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TTB imposes one-day suspensions on Napa Valley wine companies over alleged illegal consignment sales

by Kerana Todorov
November 15, 2018

The Alcohol and Tobacco Tax and Trade Bureau continues to impose one-day suspensions on Napa Valley wine companies over alleged illegal consignment sales. Consignment wine sales are prohibited under federal statute.

Samantha Sheehan Imports, a winery in Napa, allegedly engaged in consignment sales to a trade buyer who did not have to pay for the alcohol until the wine was sold to retailers, according to the TTB. The TTB imposed a one-day suspension on Nov. 6, according to the federal agency.

The suspension of the winery and three other wine companies stems from a joint operation TTB conducted with the California Department of Alcoholic Beverage Control in March.

The other companies that also served one-day suspensions over alleged consignment sales include MarcoWine LLC, a wholesaler in Calistoga; James Johnson Vineyards, a wholesaler in Napa; and Modus Operandi Cellars LLC, a bonded winery in St. Helena, according to the TTB.

Additionally, James Johnson Vineyards allegedly changed premises in 2012 without applying for an amended permit, according to the TTB.

“I didn’t know that consignment sales were illegal,” said Samantha Sheehan, owner of Samantha Sheehan Imports.

Consignment sales as defined under federal law are “arrangements wherein the trade buyer is under no obligation to pay for distilled spirits, wine, or malt beverages until they are sold by the trade buyer.”

They are “used to gain an unfair advantage over law-abiding industry members and ultimately limit consumer choice,” TTB spokesman Thomas Hogue said in an email. “They are frankly just another means of buying your way into the market place.”

What is then a wine broker? Wine brokers do not buy wine, Robert Idell, an attorney with The Idell Firm, said in an email. “They act as an agent for the winery to arrange a sale to a wholesaler or retailer,” Idell said.

“The broker receives a fee for making that match. Smaller wineries who do not have an extensive sales staff may contract with a broker to market the wineries wine.”

Erin Kelleher, senior associate attorney at Hinman and Carmichael LLP in San Francisco said wine brokers work on behalf of licensees. They are “either authorized to do the activities that are permitted by statute (if they are licensed) or to perform services an agent for the winery.”

“Brokers cannot do indirectly what wineries do directly, and therefore brokers cannot arrange sales on consignment on behalf of wineries.”

The Federal Alcohol Administration Act which includes the language on the consignment ban was published in 1935 after the end of Prohibition.

Robert Tobiassen, TTB’s former chief counsel, said the Congressional intent behind the consignment sales provision was “to protect small industry members from overreach by larger and stronger industry members, including control states.”

The goal was to help smaller businesses compete in the marketplace, Tobiassen said early November before the one-day suspension on Samantha Sheehan Imports was imposed.

”The irony here with respect to these three small California wineries is that they are being penalized for allegedly undertaking consignment sales where that may be the only way they can get their products distributed,” he said. “This is not a big guy taking advantage of a small guy.”

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