COLA’s Provide Scant Protection from Class Action Lawsuits

ShipCompliant recently published a guest blog post by DP&F Wine Law attorney John Trinidad on the class action lawsuits claiming that the use of the term “handmade” on vodka bottles constituted false or misleading information under state consumer protection laws.  

Over the past year, a slew of class action lawsuits have been filed claiming that certain alcohol beverage product labels are false or misleading under state consumer protection laws. Tito’s Vodka, owned by a company called Fifth Generation, Inc., faces numerous actions claiming that the company’s use of the term “handmade” deceived consumers by leading them to believe that they were buying high quality, non-massed produced products.

Fifth Generation has fought these allegations, arguing that that TTB’s approval of their label as evidenced by the issuance of a certificate of label approval (“COLA”) protects against liability under state consumer protection laws. The company’s argument relies on “safe harbor” provisions provided for under state law, which in general make certain actions authorized by laws administered by state or federal regulatory authorities immune from liability. Unfortunately for the alcohol beverage industry, this argument has had mixed success.

To read the full blog post, please go to the ShipCompliant website.  

Always Read The Contract – They Wrecked Your Wine, But Now Won’t Pay

You send your Chardonnay to a custom crush facility for bottling.  A month later the wine in one out of about every ten bottles is brown.  It oxidized in the bottle.  You are forced to pull all your Chardonnay from the market at significant expense, and you fear your brand has suffered.  The evidence suggests that the wine oxidized during bottling.  Surely, the custom crush facility will step up and compensate you for your damages?  To the surprise of many vintners, the custom crush facility may escape much or all liability based upon language in its contract.

In California, as in most states, companies can dramatically limit their liability to commercial customers.  Companies do this by including clauses in their contracts with customers that exclude liability for negligence, for lost profits, or for consequential damages, among other things.  These clauses are powerful – if something goes wrong – like oxidized wine – these clauses can shift liability from the company to the customer, or in our example, from the custom crush facility to the vintner.  These clauses, if drafted properly, could prevent the custom crush facility from liability for lost profits, any damage to the vintner’s wine brand, consequential damages, and might even limit damages to the value of the wine if sold as bulk wine.

California courts will enforce contractual limitations of liability, but courts interpret those clauses very strictly.  Consequently, those clauses should be well written and clear.  There are, however, exceptions to the enforceability of these clauses.  Parties cannot limit liability for fraud, willful injury to persons or property, or for violations of the law, even if those violations are negligent.  While parties can limit liability for negligence, parties cannot limit liability for gross negligence.  Courts explain that gross negligence is the “lack of any care or an extreme departure from what a reasonably careful person would do in the same situation to prevent harm to oneself or to others.”  (See CACI 425.)

Additionally, contracts can further attempt to limit the amount of damages.  For example, the custom crush facility in the above example might include a clause valuing the wine at $5 a gallon.  If the wine is then destroyed in the bottling process because of the custom crush facility’s negligence, damages may be limited to $5 a gallon, even if the wine might retail for $25 a bottle.

If you are a winery or a winemaker in California, you need to understand these contractual limitations of liability before signing any contract with a custom crush facility, an alternative proprietor, bottler, or other service provider.  You need to read the contract, and you further should understand that you could object to these limitations or negotiate less onerous clauses.

If you provide services to winemakers or wineries, you should also understand the need for contractual limitations of liability.  Accidents happen, and they should not cost you your business.  These limitations of liability, however, must be carefully drafted, and you should obtain an attorney with knowledge of the wine business to draft these limitations.

Additionally, all parties should understand the need for the right insurance to cover situations when things do go badly.  Typically, commercial general liability policies will not cover damage to wine that occurs during the “wine making process,” which may include bottling.  Both the vintner and the custom crush facility would do well to have an errors and omission policy.

 

Sellers Beware: Disclosure Requirements Expanded

In March 2014 we provided warning that new seller disclosure requirements would become effective July 1, 2014.  These expanded disclosure obligations are now in effect.  Sellers of single family residential property must now disclose certain construction defect claims.  A new Transfer Disclosure Statement expanding the disclosure obligation of sellers of single family residences, defined as one to four units, requires sellers to disclose if they are aware of any of the following claims threatening to or impacting the property:

1.  claims for damages by the seller based on construction defects;

2.  claims for breach of warranty; or

3.  claims for breach of an enhanced protection agreement, including any lawsuits or claims for damages under Civil Code Sections 910 or 914 alleging a defect or a deficiency in property or common areas. 

If you are a seller of property in a mass-produced housing development, you are now obligated to disclose any known, threatened or impending claims by homeowners for defects affecting the community and potentially your home.

These changes relate to construction defect claims arising out of what is commonly referred to as SB800, which is codified at California Civil Code Section 895 through 945.5.

Prop 65 Lawsuit – Where Are We, How Did We Get Here And Where To Now?

