North Carolina General Assembly Closes Unregulated Wine Import Loophole

By Kristopher B. Gardner, Tharrington Smith, LLP

On September 15, 2010, legislation passed by the North Carolina General Assembly (S.L. 2010-122) became effective to close an unregulated loophole in the North Carolina Wine Franchise Law. The loophole arose when wine import rights “expired”. In this scenario, wine produced abroad is sold to a nonresident wine importer for subsequent sale to a North Carolina wine importer. Under former law, if a company acquired the rights to the original wine importer by “purchase”, “sale of stock, sale of assets, merger, lease, transfer, or consolidation”, then the Wine Franchise Law applied to the successor importer. The unregulated loophole arose when a nonresident wine importer acquired the import rights following “expiration” of the original importer’s contract. According to an earlier interpretation from the North Carolina ABC Commission, the “expiration” of nonresident import rights was not covered by the franchise law (i.e. not a “purchase”, “sale of stock, sale of assets, merger, lease, transfer, or consolidation.”)

Part of a larger ABC reform bill, S.L. 2010-122 closed the unregulated loophole by providing that “any successor to the import rights of a winery is obligated to all the terms and conditions of an agreement in effect on the date of purchase or other acquisition of the right to distribute a brand.” The effect of this legislation was to provide that the successor to the import rights of a winery is bound by the franchise law even if the rights were obtained through expiration of the original import agreement with the previous importer, or other acquisition. In addition, this legislation affirms the General Assembly’s commitment to the regulated three-tier distribution system of wine and beer in North Carolina.