Suttons Bay Law

Congratulations to Larry Mawby and LMawby Vineyards on 30th anniversary!

The following is an excerpt from an article which appeared in The Detroit News about LMawby Vineyards -

Thursday, December 4, 2008
Sandra Silfven
L. Mawby Vineyards marks 30th anniversary

With the holiday season upon us, we can be grateful for many things, including Larry Mawby’s special niche in Michigan winemaking history: He is the only local vintner who only makes sparkling wines.

Mawby, 58, the founder and winemaker of L. Mawby Vineyards in Leelanau County, is respected as a premium sparkling wine producer by the upper crust of California winemakers — and France, too. His wines are sold not only around Michigan, but in a half-dozen states, as well as in Denmark.

This year marks the 30th anniversary of the winery for the poet, humorist and village president of Suttons Bay, whom I’ve written about for just about as long. I used to think I knew a lot about Larry and his wines. And, of course, I quickly found out in a recent chat that I’ve been asking the wrong questions for years.

Here’s the obvious one: Why just sparkling? It’s not only the hardest wine to make, and packed with guesswork, but takes expensive equipment and years to see any return on the investment, as better wines age three to five years.

Larry’s response: “The real reason is that I do so many things here. I make the wine, run the business. I needed to focus on a narrow subset of the best wine I could make. All I think about is how to grow grapes for sparkling wine.”

In 1996, when he narrowed the focus, he was making 500 cases of sparkling wine by hand. Today, he is making 8,000 cases, plus another 1,500 for other wineries, using French equipment, barrels and bottles.

Read the entire article here including a listing of LMawby Wines.

Tags: Agribusiness, Wine Industry by Dan Penning
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The below-referenced article from wikipedia.org projects that the Michigan Grape and Wine Industry Council set a goal of 10,000 acres of wine grape production and 3 million cases of Michigan-produced wines annually by 2024, which is about 10 times the current production. There will be several aspects of the service industry in the state that will be vital in supporting this growth, one of which is legal services.

In order to sustain proposed growth as reported above, wineries and wine growers will face issues similar to other businesses. Those issues include business formation, state and federal beverage licensing and permitting, financing, land acquisition, construction and design of facilities, environmental and natural resource issues, water rights, employment/worker’s compensation/OHSA issues, trademark protection, license agreements, income taxation, business succession and estate planning, and possible litigation matters.

The attorneys at Wright Penning & Beamer are experienced in all aspects of areas of business law cited above and how those laws are to be adapted to an agribusiness operation. If you have any questions or would like to inquire about our services, please do not hesitate to contact us at 231-271-4500.
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Information about the Michigan Wine Industry from wikipedia.org - please visit their site for additional information, reference notes and maps of Michigan’s Wine Regions.

Michigan Wine

Michigan wine refers to any wine that is made in the U.S. state of Michigan. As of 2007, there were 1,500 acres (610 ha) under wine-grape cultivation and 56 commercial wineries in Michigan, producing 425,000 cases of wine. According to another count there were 112 operating wineries in Michigan in 2007.[3] Wine and wine tourism were estimated in 2007 to be a $100 million industry.[1] Most of the quality bottled wine of Michigan is produced in the four listed American Viticultural Areas (AVAs) of Fennville AVA, Lake Michigan Shore AVA, Leelanau Peninsula AVA, and the Old Mission Peninsula AVA. Besides grape wine, Michigan is a leader in the production of fruit wines such as cherry wine.

Grape varieties
Most of the grapes grown in Michigan are grown for “table” uses, not wine. Of 100,000 short tons of grapes produced in 2005, only 4,600 tons were used for wine-making. However, the proportion of vinifera grapes used in winemaking is increasing. In 2005, the wine industry pressed 2,640 tons of European vinifera grapes, 1,660 tons of hybrid varieties, and 300 tons of American varieties. European grapes grown include Cabernet Franc, Chardonnay, Gewürztraminer, Pinot Noir, Merlot, Syrah, Pinot Gris, and Riesling.

