Mislabeling of food items has not been a high priority in past years. However, the issues that have happened in China with olive oil and in the U.S. with “organic” food and the money that the mislabelers make while they deceive consumers is no longer going unnoticed. If your company makes a product or food item that is not properly labeled, understanding the risks is important.
Federal regulations govern, and some companies do not realize that there is civil and criminal exposure if they are violated. A recently filed case may help companies realize the high risks and why compliance is important. It also shows how hiding facts, creating false records or deceptive acts may turn a civil lawsuit into a criminal case.
On November 2, 2016, former winemaker Jeffry Hill was indicted in San Francisco for mail fraud and wire fraud in connection with his operation of a Napa Valley-based wine company Hill Wine Company (“HWC”). These are allegations and not evidence but for companies and individuals just being charged is something to be avoided.
HWC was in the business of making and selling wine and wine inputs, such as pre-fermented grape juice, among other things. HWC operated a winery and tasting room in Napa County, Calif., on the Silverado Trail, and used winemaking equipment at other facilities, owned by others, in Napa County and Sonoma County. The Indictment alleges that Hill defrauded HWC’s customers by misrepresenting the geographic origin and grape varietal of the wine and wine products that he sold, thus causing customers to pay more than they would have otherwise, or to buy products that they would not have otherwise.
Federal regulations establish “American Viticultural Areas,” or AVAs, which are geographically delineated regions with particular wine growing characteristics. The Napa Valley AVA is one such AVA in California. Under federal regulations, wine can only be labeled as originating from a particular AVA if not less than 85% of the liquid volume of the wine is derived from grapes grown within the boundaries of the AVA.
Similarly, Hill allegedly misrepresented as cabernet sauvignon wine that was made from other varietals of grapes. According to the indictment, customers paid over $1,500,000 for fraudulently mislabeled wine, grape juice, or wine products.
When federal authorities decide to proceed criminally instead of civilly, it’s often because they believe they’ve found evidence of acts to conceal and hide (such as false records) or destroy evidence his scheme to defraud. Among the things Hill allegedly did to hide his conduct was, according to the Indictment:
-- alter or create false bills of lading and other records;
-- maintain false records of inventory so as to misstate the geographic origin or varietal of grapes, wine, or grape juice in his company’s inventory;
-- falsely state to his company’s employees that grapes grown outside of Napa Valley were grown in Napa Valley;
-- move grapes or wine between his company’s three facilities to obscure the origin of the grapes;
-- instruct employees who picked grapes to mislabel the origin and varietal of grapes that they picked; and
-- instruct grape growers outside of the Napa Valley AVA never to tell anyone that he, through his company, had bought grapes from them.
In all, Mr. Hill was charged in the indictment with four counts of mail fraud, in violation of 18 U.S.C. § 1341; and four counts of wire fraud, in violation of 18 U.S.C. § 1343. An indictment merely alleges that crimes have been committed, and all defendants are presumed innocent until proven guilty beyond a reasonable doubt.
The prosecution is the result of an investigation by the Alcohol and Tobacco Taxand Trade Bureau (TTB) who regulate labeling of wine and the Internal Revenue Service-Criminal Investigation.