New York Issues Survey re Proposed “At Rest” Legislation

The New York State Liquor Authority (NYSLA) has asked state wholesalers to fill out a survey related to the potential impact of proposed “at rest” legislation.
At rest legislation (New York Bill S3849-2013) would require any alcohol beverage delivered to a New York restaurant or retailer to go through a warehouse located within the state and only after it has come “to rest” for at least 24 hours in that warehouse.  This law would prevent wholesalers from delivering wine from warehouses located in neighboring states (New Jersey, Pennsylvania, Connecticut) to New York on-premise and off-premise establishments.   The New York Farm Bureau and an organization known as the New York Alliance of Fine Wine Wholesalers (which includes Michael Skurnik Wines, Polaner Selections, T. Edwards Wines, and Winebow) have opposed the “at rest” legislation.
The survey is being conducted by Ernest & Young in coordination with Empire State Development (ESD), the state government’s economic development agency.  ESD’s mandate is to “encourage the creation of new job[s]” and “increase revenues to the State and its municipalities.”  According to the survey website,the goal of the survey is to “a) measure how much product (in cases and dollars) of alcoholic beverages are currently being stored out of state before reaching clients in New York, and b) compare storage costs (including employment) for alcoholic beverages at facilities within New York to those located outside the state. “  Given this statement, it appears that the point of the survey is to collect data to show how much tax revenue and new jobs would be created in New York if “at rest” legislation was adopted.  
Even though the NYSLA website only asks for wholesaler response to the survey, the home page for the survey requests participation from “producers, wholesalers, and warehousers of alcoholic beverages.”  The survey encourages those who believe they are eligible for the survey to register by providing name, title, email address, NY Alcohol Beverage License Number and NY Alcohol Beverage License Type.  

For more information on wine law issues, please contact John Trinidad ([email protected]).  

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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 ([email protected]).

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New York State Liquor Authority Approves Limited Availability Advisory

On Wednesday, July 31, 2013, the New York State Liquor Authority approved a revised Advisory (Advisory 2013-5) on the allocation of limited availability alcohol beverage products.  The final version of the advisory is available on the NYSLA website.As we mentioned in our earlier blog posts on the subject, the advisory provides details on how importers, distributors, and wholesalers may allocate limited availability products.Significantly, the advisory acknowledges “that good cause has been shown to allocate ‘limited availability’ items differently between on and off premises licensees.” That being said, the advisory signals that the NYSLA will pay special attention to any allocation of limited availability products that provides for less than 30% of the product going to off-premise accounts:  “If the 70/30 split allocation formula is deviated from, the burden will be on the manufacturer, importer or wholesaler to demonstrate that an approved method of allocation from the above list was utilized for any given month.”

For more information or assistance on alcohol beverage law / wine law, contact John Trinidad ([email protected]).

This post is made available for general informational purposes only and none of the information provided should be considered to constitute legal advice 

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NYSLA Revises Proposed Advisory re "Limited Availability" Sales

Earlier this week the New York State Liquor Authority (“NYSLA”) revised it’s proposed advisory regarding wholesaler and importer’s ability to allocate “limited availability” alcohol beverage products.  We have created a redline highlighting the changes made to the earlier version of the advisory.On Wednesday, July 17, the NYSLA Board held a hearing to discuss the proposed advisory.  Board Chairman Dennis Rosen voiced his concern that wholesalers and importers may use the “limited availability” model to shut out retailers.  The Chairman stated that an allocation whereby all inventory of a particular product was allocated exclusively to on-sale accounts, thereby shutting out off-sale accounts, would be “presumed to be improper,” though he later stated that such a split may be appropriate in certain situations, and that the importer/wholesaler would have the opportunity to explain why such a split is reasonable.

The Board stated that it welcomed written comments submitted prior to the close of business eastern time on Friday, July 19.  The Board will vote on the proposed advisory during the next meeting, scheduled for July 31.

If approved, the current version of the Proposed Advisory will be effective as of October 2013.

For more information or assistance on alcohol beverage law / wine law, contact John Trinidad ([email protected]).
This post is made available for general informational purposes only and none of the information provided should be considered to constitute legal advice 


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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.
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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.

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New York SLA Proposed Advisory for “Limited Availability” Wines

New York distributors of highly sought after wines produced or imported in minimum quantities may soon be able to breathe a sigh of relief.  The New York State Liquor Authority has issued a proposed advisory that, if approved, would let distributors favor their top accounts or prestigious retailers in their allocation of limited availability wine.  New York state law prohibits wholesalers from discriminating between retailers.  ABC §101-b.  Wholesalers must file the price for the products they sell in New York, and provide their wines to any retailer that expresses an interest in purchasing any of their wines at the posted price:

No licensee shall refuse to sell any brand of liquor or wine to   any licensee authorized to purchase such brand of liquor or  wine from such licensee at the price listed in the schedule of prices … provided the purchaser pays cash therefore….

There is some flexibility for items with limited availability.   ABC §101-b(4-a)(d) states,  “For good  cause  shown  to  the  satisfaction  of  the  authority, permission  may  be  granted  for  the  filing of schedules limiting the  distribution or resale of a brand to retailers.“

The proposed advisory provides additional details on what constitutes a limited availability wine and how a distributor can allocate those wines while still complying with New York ABC laws.  The advisory applies to wines which the manufacturer, importer or wholesaler “has reason to believe market demand exceeds or will soon exceed available inventory” as well as wines for which those entities has price posted for subsequent vintages (i.e., older vintages of wines the distributor previously sold and price posted in New York).  It also applies to wine that the distributor “dos not intend to purchase or cannot purchase further inventory for a period of at least one year,” “seasonal item[s],” discontinued items, and wines from suppliers with whom the supplier has ended its relationship.

If a wine falls into these categories, the manufacturer can notify the NYSLA that those wines are “limited availability,” and describe how they intend to allocate those wines.  The advisory also specifies acceptable means of allocating limited availability wines.  For example, distributors will be able to favor on-premise accounts in allocating limited availability wines; take into account past sales; and also favor retailers identified in “respected third party sources” such as the Michelin Guide, Zagat Guide, or Wine Spectator’s restaurant wine list award.

The NYSLA will consider the proposed advisory on July 17, 2013, and public comments are welcome.   If approved, the revised guidelines will go into effect in September of this year.

For a copy of those guidelines as well as additional information on where to send public comments, please go to:

For more information or assistance on alcohol beverage law / wine law, contact John Trinidad ([email protected]).

This post is made available for general informational purposes only and none of the information provided should be considered to constitute legal advice 

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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 [email protected].

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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 ([email protected]) or John Trinidad ([email protected]).
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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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