History
The traditional wines of Michigan were sweet wines, often made from grape varieties native to North America, such as the Catawba, Concord, and Niagara, or from hybrid grapes partly descended from these varieties. North American native grapes bore (and continue to bear) the advantage of being adapted to local growing conditions, with consequent high fruit yield. In addition, local growers could switch back and forth between the production of sweet wine and grape juice. Of Michigan’s 14,600 acres (5,900 ha) under grape cultivation, only 12%, 1,800 acres (730 ha), were devoted to wine grapes as of 2007.

Michigan’s wine industry dates from after the repeal of Prohibition. With large plantings of Concord in the southwest, mostly for the Welch Grape Juice Company, the state was well positioned to enter wine production. Four large wineries (out of eleven wineries established by 1946) came to produce almost all Michigan wine: La Salle Wine and Champagne Company which was established in Windsor, Ontario and moved to Farmington, Michigan, the Bronte Champagne and Wine Company of Hartford, Michigan Wineries (now Tabor Hill Winery) of Buchanan, and St. Julian Winery, which was also established in Windsor, Ontario on the Canadian shore across from Detroit during Prohibition and moved to Paw Paw after repeal.
Vineyard on the Leelanau peninsula

Michigan law in the mid-20th century placed a tax of 4 cents per U.S. gallon on Michigan wine while other wine was taxed at 50 cents per U.S. gallon to promote the local industry. Michigan wine of that era was, primarily, fermented to dryness, giving about 9% alcohol, and then fortified with California brandy to 16% alcohol. State laws considered this natural wine and allowed it to be sold in grocery and drug stores while fortified wines from out-of-state at 18-20% could only be sold from state liquor stores.

The wineries of Michigan specialized in sweet wine and fruit wine well into the 1970s. With the growth in demand, starting in the latter half of the 20th century, for locally-grown and locally-labeled U.S. fine wines, several existing Michigan makers of sweet wine experimented with upgrading their production, and new vintners entered the scene. Tabor Hill Winery in southwest Michigan, opened in 1971 as the first Michigan winery specializing in vinifera wines. Only a few years later in 1974, Chateau Grand Traverse opened in the Traverse Bay region of Northern Michigan. A slow growth in the number of wineries and continued trial of different vinifera varieties continued well into the 2000s.

Regions
The four AVAs of Michigan.

Michigan contains four American Viticultural Areas (AVAs), regions whose wines share similar and distinct characteristics: Fennville, Lake Michigan Shore, Leelanau Peninsula, and Old Mission Peninsula. All four regions are located in proximity to Lake Michigan, and almost all of Michigan’s wine grapes are grown within 25 miles (40 km) of the lake. The lake effect provides a favorable microclimate compared to interior regions of the state. The northern wine regions have a 145-day growing season while the southern ones have a 160-day season.

The Greater Traverse City area, which includes the peninsulas of Leelanau and Old Mission, is one of the primary wine regions of Michigan. The soil is sandy, with good drainage, and a lake-dominated climate allows a longer growing season than in most of the U.S. Midwest. 51% of Michigan’s wine grapes, including much of the state’s vinifera grapes, are grown in this area.

The same advantages exist, to a slightly lesser degree, on the eastern shore of Lake Michigan south of Grand Rapids in the Fennville and Lake Michigan Shore regions. 45% of Michigan’s wine grapes are grown in this area.

Speciality wines

Ice wine
The climate of Greater Traverse City allows for the production of ice wine, which requires an early hard freeze so the fruit still on the vine can be harvested while frozen. A small number of wineries produce this style; although it is not possible every year. In 2002, for example, 6 Michigan wineries produced over 13,000 half-bottles of ice wine, a record at that time.

Fruit wine
Michigan may be the foremost U.S. state in the production of diverse varieties of bottled, fermented fruit wine. Fruit wine has a long and honorable history in Europe, especially in regions such as Poland and the Baltic states where grapes do not easily grow. In Michigan, apple wine and cherry wine are produced in the highest volume, but almost any fruit juice can be fermented with novel results. Michigan is a North American leader in the production of fortified fruit wines and eau-de-vie (fruit brandy).

Ongoing issues

Tourism synergy
As with other states, the Michigan wine industry is seen as an attractive example of regional cuisine and is supported by tourists. More than 800,000 tourists visited Michigan wineries in 2005.

State support
The wine industry in Michigan is supported by an agricultural research program at Michigan State University which began experimental vineyards around the state in 1970 and established a winery on campus in 1972. The Michigan Grape and Wine Industry Council is a state agency established in 1985 to promote and support Michigan wineries.

