In our last post we talked about legislative efforts to put an end to Connecticut’s minimum pricing laws which critics say make Connecticut retailers less competitive in the market than those in neighboring states.  Under the controversial law, liquor distributors in Connecticut must give the same price to all retailers, regardless of volume. Likewise, retailers cannot go below a certain price. Governor Malloy’s legislative proposals weren’t the only effort in the works to overturn these laws. However, they are now likely the only hope for those seeking change.

Separate from the Governor’s pending bills, retailer Total Wine & More filed a Federal lawsuit claiming that federal laws prohibiting state laws that restrict interstate commerce should preempt the Connecticut regulations. The challenged provisions have been in place for more than 35 years, and were enacted under the guise of discouraging consumption of alcoholic beverages by Connecticut residents.  The Federal Judge concluded, however, that she was bound by precedent to uphold the regulations.

The Judge did, however, suggest that the legislative efforts underway may be the proper solution to the issue raised by Total Beverages & More.  In dismissing the lawsuit, the Judge opined in a footnote, “[t]he court notes that Total Wine’s Complaint includes several allegations that suggest the Connecticut liquor regime is unfair to consumers. Whether or not the statutory and regulatory scheme implemented by the State of Connecticut is wise is not a question for this court.”  She continued, “[r]ather, the court can only be asked to determine whether the challenged provisions are preempted by federal law. Arguments as to the harm inflicted on consumers by this scheme are more appropriately directed to Connecticut’s executive and legislative branches of government.”

Opponents of the push to do away with the minimum price laws say the law protects small businesses, who might otherwise be put out of business by large retailers who are able to undercut their prices. However those seeking to change the law, including Governor Malloy, argue that such concerned are outweighed by the harm done to Connecticut consumers who are forced to pay arbitrarily high prices. It remains to be seen if the Governor’s legislative efforts will change the Connecticut regulatory scheme.

Connecticut Governor Dannel Malloy is again asking the state’s legislators to put an end to a long-standing regulation that sets a minimum price at which retailers can offer wine and liquor for sale. The state’s law, enacted in 1981, currently prohibits sales below a minimum price determined by the wholesale cost, a figure set by wholesalers.

The Governor has argued that Connecticut is the only state in the county with such a law, and offered comparisons of the same alcoholic beverage for sale in his home state and in Massachusetts, showing Connecticut’s prices are markedly higher.  The governor also pointed to a report that a Massachusetts store chain used the price discrepancy in advertising to draw Connecticut residents to their locations across the border. Opponents of the legislation, such as the Wine and Spirit Wholesalers of Connecticut, a trade association, say that the differences in pricing are more the result of taxes and policies that allow large retailers to purchase in bulk at a discounted price.

The legislation, Senate Bill 789, is currently pending before the State’s legislators. A similar bill brought by Governor Malloy was defeated last year.  Connecticut legislators are also considering a bill to allow out-of-state retailers to ship directly to consumers in the state.  Currently, Connecticut residents are allowed to purchase wine directly from out-of-state wineries, but the bill’s proponents are hoping to expand that freedom to retailers as well. If this latter bill passes, the Governor’s proposal would seem more likely to see success this time around.

The owner of Day Wines in Dundee, Oregon has filed a lawsuit to attempt to shut down production of a Sonoma County Zinfandel marketed under a label that reads, “Day,” based on the claim that it creates confusion among customers.

In trademark law, a party can be barred from using a brand name that is identical or very similar to the name of other products of the same type.  In the USPTO’s system of categorization of products, all alcoholic beverages are lumped into one type.  So when Ehren Jordan Wine Cellars, LLC released a zinfandel labeled “Day,” it didn’t matter that Brianne Day and her company, Day Crush LLC do not produce a zinfandel, they are still considered similar products.

Jordan appears poised to fight Day, though, based on the fact that she does not have a registered trademark for the brand.  In fact, Day’s application was put on hold in December based on an existing registered mark (this one owned by a Paso Robles winery) for “Special Day Wines.”