You have seen the signs all over California; they exist on parking garages, gas stations, office buildings and convenience stores: “Warning, this area contains a chemical known to cause cancer or birth defects.” These signs exist because of Prop 65, which California voters enacted in 1986. It was originally presented as a way to prevent contamination of drinking water, but Prop 65 warnings have come to apply to thousands of products throughout the state, including alcoholic beverages.

The settlement of a recent Prop 65 lawsuit in Southern California has raised significant attention among the alcoholic beverage industry. The Wine Institute worked in tandem with the named defendants in that action to help settle the suit in such a way that producers not named in the suit can benefit from the settlement at a modest, albeit distasteful, cost. The Wine Institute recently notified its members about that suit and the settlement, and that notification has sparked considerable on line debate.

How did we get here?

The Wine Institute bulletin letter to its members describes the background of this issue as follows:

“Background: Proposition 65 is a California law that requires companies producing designated products containing chemicals that the State believes cause cancer, birth defects or other reproductive harm, to inform California citizens about exposure to such chemicals. Alcohol is one of the designated products, which means you may not sell alcohol in California without providing this warning to customers before they make a purchase:

‘WARNING: Drinking Distilled Spirits, Beer, Coolers, Wine and Other Alcoholic Beverages May Increase Cancer Risk, and, During Pregnancy, Can Cause Birth Defects.’

Many companies that are subject to Prop 65 warning requirements put the requisite warning on their product, but alcohol warnings are different. When Prop 65 first went into effect, the State agreed that in lieu of putting that warning on bottles, cans or packaging, the beverage alcohol industry could provide free Prop 65 signs for California retailers to post. For the last 29 years, the beverage alcohol industry has spent considerable sums providing Prop 65 alcohol warning signs to retailers, and many of you have contributed to Sign Management Company to pay for your fair share of the program costs. Unfortunately, the law as written says that the producer, not the retailer, has the legal responsibility to make sure there is a warning sign actually posted for customers to see, and some retailers do not like posting the signs.”

(A full copy of the Wine Institute member bulletin can be found on line here.)

Are wine producers really responsible for retailer signage?

We have heard that some winery owners—who are understandably reluctant to pay the fees and annual contributions required to opt in to the settlement—are under the belief that if they place a Prop 65 warning label on their bottles, they will avoid liability if a retailer fails or refuses to post the required warning signs. Unfortunately, even if producers place warning labels on their bottles, they may still be liable, particularly in cases where retailers are selling wine for on premises consumption (which was the case in the recently settled lawsuit).

The statute and regulations require that Prop 65 warnings must be “clear and reasonable” and “likely to be read and understood by an ordinary individual under customary conditions of purchase or use.” (Cal. Health & Saf. Code § 25249.6; Cal. Code Regs. tit. 27, § 25603.1.) The regulations implementing the Prop 65 statutory scheme require that where alcoholic beverages are sold by retailers for consumption on or off premises, signage, not bottle labels, of a specific size and type must be posted in one or another described location at the retail outlet, such as on tables, menus, or at the retail entrance. (Cal. Code Regs. Tit. 27, § 25603.3(e).) The responsibility for ensuring compliance with this signage requirement rests with the producer or its distributor, not the retailer:

“7. For alcoholic beverages, the placement and maintenance of the warning shall be the responsibility of the manufacturer or its distributor at no cost to the retailer, and any consequences for failure to do the same shall rest solely with the manufacturer or its distributor, provided that the retailer does not remove, deface, or obscure the requisite signs or notices, or obstruct, interfere with, or otherwise frustrate the manufacturer’s reasonable efforts to post, maintain, or periodically replace said materials.” (Cal. Code Regs. Tit. 27, § 25603.3(e)(7).)

The lawsuit

In 2012, two plaintiff’s attorneys in Southern California (often referred to as “Bounty Hunters”) located restaurants in Southern California that did not have Prop 65 signs posted, so those attorneys pursued Prop 65 actions against them.

As a result of the outcry resulting from those actions, last October, the Governor signed AB 227 to protect certain businesses, like restaurants, that had not complied with Prop. 65. Under the new amendment to the Prop 65 laws, restaurants can protect themselves from lawsuits if they take corrective action within 14 days from receiving a notice of violation (i.e. post an appropriate warning sign), pay a $500 fine, and notify the complaining party that they fixed the problem. This was much better than in the past in where restaurants that received a Prop 65 notice were faced with the Hobson’s choice of either going to court or settling the case.

AB 227 was the first legislative effort to amend Prop 65 in 15 years and the second time since its inception 25 years ago. However, in enacting this reform, the legislature overlooked the need to protect producers and the corrective safe harbor provisions were not extended for the benefit of producers. As a result, plaintiffs’ attorneys commenced a new enforcement action against producers earlier this year.

Where do we go from here?