Future prospects
A warming trend in the climate of the Great Lakes region could increase Michigan vinifera productivity and lead to a higher profile for Michigan wines. However, Michigan vineyards, particularly vinifera vineyards, remain vulnerable to late spring and early fall cold snaps, such as the killing frost of March, 2003, insufficient growing season heat to fully ripen the grapes, and rot or mildew originating from rainfall while the grapes are maturing. The Michigan Grape and Wine Industry Council has set a goal of 10,000 acres (4,000 ha) of wine grape production and 3 million cases of Michigan-produced wines annually by 2024, about 10 times current production. Consumption of Michigan wine has risen from 1.5% of all wine consumed in Michigan in 1997 to 5.2% in 2006 with the number of wineries rising from about 16 to 50 in the same period. Michigan liquor law revisions in 2005 affirmed the right of wineries to sell from their tasting rooms, ship wine directly to consumers, and sell directly to licensed retailers and restaurants, bypassing wholesale distributors.

Tags: Agribusiness, Wine Industry by Dan Penning
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You’ve heard of Bud Bowl, right? Well, panels of wine tasters in Ann Arbor and Columbus recently gathered to judge over 60 selected consumer-selected wines from Michigan and Ohio. It was the first purely consumer-selected judging of wines in either state and also unique by being limited to wines from grapes exclusively from Ohio & Michigan wines.

Ohio and Michigan share a centuries-old tradition of viticulture which was wrecked by Prohibition but has re-emerged in recent times. From the Ohio River Valley to the upper shores of Lake Michigan, growers and winemakers are once again crafting unique and quality wines. In light of the growing concerns about the carbon footprint of transported products, Slow Food Columbus created this event to showcase regional efforts in the context our storied gridiron rivalry. The top wines were:

• White Wine: Black Star Farms “Arcturos” Chardonnay Sur Lie 2006 (MI)
• Sparkling Wine: Shady Lane Cellars Blanc de Blancs 2000 (MI)
• Aromatic White: Ferrante “Golden Bunches” Riesling 2007 (OH)
• Pinot Noir: Black Star Farms “Arcturos” Pinot Noir 2006 (MI)
• Red Wine: Kinkead Ridge Revelation 2006 (OH

The real winners are the consumers of Michigan and Ohio who have an array of quality local wines to enjoy, these wines emerged as the MVPs for their respective teams. “I would consider any of these winning wines to be on a par in quality to their peers from California and elsewhere,” said organizer Andrew Hall, “and at very consumer-friendly prices.”

“There were a lot of good wines from both states,” echoed one of the judges, “and I hope that people will give them a chance. Restaurants and consumers are starting to care a lot about local produce and wines should follow.”

Amen to that - think about putting a bottle or two of Black Star Farm’s excellent Michigan wine on your table this Thanksgiving and all year long!

The original article as it appeared on Black Star Farm’s website.

Tags: Agribusiness, Wine Industry by Dan Penning
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How long will Michigan residents allow special interest groups and lobbyists to continue to glutton themselves while the state’s economy spirals downward with high jobless rates and businesses closing to move to better markets? Apparently, too long.

The latest example of our elected officials lunacy and lack of understanding of basic principles that create economic growth is a proposed law to ban all direct wine shipments by in- or out-of-state retailers to consumers. Making it more difficult for Michigan businesses engaged in retail wine sales is clearly contrary to Economics 101. What’s wrong with responding to a market and demand of a product and making it competitive with an interstate commerce just like the thousands of other products that are directly shipped to consumers in and out of the state of Michigan every day? The simple answer - the Michigan Beer and Wine Wholesalers Association would be forced to release its vice grip on revenues generated for its members under the protectionism principles that are the lynch pins of their lobbying and strong-arming tactics to obtain elected officials’ votes.

In his blog, www.michwine.com, Joel Goldberg states as follows:

“Michigan’s Beer and Wine Wholesalers have already reported political donations that exceed $700,000 during the current election cycle, according to the Detroit News. This figure doesn’t include contributions made close to Election Day.