The case brings an issue faced by many producers to the Court’s attention – a winery, brewery, or distillery applies for a COLA, gets their label approved and starts selling their product, only to get hit with a trademark infringement claim because another producer already uses a similar name for an alcoholic beverage product. New companies end up investing in design and production of labels, thinking the COLA means they are clear to use the name, not knowing that they could still face trademark challenges.  Moreover, the operators of distilleries are not likely thinking about the myriad beer and wine labels out there when trying to come up with a brand that will distinguish their product from, say, other whiskeys.  But the USPTO will not afford them protection for their spirits if someone has been granted protection for a similarly-named beer or wine.

The Day-Jordan case is set for a preliminary hearing on May 4, when perhaps we will see how the court views the disconnect between the COLA process and Trademark protection.

Most of us have seen the ads – claiming deep discounts on a product for a limited time.  One such wine reseller – Wines Til Sold Out – is facing claims in the U.S. District Court of New Jersey that it defrauded customers by offering wines for discounted prices that were not based on the wines’ true value.

WTSO was launched in 2006 and is owned by brothers Elliott and Joe Arking, according to their website.  Its deals are offered one at a time, beginning at midnight eastern time each day, and going until the particular offering is sold out. According to the Company, they vet their prices using online search tools, excluding auctions and pre-arrivals, to find the lowest price available online, and lump the cost of the wine and shipping into the final price offered to customers.

According to the Complaint, a WTSO offer, delivered to a customer’s email account or mobile device, will typically list the wine as well as an original price, the best price found through a recent web search noted above, and WTSO’s offer. The focus of the complaint, however, are certain offers that list an original price and an offer price, but for which the web price is just listed as “N/A.”  The complaint argues that further research of nearly 30 offers structured in this manner showed that the wines were only available from WTSO, and that many of the brands were produced solely for WTSO through private-label companies.  The plaintiffs claim that because the wines were not actually available anywhere else online, the reference to only an “original price” and WTSO’s offer are a deceptive inducement to entice consumers to buy the wine. The plaintiffs also allege that WTSO inflated prices for well-known brands  to make their discounted prices appear more appealing.

WTSO initially sought to have the complaint dismissed on a procedural argument, but a judge recently gave the plaintiffs time to amend the complaint by January 27 to address the alleged defects, and continue their case against WTSO.  Depending on how it is resolved, the case could have broader implications for online marketing strategies.

California’s Department of Alcoholic Beverage Control recently warned that it has received reports from licensees throughout the state of persons impersonating ABC representatives.

The impersonators are reportedly calling ABC license holders and claiming that the ABC has conducted an investigation and found the licensee to have violated the prohibition against the sale of alcohol to minors.  The ABC-issued statement explains that the ABC does not contact licensees via telephone regarding potential violations and instructing them to make payment of administrative penalties via electronic funds transfer.  Although the ABC does have the authority to assess administrative penalties for violations of the state’s alcoholic beverage laws and conditions placed on licenses, if the ABC has evidence of a violation, it will file an administrative complaint, called an accusation, in writing, and a copy will be delivered to the licensee. An accusation, if proven, will lead to the suspension or revocation of the license, unless the department accepts an offer in compromise (usually involving payment of a fine) in lieu of the suspension.

If you are contacted by telephone by anyone claiming to be an ABC enforcement agent, do not fall prey to this scam, and please contact your local ABC Office.

Jeffry Hill, a former vintner in Napa Valley, plead not guilty last week in Federal Court to eight charges of mail and wire fraud.

Mail fraud is any attempt to commit some type of fraud using the United States Postal Service or private commercial interstate mail carrier. Wire fraud, similarly, involves a scheme to defraud by using wire, radio, or other electronic means of communication in interstate commerce.  Hill was indicted for selling grapes and bulk wine as Napa Valley Cabernet Sauvignon, when in fact the grapes were not grown within the AVA (and sometimes weren’t even Cabernet grapes).  Hill is alleged to have created false records purporting to document the wine as Napa Valley cabernet, intercepted trucks hauling grapes to change paperwork and instructed employees who picked grapes to mislabel the origin and varietal they picked, according to the indictment.  Hill’s victims claim to have paid more than $1.5 Million for the mislabeled grapes and juice.  Hill’s attorney has stated in court documents that the the charges are attributable to miscommunication, confusion and misunderstanding.