As noted above, the Wine Institute helped negotiate a settlement agreement that allows producers to “opt-in” to a consent judgment entered into by the parties and approved by the court. By doing so, producers would not need to ensure that every retailer, who provides that producer’s wines, posts and maintains their Prop 65 signs at their retail establishment.

While we certainly understand and appreciate the reluctance most producers will have to succumb to the demands of the plaintiff’s attorneys and a state bureaucracy that requires these signs, each producer ultimately has to decide whether he or she wants to run the risk that they might in the future be subjected to enforcement actions by enterprising plaintiff’s attorneys or whether they want protection from that risk by opting in to the pending settlement and thus avoid incurring unknown defense expenses and potential liabilities that can be as high as $2,500 per day. To opt in, contact Wine Institute VP & General Counsel Wendell Lee.

It should be noted, however, that producers that operate with less than 10 employees are exempt from the requirements of Prop 65. As a result, these smaller producers (who intend to stay small producers) should not have to worry about whether or not to opt-in to the consent judgment.

Drafting Easements Agreements – Practical Considerations and Potential Pitfalls

Paul Carey, a partner in the Litigation department presented on the practical considerations and potential pitfalls of drafting easements in an online webinar designed to educate the legal community.

View Presentation

Drafting Easements Agreements - Practical Considerations & Potential Pitfalls

Eighth Circuit Rejects Southern Wine and Spirits Appeal, Says States May Discriminate Against Out of State Wholesalers.

Despite being the 32nd largest private company in the U.S. according to Forbes Magazine and operating in almost a dozen states, Southern Wine and Spirits of America continues to have trouble entering the Missouri market.  Last week, the U.S. Court of Appeals for the Eighth Circuit denied Southern’s appeal challenging the constitutionality of Missouri’s alcohol beverage wholesaler residency requirement.  The opinion can be found here.  
Under Missouri law, only “resident corporation[s]” may hold an alcohol beverage wholesaler license.  Resident corporations must not only be incorporated under Missouri law, but all of its officers and directors must be “qualified legal voters and taxpaying citizens of the county … in which they reside” and have been “bona fide residents” of Missouri for at least three years. 
Southern filed suit in 2011, claiming that the residency requirement violated the Commerce Clause and Equal Protection Clause of the Fourteenth Amendment by discriminating against out of state wholesalers in favor of in-state wholesalers. 
Despite acknowledging that residency requirements are “impermissible under Commerce Clause jurisprudence,” the Eight Circuit upheld Missouri’s residency requirement for the wholesale tier of Missouri’s three-tier system. 
In reaching its conclusion, the court relied heavily on dicta from the Supreme Court’s opinion in Granholm v. Heald – the case that struck down discriminatory state laws that prohibited out-of-state wineries from exercising the same direct-to-consumer shipping privileges enjoyed by in-state wineries.  Specifically, the Eight Circuit relied on a passage in which the Supreme Court stated that it had previously recognized the three-tier system was “unquestionably legitimate” and that “State policies are protected under the Twenty-first Amendment when they treat liquor produced out of state the same as its domestic equivalent.”
The Eight Circuit interpreted this language to mean that so long as the wholesaler residency requirement did not discriminate against out-of-state producers, it is immune to a constitutional challenge.  In other words, according to the Eight Circuit’s opinion, states are free to discriminate against out-of-state wholesalers or retailers under Granholm(a case that presented no questions regarding the wholesale or retail tier) so long as there is no discrimination against out of state products.
Southern was represented in its appeal by Neal Katyal, a noted constitutional scholar who has argued before the Supreme Court on multiple occasions, including in Hamdan v. Rumsfeld in which Katyal successfully argued that President George W. Bush did not have authority to establish military commissions to try detainees held at Guantanamo Bay.  According to this news report, Southern has not stated whether or not it will appeal the Circuit Court’s ruling.
For more information contact, John Trinidad (jtrinidad@dpf-law.com).

Copyright Dickenson Peatman & Fogarty at www.lexvini.com

Harvest Time and Grape Growers’ Liens – Custom Crushers Beware

A few years ago, we wrote about the producer’s lien.  As I explained in my prior post, the law provides a grape grower with an automatic lien against any wine made from the grower’s grapes.  This lien, called a “producer’s lien,” means that the winery cannot lawfully sell the wine without paying the grower.  It gives a grower great legal protection.

While the concept behind the producer’s lien is simple, it can get complicated in practice.  For example, a recent situation involved a grower who sold grapes to a winery, but delivered the grapes to a custom crush facility for crushing and fermentation.  The winery then failed to pay both the grower and the custom crush facility.  Does the grower still have a producer’s lien?  Does the custom crush facility have a producer’s lien?

In this situation, the custom crush facility claimed it was a “producer” and consequently entitled to a lien against the wine it had now made for the winery.  The custom crush facility would not, therefore, release the wine to the grower or the winery until it was paid.  The grower, however, also claimed a lien against the wine, and demanded that the custom crush facility give the wine to the grower, even though the grower had not been paid.  The winery also demanded the wine, because it needed to sell the wine to pay both the custom crush facility and the grower.

