Your Hours May Be Set by Your Landlord: The Continuous Operation Clause in Restaurant Leases

RESTAURANT LEASING:

PART 4 OF 5

Most landlords will insist on including a continuous operation clause in a restaurant lease. These clauses require a tenant to be open for business continuously during the term of the lease on specific days and at hours dictated by the landlord. It is in the landlord’s best interest to make sure it’s tenants are fully operating because this attracts customers. More customers increase a tenant’s sales, which in the case of a lease with percentage rent, means more rent owed to the landlord. While these clauses vary considerably from one lease to another, it is important to read and understand them before you enter into a long-term agreement as continuous operation clauses have several hidden problems that could affect the unsophisticated restaurant tenant.

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President Signs Mandatory GMO Labeling Law: What You Need to Know

Last week President Obama signed the National Bioengineered Food Disclosure Standard into federal law. The law mandates disclosure of genetically modified organisms ("GMO") on food labels. The law directs the U.S. Department of Agriculture ("USDA") to establish, within two years, a nationwide mandatory disclosure standard for bioengineered foods and the labeling procedures. This means that the law itself does not define the standard, but instead gives the USDA significant discretion to define and implement the required disclosure.

Read more here: http://www.morsellaw.com/blog/2016/8/4/president-signs-mandatory-gmo-labeling-law-what-you-need-to-know

Food Recalls: Does Your Insurance Policy Cover "Reasonable Probability" of Contamination?

Many food businesses, after conducting a risk assessment, will purchase some form of recall insurance (commonly referred to as product contamination insurance). These recall policies typically provide coverage for "actual" contamination, meaning for coverage to kick in the consumption or use of the product must have resulted in bodily injury and/or property damage. To date, recalls were voluntary and initiated by the company. However, earlier this year the final rules were issued under the Food Safety Modernization Act ("FSMA"), which provide FDA with the authority to mandate recalls for food products if there is a "reasonable probability" that the food product is adulterated or misbranded and the use and/or exposure to the product would cause serious health consequences or death.

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Food Recalls: Does Your Insurance Policy Cover "Reasonable Probability" of Contamination?

Many food businesses, after conducting a risk assessment, will purchase some form of recall insurance (commonly referred to as product contamination insurance). These recall policies typically provide coverage for "actual" contamination, meaning for coverage to kick in the consumption or use of the product must have resulted in bodily injury and/or property damage. To date, recalls were voluntary and initiated by the company. However, earlier this year the final rules were issued under the Food Safety Modernization Act ("FSMA"), which provide FDA with the authority to mandate recalls for food products if there is a "reasonable probability" that the food product is adulterated or misbranded and the use and/or exposure to the product would cause serious health consequences or death.

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Are Your Beer Ingredients Exempt from TTB Formula Approval?

Craft brewers continue to experiment with a wide variety of non-traditional ingredients to concoct new and exciting beers. For example, Fulton's HefeWheaties (a Wheaties-themed Hefeweizen), Oxbow Brewing's Sasion Dell'Aragosta (brewed with live Maine lobsters and sea salt), Porterhouse Brewing Company's Oyster Stout (you guessed it...made with live oysters!), and Short's Key Lime Pie (made with fresh limes, milk sugar, graham crackers and marshmallow fluff). From these limited examples you can only imagine where brewers will go from here. 

The use of new and novel ingredients in beer is not prohibited by the Alcohol and Tobacco Tax and Trade Bureau ("TTB"). However, if a brewer intends to use an ingredient in a beer that is not on the TTB exemption list, then the brewer is required to obtain formula approval (or a pre-import approval for imported beer) from the TTB.

In December 2015, the TTB issued Ruling 2015-1, which re-states and supersedes Ruling 2014-4, by adding more than 50 new ingredients exempt from the formula requirements, including ingredients such as tea, jasmine, rosemary, grapes and figs (a complete list of exempt ingredients is listed here). Although this new ruling has exempted many flavoring materials added to beer, including several fruits and spices, sugars, chocolate, tea and coffee, it does not (and cannot due to existing regulations) exempt flavorings and extracts, which continue to require formula approval prior to use. For example, while a brewer can add watermelon, strawberry juice, strawberry puree or strawberry concentrate to a beer without obtaining formula approval, adding a strawberry flavor still requires formula approval.

