The Producer’s Lien: An Often Overlooked Legal Remedy in Grape Contract Disputes

In the wine industry, one of the most common legal disputes is breach of contract between grape growers and wineries.  Often times, grape growers are surprised to learn that, upon the delivery of grapes to a winery, they automatically have a statutory lien against any wine made from those grapes.  This lien, called a “producer’s lien,” means that the winery cannot lawfully sell the wine without paying the grower.  The lien can be found in California Food and Agricultural Code § 55631 et seq.  See following link for statute text:
Additionally, this lien takes priority over many other security interests.  (See Frazier Nuts, Inc. v. American Ag Credit (2006) 141 Cal. App. 4th 1263)
The amount of the lien is the amount the winery contractually owes the grape grower for the grapes or, if an amount is not specified in a contract, the value of the grapes upon their delivery to the winery.
Sometimes, however, a grower inadvertently waives his or her right to this lien.  Often times, a contract between a grape grower and a winery includes a clause whereby a grower warrants that the grapes are not subject to any lien or other encumbrance.  The parties generally intend such a clause to ensure the winery that the grower has the legal right to sell the grapes.  Courts, however, may interpret this clause as the grower’s waiver of the producer’s lien.  If one wishes to avoid waiver of the right to the producer’s lien, such a clause should warrant that the grapes are not subject to any lien or encumbrance other than the producer’s lien.
Enforcing a producer’s lien can be time-consuming.  If the winery has not paid the grower, the grower can initiate an action in court to foreclose on the lien.  Because actual foreclosure can take months, the grower may also immediately seek a preliminary injunction from the court to prevent the winery from selling or destroying the wine pending foreclosure.  Eventually, assuming the grower proves his or her case, the court will issue an order giving the grower the right to possess the wine.  The grower must then work with the sheriff’s department to obtain physical possession of the wine.  Even if the wine has been blended with other wine, a grower can still take possession of the wine.
One of the difficulties with a producer’s lien, however, is that a grower must then have the appropriate licenses to market and sell the foreclosed wine.  If the grower lacks such license, then the grower must work with a license broker or other authorized person to sell the wine.
If you have any questions about contract disputes, including contracts between grape growers and wineries, please contact us.
Copyright Dickenson Peatman & Fogarty at www.lexvini.com