Insights
Firm News

How Wine Business Law Is Shifting Amid Coronavirus Pandemic Allowances for Virtual Tastings, Direct Sales

July 23, 2020 Media Coverage
North Bay Business Journal

Katherine Philippakis, chair of Farella's Wine Industry Group, was featured among wine law experts commenting on trends in wine business law from direct-to-consumer shipping to regulation of winery events amid COVID-19 shutdowns, the current wave of legal disputes, and key measures wineries should take now.

Read the full article, here.  Read Kay's responses below.

In the June 2019 Supreme Court ruling - Tennessee Wine and Spirits Retailers Association v. Russell F. Thomas -  striking down Tennessee's durational residency requirement for alcohol retailers, has changed the landscape of shipping wines across stateliness, describe how.  If not, what barriers remain (and in how many states) regarding shipping California wine across state lines?

The principal outcome of the Tennessee wine case was to uphold the Commerce  Clause and say it applies to retailers as well as wineries.  There, the Court said Total Wine was entitled to a Commerce Clause defense; in other words, that retailers could object to discriminatory regulations that affected interstate commerce just as wineries are able to so object.  Thus, if a state allows an in-state retailer to ship direct to consumers, then it must allow out-of-state retailers also to ship direct.  The case could then have a significant impact in liberalizing direct shipping of wine.  But I would expect states to continue to put up legal barriers to this, so it will not be a straight and easy path. 

Regulation of winery events had been a hot topic in Napa and Sonoma counties until the Covid-19 inspired shutdowns. How will the economic losses suffered by wineries influence regulations, and when do you see this issue becoming front and center again?

Pre-COVID-19, the regulatory focus in Napa and Sonoma had been on what level of marketing was appropriate for wineries: because both counties view wineries as agricultural uses (rather than commercial or industrial), any marketing activities were viewed through the lens of an ‘accessory agricultural use,’ rather than as a purely commercial activity.  This approach obviously resulted in limitations on the scope of marketing and hospitality.  Now, the regulatory focus has been on helping wineries to survive: how to create a safety protocol that will allow a sustainable level of marketing and hospitality activities without endangering employees, visitors, or the public generally.  It remains to be seen whether the limited openings that have been allowed will be either economically sufficient for wineries or safe.  Wineries are taking their safety obligations very seriously, but visitors can be difficult to control.  And it is unclear whether the limited tastings will be enough for wineries that largely rely on the visitor experience to generate sales.  When we are in a position to resume hospitality activities, I believe the counties will be more liberal in their approaches to hospitality and continue some of the practices that have been put in place due to COVID-19: extended opening hours, tasting activities at various locations on a winery property (including outdoors), a greater diversity of retail experience, and a greater variety of tasting experiences.  Generally, tougher economic times result in a loosening of the regulatory environment, and I would expect that to be the case in the current situation also.

What are you seeing or anticipating will be the legal fallout triggered by the shutdown and economic downturn?  For example, will this event (or has it already) trigger more legal disputes between wineries and suppliers or other groups?  If not that, what are issues you see will be contentious going forward?

We have already seen an uptick in legal problems associated with grape contracts, as wineries are rethinking what level of production is appropriate for the uncertain climate of 2020.  Similarly, wineries with offsite tasting rooms are generally unable to use them at the moment and for the foreseeable future, and so I would expect some wineries to reconsider whether they want to maintain these offsite premises.  Since most of these offsite tasting rooms are leased, rather than owned, I would expect to see negotiations over lease termination, similar to what retailers in other industries have experienced.  Finally, some wineries that had plans in the works to expand their administrative and office space onsite are reconsidering that; many wineries have discovered that they can function perfectly well with administrative personnel working from home.  So, I would expect that future wineries will  have less office space and instead use that square footage for a variety of tasting spaces to host smaller groups.

Describe any recent significant changes coming from the ABC, especially in regards to virtual tastings.  Are these regulations that will cause permanent shifts, or just temporary during the shutdown?