Ruling 2015-1 was issued by the TTB in response to a petition filed by the Brewers Association requesting to expand the list of exempt ingredients. Although the TTB did not exempt all the ingredients requested by the Brewers Association, the TTB remains open to future petitions regarding additional ingredients. A procedure for such a petition is located at 27 C.F.R. § 25.55(f).

If you have any questions about beer regulations or formula requirements please contact our attorneys at Morsel Law.

Food Importers Required to Verify Foreign Suppliers

As I'm sure those of you in the food import business are aware, FDA finalized its rule on Foreign Supplier Verification Programs (“FSVP”) for Importers of Food for Humans and Animals. The rule requires that importers implement a FSVP to verify that their foreign suppliers are producing food in a manner that provides the same level of public health protection as the preventive controls or produce safety regulations, and to ensure that the supplier’s food is not adulterated and not misbranded with respect to allergen labeling.

If you import food into the U.S. you must comply with the requirements under the rule or face regulatory action. The following is an overview of rule and what your business can do to comply its requirements.

What Importers Are Affected:  The rule applies to all importers of food into the U.S. An “importer” is the U.S. owner or consignee of food that is being offered for import or, if there is no such owner or consignee, the U.S. representative or agent of the foreign owner or consignee at the time of entry.

What Food Is Covered: The FSVP Rule applies to all food that is imported or offered for import into the United States. Certain foods are not covered by FSVP, including (1) juice and fish that complies with FDA’s Hazard Analysis and Critical Control Point (“HACCP”) regulations; (2) food for research or evaluation; (3) food for personal consumption; (4) alcoholic beverages; (5) food that is imported for processes and future export; (6) low-acid canned foods; and (7) certain meat, poultry, and egg products that are regulated by the U.S. Department of Agriculture at the time of import. The rule also sets forth modified requirements for importers of dietary supplements and dietary supplement components, very small importers, and importers of food from certain small foreign suppliers.

Importer Requirements Under Rule: Each importer must develop an FSVP that ensures “foreign suppliers” are producing food in a way that provides the same level of protection as what is required under the Preventive Controls Rules and the Produce Safety Rule (if applicable) and ensure that the supplier’s food is not adulterated and is not misbranded with respect to allergen labeling. A “foreign supplier” is an entity that manufactures, processes or grows food, or raises animals that are exported to the U.S. without further manufacturing or processing.

What Must Be Included:  An FSVP must be developed by a “qualified individual” who must perform the various activities and be able to read and understand the language of any records that must be reviewed. In developing an FSVP, an importer is required to conduct and document the following activities:

• Hazard Analysis: An importer must complete a written hazard analysis that identifies potential hazards for each food and each supplier, including biological, chemical (including radiological) and physical hazards.
• Risk Evaluation: An importer must evaluate the risk posed by a food, based on the hazard analysis, and the foreign supplier’s performance. Factors that importer’s must consider in the evaluation can include the foreign supplier’s procedures, processes and practices related to food safety, and any information that FDA may have regarding the foreign supplier’s compliance. The importer can also rely on another entity to perform the risk evaluation under certain circumstances.
• Verification Activities: Based upon the evaluation of risk conducted, the importer must establish and follow written procedures to ensure that it only imports from approved foreign suppliers. Appropriate supplier verification activities may include annual on-site audits of the supplier’s facility, sampling and testing, or a review of the supplier’s relevant food safety records. The importer can also rely on another entity to determine and perform appropriate supplier verification activities under certain circumstances.
• Supply Chains: The final rule also adds flexibility and recognizes the reality of modern distribution chains by not requiring an importer to conduct supplier verification (or evaluate the risk posed by a food and the foreign supplier’s performance) when the hazard requiring a control in a food will be controlled by a subsequent entity in the distribution chain in the United States. For example, if an importer’s customer will control the hazard, the importer can rely on its customer to provide written assurance that the food will be processed for food safety and must disclose that the food has not been processed to control the identified hazard. If the hazard will be controlled by a subsequent entity in the distribution chain, the rule requires disclosure that the food has not been processed to control the identified hazard as well as a series of written assurances starting with assurances from the customer to the importer and continuing the obligation to provide written assurance of processing for food safety throughout the distribution chain. The rule provides flexibility for an importer to establish, document and implement an alternative system that ensures adequate control, at a later distribution step, of the hazards in a food product distributed by a manufacturing/processing facility.
• Conduct Corrective Actions: If something goes wrong and an importer determines that its foreign supplier has not used safe processes and procedures, the importer must take immediate corrective action. The appropriate action will depend on the circumstances, but can include discontinuing use of the foreign supplier until the cause of noncompliance, adulteration or misbranding has been adequately addressed.

