The Grapes Escaped - Why the First Amendment Matters
May 18th, 2015 | John Hinman & John W. Edwards II
For well over a decade, the Sacramento Convention & Visitors Bureau has held an annual wine and food tasting event that featured local Sacramento area wineries, breweries and restaurants. The SCVB has had at least two “title sponsors,” both of which were supermarket chains. Understandably, the title sponsors each had a portion of their corporate names included in the event title. The event was formerly known as the Raley’s Grape Escape and later as the Save Mart Grape Escape.
As you will learn, had we been suppliers of alcohol, instead of anyone else, the California ABC considers the last sentence of the previous paragraph to be a violation of California law, once it was published by a supplier on the internet or through social media. We could be prosecuted merely for publishing that name.
Really?? In America?? What about freedom of speech protected by the First Amendment?? The answers are contained in the remainder of this article. Fear not—the ABC will probably not prosecute you for reading this post, even if you are involved in the alcoholic beverage industry. No guarantees, however.
History of the Grape Escape
The annual event proved to be popular: in 2014, some 45 wineries, over 20 restaurants and 12 breweries presented their products for tasting to the over 5,000 people who attended. Tastings of alcohol were permissible because the California ABC issued to the SCVB a special non-profit license allowing them, as it had for every year of the event’s history.
The event seemed like a win-win for everyone. Over 5,000 people had an enjoyable time. Downtown Sacramento got a large influx of visitors. Local wineries, breweries and restaurants got the opportunity to introduce their products to the public. The event raised money for the Convention & Visitors Bureau, benefitting the city and its residents.
The ABC, however, “discovered” some nine [reportedly] wineries that had posted on their websites or on social media that they would be participating in the 2014 “Save Mart Grape Escape.” Because the title of the event included a portion of the name of a retailer licensed for off-premises sales of alcohol, the ABC charged that those postings constituted free advertising by a supplier of a retailer in violation of the tied-house law prohibition on a supplier providing a “thing of value” to a retailer – in this case the social media post from the supplier saying it would be at the event was the “thing of value.”
The retailer was also charged with receiving a prohibited “thing of value” (the same social media post) and all parties were informed that their conduct was unlawful, which of course means that no title sponsor events involving licensed retailers and licensed suppliers are lawful in California.
The ABC filed “accusations” (statutory misdemeanors if brought in court against the winery principals) against all of the wineries, eight of which settled and received a suspended sentence and a years’ probation (meaning they would not have their licenses actually suspended for this violation) if they have no further violations for a year.
This was not a warning, this was a prosecution. The wineries had to plead guilty to a violation, meaning that any subsequent offense would carry an enhanced penalty. Moreover, the violation would continue to be shown on the license file of the supplier and required to be disclosed (and explained) to other alcohol regulators in the US in connection with, among other required filings, applications for out of state product shipments requiring new permits. Failure to disclose the violation, it should be noted, carries a perjury charge in most jurisdictions so the potential consequences to the wineries that pled guilty were and are serious.
One winery, which we represent, contested the charge. The case was tried based on a First Amendment defense (as reported in Wine Business Monthly), but a result is not expected until August, at the earliest.
Meanwhile the Sacramento Convention & Visitors Bureau sent invitations to wineries, restaurant and breweries for the 2015 event. Only four wineries agreed to participate. The SCVB was forced to cancel the event. This result is a perfect lose/lose—governmental action that thwarts the public interest.
The ABC Reaction
On May 15, the Sacramento Bee published an article on these developments, quoting the Director of the ABC:
“I wish I knew why things shook out the way that they did. No one was fined and no one lost their license, although eight participants were put on probation, which is the Board’s weakest form of sanction.
What got these companies on probation was that in their marketing on web pages and social media, wineries asked customers to go to Save Mart to buy tickets to the Save Mart Grape Escape. That call to action by a producer to go to a specific retail location is a violation.
