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HINMAN & CARMICHAEL LLP
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LEGAL SERVICES Licensing and QualificationContemporary corporate, limited liability company, and partnership arrangements are constructed to achieve tax advantages, liability protection, and other business goals. The interface between these structures and state and federal alcoholic beverage licensing regulations can lead to unexpected problems. We advise our clients' regular corporate counsel and advisors about company structures, and changes to those structures in connection with alcoholic beverage licensing. We assist startups with forming appropriate legal entities, and we advise about restructuring existing licensees. We have:
Client Business PracticesAlcoholic beverage licensees must deal with various, and often inconsistent, regulations by from TTB and state agencies. Because of our experience dealing with these legal issues, we can help you implement and execute legally-compliant projects. We have:
Marketing and DistributionOur experience includes advising clients participating in traditional and new marketing and distribution. We advise about importation, wholesale and retail marketing, and other distribution channels, such as direct marketing programs. We can negotiate your distribution agreements or provide you with standard terms and conditions of sale. Our form agreements take into account the laws and policies of the control states, including franchise protection statutes. We counsel foreign clients on international importing, as well as domestic distribution, financing, and trademark protection. Our chain store and supplier representation has given us extensive experience in developing retail marketing and social media programs that comply with federal and state regulations. We have:
License and Asset Transactions Involving Financially Distressed LicenseesOur firm regularly works with creditors' counsel and bankruptcy lawyers regarding license transfers. Although an alcoholic beverage license is clearly an asset, it cannot be seized or operated by creditors through foreclosure or bankruptcy proceedings without participation by the ABC. Similarly, creditors cannot count on obtaining security interests in alcoholic beverage licenses or inventories unless attention is given to complying with alcoholic beverage regulations and provisions of the Uniform Commercial Code that apply to alcohol. We advise clients about protecting their interests before entering into agreements with producers, hotels, or restaurants. We have:
Protests, Accusations, and Administrative ProceedingsOur litigation services are limited to hearings and appeals of license protests, trade practice violations, and disciplinary accusation proceedings commenced by TTB, ABC and other agencies (including police departments and local planning commissions) with jurisdiction over industry members. When a client's license application is protested, we aggressively pursue mediation and other alternative dispute resolution strategies to resolve the protest before hearing. Often this enables our clients to operate with fewer conditions and helps build positive relations with neighbors, local police, and government agencies. Our accusation defense practice is sophisticated and diverse. We have been representing clients before TTB, ABC, the ABC Appeals Board, the District Court of Appeal, and the California Supreme Court for over 20 years. We have:
Agreements for Acquisitions and OperationsWe can (and do) draft winery, vineyard, hotel, and restaurant purchase and management agreements. However, more often, we are special counsel, drafting only the documents that pertain specifically to the licensed alcoholic beverage operations. These agreements can be useful for winery proprietors who wish to reduce operating costs by sharing their winery premises with other bonded wineries in alternating proprietor arrangements. We also create agreements that allow wineries to use "estate" designations on farmed and purchased grapes. Our special counsel work is particularly useful for hotel owners who prefer that their professional management companies become licensed and operate under the alcoholic beverage licenses used at the hotel. We have:
OUR FIRM We specialize in the laws relating to the production, distribution, and sale of alcoholic beverages. We can address your needs in qualification, licensing, business and marketing practices, and represent you before federal and state agencies that regulate alcoholic beverages. Our beverage industry experience has led other counsel to ask us to assist in civil, administrative, and criminal proceedings that may affect alcoholic beverage license privileges. We are well-versed in the statutes, rules, and policies that apply to alcoholic beverage business operations in all fifty states. We keep our clients up to date with significant legal developments affecting the alcoholic beverage industry. In California, we work with legislators and industry members to improve the state's alcoholic beverage laws. Our firm provides pro bono legal services to many organizations that further industry initiatives including: the Specialty Wine Retailers Association (General Counsel and Board Member), the Coalition for Free Trade (Founding General Counsel), and the California Music and Culture Association (Founding General Counsel and Board Member). Our firm is also an Associate Member of the Wine Institute, Wine America, Family Winemakers of California, the Sonoma County Vintners Association, and other trade organizations. Our clients have saved money, reduced paperwork, lessened aggravation, and expedited projects involving alcoholic beverage licensing and contracts. Whether you are an experienced or new industry member, we encourage you to engage in comprehensive legal planning before embarking on new alcoholic beverage programs or ventures.