The risks evaluated as part of an FSVP must be promptly reevaluated upon the discovery of new information. Additionally, an FSVP must be reassessed for each food and each foreign supplier at least once every three years. Based on the results of any such FSVP reassessment, an importer must promptly adjust its supplier verification activities if necessary.

What is the Deadline to Comply:  Importers must comply with the rule by the latest of the following dates:

• 18 months after publication of the final rule;
• For the importation of food from a supplier that is subject to the preventive controls or produce safety rules, six months after the foreign supplier is required to meet the relevant regulations;
• For an importer that is itself a manufacturer or processor subject to the supply-chain program provisions in the preventive controls regulations, the date by which it has to comply with those provisions.

It is important for companies to determine whether they are subject to FSVP requirements, and, if so, to begin taking steps to ensure compliance. If you are unsure of whether your company is subject to, or if you need assistance complying with, the FSVP rule please contact our attorneys at Morsel Law.

KIND Petitions FDA: Should Investors Lose Confidence in General Counsel?

In a previous article I discussed how important it is for food businesses to conduct an in-depth label review prior to launching new products. Specifically, I addressed the FDA Warning Letter issued to KIND LLC and pointed out how costly labeling mistakes can be, especially when the risk could have easily been mitigated. In their response to FDA, KIND agreed to correct most of the technical errors noted in the letter; however, when it comes to changing their view of what foods are allowed to label themselves as "healthy" they don't agree with what they refer to as "outdated" regulations.

In a citizen petition letter ("Petition Letter") sent to FDA last week, KIND's general counsel, Justin Mervis, notes that under current regulations "whether or not a food can be labeled "healthy" is based on specific nutrient levels in the food rather than its overall nutrition quality." KIND then goes on to claim that new scientific evidence no longer supports this view and that, accordingly, FDA amend 21 C.F.R. 101.65(d)(2) in regards to nutritional content claims so that manufacturers may use the term "healthy" without regard to the total fat or saturated fat, if the source of such fat comes from fruits, vegetables, nuts, seeds, legumes, whole grains or seafood, provided that "such foods are used in their whole form or have been processed in such a way that did not materially degrade their nutritional value." 

While the Petition Letter makes several other recommendations, the majority of the Petition Letter is devoted to the argument that there is a disconnect between the Dietary Guidelines and what claims manufacturers are permitted to state on their labels. KIND argues that manufacturers should be permitted to make claims on their products labels (e.g., "nuts are part of a healthy diet") that are consistent with federal dietary recommendations and current scientific evidence. As such, KIND goes on to request the FDA "undertake rulemaking to define a "dietary guidance statement" as a statement in food labeling about the usefulness of a food, or a category of foods, in maintaining healthy dietary practices." The requested rule would permit claims on food labels to communicate that certain foods are useful in creating a diet that is consistent with current dietary recommendations, so long as those claims are not misleading.

While it isn't a secret that food regulations, in some part, have become "outdated", what makes KIND's petition interesting is it comes after being caught violating the same regulations they are petitioning to amend. The real question is whether KIND knew their product labels were non-compliant when released into the marketplace or did they make a business decision to move forward with non-compliant labels in order to promote their "healthy" marketing campaign. While the saying "it's better to ask for forgiveness then to ask for permission" may apply in certain situations, it's probably not the best strategy when it comes to breaking federal law. 

The role of the general counsel is to advise executive leaders on the state of the law, how certain laws affect their business and to provide pertinent information and/or legal advice to such leaders so they have the ability to make informed decisions. The general counsel is not required to be an expert in the industry in which their client operates (although it certainly helps); however, they should know the limits of their expertise and, when appropriate, bring in outside assistance with such expertise. If they don't know their limits, or can't identify potential legal issues outside their expertise, then their departure should be swift. After all what good is legal counsel if leaders are not able to rely on their advice?

It isn't clear whether KIND made the decision to market their products with non-compliant labels, but if they did the general counsel shouldn't take the blame. However, it took KIND six months to file their Petition Letter which leads me to believe the labeling violations occurred not because of a strategic business decision, but due to the lack of regulatory expertise and oversight from the general counsel's office. If my presumption is correct, investors should demand answers and push for changes in the executive suite. These violations have resulted in significant expense revising labels, advertising and websites, in addition to substantial legal fees incurred responding to the Warning Letter and submitting the Petition Letter, and most recently defending consumer lawsuits. While attorneys play a significant role in advising businesses, legal fees cannot be entirely avoided; however, they can be efficiently managed. It is up to KIND's investors to decide whether their capital in this situation was well-spent. 

