The Food and Drug Administration (FDA) is extending the compliance dates for updating the familiar Nutrition Facts labels, from July 26, 2018 to January 1, 2020, for manufacturers with $10 million or more in annual food sales. Manufacturers with less than $10 million in annual food sales will receive an extra year to comply – until January 1, 2021.

FDA explained that after considering a range of stakeholder comments, there was a need for manufacturers to have additional time to make required label changes. The approximately 18-month extension accomplishes this goal and will provide sufficient time to transition to the new version of the Nutrition Facts label. Finally, FDA said it is committed to ensuring that all manufacturers have guidance to help implement the required label changes by the upcoming compliance dates and the additional time will help FDA achieve that objective.

This month, the United States District Court for the Northern District of California issued an opinion in Arena Restaurant and Lounge, Inc. v. Southern Glazer’s Wine and Spirits, No. 17-CV-03805-LHK. The Arena case, also called Nguyen after its original named Plaintiff, seeks to certify a class action against Southern Glazer’s for a wide range of allegedly fraudulent, deceptive, and otherwise illegal acts related to the sale and distribution of wine and spirits in California. The court’s recent order, issued on April 9 and amended on April 16, 2018, dismisses all claims brought by the Plaintiffs in their Second Amendment Complaint (SAC). Significantly, however, the court will allow the Plaintiffs to file an amended complaint within 30 days in an attempt to cure defects in many of the SAC’s claims.

At the center of the Arena case are allegations that Southern Glazer’s engaged in practices such as selling to unlicensed persons and hiding such sales by recording them as sales to licensed retailers like the Plaintiffs. These “phantom” sales, in turn, allegedly created tax problems for the Plaintiff retailers. The SAC also alleges price discrimination between different retailers, selling to retailers without delivering the inventory in order to meet sales quotas, engaging in giveaways of free product to retailers, engaging in illegal “tie-in sales” practices, and a host of other alleged wrongs. The SAC packages these wide-ranging allegations into no fewer than eleven claims for relief.

Continue Reading District Court Dismisses Pending Trade Practice Case, With Leave to Amend

Changes in Administration and other political shifts can have subtle and, occasionally, not-so-subtle influences in the Alcohol and Tobacco Tax and Trade Bureau (TTB) policies and priorities. In the article, “TTB in a Deregulatory Mood” published by Artisan Spirit, Marc Sorini explores how the Trump Administration’s desire to reduce regulatory burdens on business has already influenced TTB’s regulatory priorities. Particularly, in the most recent “Unified Agenda,” a bi-annual compilation of federal regulatory initiatives, TTB placed a priority on deregulatory projects, several of which would alter the regulatory environment for the industry. Marc discusses how the change in administration appears to have an effect on TTB’s rulemaking efforts.

Access the full article.

Originally published in Artisan Spirit, Spring 2018.

On March 20, 2018, a federal district court in Texas issued an opinion in Deep Ellum Brewing, LLC, et al. v. Texas Alcoholic Beverage Commission. The court delivered a blow to Texas craft brewers, upholding Texas’ prohibition on sales of beer by brewers to consumers for off-premises consumption.

Texas authorizes the manufacture and sale of beer by persons holding a: (1) brewer’s permit (allowing the production of beer of more than 4% alcohol by weight (ABW)); (2) manufacturer’s license (allowing the production of beer of 4% ABW or less); or (3) brewpub license. Like many states, Texas’ alcohol beverage laws mandate separation among the three tiers of the alcohol industry: manufacturing, wholesaling and retailing. The three-tier laws generally require alcohol beverages to be sold from manufacturers to wholesalers, from wholesalers to retailers, and finally from retailers to consumers.

Continue Reading Federal District Court Rejects Craft Brewers’ Equal Protection and Due Process Challenge of Texas’ Ban on Brewer Off-Premises Retailing

On February 21, 2018, the US Court of Appeals for the Sixth Circuit published its opinion in Byrd v. Tennessee Wine and Spirits Retailers Association, No. 17-5552. The decision, which includes a partial dissent, affirms a Middle District of Tennessee decision finding that the “durational-residency” (residency) requirements imposed by Tennessee law for alcohol beverage retail licensees are unconstitutional under the “dormant” Commerce Clause.

Tennessee law requires an applicant for a retail license to have been a resident of Tennessee for at least the two-year period immediately preceding the submission of the license application. For corporate license applicants, the two-year requirement applies to any officer, director or stockholder of the corporation. Moreover, to renew such a license the law requires Tennessee residency for at least ten consecutive years.