An AVA name can only be used on a wine label if:

1. Not less than 75% of the volume of the wine is derived from grapes (or other agricultural commodity) grown in the labeled appellation of origin;

2. The wine is fully finished (except for cellar treatment and/or blending which does not alter the class and type of the wine) in the labeled appellation of origin; and,

3. The wine conforms to the laws and regulations of the labeled appellation of origin governing the composition, method of production and designation of wine produced in the labeled appellation area.

Thus a winery pays a premium for grapes or juice (an “other agricultural commodity”) originating in Napa Valley so that it can use the AVA on its labels, provided the wine is also finished in Napa Valley and conforms to the AVA standards. In a civil suit, the defrauded wineries could seek to recover damages, however, Hill’s company filed bankruptcy after the initial investigation resulted in the surrender of his licenses, and the mail & wire fraud charges could each carry up to a 20 year prison term.

On November 17, the TTB announced a new proposed rule that would open up the grape varieties allowed to be listed on American wine labels.  The new rule would also remove one existing entry and replace it with a slightly different name, and correct the spelling of another existing entry. The purpose of this amendment is to allow wine bottlers to use these additional approved grape variety names on wine labels and in wine advertisements.

Section 105(e) of the Federal Alcohol Administration Act (FAA Act), 27 U.S.C. 205(e), authorizes the Secretary of the Treasury to prescribe regulations for the labeling of wine, distilled spirits, and malt beverages. The FAA Act requires that these regulations, among other things, prohibit consumer deception and the use of misleading statements on labels, and ensure that labels provide the consumer with adequate information as to the identity and quality of the product.  Thus the TTB, under the FAA Act, has the authority to add or remove grape variety names from the list approved for use in wine labels to promote accuracy in labeling.

Any interested person can petition the TTB to add a new variety; in determining whether to include a new variety, the TTB looks at:

• That the new grape variety is accepted;

• That the name for identifying the grape variety is valid;

• That the variety is used or will be used in winemaking; and

• That the variety is grown and used in the United States. Section 4.93 further provides that documentation submitted with the petition may include:

• A reference to the publication of the name of the variety in a scientific or professional journal of horticulture or a published report by a professional, scientific, or winegrowers’ organization;

• A reference to a plant patent, if patented; and

• Information pertaining to the commercial potential of the variety, such as the acreage planted and its location or market studies.

The varieties proposed to be added are: Amigne, Arandell, Aromella, Arvine, Bianchetta Trevigiana,   Black Spanish, Bluebell, Bourboulenc, Brachetto, By George, Caladoc, Caprettone, Chisago, Coda di Volpe, Diana, Esprit Falanghina, Geneva Red, Godello, Gros Manseng, Humagne Rouge, Jacquez, Jupiter, King of the North, Lambrusca di Alessandria, Lenoir, Loureiro, Madeleine Sylvaner, Marquis, Marselan, Mustang, Petite Pearl, Phoenix Picardan, Pinot bianco (as a synonym for Pinot Blanc), Plymouth, Ribolla Gialla, Rieslaner, Riverbank, Rose of Peru (as a synonym for Mission), Saperavi, Schönburger, Sheridan, Southern Cross, Terret Noir, Tinta Amarela, Tinta Cao (as a synonym for Tinto caõ), Tinta Roriz (as a synonym for Tempranillo, Touriga Nacional, Vaccarèse, Valjohn, and Verdejo.  The name to be removed is Geneva Red 7 (being replaced with “Geneva Red”), and the correction is to the name “Madeleine Angevine,” currently misspelled as “Madeline Angevine.”

Public comments on the proposed rule can be submitted through January 17, 2017.

We may soon see NAFTA in the news for reasons other than politics… according to a representative of the California Wine Institute, U.S. trade representatives are preparing to file a formal complaint against a law passed in British Columbia in 2015, which allows grocery stores to sell wine.  The problem, they say, is the law only permits the sale of wines produced in British Columbia.

