Text Size:-+
01.24.2012

Gallo and Constellation Screwed by U.S. Tort Law

bigstock_Punching_Bag_28648631.jpgI'm sure I'm going to catch hell for this post from any number of quarters, but it needs to be said.

Big wine companies are favorite punching bags for wine lovers that would never buy their products. Sometime's there's a good reason for this, like when they throw their weight around in the marketplace in ways that aren't exactly good for the industry. The bigger the company, the bigger the mistakes they can make as well.

When they make mistakes, sometimes these companies can be hung out to dry simply because they have deep pockets. And that's exactly what seems to have just happened to Gallo and Constellation Wines .

You may remember a bit of a scandal last year involving these two big players in the wine world. They bought a bunch (3.5 million gallons) of wine from the southern part of France that was supposed to be Pinot Noir and put it into their Red Bicyclette bottles. It turns out, however, that it was only partly Pinot Noir, and happened to contain a lot of Merlot and Syrah as well.

The wines were fraudulently sold by a number of parties in France, all of whom have been prosecuted under French law, even on appeal.

The incident was a severe embarrassment for Gallo in particular, who apparently thought they were buying legitimate Pinot Noir. There are tests, usually involving DNA sequencing, that can determine the grape variety of a wine, but they are very expensive, time consuming, and aren't normally used in the course of, say, buying a few thousand gallons of bulk wine.

Gallo and Constellation took the steps that you would have expected a company to take when faced with this situation. They pulled whatever product they could off the market, apologized, and cooperated with the authorities that were going after the folks who perpetrated this fraud.

But then three wine consumers in California sued Gallo and Constellation, along with two of the guilty parties in France, alleging "unfair competition, fraud and false advertising." Now Gallo and Constellation are paying these people and their lawyers $2 million to settle the case out of court.

We hear various politicians talking about "tort reform" in this country, and stupid lawsuits like this are exactly what they're talking about.

These consumers were in no way damaged or harmed by the fact that the wine they purchased wasn't 100% Pinot Noir. The suggestion that competition or the market as a whole suffered as a result is equally specious. Gallo and Constellation certainly made a mistake by buying the wine they did, but it should not result in paying litigation happy consumers who thought they could make a buck by going after a big wine company with deep pockets.

Don't get me wrong, I'm all for consumer protection. If Gallo had failed to disclose that it put peanuts in its wine, and some allergic person died of anaphylactic shock, Gallo should be held responsible. If the wine they sold wasn't actually wine, but was some concocted fake beverage that they synthesized in a lab, then I think there would be grounds for fake advertising claims, like in the 80s when all those "juice" companies were forced to put just how much real fruit juice they were using on their packages.

Those who generally disdain companies like Gallo, will at this point no doubt be shouting at their screens "They knew! They knew," but I don't think that's true. To my knowledge there is not a shred of proof that Gallo or Constellation knew that they were buying adulterated Pinot (which, admittedly says something about the quality of the wine that goes into their bottles). Now, if for some reason it came to light that Gallo and Constellation knew exactly what they were doing, that would change things slightly (i.e. intent to defraud versus an accident) but ultimately the issue is the same: these folks are being wrung for dollars because they did by accident that many winemakers in California do on purpose all the time.

By law in California, in order to call a wine Cabernet Sauvignon and put it on the label, only 75% of the wine has to be Cabernet Sauvignon (and only 95% of it has to come from the same vintage). The rest can be whatever the winemaker wants. And if you think that those $3, $5, and $7 wines you're buying at the grocery store are 100% pure, I've got a bridge to sell you.

Most large (read: non-artisan) winemakers manage their production at some level using the bulk wine market, purchasing juice here and there both to ensure that they can produce the volume they need to meet their targets, as well as to find blending components they think can help them make a more appealing wine. Even smaller winemakers will buy some extra grapes or even some extra wine that allows them to turn a few extra barrels of something into a second label wine or a special bottling. Why? So they can sell it. Remember folks, the wine industry is a business, first and foremost.