Numbers supplied to MichWine by Rich Robinson of the Michigan Campaign Finance Network show that members of the House Regulatory Reform Committee – which just passed the Wholesaler-supported delivery ban – took over $37,000 from the MBWWA. Rep. Barbara Farrah, the bill’s sponsor and Committee chair, also got more than $3,000 in “travel expenses” to attend the last two MBWWA winter meetings.”

The impact of the legislature’s capitulance to the MBWWA’s desire is that Michigan loses valuable businesses and jobs. Goldberg further states in his November 18, 2008 blog posting:

“Given our state’s economic track record in recent years, which direction do you guess they’re taking up in Lansing? Hint: while Governor Granholm is in on an Israeli road trip, trying to import a few 21st century businesses and jobs to Michigan, her party colleagues back home in the state legislature are busy propping up Prohibition-era beverage laws guaranteed to further damage our precarious economy.

How? The prime example is Winebuys.com, an online seller of wine. It’s a high-tech internet startup – something we talk a good game about wanting to promote in Michigan. Started last year by two Detroit-area businessmen who anted up $1 million of their own money, it’s one small step along the road that might someday wean Michigan off our auto-dependence. They project $10 million in sales next year, and plan to hire a few more employees soon.

It’s a gusty move to start a new Michigan-based business in this economy. Most of their online competitors are located in places like California, a state that’s long encouraged retail wine shipping and, as a result, already houses a profusion of young, growing businesses in the sector.

But if the level-down law before Michigan’s state legislature passes, the entire legal basis for their business – selling and shipping wine to retail consumers nationwide – will be banned in Michigan. Like too many other businesses before them, the folks behind Winebuys will have two choices: go out of business or move to another state.

By the way, you may wonder where Winebuys gets all this wine it sells online. You guessed it: from the same Michigan wholesalers whose well-paid lobbyists are diligently working Lansing’s backrooms at the moment, to pass the law that will put their customer out of business.

You’d swear these guys have been taking business development lessons from the automakers.”

The MBWWA attempts to mask its gluttony by citing two arguments in support of the proposed law. The first argument is that if the law is not passed, the state would lose tax revenue. False! Michigan would tax shipments by out-of-state wineries to Michigan residents. The second argument is that the law would prevent alcohol from winding up in the hands of minors. Again, False! There is no evidence based on the past practice of wineries that direct shipments to Michigan residents that any direct shipment of wine or alcoholic beverages increases incidences of alcohol in the possession of minors.

In an economic environment where our state is highlighted in the nation bailout hearings in front of U.S. senators and congressmen, why are we allowing a powerful lobby group such as MBWWA to dictate economic policy and drive jobs from our state? The only hope is that the old adage that “pigs get fat, hogs get slaughtered” will ring true.

-Dan Penning
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Wine lovers’ win sours as Michigan tries again to ban direct shipping

BY DAWSON BELL • FREE PRESS STAFF WRITER • November 29, 2008

LANSING — Joe Chess, an orthopedic surgeon from Kalamazoo, said his passion for fine wine is deep.
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Deep enough that he regularly seeks hard-to-find varieties in remote places, and deep enough to get him into a lawsuit fighting Michigan regulations stopping him from buying wine from out-of-state retailers. Two months ago, Chess won the suit when a federal judge in Detroit ruled that the state couldn’t ban out-of-state retailers from shipping wine directly to customers while allowing Michigan firms to do it.

So why doesn’t Chess feel like a winner?

On Nov. 11, Lansing lawmakers introduced a bill to solve the problem by banning all direct wine shipments by retailers, whether they’re Michigan merchants or those in another state. The bill was approved in committee the next day and could sail through the Legislature in the lame-duck session beginning Tuesday and be on the governor’s desk before Christmas.

“That’s crazy,” Chess said last week. “The state loses a lawsuit, and they respond by punishing consumers and retailers. It seems to me Michigan can ill afford to be hurting businesses right now.”

State regulators, some legislators and the Michigan Beer and Wine Wholesalers Association, the powerful lobby for beer and wine distributors, said it’s not crazy at all. All they’re trying to do, they said, is preserve an orderly system that dates pretty much from the repeal of prohibition. The system was designed to keep tight control over who gets to buy and sell alcoholic beverages. Michigan Liquor Control Commission spokesman Ken Wozniak said the system actually helps some in-state business by protecting them from competition.