News Archive
The History of Amazon and Wine: What Has Changed?
24 October, 2012
Amazon is back in the wine business. During its first foray, in the Wild West dot com days of the late 1990’s when Amazon invested in WineShopper.com, the idea of Internet technology being used to sell and direct ship wine to consumers terrified alcohol regulators (and wholesalers) and ran into a wall of resistance. The dot com bust then finished off the WineShopper program. Shelving the plans for almost a decade, Amazon’s second foray into the wine marketing and direct shipping business was in 2009 with New Vine Logistics, one of the pioneers of warehousing, compliance and logistics services for wineries. That attempt failed because the CA ABC, having gotten wind of Amazon’s plans, released an Advisory in 2009 that gutted the crucial components of Amazon’s proposed program, including service fees “based upon a percentage of the sale of alcoholic beverages.” That bankrupted New Vine Logistics and set back the program until a new ABC Trade Advisory addressing Third Party Marketing was released on November 1, 2011. By this time the marketing channel had gotten so important to the industry that the ABC was forced to address it head on. Amazon had, by 2012, gotten smarter and learned how to navigate the regulatory minefields, so they are coming at it now with a very different approach – the Amazon Marketplace model. The winery will have an Amazon storefront and the winery will be totally responsible for shipping and compliance – not Amazon. What it means is that (a) the consumer knows they are purchasing the products from the winery; (b) the winery makes the decisions regarding selection and pricing of products; (c) the winery accepts and fulfills the orders from the winery or another authorized shipping point and (d) although Amazon can collect the consumer funds (including credit card information and payment authorization), it must pass the full amount onto the winery and cannot retain any fee for itself out of those funds. Rather, Amazon bills the winery. Amazon’s Wine Marketplace fee structure thus appears to have been tailored to strictly comply with the 2011 Advisory. Based on press reports Amazon will be charging wineries $39.99 per month to enroll in the program, a “cooperative fee” of $49 for each $350 sold (which will kick in next year), plus a 15% commission on each sale. The 2011 ABC Advisory simply says that Amazon’s service fee must be “reasonable” and commissions based on sales price appear to be permitted as long as they are reasonable. From what we have seen, this works. Sara Mann, Hinman & Carmichael LLP. Sara, who has been in the alcoholic beverage industry since 1998 and joined Hinman & Carmichael LLP for the second time in 2011, was Corporate Counsel of both WineShopper.com and New Vine Logistics from the beginning to end of each company. WOULD YOU LIKE ME TO AUTOGRAPH YOUR BOTTLE?