Growing Craft Beer Industry Through Tax Cuts

While the craft beverage industry has grown significantly over the past decade, it has the potential to grow to new heights if small producers weren't burdened by federal regulations that have failed to keep pace. This could all change, however, if Congress passes a bill now pending titled the Craft Beverage Modernization and Tax Reform Act ("CBMTA"). If passed, the bill would decrease taxes on craft brewers in order to help small businesses profit and encourage continued growth in the booming sectors. (Note: the CBMTA also cuts federal excise taxes on distillers, vintners and cider makers)

Under current law, a tax is imposed on all beer brewed or produced in, or imported into, the United States. The excise tax rate is $18/barrel (about $0.05 per 12 oz. bottle/can). Brewers that make less than 2,000,000 barrels per year may qualify for a lower excise tax rate on its first 60,000 barrels. If a brewery qualifies for this lower rate, its first 60,000 barrels of beer sold will be taxed at $7/barrel (about $0.02 per 12 oz. bottle/can). 

Breweries are required to pay excise taxes semi-monthly (24 payments per year); however, a smaller brewery can qualify for quarterly payments. To qualify for quarterly payments, the estimated annual tax liable for the brewery must not exceed $50,000 (~7143 barrels) and their excise tax for the previous year must not have exceeded $50,000.  It is important to note that paying quarterly taxes may greatly increase the amount of a brewer’s bond.

Under CBMTA, the federal excise tax on the first 60,000 barrels will be reduced to $3.50/barrel for domestic brewers producing less than 2 million barrels annually. It also reduces the federal excise tax to $16/barrel on the first 6 million barrels for all other brewers and importers. The excise tax of $18/barrel would remain for breweries producing more than 6 million barrels annually.

Lowering the excise tax is important to small brewers, the majority of who operate on tight margins. Unlike large multinational brewers who enjoy the benefit of economies of scale, small brewers maintain higher costs for raw materials, production, packaging, marketing and distribution. Adjusting the excise tax would allow small brewers nationwide to reinvest more than $70 million annually into growing their businesses. Passing this bill is crucial to sustain the continued growth of the craft beer industry, so if you're a craft beer fan please contact your congressional leaders and tell them to support the Craft Beverage Modernization and Tax Reform Act. 

Creating Sustainable Jobs Through Aquaculture

Many cities and states have experienced economic difficulties at one point or another. Some overcame adversity, while others continue to struggle. Those who were successful when faced with the realities of a declining tax base and bleak economic picture turned to open-minded leaders who understood that "business as usual" wasn't going to right the ship. These leaders all accepted the concept that if you expect to grow and thrive then you need to continually reinvent yourself.

Think of Boston in the late 1970's through early 1980's which relied heavily on manufacturing jobs, the city lost close to half of its population from all-time highs. Now, thirty years later, Boston is a leader in technology, education and medicine. Or take Pittsburgh back in the early 1980's where the steel industry was collapsing and unemployment exceeded 17 percent. Many area leaders responded with denial and people held out hope the steel mills would reopen. But that didn't happen, instead mill owners began demolishing plants and selling the steel for scrap. In the middle of the crisis, leaders emerged from the surrounding communities and joined forces to guide greater Pittsburgh into the technology center it is today.

So what does all of this have to do with aquaculture? Well, as the country increasing searches for locally sourced food, supplies for fresh seafood are in high demand. But not every state has the natural resources available to fulfill this growing need and consumers are left to the mercy of large distributors. Michigan, however, is in position not only to meet this demand, but to become a leader in this industry. The state has the longest freshwater coastline in the U.S. and the second longest coast line in the U.S. next to Alaska. But not everyone is open to new ideas and innovation.

Recently, a bill was introduced that would prohibit any commercial fishing operations on the Great Lakes surrounding Michigan. The reasoning behind the bill is to protect the natural resources of the state (i.e., fish waste causes pollution). Well, yeah, that's why it's called "waste"! But with a strong regulatory structure and academic community in Michigan, surely aquaculture can be studied and carried out in a responsible and environmentally friendly way. Just as farmers are stewards of the land, owners of aquaculture operations care deeply about the water. I'm sure nobody wants to see the Great Lakes return to the conditions that plagued them during the twentieth century, nobody more than aquaculture farmers that rely on these waters for their livelihood.

