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Vintners and Brewers Beware of Ag Liens

Added by Kenneth C. Howell in Articles & Publications, Wine, Brew, Spirits Law on October 29, 2013

In 1962, my grandfather planted one of the first post-prohibition vineyards in Idaho on the south-facing slope of the Wilder bench, just a few miles from the now well-known Sunny Slope wine producing area. He sold fresh grapes, and also sold canned grape juice to local grocery stores under the family label:

The vineyard ultimately expanded to almost two hundred acres of grapes. It was comprised mainly of French-hybrid Chelois grapes, a Seibel 10878 variety popular in the New York Finger Lakes region due to its cold-tolerance. This was a vital characteristic in Idaho in the 60s and 70s before climate change made our region better suited to vinifera varietals commonly grown today.

The vineyards were removed in 1978. The events between 1962 and 1978 provide a framework to examine some topics of importance for today’s vintners and brewers.

In the late 1960s and early 1970s my father, wine labelwho was then tending the vineyard, was in search of a market for the additional grapes being produced by the now prolific vineyard. One year’s production was sent to Canada to be made into jelly. Another year’s production was made into grape syrup. In 1972, however, a small company formed a winery in Troy, Idaho, and purchased a large quantity of our vineyard’s production to make one of the first post-prohibition commercial wines in Idaho. The inaugural vintage of 1973 was heralded in custom-made, hand-painted wine bottles:

 

Despite twine bottle 2he showy debut, the wine and winery were perhaps ahead of its time, and the winery soon went bankrupt. Unfortunately, the winery went bust before paying for the grapes. That economic blow, combined with a downturn in the general economy led to the decision to remove the vineyard.

Historically, Idaho had little remedy for a farmer who sold crops on an unsecured credit basis. Today, however, there are many ways for a farmer to secure payment for crops; one important mechanism has implications both for grape growers, and for vintners and brewers.

In 1983, Idaho adopted the Agricultural Commodity Dealer Liens statute (Ag Liens statute). An “agricultural dealer” is anyone who contracts for agricultural products, such as grains, legumes, or any other agricultural commodity. Grapes, barley, and hops certainly fall into the definition of an agricultural product, and a winery or brewery qualifies as an agricultural dealer.

The Ag Liens statue grants to an agricultural dealer, and to the agricultural producer, a lien on the agricultural product and on any proceeds of that product. The lien is automatically created and it attaches on the date the agricultural product is delivered to the purchaser, or on the date of final payment due, whichever is later. The lien continues in effect for 180 days after attachment, and a simple filing with the Idaho Secretary of State can then continue the lien for an additional year.

The Ag Lien is given a statutory priority over prior creditors, whether or not they are secured or unsecured. Liens like the Ag Lien are known as “secret” liens in that they exist without any public disclosure or filings, at least for the initial 180 days.

The obvious implication of this Ag Lien statute is that a vintner (or brewer) shouldn’t assume that the crop purchased from a grower based on unsecured credit (i.e., just a promise to pay in the future) means the bill can be ignored. The vintner (or brewer) should likewise not assume that purchasing an agricultural product like grapes or malt from a middle-man means that the product isn’t subject to liens and claims from the original grower.

There are many additional nuances and potential pitfalls in the Ag Lien statute and in Idaho’s lien and security interest laws which require careful consideration and planning in the operation of a winery, brewery, or farming operation.

Hawley Troxell has extensive history and experience assisting clients in navigating these nuances. For more information, please contact us at 208.344.6000 or email us here.