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New Tariffs on French and German Wines In Effect

February 5th, 2021

Effective January 12, 2021, certain wines and other alcoholic beverages imported into the United States from France and Germany are subject to a 25% import duty.  In its ongoing trade feud with the European Union over aircraft manufacturing subsidies, the United States has been periodically adding tariffs to many food and alcoholic-beverage products imported from European Union member states.

On October 6, 2019, the Office of the U.S. Trade Representative (“USTR”) in a Federal Register notice initially added a 25% duty to a handful of wines, liqueurs and cordials imported from France, Germany, Ireland, Spain, and the United Kingdom.  Following a period of public comment, on January 6, 2021, the USTR in another Federal Register notice expanded the list of products subject to this duty.

The expanded products now subject to the 25% duty include the following alcoholic beverages from France and Germany:

  • Spirits obtained by distilling grape wine or grape marc (grape brandy), other than Pisco and Singani, in containers each holding not over 4 liters, valued over $38 per proof liter
  • Effervescent grape wine, in containers holding 2 liters or less
  • Tokay wine (not carbonated) not over 14% alcohol, in containers not over 2 liters
  • Marsala wine, over 14% ABV, in containers holding 2 liters or less
  • Grape wine, other than Marsala, not sparkling or effervescent, over 14% ABV, in containers holding 2 liters or less
  • Wine of fresh grapes, other than sparkling wine, in containers holding over 2 liters
  • Grape must, nesoi, in fermentation or with fermentation arrested otherwise than by addition of alcohol

During the first round of tariffs in October 2019, the New York State Liquor Authority (“SLA”) offered a reprieve to licensees required by statute to post their inventory prices.  Specifically, licensed importers and wholesalers were at risk of not being able to pass the cost of the unexpected tariffs onto their wholesale and retail buyers because of time limits imposed by the Alcoholic Beverage Control Law’s price-posting provisions.  Counsel’s office for the SLA permitted these licensees to add the actual cost of the tariffs to their price postings.  Thus, licensees forced to import and sell at higher costs could pass those costs onto their buyers.

It is yet to be known whether the SLA or other state alcoholic-beverage regulators will provide similar relief in this next round.






Double Trouble: Compliance While Trying to Rebuild Business Is the Dual Challenge

November 16th, 2020

On September 30th, New York City joined the rest of New York State. It, too, is allowed limited indoor dining. Yet, as of this writing, this gain is at risk of slipping away. The Governor and the Mayor have already imposed new dining restrictions reminiscent of Phase 3, applicable to certain areas of the City. In the face of this uncertainty, restaurant owners, their employees and patrons’ lives “are as shaky as a fiddler on the roof!”

New York State issued Indoor Food Services Guidelines pursuant to Executive Order 202.61. Although some of these Guidelines apply only to New York City, restaurants throughout the state would be wise to follow them.

Incidental Music

While most of the provisions set forth in the Guidelines are easy to understand, the issue of when and how music may be made available at restaurants has caused confusion. The Liquor Authority provided clarification in memoranda of law filed in two recent cases: Independent Venue Association v. Bradley, Case No. 20-cv- 6870 (United States District Court for the Southern District of New York New York) and Sportsmen’s Tavern LLC v. New York
State Liquor Authority, Case No. 809297/2020 (Erie County Supreme Court)
.

In both cases, the Authority distinguished from music in restaurants incidental to the eating experience, and music in concerts and other events in which the entertainment is the main patron draw. Because entertainment events draw large crowds that tend to arrive and leave at substantially the same time with people remaining for long periods of time, they have the potential to become “super spreader” events and are banned.

On the other hand, when music is not the primary draw but is incidental to the dining experience, it does not create a high risk of contagion and is permitted. The First Amendment only protects the advertisement of legal conduct, and the Authority warns restaurants not to advertise illegal events. Legal incidental music may be advertised.

Licensees must be careful. Only those restaurants whose method of operation already allows music may provide incidental music, and the Authority may act harshly against a licensee who attempts to use the incidental music policy as a loophole to turn a restaurant into an illegal concert hall.

Occupancy

The Guidelines require restaurants to practice social distancing. Until further notice, indoor capacity in New York City is limited to 25% of the maximum occupancy exclusive of employees. (For restaurants outside New York City the restriction is 50% of maximum occupancy.)

Because all of the guests at a wedding, social gathering or similar event know each other and can be expected to intermingle, indoor occupancy for social gatherings is further limited to the lesser of permissible percentage of maximum capacity or 50 people.

It is important to note these occupancy restrictions address indoor dining. There is no similar restriction on outdoor dining, except to the extent (i) the occupancy has been limited by a governmental agency, such as the fire department, (ii) that which is necessary to comply with social distancing, and (iii) the event and social gathering restrictions discussed above.

Additional Guidelines

The Guidelines have numerous other requirements that licensees in the City must follow. For example, restaurants may not seat or serve anyone at a bar. All patrons must be seated and served at tables. All service must cease at 12 AM (midnight) and may not resume until 5:00 AM.

Other requirements include required notices, violation reporting, employee and patron screening, social distancing, patron contact tracing, face coverings and air ventilation.