So while I'm no apologist for the behemoths of the global wine trade, I certainly am appalled at the fact that our legal system not only permits, but tacitly encourages the kind of lawsuits that these companies have been needlessly subjected to.

I'm sure that in the future I'll be criticizing Gallo and Constellation for something, but for today they have my sympathies.

Punching bag image courtesy of BigStock

Comments (38)

Lee Newby wrote:
01.24.12 at 2:46 PM

I’m with you this is up there with the law suits against fast food restaurants for not telling the customer the coffee they bought is “very hot” and be careful don’t dump it on yourself.

I like the British system where the Judge laughs and hands court costs to the company being sued, for frivolous law suits (it prevent the courts from being tied up with “I’ll have my day in court” stuff), need more of that old world justice in America.

01.24.12 at 2:49 PM

The three people in California are only getting $58,000. The bulk of the $2 million will be going to anyone who bought the wine and will get a refund or if they can't prove it will receive a few dollars.

But of course this is still nonsense. They shouldn't have to pay for this unfortunate error. What they should have to pay for is selling crappy wine no matter what the varietal. Next time you see a bottle of Pinot Noir for $5, run for the hills.

Jason O. wrote:
01.24.12 at 3:42 PM

The lawsuit against McDs regarding the lady that burned herself on near-boiling coffee is the perfect example of a NOT frivolous lawsuit. Dragging it into conversations like this can be detriment to tempered discussions about real tort reform.

The case presented by this article does fit every definition of frivolous. Whereas the coffee case had (very serious) bodily injury and a negligent, codified policy of serving liquids at undrinkable and harmful temperatures, this case brought harm to no one as pointed out by the author.

The only point I will make in defense of these obviously greedy individuals is that Gallo and Constellation have been benefactors of much larger, just as malignant and pointless litigation. One hates to refer to karma in issues like these, but...

01.24.12 at 3:44 PM

I agree.

This seems illogical, and unfair.

But I'm impressed with the way both companies handled themselves.

01.24.12 at 4:45 PM

"Everyone" wants to put some kind of controls on medical costs, but not a peep about controlling legal fees; I wonder, wonder why, why, why why?

01.24.12 at 5:16 PM

And who should control legal fees? The government? What about fees paid to winemakers? Limit them too? Grape prices?

Beau wrote:
01.24.12 at 10:19 PM

I guess I'll be the voice of dissent. Who's to say that Gallo and/or Constellation didn't know? We aren't privy to what really happened in the back rooms. They could have realized they got caught and decided to just cut their losses..

Also, why didn't a company like Gallo question the volume of "pinot noir" coming out of southern France? Or maybe Constellation? My point is that we simply do not know the whole story, despite whatever court judgements may lead us to believe.

And in Oregon, to label something as a specific varietal, you gotta put a minimum of 90% in there. Not 75%..Gotta be careful when being general :)

Alder wrote:
01.24.12 at 10:36 PM

Beau,

Thanks for the comments. I thought that my construction indicated that when I said "by law" I meant California, but I can see how it might be read as generalizing to the whole country, so I added "in california" again. Thanks for pointing that out.

As for the "who's to say," there are plenty of people who want to nail Gallo or Constellation for anything they can, so I'm sure there was a lot of investigation as to what was known, by whom, and when in this case. On both sides of the Pacific. If there was an obvious smoking gun, I think it would have been found. I could easily be wrong, but given how scandalous this was, if Gallo was really guilty of intentional fraud, I think they would have ended up with more than just a silly class action suit on their hands.

Beau wrote:
01.24.12 at 10:41 PM

Alder you're right, there are legions who do want to destroy both companies. I was playing devil's advocate, probably because I'm inherently distrustful of big companies like those two. Still, those two firms do or did have a lot at stake, and maybe they did get defrauded by a bunch of sneaky Frenchmen (and women?).

I think you do have a perfectly valid point, that somewhere during the litigation process a smoking gun should have surfaced. All I can think of is having not read the judgement, did Gallo and/or Constellation settle without admitting guilt? If so, perhaps that is an indication that there is more here than meets the eye. Like the Transformers.