Unfortunately for the custom crush facility, only the grower can claim a producer’s lien.  While the custom crush facility might argue it is a “producer”, the producer’s lien applies only to a producer who “sells any product which is grown by him. . .”  (See  CaliforniaFood and Agricultural Code § 55631.)  The custom crush facility didn’t grow anything; it couldn’t, therefore, obtain a producer’s lien.

This means that the grower can force the custom crush facility to return the wine to the grower so the grower can sell the wine to recover what it is owed.  The grower obtains the lien automatically (and this lien takes priority over all other liens), but the grower may need to take legal action to force the custom crush facility to cooperate and turn over the wine to the grower.

But what is the custom crush facility to do?  In this situation, the custom crush facility will need to take action to obtain a junior lien against the wine.  It will want to make sure that, if the grower sells the wine, it can still get whatever money is left after the grower’s bills are paid.  It does not automatically obtain the benefit of a lien, as the grower does.  It has to go out and get its lien.

Happily in this situation, the grower, the custom crush facility, and the winery were all able and willing (with the assistance of counsel) to cooperate without legal action.  The grower sold the wine and took a portion of the proceeds to satisfy its bills.  The custom crush facility then took some of the proceeds left over to satisfy its bills.  And, there was still a little left over for the winery.

If you have any questions about contract disputes or producer’s liens, please contact us.

Copyright Dickenson Peatman & Fogarty at www.lexvini.com

Charlie Trotter Files Answer in Wine Fraud Lawsuit

In June 2013, Plaintiffs Ilir and Bekim Frrokaj filed a lawsuit claiming that celebrated chef Charlie Trotter sold them a counterfeit magnum of 1945 Domaine de la Romanee-Conti in June 2012.

Trotter filed his answer yesterday, in which he denies that the wine sold to Plaintiffs is counterfeit or fraudulent.

Trotter’s answer can be found via the link below:

Copyright Dickenson Peatman & Fogarty at www.lexvini.com

Southern Awarded Over $1.25 Million in Nevada Suit Against Small Competitors

Apparently, exclusivity in Nevada is serious business.  Certainly, as a jury there recently demonstrated, violating exclusivity is expensive.
In 2002, Southern Wines & Spirits, the large Miami based distributor, sued Chateau Vegas and Transat Trade, both small distributors based in Orange County, California, for selling certain Bordeaux wines and French champagnes in Nevada.  Southern Wines & Spirits believed that, under state law, it was the exclusive importer of those wines.  In 2011, the Nevada Supreme Court agreed and upheld Southern Wines & Spirits exclusivity.  (Chateau Vegas Wine, Inc. v. Southern Wine and Spirits of America, Inc., 265 P. 3d 680 (Nev. 2011).) In late June 2013, a jury found Chateau Vegas and Transat Trade liable for $267,750 in actual damages to Southern Wines & Spirits, and a whopping $1.078 million in punitive damages.  Southern Wines & Spirits is now also seeking an additional $6.5 million in attorneys’ fees from Chateau Vegas and Transat Trade.

If you are importing and selling wine in Nevada, make sure you aren’t violating someone else’s exclusivity.  Even in Sin City, exclusivity can matter.

 

For more information or assistance on distribution litigation contact us.
Copyright Dickenson Peatman & Fogarty at www.lexvini.com

Update on The Battle of Missouri and Franchise Distribution Law

On June 20, a Missouri Circuit Court judge issued one of the first judicial rulings in a battle that could dramatically affect the relationship between producers and distributors of alcohol.
In Missouri, Diageo PLC, Bacardi Ltd., and Pernod Ricard SA are all lobbying to end the state’s franchise laws.  These laws, which ten other states also have, make it difficult for producers to switch to different distributors.  In Missouri, a producer like Diageo cannot terminate an agreement with a distributor absent 90 days notice and good cause.On March 6, 2013, Diageo notified its Missouri distributor, Major Brands, Inc., that it would terminate its relationship with it as of June 30, 2013.  Major Brands then sued Diageo and sought a preliminary injunction to prevent Diageo from terminating its relationship with Major Brands.

In its June 20, 2013 ruling on Major Brands’ request for a preliminary injunction, the Missouri Circuit Court, to the chagrin of the large producers, affirmedMissouri’s franchise law.  The Court further held that there was no good cause for Diageo’s termination of its distribution agreement with Major Brands.  However, in a partial victory for Diageo, the Court declined to issue a preliminary injunction forcing Diageo to continue working with Major Brands – Major Brands would be entitled to money damages only.

The battle in Missouri is far from over.  Bacardi is also seeking to terminate its relationship with Major Brands, and litigation is pending in both Federal and State Courts.  And certainly, the lobbying efforts of both distributors and producers will continue in earnest.

For more information or assistance on distribution litigation contact us.