Both a complete outline and a relatively concise summary of the guidelines can be found at governor.ny.gov.






Border Battles Escalate

September 30th, 2020

Consumers have become increasingly comfortable with purchasing products over the Internet. At the same time, software allowing retailers to accept orders and process credit cards is now available to almost all retailers. Consequently, sale of wine and spirits over the Internet continues to flourish. There appears to be only one major obstacle: Section 2 of the Twenty-First Amendment to the Constitution of the United States. It provides, “The transportation or importation into any State, Territory, or possession of the United States for delivery or use therein of intoxicating liquors, in violation of the laws thereof, is hereby prohibited.”

Although following the 2005 Supreme Court case of Granholm v. Held most states have permitted limited direct shipment from wineries to consumers within their borders, only a few states permit out-of-state retail licensees to ship some form of alcoholic beverage to consumers within its borders.

According to the National Conference of State Legislatures, Florida, Hawaii, Kentucky, Nebraska, New Hampshire and Rhode Island—and the District of Columbia—authorize the direct shipment of all spirits; Delaware, Massachusetts, Montana, North Dakota, Ohio, Oregon, Vermont and Virginia allow direct shipment of beer and wine; Connecticut and New Jersey allow shipments of wine, cider and mead; New Mexico authorizes the shipment of wine and cider; and Oregon allows the shipment of beer, wine and cider.

Each state has its own rules as to what permit is required before one may ship into the state and the limits of how much of any beverage may be delivered. For instance: Arkansas requires a consumer to be present at the time of purchase unless shipping from a small farm winery licensee; Delaware requires shipments to go through a wholesaler and a Delaware retail license before being delivered to a consumer; Mississippi provides that a consumer may purchase at a winery and have the shipment sent to an in-state package retailer; Rhode Island requires that the consumer be present at the place of purchase; and Utah authorizes consumers to purchase wine through a wine subscription program, but the shipments must be delivered to a state store or package agency.

Some states have become proactive in an effort to stop what they consider illegal shipments from out-of-state retailers. Illinois, Massachusetts, and Louisiana began sending “cease-and-desist” letters to out-of-state retailers shipping into their borders. Dave Yost, Ohio’s Attorney General, brought an action in federal court seeking to enjoin a number of wine clubs and other out-of-state shippers from violating Ohio laws. Mississippi used its long-arm jurisdiction statute to bring an action in state court against a number of out-of-state shippers.

Many states have found it easier and more effective to pressure Federal Express and United Parcel Service to refuse shipping alcohol from retailers who do not have an appropriate license into their states.

The stakes are high, and some retailers are fighting back. Retailers in Missouri and Michigan brought actions in federal courts claiming that state laws that permit shipment by in-state retailers to consumers but forbid out-of-state retailers from doing the same violate the Dormant Commerce Clause of the United States Constitution. The Commerce Clause reserves to Congress the power “to regulate commerce with foreign nations, and among the several states, and with the Indian Tribes.” The Supreme Court has ruled that by reserving the right to regulate commerce among the states to Congress, the Constitution also generally forbids states from interfering with that commerce in a way that grants an advantage to citizens of its state. This prohibition is often called the “Dormant Commerce Clause” because it is unspoken.

Thus far, courts have rejected the retailers’ arguments, finding in favor of the states. The courts generally agree with the states, who argue that the three-tier system is legitimate and that direct shipment by out-of-state retailers would allow the retailer-shipper to bypass an in-state wholesalers and circumvent the states’ core Twenty-First-Amendment powers.

However, the Supreme Court of the United States may soon intervene in this battle. On September 29, it will consider whether to hear an appeal from an Indiana retailer who lost its case involving out-of-state shipping into the State of Michigan. If the Supreme Court agrees with the retailer, the entire system under which alcohol is distributed will come under even more scrutiny.






FDA Warns Companies for Unlawfully Marketing Hangover Cures and Treatments

August 1st, 2020

Earlier this week, the U.S. Food & Drug Administration (“FDA”) announced that it issued warning letters to seven companies for illegally selling products marketed as dietary supplements claiming to cure, treat, mitigate, or prevent hangovers.

A product that claims its intended use is to cure, mitigate, treat, or prevent a disease is regarded as a drug under the Food, Drug & Cosmetic Act (“FD&C Act”).  Drugs, unlike dietary supplements and foods, are subject to pre-approval clinical trials and proof that they are safe and effective for each of their intended uses.  Thus, products that FDA interprets as unapproved drugs are considered unsafe for human consumption and may not be lawfully marketed and sold.

FDA routinely looks to see whether product claims comply with the FD&C Act.  One of the most common violations that food and dietary supplement statements result in is the marketing of an unapproved drug.

According to FDA, a statement claims to cure, mitigate, treat, or prevent a disease if it claims, explicitly or implicitly, that the product has an effect on the characteristic signs or symptoms of a specific disease or class of diseases.  For FDA, a hangover is a sign or symptom of alcohol intoxication, which the agency considers a disease.

FDA inspected the websites of these seven companies and viewed various statements about the products.  Notably, FDA also inspected Amazon sale pages and cited those as carrying unlawful drug claims.

