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Michigan wine shipping lawsuit targets Napa vintner, 3 others

Sampling of states with restrictions on wine shipping

Utah & Mississippi

Both states prohibit direct to consumer shipments. In Utah violations are a felony.

Delaware

Direct shipments via common carrier are prohibited. Under Federal Law passed in 2002, Delaware residents visiting on-site at a winery may have wine shipped back to Delaware for their own personal use.

Arkansas

Off-site direct-to-consumer sales are prohibited, however, Act 483 of 2013 allows wineries holding a Wine Shipping Permit to ship up to 1 case of wine in any calendar quarter to an Arkansas consumer who purchased the wine on the premises of the winery. Arkansas consumers must participate in an on-site sale in order for wine to be shipped directly to them.

Rhode Island

The direct shipment of off-site sales (phone, fax and internet orders) are prohibited. Effective July 13, 2001, Rhode Island changed from a state requiring consumer permits for direct shipment to a limited shipping state whereby Rhode Island residents must participate in an on-site sale in order for wine to be directly shipped to them. The law permits out-of-state wineries to ship wine orders that are personally placed by the purchaser at the manufacturer’s premises, for shipment to an address in Rhode Island, for non-business purposes.

Michigan is suing three wineries, including one in the Napa Valley, plus a wine retailer alleging they shipped wine into Michigan without obtaining the proper licenses.

The four lawsuits, filed by Michigan Attorney General Dana Nessel on May 5, come at a time of online sales growth for the wine industry and as more and more states are loosening regulation on shipping wines across state lines.

Michigan allows such shipments only by companies holding a “direct shipper” license.

Defendants in the Michigan suits are Calistoga’s Villa Amorosa (doing business as Castello di Amorosa), Schmidt Family Vineyards LLC in Oregon, Lamberts Vintage Wines LLC in West Virginia, and Taste Wine LLC in New York City. The lawsuits claim that the defendants shipped wines to Michigan before and after receiving state cease-and-desist letters.

Documents submitted to the U.S. District Court for the Western District of Michigan stated Michigan Liquor Control Commission investigators worked undercover acting as consumers wishing to purchase wine directly. They went to each merchant’s website and placed orders online.

“All of these entities were warned in advance to stop making illegal sales and shipments into Michigan by the attorney general via cease-and-desist letters. They failed to heed these warnings prior to the suits being filed,” said Lynsey Mukomel, press secretary in the office of public information & Education in the Michigan Department of Attorney General.

She indicated that concerns had arisen over several years among local distributors, industry leaders and organizations, such as the Michigan Beer & Wholesalers Association who believed that wine from other states was entering Michigan in violation of liquor control laws.

“We applaud Attorney General Dana Nessel for her aggressive approach to stopping out-of-state retailers from illegally shipping into Michigan,” said Spencer Nevins, president of the Michigan trade group in a statement published in MiBiz on May 17. “Her efforts send a clear message to out-of-state retailers that have been skirting state law, putting Michigan consumers at risk and cheating the state out of much-needed tax revenue. It’s time to stop violating Michigan law or you will be caught and prosecuted to the full extent of the law.”

In the case of Castello di Amorosa, in November 2018 a Michigan investigator reviewed a common carrier report that UPS had submitted to the commission in accordance with Michigan laws concerning shipments of wine into the state in 2017. The UPS report in the court filing showed that 621 shipments were sent to Michigan addresses by Castello di Amorosa.

Based on these finding, the Michigan attorney general sent a cease-and-desist letter by certified mail with return receipt requested to Castello di Amorosa’s mailing address on or about Dec. 9, 2019. Additional copies of the letter were sent to the California Secretary of State as well as to a second address licensed by the California Department of Alcoholic Beverage Control for Castello di Amorosa.

The letters included excerpts from the UPS common carrier report for April 2017 reflecting 621 shipments of alcoholic liquor into Michigan by Castello di Amorosa. It also said that this practice is illegal without a direct shipper license, and that legal action would result if Castello di Amorosa continued its illegal activity, according to the complaint document.

To determine whether Castello di Amorosa discontinued its illegal shipments after Dec. 9, a liquor commission investigator reviewed the UPS common carrier reports for January 2020 through June 2020. The court documents state that UPS reports showed that Villa Amorosa continued to ship wine into Michigan after receiving the cease-and-desist letter.

On Oct. 13, 2020, a Michigan commission investigator placed an order on the Villa Amorosa’s website to buy and ship one 750 ml bottle of cabernet sauvignon wine, which was received about a week later by the investigator’s wife in Ferndale, Michigan, according to court documents.

Consequently, the formal complaint says that “all nonjudicial means of restraining Villa Amorosa from engaging in these violations and enforcing compliance with these Michigan laws has proven inadequate.” Therefore, the Plaintiff (the Attorney General) has requested relief that would enjoin Villa Amorosa from continuing to violate applicable provisions of the Michigan Liquor Control Code.

The lawsuit states that the Michigan Consumer Protection Act provides for penalties for each violation of that law up to $25,000, including injunctive relief and costs and that the defendant is liable for, and that it should be assessed cumulative civil penalties for each violation of that law, including violations learned of during discovery, along with reimbursement of investigative expenses incurred, as well as an award of costs and attorney fees.

Sampling of states with restrictions on wine shipping

Utah & Mississippi

Both states prohibit direct to consumer shipments. In Utah violations are a felony.