Two prospective retail applicants that did not meet the two-year residency requirement, notably including the Tennessee affiliate of Total Wine Spirits & Beer, sought licenses. Expecting litigation, the Tennessee Attorney General filed a declaratory judgement action in state court seeking to have the residency requirements declared constitutional. The action was removed to federal court, and the Middle District of Tennessee found the requirements unconstitutional.

Continue Reading Durational-Residency Requirements for Alcohol Beverage Retail Licensees Held Unconstitutional

Two sections of Craft Beverage Modernization and Tax Reform Act (CBMTRA) that were dropped from the 2017 federal tax reform law were subsequently added to the Bipartisan Budget Act of 2018, signed into law by President Trump on February 9, 2018.

The new law mandates a temporary (two year) change in tax recordkeeping requirements for domestic breweries to eliminate duplicate reports and accounting obligations for breweries that have pub and sampling areas. The intent of the new law is to allow brewers to keep one set of books covering (a) beer removed from brewery for sale for distribution to retailers and (b) beer sold or provided for sampling to consumers at a brewery. Existing regulations and policies led to unnecessary complexity in accounting for brewers and for auditors from the Alcohol and Tobacco Tax and Trade Bureau (TTB). While the recordkeeping changes are required for calendar years 2018 and 2019, TTB may be able to make changes in regulations and policies that will provide permanent relief from unnecessary administrative burdens. Continue Reading 2018 Federal Budget Legislation Provides Breweries with Administrative Relief and Acknowledges 21st Amendment

On November 7, the US Food and Drug Administration (FDA) published the latest in a series of industry draft guidance documents to help implement menu labeling and nutrient disclosure regulations applicable to chain restaurants (Draft Guidance). FDA guidance documents are advisory in nature and represent the views of the FDA at a given point in time. Accordingly, guidance is subject to change, but is useful for developing a compliance plan for retail establishments covered by the menu labeling regulations. Changes are usually incremental and based on agency experience and input from regulated industry members.

The FDA established a 60-day period for comments on the draft menu labeling and nutrient disclosure guidance. The comment period ends on January 6, 2018.

The current compliance date for menu labeling and nutrient disclosure regulations is May 7, 2018.

Implementation of federal menu labeling and nutrient disclosures by chain restaurants is a study in modern American political and administrative processes. For those who already tried to comply with the formal FDA regulations and prior guidance, an explanatory note about delays in the administrative process appears at the end of this post.

Two sections of the Draft Guidance explicitly address alcohol beverages.

  • Guidance is offered for beer lists on menus and the discussion has broader application to wine and spirits products and cocktails that are standard menu items on chain restaurant menus.
  • Sources of nutrient information for beer, wine and spirits are also discussed to provide an alternative to expensive laboratory testing for each brand that a manufacturer offers.

The Draft Guidance also:

  • Includes several plain-language explanations of key terms in FDA regulations with useful distinctions between regular menu items and season or special items;
  • Displays a number of graphics designed to assist retailers with standardized formats to communicate calorie content of various foods to consumers and to distinguish menus from marketing materials;
  • Directs manufacturers and retailers to reliable sources and methods to prepare and display compliant nutrient disclosures; and
  • Provides information on presentation of mandatory standard menu notices alerting consumers to the federal government’s recommended 2,000 calorie diet and availability of nutritional information for standard menu items upon request to a server or manager at a retail establishment.

The FDA guidance and the formal regulations use subjective terms about legibility (e.g., contrasting, clear and conspicuous). Those terms aim to ensure that information is consumer-friendly, but they could lead to nuisance complaints from regulators. FDA regional personnel and local inspectors under contract with the FDA will monitor compliance with menu labeling regulations. Since chains will, by nature, have locations in multiple jurisdictions, consistency in enforcement poses a challenge to industry and government.

To mitigate regulatory risks, a conservative approach is advisable to mandatory disclosures. All aspects of calorie and nutrient disclosure should be reviewed by counsel or a knowledgeable compliance professional. The review should start with the manner used to ascertain calories and nutrients and continue through preparation and publication of new and easy-to-read menus and nutrient disclosures. While the regulations will inevitably lead to a standardized portion of chain menus, the Draft Guidance does not inhibit traditional point-of-sale marketing materials, graphics and other creative elements in a menu or associated marketing materials.

Why has menu labeling taken so long?