According to opponents of the law, NAFTA and the WTO Agreement require signatories to treat imported and domestic products equally, which they assert is clearly violated by the B.C. law.  NAFTA does permit monopolies and state enterprises subject to certain restrictions, including that a party must ensure that any designated monopoly, “does not use its monopoly position to engage, either directly or indirectly, including through its dealings with its parent, its subsidiary or other enterprise with common ownership, in anti-competitive practices in a non-monopolized market in its territory that adversely affect an investment of an investor of another Party, including through the discriminatory provision of the monopoly good or service, cross-subsidization or predatory conduct.”

If a complaint is filed, it may receive more attention than under previous administrations, which U.S. trade lobbies certainly hope to capitalize on.  We will update this post in the future if a formal complaint is filed.

Unlike other alcoholic beverages, a fairly limited list of ingredients and substances are allowed to be used in the production of wines sold in interstate commerce.  The authority to promulgate regulations pertaining to wine is found under 26 U.S.C. Chapter 51 of the Internal Revenue Code (IRC).  IRC Section 5382 provides that proper cellar treatment of natural wine constitutes those practices and procedures that produce a finished product acceptable in good commercial practice as prescribed by regulation. That Section also authorizes the promulgation of regulations setting forth limitations on the preparation and use of methods and materials for clarifying, stabilizing, preserving, fermenting, and correcting wine and juice.  The Alcohol and Tobacco Tax and Trade Bureau (TTB) is the agency given the authority to come up with those regulations.

27 C.F.R. 24.246 provides, “[m]aterials used in the process of filtering, clarifying, or purifying wine may remove cloudiness, precipitation, and undesirable odors and flavors, but the addition of any substance foreign to wine which changes the character of the wine, or the abstraction of ingredients which will change its character, to the extent inconsistent with good commercial practice, is not permitted on bonded wine premises.”  That section goes on to list materials that are approved as being consistent with good commercial practices for the production of wine, although the TTB also has the authority to administratively approve the use of treating materials and processes not listed in the regulations under certain circumstances, such as where a proprietor wishes to conduct an experiment (although all experiments must be kept separate from wine operations and thus, should not end up in the bottle you buy).

A full list of the materials administratively approved for use in the production, cellar treatment, or finishing of wine can be found here.

Recently filed court documents allege that the plaintiff, a former employee of Thomas Keller Restaurant Group, was “discriminated and retaliated against, terminated, falsely promised and then denied a job” after management at Napa Valley’s French Laundry learned of her pregnancy and maternity leave plans.  The Plaintiff in this case had worked for the restaurant group’s NYC location – Per Se – before being offered a position in California.  The Plaintiff asserts that she and her family relocated to California for her new position, only to have the offer rescinded after her pregnancy was disclosed. The Complaint includes claims for fraud and deceit, sex discrimination, violation of pregnancy disability leave law, negligent misrepresentation, misrepresentation in violation of labor code and other allegations, according to the court filing.

California’s Fair Employment and Housing Act (FEHA) prohibits harassment and discrimination in employment because of race, color, religion, sex, gender, gender identity, gender expression, sexual orientation, marital status, national origin, ancestry, mental and physical disability, medical condition, age, pregnancy, denial of medical and family care leave, or pregnancy disability leave (Government Code sections 12940,12945, 12945.2).  It also prohibits retaliation against an employee for protesting illegal discrimination related to one of these categories.  California law further requires an employer to allow an employee disabled by pregnancy, childbirth or related medical conditions to take a leave of absence and to maintain her health insurance during the leave.  The leave need not be taken all at once – a pregnant employee is entitled to take intermittent leave as needed, and an employer cannot take any adverse employment action based on the need for leave, intermittent or otherwise.  The employee should give 30 days’ notice of any leave request, when the need for leave is foreseeable, however if she does not know she will need to take leave 30 days in advance, notice just has to be provided as soon as practicable.  In addition to the requirement to allow pregnancy-related leave, an employer must allow reasonable accommodations as needed for a pregnant employee while they are working.  (Govt. Code §§ 12926, 12940.)

Whether or not the allegations against the French Laundry prove true, the case serves as a reminder to California employers that it is imperative to stay informed of the state’s laws designed to protect workers, and also to educate all personnel involved in hiring and termination decisions, and/or  supervision of employees, lest their conduct unknowingly create a claim for which the employer will be held responsible.