Michigan's jump into aquaculture isn't about "growing fish for the expensive restaurants in Chicago", as Sen. Rick Jones of Grand Ledge has put it. It's about bringing Michigan into the future and using it's resources responsibly to reinvent itself and create jobs. Michigan is already a dominant force in agriculture and is home to one of the nation's premier agricultural schools in Michigan State University. There is no reason why Michigan can't follow the same path with aquaculture, but it takes leaders with vision and openness to new ideas. Not only will aquaculture farms result in direct jobs, but indirect jobs such as manufacturing of fish products and transportation of the products to market.

If we are to take something away from the experiences of cities mentioned above, it is important to point out that Pittsburgh, referred to as the "Steel City", now relies on less than 20% of its economic output from steel. I'm not comparing Pittsburgh with the entire State of Michigan (or even Detroit for that matter), because the economics of a city are quite different from that of an entire state. However, in a state that historically has relied heavily on the automotive industry as a driver of economic growth, Michigan's leaders should take note. While Michigan, outside of a few distressed metropolitan areas (i.e., Detroit, Pontiac, Flint), is not experiencing an economic crisis, people aren't exactly tripping over each other to relocate to the state either, with an estimated population growth rate near zero. This is why, more than ever, all options should be on the table. While it's easier to say "no" to new ideas, especially ones that may upset some constituents, successful leaders make decisions regardless if the decisions are unpopular. After all it's not about making the popular decision, it's about doing what is right for the economic success of Michigan.

Craft Brewers Should Prepare for FDA Inspections

"Whoa, hold on," you say, "I'm a craft brewer. What does the FDA have to do with me?" Well, that's a good question. As a brewer you are already familiar with your state liquor agency and the Tobacco, Tax and Trade Bureau ("TTB"), but what you probably don't realize is that the Food and Drug Administration ("FDA") also regulates your operations. With the increased focus on food safety, and additional regulations under the Food Safety Modernization Act ("FSMA"), it is only a matter of time until FDA comes knocking on your door.

"Okay, you've got my attention," you respond. "So what part of my business does the FDA regulate?" Glad you asked. The FDA has jurisdiction over many aspects of your business, including both the inputs to and outputs of your operation. Below are just some examples:

Registration: Just like food manufacturers, breweries are required to register as a food facility with the FDA and renew their registration every two years. This registration requirement applies regardless of whether you brew domestically or overseas (i.e., import beer into U.S.A.).

Labeling Requirements: Beer that contains both malted barley and hops are subject to TTB labeling regulations; however, beer that doesn't contain both malted barley and hops (i.e., rice or wheat beer) are subject to FDA labeling regulations. These regulations require additional disclosures, including: ingredients (such as spices, flavorings, colorings, chemical preservatives); allergens, such as wheat; and nutritional facts (think of that dreaded word "calories"), of course unless it meets certain exemptions.

Good Manufacturing Practices ("GMPs"): Federal regulations have established GMPs for the manufacturing, packing or holding of human food, which includes several of the steps in the beer-making process. Storing and holding grains and other food products for processing and beer for shipment is also subject to regulation. In order to comply with these regulations your operations need to be sanitary, you must perform an analysis of your operations to address any potential hazards, and implement GMPs to minimize such hazards.

Reporting and Recordkeeping: Food safety continues to be a primary concern of FDA and new regulations under FSMA. To ensure your brewery remains compliant you must keep records of the immediate sources of food and the immediate recipients of products you sell. In the event of food safety incident, such as the release of an adulterated product from a production, bottling or manufacturing facility, FDA may require the release be reported. These record will assist brewers and FDA in identifying the sources and recipients of the adulterated products. 

Bulk Sales: Bulk sales of foods and processing byproducts, such as spent grain for animal feed, are subject to FDA regulation. Brewers already implementing human food safety requirements would not need to implement additional preventive controls or GMPs for animal food, except to prevent physical and chemical contamination. This requirement applies even if you're donating the byproducts for use in animal food.

Food Service and Sales: In addition to selling beer, do you serve food or sell packaged food products, such as olive oils, cheese, meats or other snacks, in your tasting room or brewpub? Food products served or sold on premise may be subject to federal, as well as state or local, regulations. While exemptions that may apply, you should make sure you stay in compliance with the law.