We have not seen any objections coming from the ABC relating to virtual tastings.  They have acknowledged wineries’ rights to host outdoor wine tastings without the service of food, which has been a necessity during the COVID-19 crisis as otherwise the limited reopening of wineries would not have been possible.  I would expect this to be a permanent change, as I do not think it likely that any regulatory agency will be mandating indoor tastings in the near future, nor requiring food service.

This pandemic and resulting shutdown is hardly something any client could have adequately prepared for legally.  What are one or two smart things you saw some clients have in place which softened the blow from this event?

The wineries that have done the best during this time had robust communications with their customers and well developed mailing lists.  These wineries with one-on-one customer relationships were able to continue  to sell wine.  Although internet marketing has continued to be important, the personal touch of direct communications by phone has been a lifesaver for many wineries.  Similarly,  virtual tastings have provided another  form of personal connection with customers that has been invaluable to many wineries.  Just as people have Zoom cocktail hour with their friends, they can also have a Zoom tasting with a winery, and generally wineries have found these to be very successful.

And on the flip side, for the next time, what are key measures or actions you’d advise clients to take?

I think all wineries should have well developed safety protocols to protect consumers and employees.  Although there has been a focus on having customers sign liability waivers in order to participate in tastings, those waivers will only be valid if the wineries are carefully following their protocols.  The most important thing wineries can do to insulate themselves from liability is to create (and document) a clear set of safety measures and then ensure that employees are adhering to them.  A good dose of common sense can be more important than a legal document.  The other important thing that wineries can do is to keep their customer lists up to date, and put time and energy into those relationships and communications.  Having loyal customers is the best protection against economic uncertainty.

Firm Highlights

Publication

Insurance Market Crushes Wineries and Wine Country Homeowners

We keep hearing about how difficult it is for winery and vineyard owners to get property insurance these days, both for their homes and their wine businesses in California’s wildfire-prone areas. Those who have...

Read More
News

Farella Represents Château Montrose Owners in Acquisition of Virginia’s RdV Vineyards

Northern California legal powerhouse Farella Braun + Martel represented the Bouygues family’s winery enterprise, SCDM Domaines, in its purchase of RdV Vineyards in Virginia. SCDM Domaines owns a number of winery holdings in France, including...

Read More
Publication

Reporting Dispute Claims Within Closely Held Wineries

Many wineries operate as closely held companies, meaning they’re owned by an individual or small group of shareholders, who are often members of the same family. Disputes regarding ownership interests can arise, particularly when directors...

Read More
Publication

A Summary of New Laws Coming for California Employers in 2024

In 2023, California has adopted several new employment laws either introducing new employee protections or codifying existing practices into state law. With these changes, employers will need to examine and adjust some of their...

Read More
Publication

Regulatory Changes Underway To Address Dwindling California Property Insurance Market

We keep hearing about how difficult it is for our clients to get property insurance these days, both for homes and businesses in Northern California’s wildfire-prone areas. Which, of course, is most of Northern...

Read More
Publication

A Simpler Approach To Expanding Banking Access

While the cannabis community anxiously awaits what feels like Congress’ hundredth attempt to pass the SAFE Banking Act, there is one simple step that can be taken today to improve access to banking services...

Read More
Publication

Ensuring Your Website Complies With the ADA

In today’s digital age, having an online presence is crucial for businesses, including wineries, breweries, and other beverage companies. Accordingly, it’s essential to ensure that your beverage website meets federal standards for accessibility to avoid...

Read More
Publication

Life Is Too Short for Bad Wine Distribution Agreements: 10 Key Considerations

If you are like most wine brands, DTC through your tasting room, club, and website can only take you so far. Success usually means accessing the general on- and off-premise markets, and accessing those...

Read More
Publication

Steps for the Long-term Success of Your Brand & Business

Family wineries face certain common issues when it comes to succession planning, and there are steps you can take to help ensure the longevity and success of your brand and business. Step 1 &ndash...

Read More
Publication

Charitable Planning With Guest Stephanie Hood: Navigating Complex Rules and Traps for the Unwary

Welcome to  EO Radio Show - Your Nonprofit Legal Resource . This week, I am delighted to have Stephanie Hood return as my guest. Stephanie is my colleague at Farella Braun + Martel and...

Read More