Copyright Dickenson Peatman & Fogarty at www.lexvini.com

Diageo Americas v. Major Brands: Franchise Law Litigation and Forum Selection

Wineries big and small face difficulties in trying to terminate distribution ageements in franchise law states.  We posted an article a few weeks ago about a lawsuit filed by Diageo Americas, Inc. against its Missouri distributor, Major Brands, Inc.  Diageo has asked the federal district court in Connecticut to issue a declaratory judgment allowing the company to terminate its Missouri  distribution agreement.  The court will first have to determine which state (Connecticut or Missouri) is the proper forum to hear the parties’ dispute.
Diageo filed its complaint in federal district court in Connecticut pursuant to a “forum selection” clause in the agreements stating that jurisdiction and venue for any litigation between the parties would be in the State of Connecticut.
Major Brands wants this dispute heard in Missouri state court, and has taken numerous steps to take the case out of Connecticut.  First, Major Brands filed its own lawsuit in Missouri (Cause No. 1322-CC00534) shortly after Diageo filed its complaint, claiming that Diageo’s attempted termination of the parties’ agreement violated Missouri franchise law.  The Missouri lawsuit also names Mid-Continent Distributors, Inc. d/b/a Glazer’s Midwest as a co-defendant.
In addition, Major Brands filed a motion to dismiss Diageo’s federal court case in Connecticut earlier this month, arguing in part that the court should deem the forum selection clause unenforceable because of Missouri’s strong public policy interest in liquor control and protection of a Missouri franchisee.  “Because of Missouri’s complex and specific regulations regarding both liquor control and termination of Missouri franchisees, a ruling by this Court would disrupt the State’s attempt to establish a coherent policy regarding these important concerns….”  It is not surprising that Major Brands is attempting to keep the dispute in state court.  Distributors in franchise states may believe that a state court provides a friendlier forum for their claims than federal court.
The Federal District Court’s ruling on Major Brand’s motion will be closely watched by suppliers and distributors in franchise law states.  If the court denies the motion and concludes that the forum selection clause is enforceable, then alcohol beverage suppliers may be well served by including similar forum selection clause provisions in any agreement governing distribution in franchise states.
For more information on distributor termination or franchise law issues, please contact John Trinidad at jtrinidad@dpf-law.com.

Copyright Dickenson Peatman & Fogarty at www.lexvini.com

Franchise Laws and Diageo’s Recent Distributor Termination Action in Missouri

Ohio,New Jersey,North Carolina,Virginia, and a number of other states restrict a winery’s ability to terminate distributors in that state through “franchise laws.” The Virginia Wine Franchise Act, for example, prevents a winery from unilaterally amending, cancelling, terminating or refusing to renew anyVirginia distribution agreement absent good cause, and good cause is very narrowly defined.  A winery wishing to end its distributor agreement in violation of franchise laws may face stiff penalties.  InNorth Carolina, violation of state franchise laws may lead to the suspension of sale of the alcohol beverage supplier’s products in that state or revocation of a winery’s permit. In Missouri, Missouri Revised Statutes Sec. 407.413, an alcohol beverage supplier is prohibited from “unilaterally terminat[ing] or refus[ing] to continue or change substantially the condition of any franchise with the wholesaler unless the supplier has first established good cause for such termination, non continuance or change.”  Good cause is limited to failure by the wholesaler to comply with the provisions of the supplier-wholesaler agreement, bad faith or failure to observe reasonable commercial standards of fair dealing, or revocation or suspension of the wholesaler’s federal permit or state/local licenses.

We usually see this alleged “breach  of franchise agreement” used as the basis for a counter-claim by the purchaser of our client’s wine. Typically, XYZ Winery sells its wine to a retail establishment in a franchise state, which then doesn’t pay for the wine. When our client sues the purchaser in California state court, the purchaser counter sues  for breach of the alleged franchise agreement, and will sometimes remove the case to federal court. The purchaser will then use the cost of litigation of its counter-claim to negotiate a discount on the amount owed, or a complete “walk-away” settlement.

In a recent Missouri case, however, Diageo sued its distributor in the state to terminate its distribution agreement. Diageo argues thatMissouri state law should not apply to the two distribution contracts in question.  Diageo relies on language in its distribution contract with Major Brands that states that the contract’s terms are to be governed by Connecticut law for certain products, and New York law for certain other products.  In the alternative, Diageo argues that it has good cause to terminate the agreement should Missouri law apply, claiming that Major Brands failed to devote sufficient resources to the promotion of Diageo’s products, among other things.

We will be watching this case and will report on its outcome.

