Update: State Water Board Adopts Final Winery General Order

At its January 20, 2021 Board meeting, the State Water Resources Control Board (“SWRCB” or “Board”) adopted its final General Waste Discharge Requirements (“WDRs”) for Winery Process Water (“Winery Order”) and associated Resolution for the California Environmental Quality Act (“CEQA”) Mitigated Negative Declaration.

As a brief background, on July 3, 2020 the SWRCB released a draft Winery Order to the public for comment (see: July 15, 2020 blogpost on proposed General Order and July 20, 2020 blogpost on noticed stakeholder meetings).  The July 3, 2020 draft incorporated feedback from stakeholders regarding administrative draft documents circulated in 2019.  On November 12, 2020 we posted an Update to our prior blog article regarding the SWRCB’s issuance of a revised notice rescheduling the date of its November 17, 2020 Board meeting to December 15, 2020.  Since that time, on December 2, 2020, Board staff publicly transmitted a revised draft Winery Order and draft CEQA Initial Study and Mitigated Negative Declaration. Notable revisions in the December 2, 2020 iteration of the draft Winery Order were made in response to comments received and include changes to design flow ranges used to determine tier designations for coverage under the Winery Order and technical requirements related thereto, among other changes. Continue Reading

Department of Labor Publishes Final Rule Regarding Tip Pools and Tip Credits

After a lengthy and contentious rulemaking process, the Department of Labor (“DOL”) published its final rule revising its tipped-employee regulations under the Fair Labor Standards Act (“FLSA”) last week. The new rules take effect 60 days from their publication in the Federal Register, which will occur shortly.  Here is a summary of the new rules’ most critical provisions:

Tip Credit Provisions. Several provisions of the new rules address the FLSA’s tip credit provision, which allows employers to pay employees a base wage that is less than the federal minimum so long as the sum of employees’ cash wages and retained tips exceed the required threshold.  For example, the rules state that employers that take the FLSA tip credit may not include back-of-the-house employees in their tip pools and address the common scenario in which an employee works in dual jobs (one tip-qualifying, the other non-tip-qualifying) for the same employer.  Oregon and Washington do not allow a tip credit against employers’ minimum wage obligations, so these aspects of the new rules are of limited use for Oregon and Washington employers. Continue Reading

Washington Wine Industry Foundation Offers Scholarships for Students Pursuing Wine-Related Studies

Stoel Rives is a proud annual sponsor of the Washington Wine Industry Foundation (and full disclosure: I am a board member) – a nonprofit, charitable organization that was founded almost twenty years ago with a goal to strengthen the future of the Washington wine industry through growth, education, and sustainability.

Since 2002, the foundation has awarded 185 scholarships totaling $263,000 to Washington students who are pursuing certificates or degrees in viticulture, enology and other wine-related studies. This year, the foundation will offer more than $30,000 in scholarships. Applications are due by May 31, 2021. For more information on the scholarships and to apply, click here.

Update: State Water Board Issues Revised Notice for Board Meeting Regarding Winery General Order

In July, we blogged about the State Water Resources Control Board’s (“State Water Board’) release of proposed General Waste Discharge Requirements for Winery Process Water Treatment Systems (see: July 15, 2020 blog post on proposed General Order and July 20, 2020 blog post on noticed stakeholder meetings).  The State Water Board recently issued a revised notice that changes the dates of its Board meeting and when responses to public comments will be available.

Pursuant to the State Water Board’s revised notice, the Board adoption hearing for the proposed General Order and draft California Environmental Quality Act Initial Study, Mitigated Negative Declaration (“MND”) has been rescheduled from November 17, 2020 to December 15, 2020.  The meeting will begin at 9:00am Pacific Standard Time.  Revisions in response to public comments made on the proposed General Order and MND will be available on the Winery Order website on or before December 1, 2020.

Due to COVID-19, the State Water Board presently intends to hold its Board meeting solely through remote presence.  Further information regarding the meeting will be posted on the State Water Board Calendar page as the meeting date gets closer.

If you have questions regarding water resources or the potential effect of State Water Board actions on your facility, or other environmental, compliance, reporting, or permitting requirements, please contact our California water quality attorneys.

Force Majeure Probably Doesn’t Permit Smoke Taint Rejection

A force majeure clause in a contract permits the suspension, or in some cases, the termination, of performance by a party to the contract upon the occurrence of a force majeure event. Traditionally, a force majeure event is a matter outside of the control of the obligated party that makes it impossible or impracticable for that party to perform one or more of its obligations under the contract. For example, depending on the specific language of the force majeure provision, a labor strike might excuse a party from performing its obligation to manufacture and deliver goods purchased by a buyer.