Some of the statements resulting in these warning letters include:

  • “HELPS AVOID HANGOVERS”
  • “KILL YOUR HANGOVER BEFORE IT EVEN STARTS”
  • “PUT YOUR HANGOVER TO BED”
  • “ULTIMATE HANGOVER RELIEF”
  • “YOU’LL WAKE UP FEELING . . . HANGOVER-FREE!”
  • “SPECIFICALLY DESIGNED TO REDUCE ALCOHOL’S NEGATIVE EFFECTS ON THE BODY”
  • “PROTECT YOUR LIVER AND BRAIN – RESEARCH SHOWS DYCETIN REDUCES ALCOHOL INDUCED DAMAGE TO THE LIVER AND BRAIN”

FDA also cited product reviews and published research as support for its conclusions that the products were unapproved drugs.

While some of the companies cited for these violations published many statements, others published only a few.  Even one unlawful product statement claiming to mitigate, cure, prevent, or treat a disease can result in the recall of that product and enforcement action against the product’s marketer or manufacturer.

by Brian Fink






The Future of Alcoholic Beverage Law in the Hands of the Courts

December 14th, 2019


Article 1, Section 8, Clause 3 of the U.S. Constitution is known as the “Commerce Clause.” It gives Congress the power “to regulate commerce with foreign nations, and among the several states, and with the Indian tribes.”  The U.S. Supreme Court expanded the Commerce Clause in a series of cases that held that because the Constitution gives the right to regulate interstate commerce to Congress, states cannot pass laws discriminating against citizens of other states.  Because there is not language in the Constitution that outlines this concept, the Court referred to it as the “Negative Commerce Clause” or the “Dormant Clause.”


Prohibition became law with the introduction of the 18th Amendment to the Constitution.  It was repealed when the Constitution was amended again with the addition of the 21st Amendment, which provides in part, “The transportation or importation into any State, Territory, or possession of the United States for delivery or use therein of intoxicating liquors, in violation of the laws thereof, is hereby prohibited.”


In early cases, the Supreme Court gave great deference to the 21st Amendment; but over time, the pendulum began to swing in the other direction and the Court began to inflate the Dormant Commerce Clause at the expense of the 21st Amendment.


In two recent cases, the Supreme Court has come close to completely eviscerating the 21st Amendment to the Constitution.  In Granholm v Held 544 U.S. 460 the Court ruled that states permitting in state wineries to deliver to in state consumers but forbade out of state wineries from doing the same, were discriminatory and violated the Dormant Commerce Clause.  In Tennessee Wine and Spirits Retailers Association V. Thomas 139 S. Ct. 2449 the Court overturned a residency requirement imposed by the state of Tennessee as a condition of issuing a license.


Although these cases recognize the State’s power to protect the health and safety of its citizens and to collect taxes, they call into question what laws, rules and regulations the states may impose in pursuit of these goals.


In Granholm, Justice Kennedy wrote:


The States provide little evidence for their claim that purchasing wine over the Internet by minors is a problem. The 26 States now permitting direct shipments report no such problem, and the States can minimize any risk with less restrictive steps, such as requiring an adult signature on delivery. The States’ tax evasion justification is also insufficient. Increased direct shipment, whether in or out of state, brings the potential for tax evasion. However, this argument is a diversion with regard to Michigan, which does not rely on in-state wholesalers to collect taxes on out-of-state wines. New York’s tax collection objectives can be achieved without discriminating against interstate commerce, e.g., by requiring a permit as a condition of direct shipping, which is what it does for in-state wineries. Both States also benefit from federal laws that supply incentives for wineries to comply with state regulations. Other rationales—facilitating orderly market conditions, protecting public health and safety, and ensuring regulatory accountability—can also be achieved through the alternative of an evenhanded licensing requirement regulatory accountability.


The question, which is expressed by Justice Gorsuch in his dissenting opinion in the Tennessee Case, remains:


What are lower courts supposed to make of this?  How much public health and safety benefit must there be to overcome this Court’s worries about protectionism “predominat[ing]”? Does reducing competition in the liquor market, raising prices, and thus reducing demand still count as a public health benefit, as many States have long supposed? And if residency requirements are problematic, what about simple physical presence laws?  After all, can’t States “thoroughly investigate applicants” for liquor licenses without requiring them to have a brick-and-mortar store in the State? Ante, at 34. The Court offers lower courts no more guidance than to proclaim delphically that “each variation must be judged based on its own features.”


We may soon find part of the answer.  In Michigan, a federal district court issued an injunction, which it stayed pending appeal that would require the state to issue licenses to out of state retailers allowing them to ship to consumers in the state. In Illinois, a federal court has allowed a similar case to proceed to discovery. If these and similar cases are successful, wholesalers and retailers will be able to obtain license to ship into states without meeting requirements to establish a local presence.  Finally, Total Wine has asked the U.S. Supreme Court to review a Second Circuit opinion on Connecticut’s price posting law.  If accepted by the Supreme Court, states with price posting laws, like New York and Connecticut will be impacted.








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