Session Summaries: NABCA 26th Annual Legal Symposium
Source: NABCA
March 18, 2019
NABCA Chairman Jeffrey Painter provided opening remarks to welcome attendees to its Legal Symposium conference, held at the Gateway Marriott, Arlington, VA. When the event wraps up on Tuesday, more than 250 attendees, including those watching via webcast, will have participated in a dozen different sessions, all covering subjects that are relevant to the changing landscape of beverage alcohol laws. To follow are summaries of today’s presentations:
Direct Shipment: Borderline Jurisdiction
Neal Insley, general counsel of NABCA opened the first session, “Direct Shipment: Borderline Jurisdiction.” Jacob ‘Jake” Hegeman, vice president of legal and regulatory affairs for Wine and Spirits Wholesalers of America, Inc., described the landscape of direct shipment litigation since the 2005 Supreme Court case of Granholm. Today there are 45 states and the District of Columbia (D.C.) that allow for direct shipment of wine. Yet legal questions remain regarding retailer-to-consumer direct shipment and the different requirements for in state vs out of state producers. Questions also surround direct to retailer and consumer shipment, distinctions between beverage categories of wine, spirits and beer, and the degree to which direct shipment is permissible throughout the U.S.
Dustin Pickens, senior attorney of regulatory affairs for FedEx Express, which is the airline segment of FedEx, explained how the company responded to the Granholm case and provided a description of its contractual controls through creating policies and procedures relating to transporting alcohol. FedEx prohibits alcohol transport unless an “alcohol shipment agreement” is signed with FedEx and it has created distinct categories (Winery, Retailer, Other Licensed Shipper (e.g., wholesaler, brewer, distiller) and Fulfillment House) with distinct permissions.
Currently, FedEx Express only allows the beverage category of wine to transport direct to consumer from a winery in which it has an “alcohol shipment agreement.” The package is marked with a code, $AW that denotes it contains alcohol and requires an adult signature of someone over the age of 21. Other categories with an alcohol shipment agreement can deliver to licensees.
Cassandra Hicks, deputy superintendent of the Ohio Division of Liquor Control, provided an outline from a regulator’s perspective. In Ohio, the Division of Liquor Control permits beer and wine to direct ship to consumers. To regulate this practice of direct-to-consumer shipment, the state created two permits, a permit for the licensee/retailer and a permit for the transportation of the product.
Ms. Hicks went on to describe the balance regulators need to manage between the customer’s need for convenience and access to the product, as well as the importance of establishing rules and regulations to protect the general public from a product that can cause harm.
As the area of direct ship policy evolves, all panelists expressed the importance of keeping the lines of communication open between industry stakeholders, legislators, regulators and enforcement as well as other interest groups focused on public health and safety.
Product Liability and Tainted Product
Andy Deloney, chairman of the Michigan Liquor Control Commission began the session, “Product Liability and Tainted Product,” with a motto, plan for the “when” not the “if” as it relates to product safety of potential tainted products. With the influx of craft producers and the wave of new products hitting the market, product safety considerations have grown considerably.
Elizabeth Deconti, shareholder of Gray Robinson discussed the importance of using fact patterns to identify what occurred to taint the product, such as foreign objects, container problems/shattering glass, unreasonably dangerous toxins, etc. She focused her presentation on voluntary action as defined by the Tax and Trade Bureau (TTB), which calls for voluntarily removing product from the marketplace. Causes for a voluntary recall range from quality, mislabeling, contaminated/adulterated product to product found to be in violation of TTB or Food and Drug Administration (FDA) regulations. Further, she went on to outline important steps a supplier should take when tainted products are discovered. It includes the duty to report to the TTB, the FDA and the state regulatory authority, followed by the chain of distribution of the product (distributors, retailers, media, etc.).
Mary Tortorice, general counsel and chief compliance officer of Sazerac Company, Inc., provided the perspective of a producer and outlined internal protocols which emphasize training customer service representatives receiving the complaints to detect trends early. The goal, the quicker a producer can get to identifying an issue, the better positioned it is to minimize the harm and company risk. She also described the importance in crafting scripted messages to ensure all internal and external stakeholders are giving a consistent message.