These laws are needed by the market so the small guys can get into the marketplace.
That is the disappointing part of this, this is the exact opportunity for the small wineries to get access to more customers.”
One factual issue needs to be addressed before we get into the substance of the Director’s comments. We do not know the specifics of what other wineries may have posted on the internet. Our client, which is defending itself against the charges, did nothing more than post on Facebook that it would be attending the event, using the proper name that contained a portion of the retailer’s name.
Commercial Speech And The First Amendment
It is arguable that merely stating where you will be on a certain date and using the proper name of the event is pure free speech, which is absolutely protected from governmental interference unless it falls within a few very narrow and clearly inapplicable exceptions. Because the Sacramento event had a commercial aspect to it for the participants, however, it is reasonable to analyze the postings as commercial speech, which has slightly lesser protection than pure speech.
As discussed in our earlier Booze Rules posts, the government is precluded from prohibiting or penalizing truthful and nonfraudulent commercial speech unless it satisfies the burden of proving that its actions pass the Central Hudson test:
· The restriction on speech must substantially further a legitimate government interest, and
· It must do so in the narrowest possible manner.
The ABC’s prosecutions of the wineries for their activities in connection with the Save Mart Grape Escape cannot pass muster under Central Hudson.
The ABC Director stated the governmental interest underlying the tied house laws: preventing large wineries from dominating local markets, so “small guys can get into the marketplace.” Of course, events like the Save Mart Grape Escape provide great opportunities for smaller wineries to introduce their wines to the public, and, with 45 wineries participating, there was virtually no risk that one would somehow dominate the Sacramento market, either directly or by currying favor and influence with the title sponsor.
Assuming for the sake of argument that the government does have a legitimate interest in protecting small wineries from commercial domination by large competitors in the national retail chain store marketplace, do the ABC’s prosecutions in this case advance this interest? The answer is obviously no. The commercial speech at issue simply informed consumers about the event and advertised that the supplier would be there. It did not tout Save Mart Supermarkets. If the event itself served the governmental interest by providing a mechanism for the small suppliers to have their products exposed to the public, how does prohibiting participants from telling anyone about the event advance that interest?
But wait---there’s more! In its November 8, 2014 article about the wave of ABC prosecutions, the Sacramento Bee reported that the prosecutions had been initiated not by diligent detective work from the ABC, but, rather, on a tip from an unnamed billion-dollar winery that uses its legal department to scour the internet for violations by its smaller competitors. Assuming that to be true (and only the ABC knows for sure), these prosecutions have had the ironic effect of advancing market domination by the large winery, which has successfully chilled the commercial speech of its smaller competitors and shut down an event that, as the Director puts it, provides “the exact opportunity for the small wineries to get access to more customers.”
What Should Be Done
The lamentable results of the ABC’s prosecutions were entirely avoidable and can still be rectified, at least to some extent. The Sacramento Convention & Visitors Bureau says it is too late to save the 2015 event, but future years and other similar events - this is not just about the Save Mart Grape Escape but about every retailer title sponsored event in the state where alcoholic beverage suppliers are involved - could be salvaged.
The ABC has broad discretion to apply California’s tied-house laws to advance legitimate interests, which include the economic health of the small producers of this state. We believe that the ABC is required to apply those laws in a manner consistent with the First Amendment, the best interests of California’s alcoholic beverage producers and retailers and, most importantly, common sense.
We are defending our clients based on these principles and we will continue to do so until we get court rulings deciding these issues (which are at stake in other cases as well) one way or another. Those rulings will be coming.
However, given the adverse and apparently unexpected consequences of these prosecutions, the ABC should reconsider, withdraw all of the charges and void the plea agreements. We believe that the First Amendment requires no less.
That result would require the ABC to eat a bit of crow by admitting that the charges should not have been brought in the first place. We suggest that a nice, plummy Zin from one of the fine Sacramento area wineries might make the meal more palatable.