Inspections: Under the rules promulgated under FSMA, the FDA is obligated to inspect every brewery in this country over the next several years. This means the FDA can observe your manufacturing processes, inspect your facilities and every aspect of your operation. They also can review your records and take photograph your operations. You should be prepared for any kind of surprise inspection. Also, if the facility fails to meet compliance standards on the first visit to your brewery, FDA will reinspect at a later date and you will be charged at a rate of $221/hour. 

As you can see, the FDA has quite a bit of regulatory oversight over your brewery. But it's not too late to take action to ensure your brewery is compliance, as many of the food safety rules under FSMA have yet to take effect. If your brewery is unsure whether it is in compliance with, or need assistance in adapting your brewery to meet, FDA regulations please contact our attorneys at Morsel Law.

FDA Issues Another Blow to Maker of Just Mayo

Earlier this year, Hampton Creek Inc., the maker of Just Mayo, was sued by Unilever, the maker of Hellman's mayonnaise, and accused of false advertising for calling its egg-less spread "mayo". Even though experts thought the claims were strong, the case was eventually dropped due to the negative publicity Unilever received which painted it as a corporate bully. As mentioned in an earlier article, a class-action lawsuit was filed against Hampton Creek in Florida state court asserting similar claims, but this time by consumers who claim they were misled into thinking Just Mayo’s product was actually mayonnaise. 

Well, unfortunately for Hampton Creek, the third time isn't a charm. This time the feds are knocking on their door. On August 12th, FDA issued a warning letter to Hampton Creek citing various violations of the Federal Food, Drug and Cosmetic Act (the "FDC Act") by their Just Mayo and Just Mayo Sriracha products. The warning letter specifically notes that both products make "cholesterol free" nutrient content claims on their labels (and website), but don't include a statement that discloses the level of total fat in a serving of the product in immediate proximity to the cholesterol claims, which is a violation of the applicable regulations. The letter also notes both products make unauthorized health claims on their labels (and website) by implying that the products can reduce the risk of heart disease due to the absence of cholesterol. Under federal regulations (see 21 C.F.R. 101.14(a)(4)), a food is disqualified from making health claims if the food contains more than 13 grams of total fat per 50 grams. Both Just Mayo and Just Mayo Sriracha contain 36 grams of fat per 50 grams.

But the biggest blow is one that will set up plaintiffs for successful consumer protection lawsuits. Just like the accusations made by Unilever and the Florida consumer in their complaints, the FDA notes that because neither the Just Mayo and Just Mayo Sriracha products contain eggs, they don't meet the definition of "mayonnaise" under the regulations (see 21 C.F.R. 169.140(c)), and thus are misbranded under the FDC Act. While the FDA goes on to list several additional labeling violations in the warning letter, this could be the most detrimental to Hampton Creek's core business.

Many recent lawsuits have relied on FDA warning letters as evidence to support a claim that a manufacturer violated state and/or federal law and, in many instances, the plaintiffs have been successful. Food manufacturers should ensure they thoroughly understand FDA regulations before labeling their products. This is not only to avoid a false advertising lawsuit, but also to avoid misbranding. It’s a prohibited act to distribute misbranded products and manufacturers can be subject to FDA enforcement and/or private party lawsuits.

Whether the lawsuits against Hampton Creek could have been avoided is difficult to determine. However, what I can say for certain is this warning letter is sure to bring additional lawsuits. So I hope for Hampton Creek's sake they take the time to focus their attention internally and resolve the issues that could have easily been avoided by conducting a thorough regulatory review. 

As mentioned above, food companies may minimize the chances of their products facing a legal challenge by consulting with an attorney familiar with FDA regulations. If you need assistance navigating or complying with the laws affecting your food or beverage businesses, please feel free to contact our attorneys at Morsel Law.

Alcohol Beverage Labels: The Importance of Each Word

Let's be honest, most of us as consumers don't read each and every word on a food and beverage labels, especially that fine print way down at the bottom. Sure, we check the ingredients, maybe even the calorie count, but for the most part that's about it. But when it comes down to it, everything on the label matters. Not necessarily to the majority of consumers, only those trying to squeeze money out of the pockets of businesses. And, as demonstrated below, it only takes one person to notice something questionable to cause major headaches.