Delaware

Direct shipments via common carrier are prohibited. Under Federal Law passed in 2002, Delaware residents visiting on-site at a winery may have wine shipped back to Delaware for their own personal use.

Arkansas

Off-site direct-to-consumer sales are prohibited, however, Act 483 of 2013 allows wineries holding a Wine Shipping Permit to ship up to 1 case of wine in any calendar quarter to an Arkansas consumer who purchased the wine on the premises of the winery. Arkansas consumers must participate in an on-site sale in order for wine to be shipped directly to them.

Rhode Island

The direct shipment of off-site sales (phone, fax and internet orders) are prohibited. Effective July 13, 2001, Rhode Island changed from a state requiring consumer permits for direct shipment to a limited shipping state whereby Rhode Island residents must participate in an on-site sale in order for wine to be directly shipped to them. The law permits out-of-state wineries to ship wine orders that are personally placed by the purchaser at the manufacturer’s premises, for shipment to an address in Rhode Island, for non-business purposes.

Jim Sullivan, Castello di Amorosa vice president public relations and marketing, responded via email Monday that the winery would have no comment at this time.

Documents describing all four defendants’ alleged violations of Michigan’s laws were obtained as public record copies from the office of the Michigan attorney general.

Similar sting scenarios were conducted by the Michigan regulator for the other three defendants following the delivery of cease-and-desist letters sent to their business addresses.

This is not the first time that Michigan has filed lawsuits against California companies allegedly shipping wine and beer directly to Michigan consumers. In October 2020 Nessel filed 21st Amendment Enforcement Act lawsuits against Go to Gifts Inc. based in Camarillo, doing business as The BroBasket, and the Vintner’s Collective, based in Napa Valley.

Companies like DH Wine Compliance in Santa Rosa are set up to help wineries maneuver through the regulations in shipping to other states.

“Law complexity has always been there, especially in recent times where new things come up or issues related to how state-to-state, wine-related statutes have been and are currently interpreted,” said Crystal Hollingsworth, out-of-state compliance specialist with DH Wine Compliance. “Our team is constantly talking with state compliance people, sometimes to verify the validity of what we hear to see if it is a personal opinion, or an actual letter-of-the-law determination based on how the legislation was written. We help navigate these regulations for hundreds of clients and collect and filter down requirements to them so the rules make sense and also so they know what each state will be asking for when it comes to reports and record-keeping. ”

She said some wineries maintain two customer lists, one for on-site and another for off-site sales rules. At other times, the wineries and regulators have done things the same way for years and now new rule-making is reinterpreting the laws to mean something else, such as redefinitions focusing on who actually crushes grapes for wine as part of their own production operations versus those that buy bulk wine.

At one time New Jersey would charge different license fees based upon how much wine is being produced, but a few years ago the state re-interpreted what their regulations stated and said that all licensees had to pay the maximum license fee, not on a sliding scale. It was an example of how states decide to re-interpret and/or fix previously interpreted regulations

According to Linda Fox, president of Compliance Connection Inc. of Santa Rosa, announcements about more states embracing direct-to-consumer (DTC) wine shipping are happening fast as markets continue to open up, evidenced by Kentucky becoming the 46th state to allow it in 2020 and Alabama set become the 47th state to permit DTC on Aug. 1. Back in 2,000, 32 states were opening up to provide DTC, with one or two more states added each year.

“At the same time, there are more fees to worry about and additional regulatory requirements, such as reporting where wines are warehoused, destinations where wines are shipped and to whom, sales taxes at the city level, excise taxes and details down to liters and gallons shipped not just cases delivered, in some instances,” she said.

Fox noted that in 2020 there was a marked increase in wine shipment record audits going back two to three years for tax reporting purposes. Overall, she said, there is little uniformity in state by state shipping rules and a lot of disparity.

“Something is definitely going on in Michigan,” Fox said. “I had a client there that moved a winery to a new location but did not update the license until the deadline for the yearly renewal. My client was served with a legal action for not reporting it sooner.”

Lisa Hayes, president and owner of Coastal Compliance Corporation, an alcohol compliance agent in Massachusetts, said 90% of her clients are in California.

“Fees are increasing, and wine laws are changing every day. I rely on liquor control boards for information, updates and alerts to pass along to my clients and agents. I also follow up with my own research – including going on the Wine Institute’s website to check the latest changes occurring in every state.”

Hayes said her clients do everything by the book and want to do what is right. “ I tell them if they are shipping to a new state, get a license right away.”

Jeremy Benson is executive director of Free the Grapes, based in Napa. It is a national coalition of wine consumers and wineries seeking to expand consumer choice with legal, regulated beverage alcohol DTC in all 50 states.

He said U.S. consumers are increasingly enjoying the convenience and safety of having such goods shipped directly to them because of COVID-related restrictions, but this is not true in a few states. For example, Utah, Mississippi and Delaware still ban alcohol DTC. Arkansas and Rhode Island place restrictions on consumer access to wine except through on-site sales at a winery premises.

“We keep the issue alive when it comes to laws that should be changed that limit consumer choice, especially in states where legislative action is being considered or under review. We also strive to energize consumers by showing them what they can do personally by reaching out to public officials, expressing their views and sending messages to their state representatives.”

Editor’s note: This story has been updated to clarify the laws regarding fees for wines shipped to New Jersey.

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