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.