Just ask Diageo PLC. They were recently sued over the labeling of their Red Stripe beer. Although marketed as a "Jamaican-style lager" and the logo of a Jamaican brewery is displayed on the bottle, the beer is brewed and bottled in Latrobe, PA. This isn't something Diageo is trying to hide, they disclose it directly on the label. However, the complaint claims that the label falsely misrepresented the country of origin of the beer which resulted in consumers paying higher costs for an imported beer. I guess the plaintiffs haven't purchased domestic craft beers lately, which can be some of the most expensive items in the beer cooler.

Another recent proposed settlement with "mislead" consumers came from the owners of Templeton Rye, an Iowa-based whiskey maker. According to the complaint, the whiskey company conducted deceptive marketing practices for failing to disclose its product's origins, and further suggesting that it was made in small batches of a "Prohibition-era recipe." In fact Templeton Rye doesn't even distill their own product. Instead, it buys the rye from MPG Ingredients in Lawrenceburg, IN, and passes it off as their own distillate. The rye whiskey that Templeton Rye purchases isn't even made in small batches, but in large quantities which Templeton Rye purchases in small amounts, the remaining whiskey is sold to other distillers which is then bottled under different brand names. Although Templeton Rye does blend the whiskey at their facilities with an alcohol flavoring formulation which they purchase from yet another vendor to achieve their own flavor profile. Of course, all of this is disclosed on the company website, but that didn't matter to the plaintiffs. Templeton Rye's co-founder, Keith Kerkhoff, is livid, stating: “It’s all about greedy people…if people didn’t like our product, they wouldn’t have bought a second bottle." The parties have reached a settlement where the company has agreed to reimburse consumers who purchased their product in the amount of $3-6 per bottle, up to 6 bottles. 

Last year, Fifth Generation Inc., the marker of Tito's Homemade Vodka, was sued in California for false and deceptive marketing, and in Florida for unfair and deceptive practices. The vodka maker touts that its product is "handmade", however, this apparently isn't the case anymore. Originally, the vodka was made by its founder, Tito Beveridge, in pot stills just outside of Austin, TX. But now, the company produces over 850,000 case per year out of an industrial facility. The company has stated in its own defense that their labels were signed off by the Alcohol and Tobacco Tax and Trade Bureau ("TTB"), so if putting "handmade" on their label is "false advertising" then the TTB wouldn't have approved the labels in the first place. Apparently, this logic wasn't enough for the courts to dismiss the lawsuit. 

As you can see above, each word really does matter. Similar lawsuits against alcohol beverage makers are being filed more and more frequently. Whether on a beverage label or marketing campaign or website, it is important to review and analyze all materials prior to releasing them into the marketplace. If a company doesn't have internal staff qualified to complete this type of regulatory review, they should locate and hire a specialist. Think of this as buying an insurance policy. You spend a small amount of money to get it right the first time to mitigate risk, instead of going without and hoping for the best. But if something is incorrect, one of two scenarios happen: regulators come knocking on your door or you're served with a civil complaint by affected "consumers". Either way, the company is faced with the high cost of defending themselves and possible damage to their reputation, which will most likely result in loss of customers. If your business is unsure whether a label or marketing materials are in compliance with, or need assistance in adapting your label or materials to meet, TTB or FTC regulations please contact our attorneys at Morsel Law. 

FDA Delays Menu Labeling Rule

As mentioned in another article in December, the Food and Drug Administration ("FDA") issued a final rule on food labeling (the "Rule"), as required under the Affordable Care Act, which provides for nutrition labeling of "standard" menu items for chain restaurants with 20 or more locations and "similar retail food establishments." Initially the Rule was to be implemented on December 1, 2015; however, since the Rule was issued numerous chain restaurants, grocery stores, and other covered establishments complained that they may not be able to comply within such time period.  Thus, on July 9, 2015 the FDA responded by announcing that it was extending the compliance date for the Rule to December 1, 2016. 

This is welcome news to the food industry as many businesses have struggled to implement procedures to comply with the Rule. Food businesses will now be afforded additional time to train staff, design new menus, and develop new information systems to assist in efficiently complying with the Rule. The FDA also announced it intends to publish a guide to assist covered establishments in complying with the Rule which is expected to be issued in August 2015.

While the menu labeling rule implementation has been delayed for one more year, it’s important for businesses to start planning for the implementation. If your food or beverage business needs assistance with implementing or interpreting the menu labeling rule, please feel free to contact our attorneys at Morsel Law.

So You Want to Start a Brewery in Michigan?