10 July, 2012
SUPPLIER PROMOTIONAL APPEARANCES AT CALIFORNIA RETAIL STORES Promotional appearances by celebrity and non-celebrity brand owners and winemakers in California retail establishments (on and off premises) have been a sore subject in California for many years, with the ABC insisting that supplier promotional appearances are “things of value” and that autographing bottles and other items constitutes a “premium, gift or free goods” in violation of Business & Professions Code § 25600. The ABC has sent out warning letters and filed accusations seeking license suspension or revocation against both suppliers and retailers, and distilled spirits suppliers have proposed legislation to permit limited rights to autograph products. However one major California retailer who was accused by the ABC of participating in an unlawful promotional appearance involving autographs decided to fight back. After an extensive hearing on June 14, 2012 the ABC (less than a week later) dismissed the accusation seeking suspension of the retailers’ license for hosting a bottle-signing event. The retailer, which defended the case by relying on its First Amendment commercial free speech right to host promotional appearances, clearly demonstrated that its constitutional rights had been violated. The law is clear. Both the supplier’s appearance to communicate with customers and his or her signature on the product constitute commercial speech, which the Supreme Court defined as “expression related solely to the economic interests of the speaker and its audience.” Central Hudson Gas & Electric Corp. v. Public Service Commission of New York, 447 U.S. 557, 561 (1980). Commercial speech includes a supplier’s ability to “propose a commercial transaction and the . . . listener’s opportunity to obtain information about products.” Lorillard Tobacco Co. v. Reilly, 533 U.S. 525, 565 (2001). In fact, in-person interactions with the public are considered especially deserving of protection under the First Amendment, as they make possible “direct and spontaneous communication between buyer and seller.” Edenfield v. Fane, 507 U.S. 761, 766 (1993). A supplier’s signature on a bottle or other item is also commercial speech. As the Second Circuit explained, bottle elements such as a logo or slogan may function like a trademark in serving to identify the source of the product, and this information alone proposes a commercial transaction and thus “suffices to invoke the protections for commercial speech.” Bad Frog Brewery, Inc. v. New York State Liquor Authority, 134 F.3d 87, 96-97 (2d Cir. 1998). As the Supreme Court stated in Central Hudson, commercial speech is entitled to First Amendment protection unless the government can identify a substantial interest that is directly advanced by its speech restriction, and show that this restriction is not more extensive than necessary to serve that government interest. Central Hudson at 566. The government bears the burden of justifying its restriction, and that burden is not satisfied by “mere speculation or conjecture.” Instead, the government must demonstrate that the “harms it recites are real and that its restriction will in fact alleviate them to a material degree.” Edenfield at 770-771. Within this context, the First Amendment trumps any Twenty-first Amendment power to regulate alcoholic beverages that the government might try to claim. 44 Liquormart, Inc. v. State of Rhode Island, 517 U.S. 484 (1996). The Twenty-first Amendment, the Supreme Court explains, “does not license the States to ignore their obligations under other provisions of the Constitution” and does not “qualify the constitutional prohibition against laws abridging the freedom of speech embodied in the First Amendment.” Id. at 516. In the case that was tried on June 14, the ABC did not in fact provide any meaningful justification for the restrictions on promotional appearances and autograph sessions that it attempted to impose through its interpretation of the “thing of value” and “premium, gift or free goods” statutes. That was because there was no justification for the interpretive restrictions advanced by the ABC other than the “whatever is not expressly permitted is prohibited” theory, a position that is at odds with the constitutional rights of licensees to promote their products. The testimony presented in the case showed that promotional appearances and product endorsements via autographing bottles and other items are one of the most effective methods of communicating with customers available to the industry. Promotional events involving appearances and autographs freely occur throughout the US with no interference by the alcoholic beverage authorities. The proper question to ask is whether the promotion at issue was managed responsibly, not whether the right to promote exists at all. Promotional appearances, as well as autographing bottles and other items, are protected First Amendment activity, and responsible promotions require careful structuring. For example, the decision on what is or is not signed should be at the discretion of the supplier; a purchase should not be required for a customer to meet the supplier and obtain an autograph; there should be no extra charge assessed to the customer for access to the event; nothing should be given away at the event that is not otherwise authorized by the regulations; any services necessary in relation to the promotion itself at the retail premises (such as crowd control) should be the responsibility of the retailer; and, if the promotion is on-premise, basic tenets of temperate behavior should be observed, such as responsible consumption, no drinking games and the like. This blog is dedicated to occasional (and hopefully interesting) reports of state and national alcoholic beverage regulatory developments that we encounter in our practice. Booze Rules (and any comments below) are intended for informational use only and are not to be construed as legal advice. If you need legal advice please consult with your counsel. Washington State: Down the Rabbit Hole of the Tied-House Laws
