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Wine Law

C&N at PRWCA event

Had a great time with our friends out at the Paso Robles Wine Country Alliance luncheon. The Alliance has made vast strides in promoting Paso Robles wine country; last year they focused efforts in Texas and next year they are focusing on Florida. Encompassing 614,000 acres, Paso Robles American Viticultural Area (AVA) is recognized and respected as one of the great wine regions of the world, and continues to affect all aspects of our community. For some wine country fun, look out for their upcoming events linked here

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COLAs and the Tax Trade Bureau

While most folks think of brown fizzy drinks when they hear the word “cola”, those in the wine industry think immediately of the Alcohol and Tobacco Tax Trade Bureau (“TTB”). A Certificate of Label Approval, or “COLA” as it is known in the industry, is required by TTB for any wine prior to the wine being released into the stream of commerce.

    The label on a bottle of wine is used by a winery to attract potential buyers, and is used by them as a tool in determining whether to buy that wine. Because wine labels are such an important piece of the wine buying and selling experience, they are very closely regulated by TTB.

    Wine labels must be pre-approved by TTB. This occurs through a process that involves submitting a proposed wine label to TTB, followed by TTB’s detailed review of the proposed label, and ending either with the issuance of a COLA or the return of the proposed label with the basis or bases of TTB’s rejection. TTB realizes that consumers rely heavily on wine labels, and takes very seriously the job of ensuring the public is protected from claims or descriptions on wine labels that mislead the wine-buying public into purchasing a product that does not comport with its label.

    Some information must be included on a wine label, while other information may be included at the winery’s discretion. There are also requirements as to location of certain information on the label. For example, the brand label must include the brand name, the class and type of wine, the alcohol content and possibly the Appellation of Origin. Other required information, which can be anywhere on the bottle (i.e., on the neck, side or back) includes the bottler, the location of the bottler, Health Warning Statement, sulfite declaration and net contents. All bottles must have a brand name and must identify the wine’s class, type or designation. There are nine classes of wine (created by TTB), including grape wine and aperitif. Wine types are those such as red table wine or dessert wine. A designation can be a varietal (e.g., Cabernet) or fanciful (proprietary).

    All wines must have a brand name. There are few restrictions on brand names for wines, though again, TTB looks closely for misleading descriptions. If a brand name is descriptive of the wine itself, it must be accurate – i.e., if the brand name is “Paso Robles Merlot”, the wine must be from grapes grown in Paso Robles and be a merlot. If the brand name includes a specific vineyard or farm, 95 percent of the contents must be from that vineyard or farm. Where there is no actual brand name, the bottler’s name will be used as a brand name.

Jeannie D. Goshgarian

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Branching Out: Winery Compliance and the Potential Role of its Attorney

In our last posting, we discussed the risks that may arise from time to time with wineries with regard to compliance, and the potential for some highly undesirable repercussions for not staying current with compliance obligations. As mentioned in our previous posting, a number of excellent compliance companies are available to work with wineries to ensure full compliance. However, there are situations in which the needs of a winery may require more legal consideration and guidance for issues that may extend beyond the services provided by a compliance company.

An attorney can work in tandem with a winery’s compliance company to bring the winery into full compliance, but where necessary, the winery ought to consider whether the lawyer or the winery engage the compliance company to preserve the attorney-client confidentiality. Where a winery requires assistance with an issue that may involve disclosure of potentially sensitive information, working with an attorney may well be the best way to serve the winery’s interests, as communications between an attorney and his or her winery client are protected by the attorney-client privilege.

Additionally, while many wineries select their business structure in order to best meet the financial goals of the winery, the structure selected can in fact result in non-compliance with state or federal regulations. Working with a wine law attorney, a winery can ensure its business structure is one that is both financially beneficial to the winery and is within the parameters of the applicable regulations. It is not uncommon for a winery to have an extremely complex issue that may extend beyond a compliance company’s services (e.g., one that involves a tax, real estate or land use issue). In such a situation, a wine law attorney can work with the winery and, where appropriate, its compliance company, to resolve the compliance issue.

An attorney can provide services that encompass the multiple and varied needs of a winery, and ensure that all of the winery’s legal documents work together. A number of areas of law intersect in the operation of a winery, and it is extremely important that all of a winery’s legal documents are consistent and that they complement, rather than contradict, one another. Areas of law including land use and acquisition, estate planning, business structure and formation, corporate planning, taxes, contracts, intellectual property and environmental law may surface in the day-to-day running of a winery. An attorney can assist in these matters, and work with the compliance company to remain compliant to allow the winery owner to concentrate on what she or he probably most wants to – crafting that perfect bottle of wine.

Jeannie D. Goshgarian  Ziyad I. Naccasha

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For many wineries, compliance is something of an elephant in the room –its presence is known to all. Certainly, maintaining full compliance can be daunting, complicated and time-consuming. Not being in compliance, however, can have far more dire consequences. Penalties for noncompliance can include hefty fines, license suspension, even license revocation. Still, too often wineries may opt to take a “wait and see” approach to compliance, figuring if they get caught by a regulatory agency, they will then cooperate, scramble, and get into compliance. By then, though, the fines or penalties may already have been assessed. The winery could experience some much unwanted negative publicity, not to mention that it could also be shut down if the non-compliance is serious enough. The safer road, obviously, is simply to implement policies that every responsible/managerial employee knows, understands and applies on a daily basis to keep the winery in full compliance with all applicable regulations.


