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Grape Escape: ABC Dismisses Renwood Winery Case

by Ted Rieger
December 08, 2015

The California Department of Alcoholic Beverage Control (ABC) has dismissed a disciplinary accusation against winegrower licensee Renwood Winery, based in Plymouth, Amador County, that claimed a post on the winery’s Facebook page related to the 2014 Save Mart Grape Escape event in Sacramento violated California’s “tied-house” regulations. The ABC cited recently enacted California legislation in September, AB 776 carried by Assembly Member Jim Cooper (D-Elk Grove), as its reason to dismiss the accusation and not pursue disciplinary action, even though it was passed after an Administrative Hearing was held on the accusation and the law is not yet in effect. AB 776 becomes effective January 1, 2016 and allows nonretail licensees to advertise or communicate participation in an event conducted by a nonprofit organization via social media as long as the advertising or communication does not contain the retail price of any alcoholic beverage and does not promote a retail licensee beyond its sponsorship or participation in the event.

Background

The Grape Escape is a wine, beer and food event held in Sacramento presented by the Sacramento Convention and Visitors Bureau. Save Mart, a Northern California supermarket chain, was the title sponsor for the June 7, 2014 event, and was mentioned in social media posted by some of the 40+ participating wineries to encourage attendance at the event. At least 11 wineries had enforcement accusations filed by ABC for violation of Section 25502(a)(2) of the California Business and Professions Code. ABC contended the wineries gave “a thing of value,” free advertising on social media for the benefit of Save Mart Supermarket.

Ten winery licensees previously settled their accusations with ABC, accepting a penalty of one-year probation for admitting to the offense, with a 10-day license suspension stayed in each case. None paid a fine, or received a license suspension, which would have resulted in lost sales for 10 days. However, this violation is now part of each of the licensees’ disciplinary records. Renwood was the one winery that chose to contest the accusation, and was represented by the San Francisco-based law firm Hinman & Carmichael LLP.

As a result of the ABC actions in connection with the 2014 event, the Sacramento Convention and Visitors Bureau ended up canceling the event in 2015 because wineries were afraid to participate due to the potential risk of ABC enforcement actions. Public outcry about this situation contributed to the addition of language in AB 776 to prevent such problems in the future.

Renwood Administrative Hearing and Proposed Decision

Hinman & Carmichael senior counsel John Edwards argued the case on behalf of Renwood, with founding partner John Hinman, before administrative law judge (ALJ) Nicholas R. Loehr at an ABC Administrative Hearing held April 28 in Jackson, California, in Amador County.

Edwards and Hinman argued that there was no evidence to support that Renwood provided a ‘thing of value’ to Save Mart. Without such evidence, the Department cannot establish a violation of Section 25520 (a)(2) and the accusation should be dismissed. Testimony at the Administrative Hearing also revealed that Renwood neither sold nor marketed any wine through Save Mart, and it had no commercial affiliation with Save Mart. The fact that Save Mart was the Grape Escape event’s title sponsor had no bearing on Renwood’s decision to participate. Renwood had participated in the event dating back to 2004, even prior to Save Mart being the title sponsor.

Edwards also argued that the ABC has the burden to show that the penalty imposed in this case will advance a legitimate government interest. Edwards cited related state and federal court case decisions that protect commercial free speech. It was argued that Renwood’s Facebook posting was protected commercial free speech and penalizing such speech is prohibited by the First Amendment.
ALJ Loehr evaluated the evidence presented and issue a Proposed Decision on September 22 for consideration by the ABC Director. Loehr agreed with many of the arguments presented by Edwards and Hinman on behalf of Renwood and concluded the ABC had not provided sufficient proof to support the accusation. Among the statements in the ALJ’s Proposed Decision:

“Under the unique facts and circumstances of this case, Renwood Winery did not violate Section 25502(a) (2).”
“There is insufficient proof to conclude that any benefit inured to Save Mart Supermarkets through the posting of the Save Mart Grape Escape logo on Renwood’s Facebook page.”
“The facts of this case do not establish any kind of relationship between a supplier (Renwood Winery) and a retailer (Save Mart Supermarkets).”
“Good cause was not established for suspension or revocation of the Respondent’s Winegrower license under Section 24200 (a) and (b) of the Business and Professions Code and Section 22 of Article XX of the California Constitution.”
“The Accusation is hereby dismissed.”

The ABC Director can adopt or reject the Proposed Decision. Although the ABC rejected the Proposed Decision in this case, it decided not to pursue the accusation further due to the recent legislation.
An Order dated November 30, 2015 signed by ABC general counsel Matthew Botting stated: “Subsequent to the filing of the subject disciplinary accusation and the submission of the Administrative Law Judge’s proposed decision, the Legislature enacted a new provision in the Alcoholic Beverage Control Act, Business and Professions Code section 23335.3 (AB 776, Cooper Ch. 591, stats. Of 2015), that will authorize the activities that formed the basis of the accusation. Although not effective until January 1, 2016, the authorization of the activities in question establishes good cause for the dismissal of the accusation in the interest of justice. It is hereby ordered that the accusation is dismissed.”

Hinman and Edwards noted that this outcome does not help those wineries who already accepted ABC disciplinary action in connection with their social media posts regarding the Save Mart Grape Escape. Hinman said, “They have no chance to go back and get this removed from their records. They passed up their chance to defend themselves. Renwood defended itself and won.”

Edwards issued the following comments on the case’s outcome: “In its Order, the Department rejected the ALJ’s Proposed Decision without explanation. Instead it dismissed the accusation against Renwood ‘in the interest of justice,’ because the Legislature had passed a statute that will permit wineries to engage in at least some of the activities that gave rise to the accusation. The Department did not address how the ‘interest of justice’ was served by the settlements it previously reached in its accusations against those other wineries that were required to admit they had violated the statute.

“The Department’s Order can be applauded only for having dismissed an unjustifiable accusation. On the other hand, the Department’s action leaves open the question of whether it will continue to adhere to the position that it is not required to show that its prosecutions of licensees serve any legitimate government purpose. Likewise, it remains unclear whether the Department acknowledges that the First Amendment protects the commercial speech of licensees to the same extent as any other commercial enterprise, as it most assuredly does. By dismissing the accusation, the Department avoided an appeal of the Renwood Winery case. However, avoidance of that appeal merely postpones the inevitable appellate resolution of the critical issues underlying that case and many others.”
 


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