How many times have you spent sipping on a cold pint of the dark stuff with your friends when one of them, after finishing his third beer, has an epiphany: "Dude, we should totally start our own brewery...I mean how hard can it be?" Although your kind-hearted friend's idea sounds good at the time, what he doesn't know is that starting a brewery is no easy task. Navigating the laws and regulations alone would send most people running for the hills. However, there are some of you out there with the drive and passion for good beer and a determination to bring these tasty suds to the masses. So for those who've made it this far into my article, below I'll outline the different types of licenses need to start a brewery in Michigan.

While breweries are regulated under both state and federal laws, for the purposes of this article I'll just touch in the Michigan specific requirements. Michigan law allows a brewer to operate under either a brewer's, brewpub or micro-brewery license. A brewery license permits manufacturing an unlimited quantity of beer. Brewers may sell the beer they produce to licensed wholesalers, but many not sell directly to retailers. A brewer may also sell the beer it produces to consumers for on-premise consumption at only one brewing facility in Michigan, but it may sell beer that it produces at all of its facilities for off-premises consumption. Sampling of beer in a hospitality room located on the brewery premises is also permitted.

A micro-brewery license permits manufacturing of up to 60,000 barrels of beer annually (which includes any out-of-state production). Micro-brewers may sell beer to licensed wholesalers, but not directly to retailers. Micro-breweries that produce 30,000 barrels or less per year may sell directly to consumers for on and off-premise consumption without an additional license. Sampling of beer on the brewery premises is permitted.

A brewpub license permits manufacturing up to 18,000 barrels of beer annually. In addition to a brewpub license, a brewpub must also hold an on-premise license (Class C, Tavern, A-Hotel, B-Hotel or Resort). The brewpub must operate a full service restaurant with at least 25% of gross sales coming from non-alcoholic items. Brewpubs may not sell their beer to wholesalers or retailers, but may sell their beer to consumers for on or off-premises consumption.  

The key differences between a brewer's, micro-brewery and brewpub license are the amount of beer the establishment can produce, restaurant requirements and restrictions, and limitations on to whom you can sell.

Specifically, whereas a brewer's license authorizes the production of an infinite amount of beer, a micro-brewery license restricts production to 60,000 barrels per year and a brewpub license restricts production to 18,000 barrels per year. While a brewery or micro-brewery may be allowed to have a restaurant on its premises, a brewpub license requires the brewer to operate a restaurant on its premises. No license permits the sale of beer directly to retailers and only breweries and micro-breweries may sell to wholesalers. 

It is important to note that local regulations may further restrict your operations, such as stricter closing hours than state requirements. Thus, it is critical to research and understand the local ordinances prior to choosing a location. If you need assistance in establishing or navigating the laws and regulations that effect your brewery, please contact us at Morsel Law.

Streamlining Your Food Imports Into the U.S.

If you import food into the United States then you are familiar with the headaches and hassles that go along with this burdensome regulatory process. But that may change with the release of the draft guidance that outlines FDA’s plan to implement the Voluntary Qualified Importer Program ("VQIP") mandated under the Food Safety Modernization Act. The VQIP is a voluntary, fee-based program for the expedited review and importation of foods from importers who achieve and maintain a high level of control over the safety and security of their supply chains. 

The new draft guidance lays out the various benefits in addition to expedited entry that an importer can expect to receive from participating in VQIP, including limiting examination and/or sampling of VQIP food entries to “for cause” situations. Additionally, participants in the VQIP will have access to the VQIP Importers Help Desk, which will be dedicated to responding to questions and concerns of VQIP importers. 

The draft guidance lays out the eligibility for participating in the program, which includes: (a) 3-year history of importing food into the U.S.; (b) do not import food subject to an import alert or Class 1 recall; (c) have a current facility certification for each foreign supplier of food intended to be imported under VQIP; and (d) be in compliance with Foreign Supplier Verification Program requirements and applicable seafood and juice HACCP regulations.  

Participation in the VQIP is for the U.S. fiscal year, which begins on October 1st each year. Applications to participate in VQIP will need to be submitted electronically through the FDA’s industry portal between January 1st and May 31st before the fiscal year in which the importer seeks to join the program. FDA has indicated that due to resource constraints, it will limit the number of participants in the first year to 200 at the most. Participation must be renewed annually, and participants will be subject to FDA inspection. 

If your company is considering participating in the VQIP program, carefully review the draft guidance as the FDA will only accept comments on until August 4, 2015.