Some of the most common compliance (non-compliance) issues include, but by no means are limited to shipping wine to customers in other states without having the appropriate licenses in place, insufficient records supporting the winery’s Report of Wine Premises Operations (TTB form 5120.17), improper transfer of the Small Producer’s Tax Credit, incomplete tax paid removal records, failure to apply for and obtain a new COLA when needed, insufficient records regarding bottled wine, failure to report changes in ownership or control of the winery, taxes (e.g., quarterly tax payments made without sufficient tax deferral bond coverage, late filing of excise tax returns)  and exceeding the privileges of a particular license.


While there are a number of excellent compliance companies that assist wineries with compliance issues, there are numerous situations in which a winery may also benefit from the services of an experienced wine law attorney who could compliment the work of the compliance company.


Our next posting will describe what services a wine law attorney can provide to a winery to assist in maintaining a winery in full compliance.


Jeannie Goshgarian    and Z Naccasha


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The Elephant in the Room: Compliance – flull blog to be posted tomorrow…so please stay tuned.

For many wineries, compliance is something of an elephant in the room __its presence is known to all.

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Your Business Succession Plan (“BSP”) – WHY, HOW AND WHEN

As discussed in our last posting, not having a BSP in effect can have some very undesirable results – such as increased tax liabilities and the unnecessary or unplanned sale or closure of a winery.

An example of the potential for a negative result where no BSP is in effect is the sale of the historic Sebastiani Vineyards and Winery in 2008 to the Foley Wine Group. Prior to the sale, the winery had been owned by Sebastianis for over 100 years. Foley Wine Group founder Bill Foley believed that the sale was due mostly to the fact that the current generation (the grandchildren of founder Samuele Sebastiani) simply could not agree on how to run the business. Due in large part to the lack of a carefully thought-out and crafted BSP, the winery ceased to be Sebastiani-owned and instead is now owned by what is essentially a winery conglomerate. A BSP could have specified the details of how the winery was to be run once it was passed down to the current generation.       

Part of planning a BSP requires a winery owner to carefully consider how much his or her own personality contributes to the goodwill of the business. For example, if a winery founder and owner has always been highly involved in all decisions related to the winery and is the “face” of the winery that clients and business associates know, there is a real possibility that once that owner is no longer running the winery, client and business relations will falter. If this is likely, a winery owner should consider bringing in his or her successor(s) while the owner is still running the winery. That way, the successor(s) can become an integral part of the winery, and clients and business associates have the opportunity to get to know the successor and to trust him or her while the original owner is still involved with the winery. This should also help ease any fears about a reduction in quality of the product and/or customer relations once the original owner is no longer there.

Lastly, having a BSP can instill a greater amount of confidence in the winery’s partners, employees and associates or affiliates, as well as lenders and the local community. A BSP clearly shows that a business owner is serious about his or her business continuing on past his or her own involvement, and that everything possible is being done to ensure a smooth transition when the time comes for new ownership and management.

When should a winery owner create a BSP? As early as possible. Once the start up phase has passed and the winery is firmly established, the owner should immediately begin penciling out long term goals and his or her preferred ownership and management structure for the business. The winery owner should consider all aspects of the business and start making decisions about what he or she would like to happen to the business itself and to any real property owned or utilized by the business once he or she will no longer be running the winery. Those details should then be formalized in the appropriate legal documents.

Stay tuned for our next posting, discussing the importance of ensuring your BSP is congruent with your estate planning documents.

– Posted by Ziyad Naccasha and Jeannie Goshgarian

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Planning Beyond Your Years

California is home to over 2,000 wineries, the majority of which are family owned and operated. Frequently, the name you see on the bottle is the name of the family that produced the wine inside. Wineries and winemaking tend to be family affairs, with the first generation hoping to pass the business along to succeeding generations. Despite the fairly common desire to keep a winery “in the family”, a surprising number of winery owners have engaged in very little if any planning and many do not yet have a business succession plan (“BSP”) in place.

A BSP details who, what, when, why and how the eventual change in ownership of a business shall be executed. There are three basic areas that a BSP addresses – ownership, management and taxes. Ownership and management are often not one and the same. If, for example, a business owner wishes to pass his or her winery down in equal ownership shares to each of three children, but only one of those children knows anything about the wine business, the BSP can provide that the winery shall be owned equally by the three surviving children, but all management decisions related to the winery shall be in the sole discretion of the one child who is familiar with the business.

Not having a BSP in place can result in major financial losses in the form of estate taxes (which, currently can be as much as 45% of a taxable estate) as well as the loss of the business itself, due to infighting among beneficiaries. Upon a business owner’s retirement or death, a BSP helps keep the business running smoothly during the transition period from the retired/deceased owner to the new owner by specifying the retiring/deceased owner’s wishes via various legal documents, including those comprising a comprehensive estate plan and those needed for the business itself. A winery owner should consider having an estate plan that includes a revocable trust as well as a pour over will. These are complex legal documents that determine how an individual’s estate is treated upon death. Business documents that most winery owners should have in effect include a buy/sell agreement, a life insurance policy to fund the purchase price within the buy/sell agreement and a shareholder agreement. All of the above documents can work together to effectuate a winery owner’s wishes regarding the disposition of the winery upon the owner’s retirement or death. Note that if the above documents are not drafted simultaneously, it is imperative that any owner periodically have his or her documents reviewed to ensure the documents will effectuate in a consistent manner, his or her wishes.

Stay tuned as we will have periodic updates on the importance of a BSP (especially when coordinated with estate planning goals) and the potential pitfalls of putting off the need for these important planning tools.

– Posted by Ziyad Naccasha

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