Dorina Brasoveanu, director of quality assurance of the Liquor Control Board of Ontario (LCBO), provided an overview of its in-house testing capabilities. The LCBOs Quality Assurance program is comprised of four main components: Consumer Protection, Regulatory Compliance, Corporate Liability and Industry Resource. The LCBO works closely with industry and academia to test approximately 26,000 total products. To ensure sound quality, the LCBO conducts chemical analysis, sensory analysis, label reviews, and packaging review. Additionally, the LCBOs laboratory is used by other agencies, including those related to gambling, enforcement and border services. The LCBO identifies approximately 11 percent of products that are non-compliant, 60 percent with labeling issues, 17 percent with alcohol deviation, and 12 percent with general chemical issues. The LCBOs action as a result of non-compliance depends on the degree of harm/risk. It ranges from destroying the product due to a chemical issue to corrective efforts for labeling issues.
To close, speakers encouraged transparency when dealing with the potential of tainted products. The goals are to not only preserve a company’s brand and maintain trust with the general public, but also to protect public safety and to minimize injury to consumers. Taking these steps outlined by the panelists, promptly, can help to minimize a company’s exposure to potential litigation and mitigate harm to the public.
Piece of the Action
In this session, Moderator Francis ‘Fran’ O’Brien, F.X. O’Brien Associates LLC, presented a hypothetical scenario between an attorney and a client in which the client begins a start up with a CBD Infused wine product. Lawyers who provide legal services to start-up businesses can invest in their clients and sometimes accept an ownership interest as a part of the fee. Legal experts Nicholas Bergman, Buchman Law firm, LLP, and Seth Guggenheim, Virginia State Bar, discussed some of the issues that pertain to the Rule 1.8 Conflict of Interest: Current Clients: Specific Rules. Can an attorney enter into a business agreement with a client they are representing? How should an attorney handle their fees? Is the client liable if the business fails? Should the client seek separate representation? What steps an attorney should make before entering into this agreement? What steps should a client make before accepting the agreement? These and other questions were further discussed during this session.
Unlimited License Problems
In this session, Josh Happe of the Iowa Alcoholic Beverages Division provided a high-level summary of the difficulties regulators face when attempting to accommodate market-driven innovation within the existing licensing framework. While many states have created new license types for business models such as microbreweries and beer gardens, these new licenses have not come without their own unique problems. As Rob Mellion from the Massachusetts Package Stores Association highlighted, even the best intentions can be subject to unintended consequences when certain market actors choose to exploit loopholes rather than act in the spirit of the law-as evidenced by the Commonwealth of Massachusetts’ recent experience with the abuse of one-day licenses. The panel concluded with a presentation by Tom Lisk, an attorney with Cozen O’Conner, who highlighted the seemingly endless number of new licenses being created in the Commonwealth of Virginia for new businesses ranging from bakeries to custom tailors. As Mr. Lisk noted, this process has resulted in confusion amongst those seeking an alcohol beverage license while simultaneously straining the Virginia ABC’s enforcement resources-necessitating the current review of the VA ABC licensing structure.
Regulating Alcohol Tourism
In her presentation, Kathie Durbin, chief of licensure, regulation and education for the Montgomery County Department of Liquor Control, described Alcohol Tourism as attracting people to a particular destination for the purpose of enjoying alcoholic beverages unique to that area. She also defined it as providing commercial services to visitors on an alcohol tour. For regulators caught between addressing issues that blur the lines between criminal law and regulatory oversight, enforcing alcohol tourism laws can pose challenges. For Montgomery County, MD, Durbin cited ways the department has worked with many businesses that reach out to them for alcohol tourism events. To safely manage events, the county has worked with many breweries, wineries and distilleries to a bridal salon wanting to serve wine. Some of what they did included offering nontraditional licenses, license extensions, event licensing, and promoting programs that help to get people home safely.
