By Brian D. Kaider, Esq. and Kenneth Y. Lo, Esq.
As I traveled to Sacramento for this year’s Unified Wine and Grape Symposium, I began writing this article, intending to focus on key provisions of Grape Purchase Agreements (GPAs) that parties should negotiate. But, upon arrival at the symposium, I spoke with other conference attendees and it became clear that one thing was on everyone’s minds – smoke taint.
Certainly, I had heard about the fires in October, but living on the East Coast, it was difficult to get any specific information about where the fires were located, what vineyards were affected, and the extent of the damage. I heard anecdotal bits of information from friends who live in the area and were reporting on the latest evacuations and there were, of course, some very dramatic videos posted on social media. But, it wasn’t until I spoke with grape growers, vintners, négociants, and insurance companies that I began to understand the scope of these fires. Or so I thought.
When the conference ended, my wife and I headed toward wine country. Over the course of three days, we visited more than a dozen wineries from the Oak Knoll District to Geyserville. Everywhere we went, there was evidence of the fires. We saw hillsides covered in black and entire neighborhoods destroyed. On one densely forested mountain road, the sickly stench of smoke still hung in the air, months after the fires were gone. In some areas, a house would be reduced to nothing but a cement slab and a chimney, while another house only a few feet away appeared untouched. It was unnerving and terrible and I offer my heartfelt condolences for those who lost their homes, their businesses, and in some tragic cases, their loved ones.
As devastating as these fires were, though, there were some bits of good news. First, with some unfortunate exceptions, the vineyards themselves were mostly spared from direct fire damage, acting as a firebreak that helped prevent further spread of the fires. Second, by the time the fires occurred, about 90% of the grapes in the area had already been harvested and research has shown that exposure of the vines to smoke will not affect the fruit in future harvests. Third, of the remaining grapes on the vine, very few were potentially exposed to smoke from the fires.
So, while only a very small percentage of the 2017 harvest was potentially affected by smoke taint, this season should be a wake-up call to the wine industry in two respects. Foremost, vintners and especially grape growers should recognize that the days of “handshake” deals are in the past. In most states an agreement to purchase grapes for more than $500 is unenforceable unless in writing. This means that without a written contract, a vintner could reject a grower’s fruit even if there was no reasonable threat of smoke exposure and the grower would have no recourse. Secondly, as will be discussed below, the issue of smoke taint is quite complicated and it is essential that the grape purchase agreement address this threat specifically.
With that backdrop, the remainder of this article will focus on areas of a Grape Purchase Agreement where smoke taint may be addressed.
Preamble and Recitals
One commonly overlooked section of a GPA is the Preamble and Recitals section. Typically, though, this is where the source of grapes to be purchased is identified. In some cases, it may be very general (e.g., “20 tons of Merlot grapes from XYZ Grape Grower’s vineyards”), in others very specific (e.g., “all Merlot grapes from XYZ Grape Grower’s Howell Mountain vineyard, Block 6, Rows 1-12”). It is often the vintners making high-end wines that request this level of specificity, because they want to highlight the attributes of a highly specific terroir. But, specificity here can also help with the issue of smoke taint. The grower may have 100 acres of vines, spread across four vineyards in vastly different locations. If the vintner knows that one of those four locations suffered significant smoke exposure and the other three had none, then knowing exactly where the grapes she contracted for are sourced is the first step to knowing whether to accept the grapes as-is or subject them to testing.
As with sourcing information, the quality of grapes to be delivered may be described with various levels of specificity. A general quality statement might simply require that the grapes be “sound, merchantable, and suitable for making a particular quality of wine.” More specific language may limit the amount of defects in the grapes, such as mold and rot, to less than one percent of the delivered fruit. Similar limitations may be placed on the amount of “material other than grapes” (MOG).
This section is also an opportunity to address the issue of smoke taint. Two of the most commonly tested markers for smoke taint are guaiacol and 4-methylguiacol. These are two of the many thermal degradation products of lignin (the large polymer depicted in the image at the top of this article), which are formed during forest and brush fires and contribute to smoke taint in wine. Unfortunately, when these molecules are absorbed into the skin of a grape, they bind with sugar molecules to form glycosides that are unnoticeable in smell or taste. In the acidic environment of fermented wine, however, these glycosides are oxidized and the volatile forms of the guaiacol phenols are released. The longer the wine sits, the more concentrated these volatile forms become and the more noticeable the unpleasant smoke flavor.