As for the CA, that's my bad, I missed it. Should have read closer, next time I will! Apologies from Oregon, home of the 90%+ pinot noir ;-)

Nikki wrote:
01.25.12 at 4:29 AM

Agree, agree, agree. It was a silly lawsuit - but what else is new. Thanks for sharing your thoughts!

keegs wrote:
01.25.12 at 8:07 AM

I am not sure I understand. This never went to trial. Why did they think they would lose in a trial? Why did they settle?? Their lawyer fees were going to be more than 2 million?? I agree, there is no case, I think they were duped. Can we send nasty letters to the plaintiffs??

John wrote:
01.25.12 at 8:15 AM

A small winery who buys grapes knows the grapes they are purchasing to put into their wine. Gallo and Constellation should know the grapes they are purchasing. Even McDonalds knows where their beef and potatoes come from. At the least, they failed to put in place the proper corporate safeguards. Safeguards that should protect its brand and their shareholders. Like having one of their hundreds of winemakers / vineyard managers actually visit the sites or oversee a harvest. At worst they knew all along and looked the other way.

These two companies manipulate the market to place there product front and center at your local retailer / grocery store through their distributor. When a bottle of Gallo / Constellation Pinot goes on the shelf it means another winery doesn't get on that shelf. They took advantage of the Pinot craze by flooding the market with cheap Pinot and keeping out the competition. Now it turns out that it wasn't Pinot after all. Some would believe it was an honest or naive mistake. Maybe. But make no mistake their behaviour harmed the market. Both consumers and other producers.

These companies make a board decision based on research that shows what the public is going to buy next. They didn't have the Pinot to keep up with the demand but they sure were going to cash in on its popularity and not miss out on the oppurtunity. Give the public what they want. It would have been bad business to miss out. And when you are that big, the financial markets notice your decisions. Public or Private they notice. It effects everything you do. Your ability to finiance loans and payroll and borrow to purchase grapes every harvest.

Don't shed a tear or get angry over $2 million (much less as pointed above). It's nothing to them. Actually very cheap when you consider they squashed their competition when they were terribly unprepared for the next big thing.

Small wineries are some of the hardest working and most honest people out there. They give our passion such a good reputation. These two companies care only about the bottom line.
As for it being a silly lawsuit. It's only silly when it doesn't happen to you.

Leah wrote:
01.25.12 at 10:11 AM

I agree that no consumers were harmed by purchasing and drinking the wine.
However, I disagree with the claim that Gallo and Constellation couldn't have known the grapes weren't pinot noir. You don't become the largest wine producers in the world by not knowing things like that. If $5 bottles of pinot are too good to be true, then how could a sudden, huge jump in French pinot production to 3.5m gallons be possible?

If the least that comes of this is that wine producers become more careful about tracing the origins of their purchases it is well worth the use of our legal system resources and the fines.

Deb wrote:
01.25.12 at 10:18 AM

Alder -

A couple of points to consider:

First, I think it's important to note the scope of the problem -- the mislabeled wines covered at least 3 different vintages, and 7 different labels, so this was a non-trivial problem in the market. Second, from a policy perspective, the buck needs to stop with the consumer product companies (like Gallo and Constellation) who put products on the shelves (and ultimately into consumers mouths). THEY need to be accountable to consumers for what they represent on their labels. Third, class action suits, like this one, have an important (not silly at all) deterrent effect on other companies who will think twice about deals that seem to good to be true, and will encourage them to do the requisite due diligence.

Flooding the market with falsely labeled, cheap products is a classic form of unfair competition, that harms not only consumers, but competitors in the market place who did things right and had higher production costs for the "real" thing.

The consumer protection laws at issue in the suit are designed to protect those very interests.

01.25.12 at 10:42 AM

When I started on your article, I thought that you were going to talk about the crazy settlement payout that came from this.

http://www.frenchpinotnoirsettlement.com/Documents/FPN0001/FPN_POC_Generic_111208.pdf

Just fill out the form, tell them how many bottles you bought - no proof of purchase option - and you join the list that "may" get $3.50 per bottle you consumed.