Opening up Michigan’s consumer market to outsiders would “turn it upside-down … wide open,” Wozniak said.

Money also is a factor. The LCC is the nominal distributor of liquor in Michigan and reaps more than $200 million a year in revenue. Wozniak said the state wants to limit shipments from out of state out of “self-interest.”

Attorneys for Chess dispute the notion that the government would collect less in fees and taxes by opening up the market. Michigan could impose the same rules on outsiders that are imposed on Michigan retailers, said Alex Tanford, an Indiana University law professor engaged in an effort to open up the market for alcoholic beverages around the country.

“They can pretty much engage in any regulation they want,” Tanford said. “They just can’t impose different regulations on out-of-staters.”

The Legislature authorized shipments by in- and out-of-state wineries three years ago after losing another court case. How much traffic would be generated in an open market for direct shipment is unclear.

Chess said he believes it is relatively small, mostly confined to people like him who are interested in buying hard-to-find, high-end wine. But the attitude of the beer and wine wholesalers group suggests its members are concerned about serious erosion of market share. The group intervened in the lawsuit to defend the so-called three-tier system, which gives its members monopoly distribution rights within specific territories.

President Michael Lashbrook said last week that he believes the regulation of alcohol sales would “break down completely” if the decision by U.S. District Judge Denise Hood stands. Lashbrook said damage to Michigan retailers from passage of the legislation would be minimal because only a few use direct shipping, and it is not a major part of their business.

That’s not true for Michael Solarz and Jeff Resnick, whose Ferndale-based business, winebuys.com, is based almost entirely on direct shipment to customers. Solarz said they purchased Winebuys and brought it from California to Michigan a year ago. They have six employees but hope within two years to have as many as 25 and reach $10 million in sales.

But if the ban on direct shipping is approved, Winebuys will be growing somewhere else, Solarz said.

“I find it extremely antibusiness and distressing,” said Solarz. “We wanted to get into a business that wasn’t dependent on the Michigan economy. Then we get hit with this?”

Click to read the entire article from The Detroit Free Press

Tags: Agribusiness, Wine Industry by Dan Penning
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California boasts the largest wine industry of any state in the country. California’s past success and bright future with respect to its wine industry is primarily the result of two factors. First, the wine growers in California implemented sustainable wine growing practices that meet current needs without compromising the livelihood and needs of future generations. Second, approximately 60% of California’s wineries are family owned and operated and have implemented family business succession planning to protect ongoing viability of the business.

A prime example of a family owned winery that adhered to both of the aforementioned elements that has led to a successful transition of involvement and ownership of family members into a fourth generation is the E&J Gallo Winery which is celebrating its 75th anniversary.

The mistake many family business owners make, no matter what type of business, is not designing and implementing a business succession plan. The predictable consequences of the failure to plan are fights over control between surviving family members and working capital being devoured by having to pay higher estate taxes. While the older generation business owner is alive, the relationships and potential or present problems between the next generation of business ownership is rarely so serious that they cannot be improved and, in some instances, resolved entirely. The process of succession planning may be difficult but the risk associated with the alternative of taking no action to plan or doing nothing carries the greatest possibility of risk. Doing nothing may feel good in the short term, but no succession plan is always a terrible succession plan in the long run.

The lawyers at Wright Penning & Beamer are skilled and experienced in advising family business owners how to develop a succession plan that ensures a continuation of the business for future generations to grow and prosper as a “family business”.

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Wine industry impacts economy

Wine grapes are grown in 46 of California’s 58 counties. Its 10 leading wine regions are Amador, Carneros, Livermore, Lodi, Mendocino, Monterey, Paso Robles, Napa, Santa Barbara and Sonoma. From these regions, more than 43 different varieties and blends are grown and cost from $10 to more than $150 per bottle.

Today, however, wine consumers want to know not only where wine is grown, but how it’s grown.

Although winegrowing terms such as organic and biodynamic have drawn consumer curiosity, most grapes are grown sustainably. “Simply put,” said Karen Ross, President of the California Association of Winegrape Growers (CAWG), “sustainability means that we grow and make wine in a way that meets the needs of the present without compromising the livelihood and needs of future generations.”