04 June, 2012
Washington State: Down the Rabbit Hole of the Tied-House Lawsby John Hinman 05.17.12Washington, as most people now know, is making the switch from being a solely state-run spirits distribution and retail system to having a fully privatized system. Initiative I-1183, which WA voters approved in November 2011 and which becomes effective in June 2012, created a new category of WA off-sale retail licenses (grocery stores, liquor stores) that will be available to private enterprise. The state is also closing all state-run liquor stores. In addition to retail off-sale privileges, this new license gives privately owned stores the right to sell wine and spirits to on-premises licensees (restaurants, bars) in WA. Unfortunately, this resale privilege triggers the tied-house laws in other states (including CA) for any WA off-premises retailers who are licensed in more than one state because the new law requires that retailers selling spirits to other retailers for resale must also hold a federal basic wholesaler’s permit. We are always concerned with the CA tied-house laws, but this tied-house problem applies with equal force in all states with a tied-house law that forbids a retailer in that state from having any interest in a business at the production or wholesale level, regardless of what state or country that production or wholesale business might be in. In CA, the issuance of a federal basic permit anywhere in the US (or Canada or Mexico) to an entity holding a CA retail license requires the CA retail-licensed entity to report the issuance of the permit on a “tied-house certificate” to the CA ABC. The certificate affirms that the retailer has no interest in a wholesale license except as disclosed on the form. Variations of this disclosure requirement are found in all states. The CA ABC Act defines a wholesaler as “every person” doing any wholesale business anywhere in the US, or in Canada or Mexico. See CA Bus. & Prof. Code § 23021. The issuance of a federal basic wholesaler’s permit in WA to a retailer with retail permits in multiple states thus jeopardizes the retailer’s licenses in those other states. Industry lawyers in WA and in CA have proposed remedying this problem by allowing a retail spirits licensee in WA to opt out of selling spirits for resale. The WA Liquor Control Board agreed that the federal basic permit requirement should be waivable if the retailer involved elects not to sell spirits to other retailers for resale. The LCB proposed a rule change to accomplish this result (new Rule 314-02-106) by building an intent requirement into the proposed regulations: (2) A spirits retailer licensee that intendsto sell to another retailer must possess a basic permit under the Federal Alcohol Administration Act. This permit must provide for purchasing distilled spirits for resale at wholesale. A copy of the federal basic permit must be submitted to the board. A federal basic permit is required for each location from which the spirits retailer licensee plans to sell to another retailer. The proposed new regulations are currently out for public comment, and testimony will be taken in WA on May 24, 2012. The new regulations are expected to pass and to be in place when the transition to a license system is complete in early June. This is good for those multi-state retailers who opt out. However not all multi-state retailers are making that election and, for those that do not elect to opt out (and who obtain a federal basic permit in WA), there is another potential answer: use the Commerce Clause principle articulated by the Supreme Court in Healy v. Beer Institute, Inc., 491 U.S. 324 (1989). Healy prohibited a state from requiring its licensees to affirm that prices in its state are no higher than prices in surrounding states. The thrust of Healy is that the Commerce Clause prohibits one state from enforcing laws that control activity taking place solely within another state. We believe that CA and other affected states will have a difficult time enforcing their tied-house law restrictions based solely on out-of-state activity but the question now is: will they try? To be continued…
Contemporary corporate, limited liability company, and partnership arrangements are constructed to achieve tax advantages, liability protection, and other business goals. The interface between these structures and state and federal alcoholic beverage licensing regulations can lead to unexpected problems. We advise our clients' regular corporate counsel and advisors about company structures, and changes to those structures in connection with alcoholic beverage licensing. We assist startups with forming appropriate legal entities, and we advise about restructuring existing licensees. We have:
Alcoholic beverage licensees must deal with various, and often inconsistent, regulations by from TTB and state agencies. Because of our experience dealing with these legal issues, we can help you implement and execute legally-compliant projects. We have:
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