Now I don't remember exactly, but I'm pretty sure I consumed cases of that stuff... cough cough. At least that's my story.

Alder wrote:
01.25.12 at 11:39 AM

Bill,

I obviously don't encourage people to do that, and think that this is part of the ridiculousness of the whole thing.

Alder

Alder wrote:
01.25.12 at 12:13 PM

Deb,

Thanks for the comments. Perhaps you have some information or statistics to justify it, but I think it seems a bit of a stretch to suggest that what Gallo did or was trying to do rose to the level of "flooding the market." By my calculations the total amount of wine produced over three years as you say using this juice was 1.5 million cases. We consumed 329.7 million cases of wine in 2010 as a country. I can't find what percentage of that was Pinot Noir but it's in the double digit millions of cases. Even if we assume that all the wine in question was an incremental increase to Gallo's production (which I don't believe it was) it doesn't seem to me like we're talking about something that could be considered flooding the market in a way that would really affect demand or pricing in economic terms.

Alder wrote:
01.25.12 at 12:22 PM

Leah,


Thanks for the comments. Saying that it was impossible for Gallo and Constellation to know that these grapes weren't Pinot Noir is like saying it is impossible for those toy companies to not know that the paint that went onto their toys in China contained lead. Or that the company who found out that its Chinese candy contained melamine would have known that ahead of time. Look at any product recall in history. Most of the time the company was unaware of the issue, despite quality control measures. At the scale of what Gallo and Constellation are doing here, it's best to look at the situation like manufacturing. There's a supply chain. Any responsible company, which Gallo and Constellation certainly are (or they wouldn't be in business) has safeguards and controls on that supply chain, but they are not infallible. Perhaps they could have had enough information to put together the historic production levels of Pinot Noir in the region of France they were buying from and seen that the volumes they were buying and historical production didn't add up, but in doing business, you rely on and place trust in your business partners, and they were clearly lied to and criminally defrauded by people who were doing everything they could to pull the wool over the eyes of the buyer. The probably would have lied when confronted with the fact that the volume of wine seemed high compared to what the region usually produces. "Ah, yes, but 130,000 hectares of Pinot Noir just reached maturity this year, so volumes will be way up." Etc. etc.

01.25.12 at 3:15 PM

I've got to do with Deb on this. When you are talking about a sub $10 pinot, the total production and consumption gets pretty small fast. I would wager 1.5 million cases is a significant percentage. If this is what new consumers are learning what pinot is, and, as this is a gateway price point, I think anyone who sell pinot is being hurt by this.

Don't get me wrong, I don't see any cycles gladiator customers switching over to my wine instead, but hopefully there will be a time when those customers want to trade up to another wine. Maybe its a special occassion, or a gift. Either way, there should be a common link in the taste profile.

Now, this leads us to a discussion on what California Pinot Noir from a specific region SHOULD taste like, but you could write a whole series of blogs about that!

Alder wrote:
01.25.12 at 3:33 PM

Chris,

Uh oh. You opened the "what does [insert varietal here] taste like" can of vipers! :-) There should be some sort of special sound that plays when that happens.

Most wines sub $6 bear so little resemblance to their $20 and up counterparts (at least in this country) in terms of flavor profiles that this is a specious argument in my experience. Charles Shaw Merlot is not immediately recognizable as Merlot in my opinion. I think Gallo et al have a responsibility to turn out a product that people enjoy, that meets FDA standards for the beverage category, and that's it. Not to ensure that somehow their wine matches a varietal profile that, by the way, no one has ever defined in an industry standard way. OF course they, and everyone else hopes that after a couple years of drinking cheap wine, people want to buy better, more expensive stuff (like yours), but I don't think that happens by ensuring those cheap wines taste a certain way, other than "tasty" (i.e. so they enjoy drinking wine) to the consumer.

01.25.12 at 3:35 PM

I though I would be banned from your site for even suggesting it...