In 2002, based on a code of 232 best practices, covering every aspect of winemaking and winegrowing from ground to glass, the Wine Institute and CAWG created a Sustainable Winegrowing Program. Since then, thousands of growers and vintners have adopted socially and environmentally responsible practices. For more information on sustainable winegrowing, log on to sustainablewinegrowing.org.

DID YOU KNOW?

California is the fourth largest wine producer in the world, making more than 90 percent of the wines in the U.S. The following are other facts supplied by the Wine Institute:

-In the U.S., two out of every three bottles enjoyed are California wines.

-The majority of California’s 2,700 wineries and 4,600 grape growers are family-owned and operated.

-Nationwide, California’s wine industry generates 875,000 jobs.

-Overall, California’s wine industry economic impact exceeds $125.3 billion.

-In the U.S. last year, California’s wine industry generated $19 billion in retail sales.

WHERE MICHIGAN STANDS

With 56 commercial wineries (up from 17 in 13 years) producing more than 375,000 cases of wine annually, Michigan has successfully linked two growing industries: agriculture and tourism, under the moniker of agritourism.

Also, according to Michigan Wines official Web site, Michigan’s wine industry accounts for more than 5,000 jobs across the state for a payroll of more than $190 million and contributes $800 million to the state’s economy annually.

More than 1,500 acres are devoted to wine grapes, ranking Michigan eighth in the U.S. In the state, vineyard acreage has increased 25 percent in the last 10 years. Yet, that’s not nearly enough to satisfy growing demand, especially for riesling.

Help the economy - drink more Michigan and California wine!

Eleanor & Ray Heald are Contributing Editors for the internationally-respected Quarterly Review of Wines and Troy residents who write about wine for the Observer & Eccentric Newspapers. Contact them by e-mail at focusonwine@aol.com.

From an article which appeared in the Observer & Eccentric on November 6, 2008. Link to the online article.

Tags: Agribusiness, Business Succession, Wine Industry by Dan Penning
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Dan Penning Commentary:
The article quoted below from the “North Bay Business Journal” by David E. Stoll sets forth several key elements that must be considered by grape growers and wineries and grape contracts. Careful attention to the elements addressed before the contract is executed will undoubtedly save thousands of dollars of litigation fees and wasted time that usually results from “handshake agreements”. The practice of growers selling grapes to wineries to make wine is on the rise across the country as well as in northern Michigan.

As wineries and grape growers in northern Michigan grow both in number and size, there will be a significant increase in the need for experience with multiple legal issues that will confront various participants in the wine industry. Some of the legal issues that will require a lawyer’s knowledge of wine law to address include state and federal beverage licensing and permitting; financing; land acquisition; construction and design; environmental and natural resources; water rights; employment/worker’s compensation/MIOSHA issues; trademark protection; license agreements; income taxation; business succession and estate planning, and litigation. Wright Penning & Beamer has acquired our northern Michigan location in an effort to provide our legal expertise to assist grape growers, wineries, and distributors in northern Michigan with representation and advice on these issues. All of these issues should be dealt with on a proactive basis to avoid the unforeseen loss of expense, time and possibly the destruction of business itself.

From the North Bay Business Journal:

Wine Law: Understanding the issue of control in grape contracts
DESIGNING AGREEMENTS THAT PROTECT THE RIGHTS OF GROWERS AND BUYERS
Monday, August 11, 2008
BY DAVID E. STOLL

Grape contracts used to be made on a handshake and the reputation of the parties involved. If reduced to writing, they were often limited to one-page letters setting forth the varietal, vineyard source, term and price per ton. As the wine industry continues to mature, growers and buyers are increasingly turning to detailed contracts containing multi-page exhibits on “Viticultural Practices” or “Quality Standards.”

The question is not whether a handshake is better than a ten-page agreement but whether or not the agreement meets your needs. One way to analyze grape contract issues is to focus on control: who controls the viticulture, who decides how much fruit to drop and who decides when to harvest.

The more the grower controls these decisions, the more right the buyer should have to reject grapes that do not meet the agreed-upon standards. However, today buyers are increasingly asking for more control of the viticultural practices and harvest parameters – even the planting or replanting of the vineyard itself. If buyers demand and exercise such control, they should bear responsibility for their decisions.