For more information or assistance on distributor termination issues contact David Balter (dbalter@dpf-law.com) or John Trinidad (jtrinidad@dpf-law.com).
Copyright Dickenson Peatman & Fogarty at www.lexvini.com

TROs and Preliminary Injunctions: The Wine Advocate, Inc. v. Antonio Galloni

Much has been written about the lawsuit filed by Robert Parker’s company, The Wine Advocate, Inc. (“TWA”), against Antonio Galloni, specifically on the allegations of fraud, defamation and breach of contract. But buried on page 21 of this 26 page complaint may be one of the most intriguing aspects of this action: a request by TWA for a temporary restraining order (“TRO”) and preliminary injunction to enjoin Galloni from “publishing any and all articles and/or tasting notes relating to the Sonoma, Brunello, Barolo and Burgundy wines, and enjoining Defendants’ use of Plaintiff’s confidential subscriber information ….” Should the Court grant TWA a preliminary injunction, then any articles or tasting notes from Galloni’s visits to wineries in Sonoma and elsewhere may remain locked up until this case is resolved, which may take multiple months, if not years.TROs and preliminary injunctions are forms of injunctive relief. They are meant to preserve the status quo by (typically) preventing a party from taking certain actions that would cause irreparable harm to the party seeking injunctive relief. TROs and preliminary injunctions are considered “one of the most drastic tools in the arsenal of judicial remedies.”A party seeking a TRO must file an application requesting that the court preserve the status quo until the court has a chance to hold a hearing on the preliminary injunction motion. If issued, a TRO remains in place until the preliminary injunction hearing date. Time is usually of the essence: a court may conclude that a party that delayed in filing an application for a TRO has failed to demonstrate the urgent need for such extraordinary relief. If the moving party is able to prevail at the preliminary injunction hearing, the court will issue an order prohibiting certain actions by the non-moving party until the case is resolved.

Preliminary injunctions are considered an “extraordinary remedy,” and accordingly, moving parties must meet a high standard in order to prevail. A party seeking injunctive relief must show likelihood of success on the merits of its claim and irreparable harm in the absence of a preliminary injunction. The court will also take into consideration the hardship on defendants should an injunction be granted

TWA may not only seek an injunction to prevent Galloni from publishing the tasting notes, but may also demand a court order “forcing” him to produce those notes to TWA. This constitutes a request for “mandatory injunctive relief” – i.e., a court order directing specific conduct by the non-moving party. Courts exercise heightened scrutiny in such situations.

The complaint suggests that TWA will seek a TRO and preliminary injunction in the near future. Indeed, TWA is free to move the court for a TRO at anytime, even before the 21-day time period for defendants to file a formal answer to the complaint has expired. And given the need to show likelihood of success on the merits, TWA will need to provide evidence to support its allegations of wrongdoing and harm. In short, should TWA follow through with its stated plan to seek a TRO and preliminary injunction, it will need to present a preview of its case-in-chief.

A PDF of the complaint is available here: The Wine Advocate, Inc. v. Antonio Galloni.
For more information, please contact John Trinidad (jtrinidad@dpf-law.com)
Copyright Dickenson Peatman & Fogarty at www.lexvini.com

Alcohol Beverage Licenses as Assets in Debt Collection

A recent US Bankruptcy Court case from the Middle District of Florida highlights the pitfalls of attempting to value certain assets, including a bar and liquor license, without expert assistance (Zaslavsky v. Smith (In re Smith) January 31, 2013, 2013 Bankr. LEXIS 434). In this matter, plaintiff creditor brought an adversary proceeding against defendant bankruptcy debtor alleging intentional concealment of assets based on debtor’s self-estimated value of his interest in a bar, the real property it was located on and its liquor license, as being “zero” in what appears to have been a pro per bankruptcy filing (i.e., the debtor representing himself without a lawyer). 

Plaintiff creditor had sold his interest in the bar, the real property it was located on and its liquor license to the debtor and carried back a note, which was alleged to have been secured by the real property and the liquor license. Debtor’s self-valuation of the bar, the real property and liquor license improperly deducted the value of various liens and other encumbrances, which plaintiff claimed established fraudulent intent barring discharge. The Bankruptcy Court disagreed, finding that while debtor’s self-valuation was incorrect, it resulted from an honest mistake and thus fraudulent intent was not present. The debtor’s discharge was ultimately approved, likely after amended bankruptcy schedules were filed. Apparently, given the lack of bankruptcy court objection, a liquor license can properly be used as collateral for a secured transaction in Florida, as opposed to California where such use is statutorily prohibited.