  • Menu labeling and nutritional disclosure requirements for chain restaurants are mandated by Congress in the Affordable Care Act of 2010 (better known as Obamacare).
  • A four-year rulemaking process on menu labeling ended with publication of a final rule on December 1, 2014. That rule is unchanged as of November 2017, and is found at 21 CFR 101.11.
  • A protracted debate occurred over the complexity of the rule and practical issues for food retailers who are responsible for compliance.
  • In 2015, Congress enacted an appropriations bill, which included a “policy rider” ordering the FDA to not to spend money on implementation and enforcement of the final rule until one-year after publication of a guidance document. Because appropriations bills deal with funding and not substantive policy, Congress provided no additional guidance to the FDA to clarify issues raised in the rulemaking and public controversies surrounding menu labeling.
  • The FDA published a “final guidance document” on May 5, 2016, with a new compliance date of May 5, 2017. Controversy continued, and the FDA extended the implementation date again to May 7, 2018.
  • The November 2017 draft FDA guidance document discussed above could be revised again following the 60-day comment period.
  • The compliance date remains May 7, 2018 unless extended again by the FDA or delayed by additional Congressional action.

Earlier this month, a Massachusetts Superior Court judge granted beer wholesaler Craft Beer Guild, LLC’s (Craft) motion to dismiss a civil suit, Shelton Bros., Inc. v. Craft Beer Guild, LLC d/b/a Craft Brewer’s Guild, brought against it by beer importer Shelton Brothers, Inc. (Shelton) in connection with Craft’s alleged breach of its distribution agreement with Shelton. Craft distributed beer imported by Shelton throughout Massachusetts.

In November 2016, Shelton filed a complaint alleging that Craft breached a 2009 oral agreement between Craft and Shelton by failing to follow through on its promises regarding pricing and providing two dedicated sales people to support Shelton’s brands. In its complaint, Shelton alleged that sales of its products were in “steep decline” by 2011 due to Craft’s discriminatory pricing of Shelton’s products in the market. Continue Reading Massachusetts Court Dismisses Brand Owner’s Suit against Wholesaler

Earlier this month, a Massachusetts state trial court judge issued a decision in the matter of Craft Beer Guild LLC d/b/a Craft Brewers Guild v. Alcoholic Beverages Control Commission. The court upheld a decision by the Alcoholic Beverages Control Commission (ABCC) finding violations of Massachusetts’ trade practice laws by a large beer distributor. The case originated in the Fall of 2014, when a craft brewer alleged on Twitter that a Boston retailer had removed the brewer’s brands from the tap because suppliers and distributors were paying retailers in exchange for those retailers carrying their brands. The ABCC launched an investigation that culminated in administrative charges against Craft Beer Guild LLC d/b/a Craft Brewers Guild (CBG) for violations of Massachusetts’ anti-price discrimination statute (Mass. Gen. Laws ch. 138, § 25A(a)) (the Statute) and an ABCC regulation prohibiting inducements by licensees (204 Code Mass. Regs. § 2.08) (the Regulation).

After a hearing, the ABCC found that CBG violated the Statute and the Regulation based on its alleged implementation of schemes with multiple retailers and third-party management companies working on behalf of the retailers to provide payments in exchange for the retailers committing tap lines to CBG’s brands. The payments allegedly involved fictitious invoices issued by the third-party companies to CBG, as well as CBG’s payment of at least $120,000 to the retailers and/or third-party companies.

In lieu of a suspension, CBG paid a record-setting fine of more than $2.6 million to settle the violations. CBG then appealed the ABCC’s decision in March 2016. In June 2017, CBG filed a motion for judgment on the pleadings. The Massachusetts trial court held a hearing in September 2017, and then a few weeks later issued the order denying the motion, dismissing CBG’s complaint and affirming the ABCC’s decision against CBG. Continue Reading Massachusetts Court Upholds Record $2.6M Fine against Beer Distributor

On September 29, 2017, the federal Alcohol and Tobacco Tax and Trade Bureau (TTB) issued Ruling 2017-2, which updates and supersedes older agency guidance on allowable returns of beer and malt beverage products that contain “pull dates” or other indicators of product freshness.

The Federal Alcohol Administration (FAA) Act includes a general prohibition on “consignment sales,” 27 USC 205(d). Congress believed that all transactions should be “bona fide” sales. Id. The intent was to prevent a wide range of unscrupulous practices that might occur if manufacturers and wholesalers furnishing alcohol beverages to retailers on consignment or with the right of return.

The FAA Act prohibition on consignment sales does not apply to “transactions involving solely the bona fide return of merchandise for ordinary and usual commercial reasons arising after the merchandise has been sold.” Id. TTB regulations provide an extensive list of reasons that a manufacturer or wholesaler can accept returns. 27 CFR, Part 11, Subpart D. Continue Reading TTB Issues Guidance on Application of Consignment Sales Regulations to Freshness Dating and Returns from Retailers