Focusing on the issue of control, here are some tips:

1) Giving up control can be good for the grower; and taking control can be good for the buyer. The more the buyer dictates viticultural practices and harvest requirements, the less right the buyer should have to reject the grapes. If the buyer has the right to determine the time and date of harvest, then the buyer should bear responsibility for picking too early or picking too late. If the buyer demands that crop loads not exceed four tons per acre, then the grower should ensure that grape prices reflect this limitation. The buyer can also benefit from taking more control. The buyer gains fruit that meets its quality parameters and enhances its ability to plan harvest operations. However, even the best plans and provisions should leave some flexibility for growers to preserve fruit quality and react quickly when required to do so by nature, such as unusual frost conditions, unexpected rains or excessive early heat.

2) Make acceptance criteria as objective as possible. Disputes over payment or rejection of grapes often are framed in terms of quality issues, even if the underlying reasons are economic or market-driven. The more subjective and detailed the quality standards, the more likely a buyer could use these standards as a basis for not accepting delivery, not paying full price or terminating the contract. If a buyer wants to – or needs to – get out of a contract, the buyer will look for grounds to terminate, or claim performance is excused. The tighter and more objective the criteria is in a contract, the less likely such “hooks” can be found to avoid performance or terminate the contract.

3) Have a quick and sensible dispute resolution process in place to avoid disputes at the scale. If the grape contract allows for the buyer to reject grapes at the scale for anything other than purely objective matters, consider designating a mutually agreed upon, independent third party to make a conclusive determination at the time of delivery.

4) Avoid “best efforts” obligations; “commercially reasonable” efforts are better. “Best efforts” can be construed to mean a party must do anything possible, whether commercially reasonable or not.

5) If payment risk is a concern, a grower could shorten payment terms or consider taking a security interest in addition to the automatic statutory growers lien. A security interest perfected under the Uniform Commercial Code (UCC) will give the grower the rights of a secured party under the UCC. A security interest would extend to products and proceeds of the grapes, which may not be covered by the statutory growers lien.

6) If the vineyard name will be used on the bottle, include contract provisions to license the vineyard name as a trademark and to allow the grower to exercise quality control. When it comes to the issue of quality control, actual control is what counts. The right to control is not enough. At a minimum, taste the wines each year and keep records of having done so. If the grower wants to maintain a high quality of wine under the name, make sure the grower has the right to terminate the license to use the vineyard name – short of terminating the entire contract – if the grower determines that wine quality is not up to par.

As the wine industry continues to mature, so do relationships between growers and buyers. Care must be taken to ensure that the rights of both growers and buyers are protected. Our wine industry practice is dedicated to helping clients understand changes occurring in this marketplace so they can be prepared to meet these challenges and carefully navigate through evolving contractual arrangements.

About The Author
David E. Stoll is a business transactions and intellectual property partner at Farella Braun + Martel. He advises wineries and vineyard owners on a variety of legal matters, including grape contracts, mergers and acquisitions and consulting arrangements. He also provides strategic advice regarding the use and protection of wine-related trademarks and trade names, including the names of wineries, wine brands, proprietary names and vineyard designations.

Mr. Stoll advises a variety of clients on development, exploitation and protection of intellectual property. His principal areas of focus are technology licensing, intellectual property counseling and trademark and copyright protection. In addition, he also represents start-up and emerging growth companies in connection with corporate and LLC formation, governance and financing strategies, mergers and acquisitions, as well as strategic partnering and technology-sharing arrangements.

Farella Braun + Martel represents clients in sophisticated business transactions and high-stakes commercial, civil and criminal litigation. The firm is known for its imaginative legal solutions and the dynamism and intellectual creativity of the legal staff. The attorneys in each practice group work cohesively in interdisciplinary teams to advance the clients’ objectives in the most effective, coordinated and efficient manner.

Farella Braun + Martel LLP, 235 Montgomery St., San Francisco, CA 94104 • 415-954-4400 • 899 Adams St., St. Helena, CA 94574 • 707-967-4000 • www.fbm.com

Copyright 2008 - North Bay Business Journal
427 Mendocino Ave., Santa Rosa, CA 95401
Phone: 707-521-5270 - Fax: 707-521-5269

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Dan A. Penning
Wright Penning & Beamer
Farmington Hills and Suttons Bay, Michigan
231-271-4500

Tags: Agribusiness, Wine Industry by Dan Penning
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