Donn Rutkoff wrote:
01.25.12 at 3:44 PM

I find it hard to believe that Gallo and Connie did not doubt for a second that there was that much "Pinot noir" available so cheap from anywhere in France, much less from the hot south were Pinot burns, not ripens. If too good to be true, it . . . And the harm is to the credibility of anybody in the business, to any winery trying to sell Pinot noir, and so forth. And I did not see any product being removed from store shelves.

wally3000 wrote:
01.25.12 at 6:09 PM

Gallo/Constellation have tons of money and can well afford some authentication testing. Traceable raw materials must be a part of their QA plans. They need punitive damages to preclude this happening more often.

Blake Gray wrote:
01.26.12 at 9:37 AM

Alder: The point of the punitive US tort system is to discourage corporate misbehavior through disproportional penalties like this one.

I don't think Gallo or Constellation is evil. And while they could have known about the fake Pinot Noir, I'm willing to accept that they didn't.

But I support the ruling, because that will encourage truth in labeling in the future.

Moreover, think about all the producers of legitimate Pinot Noir who were unable to sell their more expensive bottles because Gallo and Constellation were able to put these fake bottles on shelves. Those wineries are the real victims, and they will not benefit from the settlement. But producers of real Pinot Noir will benefit in the future.

Alder wrote:
01.26.12 at 10:03 AM

Blake,

Thanks for the comments.

Your support for truth in labeling would be better placed lobbying the California Legislature to change our laws to match those of Oregon, not celebrating the ability to get a settlement by bringing a frivolous class-action lawsuit. And as for the "victims," those "legitimate producers of Pinot Noir" who were unable to sell their more expensive bottles, do you mean Bronco Wine Company, Kendall Jackson, Diageo, and the other major multi-nationals who are all playing the same bulk wine game? Any serious producer of decent budget Pinot Noir (Castle Rock, etc.) in the US is not competing with Red Bicyclette because their wines cost $15 not $5.

Alder

Tim McDonald wrote:
01.26.12 at 2:35 PM

Perfectly stated Alder - no victim = no crime and a pretty silly lawsuit!

David Grega wrote:
01.26.12 at 5:42 PM

I do think it's important to give them the benefit of the doubt but honestly I would have expected merlot and syrah to be mixed in if I was buying 3.5 million gallons of pinot from the south of france. Those vineyards in the languadoc are littered with random rhone varieties some cab/merlot and a host of other varieties. That region is certainly not a "pinot" region.

01.27.12 at 7:13 AM

I don't think this was a frivolous case brought by litigation-happy consumers who smelt the money. It was deception on a huge scale perpetrated by the sellers in France and possibly by Gallo et al. Although we'll never know the truth with solid evidence, intuition and common sense suggest that the buyers just had to know what was going on. Although the consumers weren't actually harmed in any way, the damage done to the wine industry in general (and P.Noir producers especially) was large.

01.27.12 at 7:42 AM

Fabio, how can you say "we'll never know the truth" and then go on to say "buyers just had to know what was going on"? And you say "consumers weren't actually harmed". If you weren't harmed, you have no right or reason to sue. And just what damage was done to Pinot Noir producers? If Gallo, knowingly or unknowingly put Syrah in their $5 Pinot, how is Kosta Browne or Siduri or anyone else hurt?

Alder wrote:
01.27.12 at 8:58 AM

Fabio,

The key to the problem is the phrase "possibly by Gallo." There is no proof that Gallo was intentionally defrauding anyone. The REAL criminals, those in France, have been prosecuted. Why should Gallo have to pay for something they "possibly" did? The answer to that is that we have a legal system in the U.S. that encourages and rewards this sort of silly lawsuit.

01.27.12 at 1:04 PM

Larry, Alder,
I know I don't express myself as clearly as I could when I post comments! Sorry. What I meant by "we´ll never know the truth" is that I doubt very much that hard evidence that could stand up in court will ever come to light, so technically-legally there is no case against the US buyers. I stand by my belief that "buyers just had to know what was going on", because the quantities involved were too big. Maybe they just didn't do any due diligence or ask how it could be possible to supply such a huge quantity of P.Noir, and hoped that nothing would come to light. I really dont know. But the picture of poor innocent Gallo acting in good faith being one-sidedly swindled seems a bit unrealistic to me. It's just unbelivable.
I know the legal system in the US encourages 'silly' lawsuits, but maybe in this case a bit of justice was done, even if for the wrong reason or via the wrong mechanism. Is there any other way that the US buyers could have been brought to account? Surely this outcome is better than them getting off scot-free? What kind of message would that have sent?