A typical force majeure provision from a grape purchase agreement is set forth below:

Force Majeure.    Neither Seller nor Buyer shall be liable to the other party, nor be deemed to have defaulted under or breached this Agreement, for any failure or delay in performing any term of this Agreement, when and to the extent such failure or delay results from acts beyond the affected party’s reasonable control, including, without limitation: (a) acts of God; (b) flood, fire, earthquake or explosion; (c) war, invasion, hostilities (whether war is declared or not), terrorist threats or acts, riot, or other civil unrest; (d) epidemic or pandemic; (e) actions, embargoes or blockades; (f) action by any governmental authority; (g) national or regional emergency; (h) strikes, labor stoppages, or slowdowns or other industrial disturbances; and (i) shortage of adequate power or transportation facilities.

Here, upon a force majeure event, if either Seller or Buyer is unable to perform its obligations under the grape purchase agreement because of an event beyond its reasonable control, that party can claim force majeure and will be excused from performance during the continuance of the force majeure event. So, for instance, if the Seller’s crop is affected by floods that it could not have reasonably foreseen and it can only deliver 50% of its promised crop to its Buyer, it would have a reasonable defense against its obligation to deliver the entirety of the crop.

Okay, the Buyer says, I see “fire” listed above, so does the force majeure provision permit me to avoid purchasing grapes that may be tainted by smoke? Probably not. To understand why, it’s important to understand the Buyer’s obligations under a grape purchase agreement.  Those obligations are actually fairly limited.  First, and most obviously, the Buyer is obligated to pay for the grapes, and second, the Buyer is obligated to physically accept delivery of the grapes.  A buyer may have other obligations as well, depending on the specific language in the agreement, such as directing the timing of harvest, providing bins, and providing wine samples.

Which of the Buyer’s obligations listed above is the Buyer unable to perform because of fire?  If active fires exist in the Buyer’s immediate vicinity so that it is temporarily impossible or impracticable to operate, the Buyer may be able to invoke force majeure to delay accepting grapes until it is safe to reopen.  But what about a winery in an area generally affected by smoke that is able to remain open, and that has a concern about the quality of the grapes it is receiving?  That Buyer is still able to perform:  it can pay for the grapes as long as banks remain able to process transactions, and it can accept the grapes as long as it is safe to remain open.  Of course, a Buyer may not want to accept potentially smoke tainted grapes, but that does not mean that it is impossible or impracticable for it to do so.  Typical force majeure clauses address when a party can’t perform its obligations, not when it might not want to perform its obligations.

Often, grape purchase contracts also include specific quality warranties, including MOG, mold, rot, brix, and perhaps smoke-related metrics, which a Seller is obligated to meet, and which can serve as a basis for rejection by the Buyer if not satisfied.  Whether or not those kinds of quality-related warranties can be used as the basis for the Buyer to reject potentially smoke tainted grapes depends on the specifics of the provision and the facts at hand.  But we believe, based on the language commonly used in grape purchase agreements, that Buyers wondering whether they have the right to reject potentially smoke tainted fruit would be better served looking to their quality warranties rather than to their force majeure provision.

California Wineries Take Note, Part Two: State Water Board Notices Stakeholder Meeting Regarding Winery General Order Fees

As a follow-up to our July 15, 2020 blog post regarding the State Water Resources Control Board’s (State Water Board) release of proposed General Waste Discharge Requirements for Winery Process Water Treatment Systems (proposed General Order), today the State Water Board issued a public notice regarding the first stakeholder meeting to discuss fees associated with the proposed General Order.

The stakeholder meeting is scheduled to occur remotely via webcast on Thursday, August 6, 2020 from 1:30-3:30 PM.  According to the notice, the meeting agenda will be available approximately one week prior to the meeting.  If you wish to ask questions or provide comments during the workshop, please complete the instructions outlined in the public notice prior to 5:00 PM on August 5, 2020.

Please refer to the public notice for additional details.