So, the quality section of the GPA may set limits on the amount of detectable guaiacol in the delivered grapes. Most effectively, this quality standard can be tied to the pricing and payment terms. For example, the quality section may specify that if the guaiacol level is below a certain threshold, the grapes will be accepted as is and according to the agreed pricing set forth in the GPA. If they are over that threshold, then a sliding scale of price adjustments will be put into place, reducing the price in accordance with the level of contamination. The language should include a maximum threshold over which the fruit will be rejected entirely. Because the guaiacol is in a bound form in the grape, the quality section may also provide for periodic testing beyond delivery of the fruit with suitable pricing adjustments in accordance with those later test results, as well. Note, however, that this may cause problems in California, due to the Berryhill Act, which requires final prices to be determined by January 10th in the year following the harvest. Accordingly, testing should occur as early as possible.
Ideally, as many phenols as possible should be tested, because while guaiacol and 4-methylguaiacol are good markers for exposure to smoke, meaning that a high level of guaiacol means there was probably significant smoke exposure, they are not good predictors of the sensory perception of smoke, because even if there are low levels of guaiacol, there may be high levels of other compounds that contribute to smoke flavor. The Australian Wine Research Institute (http://www.awri.com/au), for example, offers testing of both wine and grapes for the volatile and non-volatile precursors of guaiacol, 4-methylguaiacol, syringol, 4-methylsyringol, p-cresol, o-cresol, and m-cresol. Results are generally available in ten working days.
Who pays for the tests is also up to the parties. If the vintner is concerned with the threat of smoke taint, she may consider the testing part of the cost of doing business to ensure a certain quality of product. If the grower is convinced that there was no smoke exposure, she may elect to have her fruit tested before delivery to ensure she gets full-price. One way to address the matter in the GPA is to shift the cost according to the results. For example, if the vintner requests testing and it comes back negative, the vintner shoulders the cost of the test. If it comes back above a certain threshold, the cost is paid by the grower or subtracted from the price of the grapes if the fruit is accepted by the vintner.
Viticultural Control and Risk of Loss
In some cases, a GPA may simply require that the contracted grapes be grown in a manner that is “consistent with viticultural practices” for the particular location (e.g., Sonoma County). Often, however, the vintner will want more control over the farming practices, particularly for grapes destined for high-priced wines. As an example, vintners often prefer a later harvest date for the grapes, because the extra “hang time” on the vines allows the development of fuller, richer flavor and higher sugar concentrations in the berries. Growers, on the other hand, generally prefer an early harvest because late season rains may promote mold and the berries lose water weight as they ripen, which may affect the grower’s income if the contracted price is based upon tonnage rather than acreage. Typically, these issues are addressed in the GPA by setting a brix and/or pH level in the berries at which the grower will notify the vintner it is time for harvest. If the vintner elects to delay picking, all or some of the risk of loss in the crop will pass to the vintner.
The 2017 fires highlight another aspect to this conflict of interests. As noted above, about 90% of the grapes in the region had been picked before the fires. Of those that remained, if any had been delayed in the harvest according to a vintner’s request, that vintner should bear some responsibility for any smoke taint in those grapes. Accordingly, the GPA should specifically identify smoke taint as one of the threats to late-harvested grapes for which the vintner assumes the risk of loss.
Both grape growers and wine makers understand there are risks in this industry, including the possibility of wild fires. Generally, maintaining a positive relationship outweighs the concerns surrounding a single harvest and the parties work together to find a mutually satisfactory solution. In the event of a dispute, however, there are advantages to obtaining expert legal advice and opinions, incorporating the results of phenol testing, as to whether there are violations of express or implied contract conditions regarding the fruit’s suitability for winemaking. These formal legal opinions can make a party’s position more defensible and ensure that only warranted concerns are in play.
It is worth repeating that very little of the 2017 harvest was affected by the horrible fires in October. Nevertheless, while this event is still fresh in everyone’s minds, it is wise to reevaluate existing grape purchase agreements to see whether smoke taint is adequately addressed for the protection of both parties.
Brian Kaider and Kenneth Lo are principals of KaiderLaw, an intellectual property law firm with extensive experience in the craft beverage industry. They have represented clients from the smallest of start-up breweries to Fortune 500 corporations in the navigation of regulatory requirements, drafting and negotiating contracts, prosecuting trademark and patent applications, and complex commercial litigation