For further assistance or questions on debt collection matters contact David Balter at dbalter@dpf-law.com 

Copyright Dickenson Peatman & Fogarty at www.lexvini.com

Wine Industry Lawsuits: How to Avoid Them

No one expects to have to go to court when they start a business deal or venture, or when they plant a vineyard or purchase real estate, but in today’s world no industry is free from lawsuits, particularly not the wine industry. Disputes over grape purchase agreements (duration, termination, quality standards, etc.), vineyard development agreements (quality of vines, planting and maintenance, and sufficiency of site evaluation and preparation, etc.), wine storage agreements (condition of wine, losses, damage to wine, etc.), custom crush agreements(compensation, quality control, etc.), real property matters (title, ownership, boundaries, easements, etc.), and even employment relationships (statutory requirements, executive agreements, workplace safety, etc.) can rise to the level of a lawsuit involving the smallest or largest members of the wine community and costing from tens of thousands to hundreds of thousands of dollars. All too often, however, it is not until the fighting begins that the parties and their attorneys look back and see where the dispute could have been avoided or at least how the parties could have better protected themselves before the dispute arose.
Simple measures are usually the most effective. For example, many people don’t review their written agreements until a dispute arises, and then they often find that the paperwork does not read like they recalled it read, or they find that the agreement is ambiguous on a matter that was not an issue until circumstances changed. Instead of shelving your paperwork once it’s signed, there is tremendous value in periodically reviewing written agreements to confirm that they match your understanding of a deal, as well as to confirm that the agreement is being correctly followed. Such a review can, but need not, involve the assistance of counsel. At the very least, such reviews help keep everyone on track while they are still getting along, and when things are not on track, the parties can usually make mid-course corrections in the paperwork or their conduct (or both) without much debate or fanfare because there is no dispute pending. Once a dispute arises, however, such corrective measures are more difficult to achieve.
It is even more important to take such a proactive approach in cases that do not involve written agreements because differences in recollection often cloud the dispute resolution process once a legal battle has begun.
Likewise, where property issues are involved, it is better to find out about your state of title before you are in a dispute with a neighbor. Such early knowledge not only presents the opportunity to find a solution with your neighbor while everyone still gets along (or at least has not been antagonized by the existence of dispute), but it also allows you to get properly informed as to what you should or should not do to protect your property rights in the absence of a negotiated solution since many of the legal rules involved with property disputes are counter-intuitive to non attorneys.
In short, sometimes you need to look back to move forward in the safest way.

For more information or assistance on litigation matters, and how to prevent them, contact Paul Carey at pcarey@dpf-law.com
Copyright Dickenson Peatman & Fogarty at www.lexvini.com

Winery Exchange v. 7-Eleven – $2 million Supplier Dispute

An interesting case in the United States District Court for the Northern District of California recently came to our attention. Winery Exchange (“WX”), a private label wine and beer producer, has sued 7-Eleven Corporation (yes, that 7-Eleven ) alleging it breached a series of Private Label Beer Supplier Agreements to the tune of approximately $2.0 million. What piqued our interest was that WX sought a Right to Attach Order (“RTAO”) against 7-Eleven  as part of its case. An RTAO is a provisional remedy whereby a plaintiff in a breach of contract case can attach (i.e., freeze) a certain amount of the assets of the defendant if certain statutory requirements are met. Among the requirements for an RTAO are that the amount of damages sought be “certain” and that the attachment itself be sought for a “proper purpose.” Typically, this means that the amount of damages sought be easily ascertainable by referring to the contract at issue and that attachment be sought due to legitimate concerns about the defendant’s financial ability to ultimately satisfy any judgment entered in the action. According to Lex Vini’s sources present at the February 23, 2012 hearing on WX’s Application for RTAO, the Judge found there was insufficient evidence on these two key points to grant WX’s Application, and accordingly denied it. However, this case is far from over as these parties still must battle over the alleged $2.0 million breach. Stay tuned.

For more information or assistance on litigation matters in the alcohol beverage industry contact Dave Balter at dbalter@dpf-law.com

Copyright Dickenson Peatman & Fogarty at www.lexvini.com

Seminar on How to Collect on Deadbeat Accounts

Dickenson Peatman & Fogarty partner David Balter was featured speaker at the National Business Institute’s seminar “Collections; Seeking and Collecting a Judgment,” which was held on January 24, 2012 in San Francisco, California. This seminar will be of special interest to wineries, growers, distributors and retailers, as well as anyone interested in learning the nuts and bolts of resolving their account receivable issues. Further information regarding this seminar can be found at the following LINK
Copyright Dickenson Peatman & Fogarty at www.lexvini.com

Stopping Gray Market Wine Imports

On October 1, 2011, Scott Gerien, head of Dickenson, Peatman & Fogarty’s intellectual property practice group made a presentation at the annual meeting of the International Wine Law Association in Logrono, Spain on the issue of stopping gray market wine imports in the U.S. 

The ability to prevent gray market imports, especially as to wine, has always been difficult under U.S. law. However, a recent case out of the Second Circuit of the U.S. federal courts has provided foreign wine producers and their U.S. agents with a new weapon to potentially prevent the import of their wines through unauthorized importers. In Wiley & Sons, Inc. v. Kirtsaeng, 2011 U.S. App. LEXIS 16830 (2d Cir. August 15, 2011), the Second Circuit held that foreign copyright owners may prevent the unauthorized import into the U.S. of copies of their works not intended for sale in the U.S., thus changing the direction of prior decisions which had generally held that once a copyright owner sells a copy of its work, the buyer of such copy is free to dispose of such copy as the buyer sees fit.