For Kevin Attics, writer, publisher, educator promotor and lobbyist, changes in regulation surrounding beverage alcohol may be more of an unfolding of the regulatory guidelines that is the result of customers asking for change. For him, Alcohol Tourism is building the brand, creating an experience, connecting to the product and brand, and showcasing the product. He sees it as providing safe tastings and responsible sales, crowd management, and balancing experience with consumption. He cited some of the challenges that involve managing large tours where consuming food and alcohol may not be a priority. This then turns into a consumption management issue.
R.J. Nutter, partner, Troutman Sanders LLP, approached Alcohol Tourism from the perspective of local zoning laws and how they apply to distilleries or wineries. He said zoning laws are not applicable to the activities of a distillery or winery. It is only for where it is located. He also addressed incentives localities provide to businesses that affect growth in communities and talked about the power local governments may have depending two rules: Dillon’s Rule which is a narrow interpretation of local government engagement in an activity if it is specifically sanctioned by the state government, and Home Rule which delegates power from the state to local governments. He noted that zoning changes involve public input for approval and that zoning laws do eventually change with growing communities asking for it.
In closing this session, Durbin commented that regulators and tourism partnerships and discussions can make events more fun and much safer.
FAA 101
In this session, Assistant Attorney General of Washington D.C. ABR Jon Berman moderated a discussion between Carrie May from the TTB and NABCAs Federal Agency Liaison Vicky McDowell. The presenters walked-through the broad contours of the Federal Alcohol Administration Act while highlighting the elements of specific tied-house and commercial bribery statutes. They also provided insight into what to expect during a TTB investigation, best practices for responding to inquires, and proactive measures suppliers and wholesalers can take to ensure any investigation runs as smoothly as possible.
Connecting with Craft
Ryan Malkin, principal attorney at Malkin Law P.A., was the moderator of the session and introduced the speakers. He defined craft and explained that its meaning is different to different people. For example, the definition of craft differs in each state due to state law and how they classify craft within their borders.
Margie Lehrman, CEO of the American Craft Spirits Association, had three takeaways for the attendees: 1) craft is growing, 2) tasting rooms are the heart and soul of the craft producer, and 3) craft is important to the economics of the state it is in. Ms. Lehrman gave many statistics throughout her presentation, some being that craft distillers grew more than 15 percent since last year and that there were 1,835 total craft distilleries in the U.S. in 2018, with 32.2 percent of them being on the West Coast.
Martin Provost, director of licensing at the Vermont Department of Liquor and Lottery, gave an overview of the craft arena in the state. In 2018, Vermont had 176 manufacturers operating in the state; 57 being vinous/cider, 86 malt, and 33 distilled spirits/rectifiers. These numbers are up from the 91 total licensed manufacturers in the state in 2012, and up from the 25 total in 2000. Overall, the Vermont craft market is growing faster than anticipated.
As a panel, the speakers answered, “What does craft want?”, which includes direct to consumer shipping, on-site consumption through tasting rooms, and increased limits on production.
Securing Personal Data
In this session, Christina Schoonmaker from Diageo moderated a discussion between Zalika Pierre (Holland & Knight) and Maggie Lu (Diageo) on the various regulations and regulatory bodies currently governing data privacy and security. The panelists discussed the compliance requirements of the EU’s General Data Protection Regulation (GDPR) for both EU-based companies and foreign companies without a physical presence. More specifically, they highlighted the comprehensiveness of the regulation and the broad jurisdiction it conveys. After outlining these international compliance requirements, the panelists pivoted to the patchwork of state laws currently governing data security and privacy in the United States. In doing so, they noted that California’s CCPA is considered the highest standard for consumer protection in America-and is being rapidly emulated in states across the country.
Tuesday will conclude this 26th Annual Legal Symposium with sessions covering Private Labels, Summary Suspensions and Other Public Safety Cases, and A Closer Look at Current Alcohol Litigation.