United States: Two Cases: Wineries And Regulators Are A Unique Blend

Last Updated: April 21 2016
Article by Michael A. Walsh

Regulatory enforcement can threaten the existence of wineries and small producers. First, the financial costs of regulatory inspection can be high, and new laws and regulations have given the government significant new authority. Further, when the regulator determines that a winery's products are "adulterated," the specter of civil and criminal penalties is significant. Governmental inspections and enforcement actions follow a predictable course and understanding the process is critical.

The wine industry has a long history of regulation but for hundreds of years that regulation focused on commerce and quality. Wine safety may not be mere regulatory overreaching. It has been theorized that wine played a part in the fall of the Roman Empire (here). It is uncertain precisely how or if wine quality actually contributed in any way to the fall of Rome. The reports are unclear on whether it was lead in the water, grapes, bottles, lead foil or the lead crystal decanters. But what is certain is if the Romans had a juice Hazard Analysis and Critical Control Point (HAACP) program the world might be a very different place. The American wine industry is under the watchful eye of a number of regulators, including the U.S. Department of the Treasury's Alcohol and Tobacco Tax and Trade Bureau (TTB) (formerly the Bureau of Alcohol, Tobacco, and Firearms) and the Food and Drug Administration (FDA), agencies with concurrent jurisdiction working together under a 1991 Memorandum of Understanding (MOU) "on a case-by-case basis." Case-by-case is how the FDA characterizes the relationship but the wine industry should not read that too literally, at least not yet. Two recent actions are of note for wineries. First, Mira Winery experimented with aging wine in the Charleston harbor. In response, on March 17, 2015 the TTB issued an Advisory stating:

The Alcohol and Tobacco Tax and Trade Bureau (TTB) is providing the following guidance in response to recent interest in the aging of wine under ocean waters.

TTB has consulted with the FDA to determine whether wines aged under ocean waters would be considered adulterated under the Federal Food, Drug, and Cosmetic Act. It is TTB's position that wines found to be adulterated under the FD&C Act are considered mislabeled within the meaning of the Federal Alcohol Administration Act (FAA Act), which TTB enforces.

The FDA has advised us that aging wine in a way that bottle seals have contact with sea or ocean waters may render these wines adulterated under the FD&C Act in that they have been held under unsanitary conditions whereby they may have become contaminated with filth or may have been rendered injurious to health.

By the way, that "unsanitary filth" is commonly known as the Atlantic Ocean, the same ocean in which our children swim and seafood flourishes. It will be for history to determine whether this regulatory action thwarted innovation or saved civilization from the microscopic potential for exposure to the elements in our seas. It should not be overlooked that determining whether wine is adulterated is for the FDA to decide.

Second is an enforcement action resulting in a Warning Letter from the FDA to a winery, and a couple of issues stand out. Post Winery, of Altus, Arkansas, in the heart of the Ozark Mountain American Vinicultural Area (AVA), America's sixth largest AVA located in the Ozarks of North West Arkansas. The winery's wrongdoing was failing to have an adequate HAACP plan for fruit juice. This is only the second reported Warning Letter the FDA has issued to a winery. Post Winery had responded in writing to the FDA on multiple occasions but to no avail. On March 22, 2016, the FDA issued a Warning Letter. FDA enforcement actions ordinarily begin with an inspection, and then escalate to issuance of a Form 483 (which is detailed itemization of violations) and the next step in the enforcement process is a Warning Letter. If a producer's response to the Warning Letter is not sufficient, then enforcement gets serious. The worst thing a winery and small producer can do is not respond at all, the next worst is to respond inappropriately by not understanding how to communicate with the FDA. The good news for Post Winery is that Due Process allows them to respond and hopefully satisfy the FDA that the corrective actions it has taken are sufficient. Irrespective of the outcome for Post Winery, what all wineries and small producers should heed from this enforcement action is that the FDA has the power to impose costs. Here is what the FDA Warning Letter states about costs:

Section 743 of the Act authorizes FDA collect fees to cover FDA's costs for certain activities, including re-inspection costs. A re-inspection is one or more inspections conducted subsequent to an inspection that identified noncompliance materially related to a food safety requirement of the Act, specifically to determine whether compliance has been achieved. Re-inspection-related costs means all expenses, including administrative expenses, incurred in connection with the FDA's arranging, conducting, and evaluating the results of the re-inspection and assessing and collecting the re-inspection fees.

The ability to charge re-inspection fees is a newly bestowed power granted by Congress to the FDA that was packed inside the regulatory gift basket Congress awarded the FDA in the Food Safety Modernization Act of 2011 (FSMA). The amount of the fee is not set under FSMA but the Act authorizes the FDA to levy a fee to reimburse the agency for all of its costs and expenses for any re-inspection.

For small wineries and producers a clarion call in these recent enforcement actions is that under FSMA safety does not require an adverse outcome or even a realistic prospect that the product will actually be adulterated or cause any adverse health effect. To borrow a phrase from Vice President, Joe Biden, FSMA is a "big #!*^&@^ deal that has ushered in a "paradigm shift" from responding to outbreaks to preventing them in the first place. In both enforcement cases discussed here, the government regulatory action rendered the products adulterated. Under the FDCA, placing adulterated products in the stream of commerce can result in significant civil penalties and injunctive relief and criminal misdemeanor charges for those in positions of responsibility. As with FSMA itself, an ounce of prevention is worth a pound of regulatory cure. For wineries and small producers, learning how to deal with the FDA before it arrives should be at the top of the menu.

Stay tuned for future reports on regulatory enforcement focused on adulteration and labeling for wineries and small producers.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Michael A. Walsh
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