of the 800-mile HSR will be the first to be built. At its November 4, 2010 meeting, the Authority’s Chief Executive Officer, Roelof van Ark, presented the Authority’s Board members with revised corridor selection criteria for full Board discussion and direction. The Federal Railroad Administration recently sent a letter to the Authority stating that the Stimulus money must all be allocated to the Central Valley.
Thus, contrary to earlier projections, the two routes in the most populated regions—San Francisco to San Jose, and Los Angeles to Anaheim—are now out of the running. The route that will be the early winner of $4.3 billion in federal and state funds and constructed first will be either Merced to Fresno (60 miles in length), or Fresno to Bakersfield (113 miles in length).
The Authority’s December 2nd determination will be of utmost importance to holders of large property rights, such as wineries, vineyards, and other agricultural interests. All segments of the HSR are undergoing various stages of the environmental review process as required by federal and state environmental laws. During that review, the preferred routes will be determined and alternative routes will be evaluated. Now is the time to get involved and submit comments to the Authority regarding the contemplated routes.
The cities located in the Central Valley corridors include:
1. Sacramento to Merced: Sacramento, Elk Grove, Galt, Lodi, Stockton, Manteca, Ripon, Modesto, Turlock, Livingston, Atwater, andMerced.
2. Merced to Fresno: Merced, Chowchilla, Madera, Clovis, and Fresno.
3. Fresno to Bakersfield: Fresno, Parlier, Reedley, Dinuba, Selma, Visalia, Tulare, Exeter, Porterville, Corcoran, Delano, Wasco, Shafter,and Bakersfield.
Insofar as a particular route for each corridor is determined, inherent in the Authority’s construction of the HSR is its power to acquire rights-of-way of private land—which is certain to require property owners to get quickly up to speed on eminent domain (condemnation) law.
A group of attorneys in our Sacramento office is closely following this issue and specialize in environmental law and eminent domain. Please subscribe if you would like to receive regular email alerts.
Last weekend, Stoel winery lawyers attended Salud! and enjoyed visiting with clients and friends at Domaine Drouhin on Friday afternoon and the Governor Hotel on Saturday evening. Proceeds from this year's Oregon Pinot Noir Auction topped $650,000, a reported 7 percent increase from 2009. Donations help support the Salud! mission of providing Oregon's seasonal vineyard works and their families with access to healthcare services.