So one may ask, what does copyright have to do with wine?  Well, the overwhelming majority of wine is sold with a wine label that is usually a creative work subject to the protection of copyright law.  Therefore, even though most consumers are buying the wine to own the content of the bottle, not the label on the bottle, the copyright law still gives the owner of the copyright in the wine label the ability to control how copies of such label are distributed.  See Quality King Dist. Inc. v. L’Anza Research Int’l, Inc., 523 U.S. 135 (1998) (recognizing use of copyright law to prevent gray market import of shampoo based on copyright in packaging).  Thus, the Wiley decision has the effect of allowing foreign wine producers who own copyright in their label designs to prevent the unauthorized import into the U.S. of authentic, gray market wine obtained in foreign markets.

It should be noted that the Wiley decision is based on a very specific interpretation of the copyright law and only applies to foreign copyrights and copies produced outside the U.S. and then imported here.  The Wiley decision also only applies in the Second Circuit (New York, Connecticut and Vermont) and is actually contradictory to an opinion of the Ninth Circuit (California, Arizona, Nevada, Oregon, Washington, Idaho, Montana, Alaska and Hawaii) meaning the issue could actually reach the Supreme Court on appeal.

However, until then, gray market importers selling wine in New York, Connecticut and Vermont (as well as in states in circuits other than the Ninth Circuit which choose to follow the Second Circuit) should beware as foreign producers and their U.S. agents appear to now have a very strong tool to stop such gray market imports.

For a full copy of Gerien’s presentation, click HERE.

For more information or assistance on intellectual property matters contact Scott Gerien at sgerien@dpf-law.com.

Copyright Dickenson Peatman & Fogarty at www.lexvini.com

Can Expanding Your Wine Distribution Expose You to Lawsuits in Other States?

Attorneys, and particularly litigation attorneys such as me, get excited when the U.S. Supreme Court issues new “jurisdiction” proclamations.  The Court did just that in late-June, and the Court’s recent rulings have some impact on wineries.
First, I will explain “jurisdiction” and outline prior law regarding jurisdiction.  Then, I will address the Supreme Court’s new opinions.
“Jurisdiction” is equivalent to the reach of the Court.  For example, if a person sues a California winery in a New Jersey State court, that winery might argue that the New Jersey court has no jurisdiction or authority to issue any rulings regarding the California winery.  In 1987, the Supreme Court, in a case called Asahi Metal Ind. Co. v. Sup. Ct. (480 U.S. 102), explained that a defendant (and even a defendant residing outside the U.S.), could be subject to a state court’s jurisdiction if that defendant placed a product into the “stream of commerce” with some intent that the product would reach that state.  In the case of our California winery, that winery might be subject to the jurisdiction of that New Jersey State court if it sold its wine to a nation-wide distributor who, in turn, marketed that wine in New Jersey (even if a sub-distributor did the actual marketing of the wine in New Jersey).  In such a case, the New Jersey State court might have jurisdiction if the California winery had some level of intent that its wines reach New Jersey.
The question, however, has always been – what level of intent is required for jurisdiction?  This is the issue that the Supreme Court addressed in two cases in late June: J. McIntyre Machinery, Ltd. v. Nicastro and Goodyear Dunlop Tires Operations, S.A. v. Brown.  In short, these two cases make it more difficult for plaintiffs to sue defendants who are physically outside the court’s geographic jurisdiction.  These two new cases explain that putting a product into the “stream of commerce” with an expectation that it might reach a particular state might not be enough to give the courts’ in that state jurisdiction over the person or entity that placed the product into the stream of commerce.  In our example, the California winery could sell wine to a nation-wide distributor with an expectation that the wine would reach New Jersey, but that might be enough to give the New Jersey State court jurisdiction over the California Winery.  (These two recent opinions, however, raise new questions and leave certain issues unanswered.  In fact, the Court in the J. McIntyre Machinery case issued three differing opinions with no single opinion commanding the majority.)
A May 27, 2011 ruling from the District Court for the Northern District of California offers a further example.  There, defendant, who was based in Massachusetts, imported wine and sold it to three nation-wide distributors based in New York, Massachusetts, and Connecticut.  The wine ended up in California stores, but this was not enough to establish jurisdiction over the defendant in California.  (One True Vine, LLC v. Liquid Brands LLC, Case No. C 10-04102 (N.D.Cal. 2011)).
In any specific case, questions of jurisdiction are complicated and involve a detailed review of all the specific facts.  However, these two recent cases from the U.S. Supreme Court raise the jurisdiction bar.  In very simple terms, they make it even more difficult (but certainly not impossible!) for the California winery in our example to face a lawsuit in New Jersey, or, from our other example, a California winery to sue a Massachusetts importer in California federal court.
For more information or assistance on litigation issues, contact us.
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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