One of the unique aspects of the alcohol beverage industry is the clear and continual regulatory separation of different facets of the industry. For example, in the United States, laws known as tied house laws heavily regulate any form of vertical integration in the alcohol beverage industry. Generally speaking, tied house laws help to divide the basic three tier system—the interests of manufacturers, wholesalers, and retailers are separate and distinct. Essentially, the name “tied house” speaks for itself: houses of different tiers that are tied together by means of ownership (i.e., not separate nor distinct) are generally illegal in the United States. And while tied house laws have populated our federal and state laws as post-Prohibition anti-segregation measures, perhaps the more curious inner-industry regulations are those that separate ownership of one type of alcohol beverage producer from another.
A classic example recently came to news in a heartfelt battle against the law by two Arizona state sisters. The two siblings sought to establish a winery-brewery in Arizona, but were inevitably halted by a strict provision of the law: Title 4, Chapter of Arizona Revised Statutes prohibits a winery from brewing beer on the same property. (See Sisters Fighting Law to Open Arizona Winery-Brewery.) And while other states permit the operation of a winery-brewery, there seems to be no indication why the Arizona statutes explicitly forbid the dual operation. (See, e.g., Sneak Peek at Winery and Brewery in Downtown Jackson; Virginia’s First Winery-Brewery Expands this Fall.) Despite the faithful attempt of the sisters to question the Arizona law, the prohibition currently remains in tact.
The above story seems rather curious, as lawmakers—at some point in time—proactively sought to prohibit a winery and brewery from operating under one roof. But the question is why? And is this law destined to change? The answer to the latter is simply this: Perhaps. As has been a recurrent pattern in the wine world, change is often necessary—but how quickly changes in the law are executed remains unknown.
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The last week presented three very different stories in the context of wine the law, ranging from criminal law to constitutional law issues. The most pertinent are summarized below. On the wine law docket for the week of January 14, 2013:
- Chateaux Commence Legal Action Against St. Emilion Classification: This week, several chateaux filed a complaint against the classification of the eponymous St. Emilion classification, griping over the selection process. The three châteaux, Château Croque-Michotte, Château La Tour du Pin Figeac and Château Corbin-Michotte, joined together to dispute the recently published classification for Saint Emilion. Last September, the Institut National de l’Origine et de la Qualité (“INAO”) published a new classification for Saint Emilion, to the discontent of several chateaux. (See generally, Only Three Chateaux Dropped in new St Emilion Classification; St Emilion Classification: First Rumblings of Discontent.) The three chateaux claim there were errors in the selection procedures that decided classification status, such as at the tastings. The grievances will be heard before an administrative tribunal in Bordeaux, and Frank Bicard, director of the Conseil des Vins de Saint Emilion, relayed that the Conseil plans to defend the selection process. However, some feel the revision of a classification should provoke questioning as to the interest best served and as for what purposes such classification systems are upheld. Since the first article was published, Decanter posted an update that ascertains the owner of Château Croque-Michotte will seek compensation damages if a judgment is rendered in favor of the three châteaux.
- Massachusetts residents still cannot receive direct shipment of wine from out-of-state wineries: Three years ago, Judge Rya Zobel of the U.S. 1st Circuit Court of Appeals ruled a 2006 Massachusetts law unconstitutional and directed the Massachusetts legislature to correct the law. In its current form, the law bans direct shipments from wineries to consumers for wineries producing more than 30,000 gallons per year and who retain Massachusetts wholesalers. The type of exclusion currently allowed under Massachusetts law is the type of exclusion that was ruled unconstitutional by the 2005 Supreme Court case Granholm v. Heald. The original case, Family Winemakers of California v. Jenkins, was filed September 18, 2006, “stating that current Massachusetts law violated the nondiscrimination principle of the Commerce Clause, which prohibits ‘laws that burden out-of-state producers or shippers simply to give a competitive advantage to in-state businesses.’” (See Not Improving With Age: Three Years After Court Ruling, Legislative Inaction Stymies Wine Direct Shipping, quoting U.S. Supreme Court, Granholm v. Heald, May 2005.)
- Finally, in the news of criminal law and wine, a federal judge ruled that FBI agents acted properly when agents searched the home of an accused wine counterfeiter, Rudy Kurniawan, after his arrest last year. Kurniawan’s attorneys originally moved to exclude evidence from admission at trial. The attorneys argued that the search conducted by FBI agents was warrantless–and therefore violated Kurniawan’s Fourth Amendment rights. The government attorneys argued that, while the search may have been conducted without a warrant, there was enough probable cause given the situation to make the search reasonable. “The government lawyers noted that Kurniawan “on multiple occasions” had received shipments of empty bottles of very expensive wine which he had requested from a Manhattan restaurant and a New York collector and that last February he had tried to sell homemade counterfeit wine through a third party at a London auction.” (See Kurniawan Loses Bid to Exclude Counterfeiting Evidence.) Additionally, the government attorneys argued that the FBI agents feared destruction of the evidence by Kurniawan’s mother before the agents could obtain a search warrant from a magistrate. However, District Court Judge Berman disagreed with the arguments posed by Kurniawan’s attorneys. Siding with the arguments posed by the government attorneys, Judge Berman reasoned that, even if the search was conducted without a warrant, there was enough probable cause at the time the search was conducted to render the search reasonable.
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