[caption id="attachment_18662" align="alignright" width="292" caption="Ken English, Henry Evans and Rick Van Duzer"][/caption]
NORTH COAST – With the change in sales of higher-end wine in 2009, some winegrape growers found that the wineries they were selling to had more commitments to purchase grapes than the rate of case sales would warrant.
Carol Kingery Ritter, an associate in the business and real property department of Napa-based Dickenson Peatman & Fogarty, said some grower clients had buyers that didn't want to receive as much tonnage as had been contracted, partly from a shortage of cash and an increase in inventory related to sluggish case sales.
"We've seen people dealing with repudiated contracts, and some wineries are asking to renegotiate longer-term contracts," Ms. Ritter said.
This has been happening for both the one- or few-harvest contracts for fruit to expand or launch a brand and certain multi-decade agreements that lock in sourcing key to a brand image, such as a vineyard-designate wine.
Common legal tools growers use to get paid include California statutory producer's liens, called grower's liens; Uniform Commercial Code financing statements, or UCC-1; and "adequate assurance" letters, which ask whether the buyer can follow through on contractual obligations, namely buying at the specified price and quantity.
Yet with the close-knit nature of the North Coast wine business, legal experts stress that working out disagreements should be the first resort, particularly when considering the limited number of grape buyers in the market these days and the perishable nature of harvested grapes.
The producer's lien, provided for in Section 55631 of the state Food and Agriculture Code, gives the grower the right to attach the juice or wine made from the grapes. Growers don't have to declare that right, but they can waive it in a grape purchase contract. That lien supersedes most claims for payment.
However, grape-market conditions in 2009 and continuing into 2010 could complicate foreclosure on that lien in court, according to local wine law experts. Damages are determined basically by the contract price of the grapes minus the value of the processed grapes.
Trouble is, heavy discounting of a number of North Coast wines retailing for more than $20 a bottle created a situation in which the value of the wine could be less than the contracted price, which had been high until early 2009. That's when it became apparent the economic recession was curtailing consumption of expensive wine in general and in the important on-premise sales channel in particular.
Thus, the value of wine in tank and bottle could be worth less than the grape-to-wine formula used in setting the contract price, leaving the grower's lien undersecured.
Unless the early indications of stabilization in pricing for some higher-end wines seen at the end of 2009 continue into this year, growers could face a similar situation this year, according to wine law attorneys.
"In producer's lien law, the foundation is built on value being added in production, but when it's gone, leverage to get paid is less," said Ken English of Napa-based Gaw Van Male. "I've, in two occasions, said to wineries, 'We have a producer's lien; pay up,' and they told us, 'Do you want the wine back?'"