01.27.12 at 1:20 PM

Maybe the buyers had to know what was going into their wine. And what they did was wrong if they didn't perform due diligence. But how is a consumer wronged? If he couldn't taste the difference (and in a $5 bottle, who could?) then there was no reason for a lawsuit. (And even if he could taste the difference, it's not a million dollar assault on his palate). Gallo and Constellation should pay a fine as should the providers of the juice.

If I buy a prime filet from the market and when I eat it discover it's not prime filet after all, I have the right to demand my money back, but not to sue for a million dollars.

keegs wrote:
01.27.12 at 1:38 PM

Sorry, but I feel like chopped liver or bad Pinot, why did they settle?? Any ideas, 2 million?

Brian wrote:
01.28.12 at 12:34 AM

I would have thought smaller "artisinal" wineries are more likely or just as likely to buy grapes or wine as are large companies. As far as California goes, its legal to add water so I'm not sure which is the lesser - 75% variety or 10% water.

01.28.12 at 8:49 AM

Most of the gardeners are now finding out how to expand grape in their backyard because of the diverse variety of thrill they've have been taught about increasing grapevines.

Chris wrote:
01.28.12 at 10:24 AM

They knew.The Languedoc did'nt produce 3.5 million gallons of P/N that year.And their were other exporters,producers etc. cc

smspizza wrote:
01.30.12 at 9:47 PM

This seems illogical, and unfair.

Great..

02.05.12 at 9:26 AM

I would add that the $2M is many orders of ten higher than any of the guilty parties paid in France. I don't like talking about this, but it is an interesting case study in the difference between American litigation and French trial law.

Comment on this entry

(will not be published)
(optional -- Google will not follow)
Yes
 

Type the characters you see in the picture above.

Buy My Book!

small_final_covershot_dropshadow.jpg A wine book like no other. Photographs, essays, and wine recommendations. Learn more.

Follow Me On:

Twitter Facebook Pinterest Instagram Delectable Flipboard

Most Recent Entries

Hang out with the World's Top Wine Writers. For Free. Vinography Unboxed: Week of October 19, 2014 Vinography Images: Divine Droplets Bay Area Bordeaux: Tasting Santa Cruz Mountain Cabernets US 2014 Vintage - Early, Fast, Eventful Vinography Images: Big Shadow Come Explore The Essence of Wine with Me in Healdsburg: October 30th, 2014 Vinography Unboxed: Week of October 5, 2014 Another Idiotic California Law Screws Wineries Vinography Images: Vineyard Reflections

Favorite Posts From the Archives

Masuizumi Junmai Daiginjo, Toyama Prefecture Wine.Com Gives Retailers (and Consumers) the Finger 1961 Hospices de Beaune Emile Chandesais, Burgundy Wine Over Time The Better Half of My Palate 1999 Királyudvar "Lapis" Tokaji Furmint, Hungary What's Allowed in Your Wine and Winemaking Why Community Tasting Notes Sites Will Fail Appreciating Wine in Context The Soul vs. The Market 1989 Fiorano Botte 48 Semillion,Italy

Archives by Month

 

Required Reading for Wine Lovers

The Oxford Companion to Wine by Jancis Robinson The Taste of Wine by Emile Peynaud Adventures on the Wine Route by Kermit Lynch Love By the Glass by Dorothy Gaiter & John Brecher Noble Rot by William Echikson The Science of Wine by Jamie Goode The Judgement of Paris by George Taber The Wine Bible by Karen MacNeil The Botanist and the Vintner by Christy Campbell The Emperor of Wine by Elin McCoy The World Atlas of Wine by Hugh Johnson The World's Greatest Wine Estates by Robert M. Parker, Jr.