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[caption id="attachment_28758" align="alignleft" width="216" caption="Katherine Philippakis, Carrie Peters"][/caption]

A number of wineries recently have contacted the California Department of Alcoholic Beverage Control, or ABC, on their participation in charity events orchestrated by third-party advertising services.

The ABC's recent scrutiny of these events suggests that it is taking very seriously the matter of winery compliance with the regulations governing winery participation at charitable events.

Specifically, wineries are allowed to pour wine at charitable events only if they comply with the provisions of Rule 53, Title 4 of the California Code of Regulations.

The first important aspect of this regulation is that it applies only to "winegrowers," or those who hold a Type 02 license from the ABC. So, it does not allow wholesalers (also often called "virtual wineries" because they have wine custom produced for them by another winery) to participate in charity wine tastings.

Conditions for Rule 53

Those who are licensed as California winegrowers may conduct wine tastings that are sponsored by a bona fide charitable, fraternal, political, religious, trade, service or similar private organization if certain conditions are met.

Here are relevant conditions:

-- The sponsoring organization must be a nonprofit organization.

-- Attendance must be limited to members of the sponsoring organization and their invited guests (i.e., not open to the public).

-- No charge or donation shall be made either for the wine served or for admission to the premises. This prohibition applies only to participating wineries. The charity may charge admission, accept donations and charge for wine served.

-- Wineries cannot advertise or publicly announce the event as a tasting. The charitable organization may advertise the event.

-- Sales and solicitation of sales are prohibited. That includes placing order forms around the premises. However, a winery may distribute brochures describing the wines and listing their prices, but these cannot be forms for ordering.

-- No wine may be given as a gift or prize to be taken home.

-- Wine can be offered for tasting on unlicensed premises.

-- The tasting also may be held on premises with an on-sale retail license, such as a restaurant. However, the tasting must be held in a room or some other area completely separated from where alcoholic beverages are sold.

For example, a charity tasting could be held in a private banquet room of a restaurant. Alternately, the restaurant could be closed for the event so no alcoholic beverages would be sold during the tasting.

-- If the tasting is held on licensed premises, the retail licensee (i.e., the restaurant) must surrender its license for the day in question. At the same time, the charity must obtain a one-day permit from the ABC, licensing the organization to host the event.

A common problem with Rule 53

One of the ways wineries often run afoul of Rule 53 is failing to verify that the charitable organization has indeed pulled a one-day permit from the ABC.

Technically, before participating in such an event, the winery should contact the nonprofit and ask for a copy of the one-day permit. The winery should file the copy and be able to produce it if the ABC conducts an audit.

Although the ABC historically has overlooked wineries' failure to comply with this particular requirement, recent experiences by our office in dealing with the agency suggests that they will take this requirement more seriously in the future.

Unless a winery actually sees a copy of the charity's one-day permit, it has no effective way to verify that a permit has actually been obtained. And because the winery itself is a licensed entity, it has more to lose if it is found out of compliance.

For this reason, we cannot stress too highly that wineries need to conduct due diligence on a charity event before agreeing to participate.

Record-keeping for Rule 53

In addition to the regulations identified above, wineries are also subject to a number of record-keeping regulations outlined in Rule 53.

Wineries must retain records of how much wine was furnished to the charity and how much wine was actually consumed at the event. The records must include the brand, class and type of each wine being provided (e.g., six bottles of John Doe 2007 chardonnay).

The records also must include information on the event itself, including date, location and the nonprofit's name and address.

The winery must retain these records for three years and make them available to the ABC upon request.

Finally, although not specifically addressed in the regulations, the ABC has taken the position that wineries must keep a record of the value of the wine donated to the charity event and has asked wineries to produce copies of letters from the charity attesting to the value of the donation.

Thus, as a matter of course, we suggest wineries automatically ask for such a letter when agreeing to participate.

Similarly, we suggest that wineries create simple forms for internal use that include all the information described above and get into the habit of filling out such forms when agreeing to participate in a charitable tasting event.

Pouring wine at a charitable event can be a very effective way of raising a winery's marketing profile and generating loyalty among consumers who support the nonprofit organization. By closely adhering to the regulations described above, wineries can be comfortable that their participation in such events will not subject them to unwanted regulatory attention or action, which we suspect will become more and more frequent.

•••

Katherine Philippakis (kp@fbm.com) is a partner and chair of the wine industry practice at Farella Braun + Martel LLP (www.fbm.com), a San Francisco-based law firm with a wine-focused St. Helena office. Carrie Peters (cpeters@fbm.com) is the firm's beverage alcohol specialist.