California Wineries Take Note: State Water Board Releases Draft General Order for Winery Process Water for Public Comment

On July 3, 2020, the State Water Resources Control Board (State Water Board) released proposed General Waste Discharge Requirements for Winery Process Water Treatment Systems (proposed General Order) along with the draft California Environmental Quality Act (CEQA) Initial Study and Mitigated Declaration for public comment.  The proposed General Order will apply statewide, and includes requirements to ensure winery operations will not adversely impact water quality. The State Water Board also noticed a July 22, 2020 public workshop and future proposed adoption of the proposed General Order.  The July 22, 2020 public workshop will begin at 9:30 a.m. via remote attendance only.  Although a quorum of the State Water Board will be present at the public workshop, no final action will be taken at the workshop. Continue Reading

Ecology Rolls Out Washington’s First Winery General Permit to Regulate Discharges of Wastewater

Beginning in mid-2019, many Washington wineries will need a permit from the state Department of Ecology (“Ecology”) to discharge wastewater. Ecology issued the state’s first five-year Winery General Permit (the “permit”) on May 17, 2018, but delayed its effective date until July 1, 2019. The new permit will regulate discharges of process wastewater from wineries to land, groundwater, and wastewater treatment plants. No surface water discharges will be allowed under the permit. Ecology has not determined how much a permit will cost, but the new rules in the permit will add financial burden to businesses and may hinder the growth of small wineries.

Ecology decided to develop the general permit due to the rapid increase of wine production in Washington. However, according to Ecology’s Fact Sheet, wineries have not been a “major source” of pollution in Washington. Although Ecology stated in one of the agency’s Responses to Public Comments that “it was unable to find documented evidence of a Washington winery polluting groundwater,” it maintained that “a lack of evidence does not mean groundwater is not being impacted.”

The new permit will apply to wineries that discharge at least 53,505 gallons of wastewater or produce at least 7,500 cases (17,835 gallons) of wine or juice per calendar year. More specifically, wineries that meet the above threshold numbers will need the permit if they discharge wastewater according to one or more of the following methods: (1) to a wastewater treatment plant that is not listed; (2) as irrigation to managed vegetation; (3) to a lagoon or other liquid storage structure; (4) as road dust abatement; (5) to a subsurface infiltration system; or (6) to an infiltration basin. Continue Reading

Agency Extends Relief to Prevent Unintended Tax Burden on Custom-Crush Facilities and Bonded Wine Cellars

As we wrote about earlier this month, the Tax Cuts and Jobs Act (H.R. 1) passed late last year included significant, temporary federal excise tax relief for wine, beer and spirits businesses for 2018 and 2019.  Unfortunately, in an apparent oversight of legislative drafting, the wine excise tax relief (provided in the form of a tax credit) was drafted in such a way that custom-crush facilities and bonded wine cellars were not eligible to receive the credit.

The Alcohol Tax and Trade Bureau earlier this year implemented an alternate procedure to allow affected wineries to make on-paper transfers of wine that effectively corrected the oversight and allowed such wineries to claim the credit.  The alternate procedure was set to expire on June 30th, but the Alcohol Tax and Trade Bureau recently extended that expiration date to the end of 2019, to cover the remainder of the temporary excise tax reduction period.  Wine Spectator has been following this issue closely — see here and here.  As efforts continue to make the two-year tax reductions permanent, wineries should watch to see how Congress addresses the availability of the credit.

If you have questions about tax law changes impacting the beverage industry, please contact one of the attorneys listed below:

Dustin Swanson at 503.294.9262 or dustin.swanson@stoel.com

Todd Friedman at 503.294.9327 or todd.friedman@stoel.com

A Prop. 65 Win for Winemakers: No Separate Warning Required for Inorganic Arsenic

The California Court of Appeal recently handed a victory to winemakers, ruling that a specific Proposition 65 (“Prop. 65”) warning is not required regarding the presence of inorganic arsenic. The lawsuit, Charles et al. v. Sutter Home Winery et al., was originally filed in 2015 and alleged that wines made by over 15 named defendants exposed consumers to inorganic arsenic without the correct Prop. 65 warning.

Inorganic arsenic is a chemical identified by the State of California as a carcinogen and reproductive toxicant, and plaintiffs argued that defendants’ products required a specific warning to inform consumers about exposure to inorganic arsenic. Defendants prevailed on demurrer because the trial court found that the existing “safe harbor” warnings for alcoholic beverages complied with California’s Prop. 65 warning requirement as a matter of law, and that no additional warning for inorganic arsenic was required. In other words, the trial court determined that Prop. 65 does not require both a general warning and specific warning for an alcoholic beverage product. Plaintiffs subsequently appealed. Continue Reading