Background

In my first article on wine fraud (to read that article click here) I outlined the sequence of installments for the article. That included an installment on the discovery of fraudulent wines over the last 30 or so years and a listing of the various pending lawsuits alleging wine fraud. But then a new wine fraud story broke and about the same time I received a great article focusing on the legal issues of pending lawsuits alleging damages for the purchase of fraudulent wine. It not only goes into the legal history of the issue, but also offers a possible solution. So the sequence of the Underground wine fraud article is being changed. The posting of this article will replace what was intended to be the third and final chapter in the article covering the sequence of lawsuits. The next and final chapter in the Underground wine fraud article will now focus on the proliferation of fake wines over the years with commentary printed by the Underground and Underground contributors including Albert Givton, who laid out his opinions in no uncertain terms in his great book, Carte Blanche. I expect to have this final article posted in the near future. Beyond this, reports will be issued as further developments unfold relative to wine fraud.

The following article, Fine Wine and Fine Print: Revising Auction Conditions of Sale to Address Wine Counterfeiting, is a seminar paper prepared by Whitney Fogg for a law school class at Stanford. It is a very well researched and thorough review of wine fraud and the pending lawsuits that have been filed alleging fraud. Also, there are recommendations relative to the relationship of the wine auction houses and their customers. If you want to follow the thread of the last few years relative to the wine fraud issue this is an excellent reference. And, if you want to read about my recommendations for preventing wine fraud click here.

In Vino Veritas,

John Tilson

FINE WINE AND FINE PRINT:

REVISING AUCTION CONDITIONS OF SALE TO ADDRESS WINE COUNTERFEITING

By Whitney Fogg[1]

January 30, 2012

Table of Contents

Introduction. 1

The Scope of the Problem.. 4

The Wine Auction Market 6

B.          Public and Private Responses to Counterfeit Wine. 7

Impetus for Change: The Legal Landscape. 10

A.         Counterfeit Wine Lawsuits and Causes of Action. 12

i.           Plaintiff William Koch. 13

ii.          Plaintiff Russell H. Frye. 17

iii.         Plaintiff The London Wineman. 17

iv.         Summary. 19

Reform: Aligning Interests Through Conditions of Sale. 21

A.         Existing Limited Warranties. 22

B.          Benefits and Drawbacks of Limited Warranties. 24

Conclusion. 25

Introduction

On October 15, 1903, Henri Vincendeau sold five cases of high grade G.H. Mumm & Co. Extra Dry champagne to Otto Schmidt, owner of the Chicago-based Otto Schmidt Wine Company.[2] Schmidt thought he was getting a bargain, having only paid $22 per case for a premium French brand that regularly sold for $31 or $32. Unfortunately for Schmidt, the bargain was too good to be true. The “champagne” turned out to be a mixture of Alabama and Georgia wines, the labels imitations printed in Chicago, the caps fakes from New York, and the corks lifted from original Mumm champagne bottles.[3] The swindle led to Vincendeau’s conviction for knowingly selling counterfeit champagne, a crime that carried a three-month term in Cook county jail.[4]

The hapless Vincendeau protested that had no reason to believe the bottles were not genuine, having received the cases as security for a loan and sold them through an agent after the debtor defaulted. The Illinois Supreme Court agreed with Vincendeau and reversed his conviction on the grounds that he should have been able to introduce evidence supporting this defense.[5] The Court found that the defendant’s “guilty knowledge” was “an essential ingredient of the offense.” Because the testimony Vincendeau sought to introduce tended to show that he lacked knowledge of the wine’s inauthenticity at the time of the sale, the trial judge’s decision to exclude it was reversible error.[6]

More than a century old, this case demonstrates both the persistent problem of counterfeit wine and the difficulties in assigning legal blame for the sale of fraudulent bottles. Common law fraud, as well as many state consumer protection statutes, require the plaintiff to prove that the seller intended to deceive the buyer or had knowledge that the product was inauthentic. This is particularly difficult to establish where the seller is a large auction house offering hundreds of bottles of wine on consignment from multiple sources. On the other hand, doing away with a scienter requirement or otherwise increasing seller liability has the potential to dry up the market for wine. Without significantly raising prices, resource constraints may prevent sellers from undertaking the extensive investigations necessary to ensure the authenticity of each lot sold. Auction houses may also decline consignment where the murky provenance of many old and rare bottles makes authentication impractical or impossible.

This paper considers the problem of high-end counterfeit wine, often sold through auctions where premium bottles may demand prices in the tens or hundreds of thousands of dollars. Auction houses typically publish print and online catalogs in advance of a sale. The catalogs contain glossy photographs and detailed descriptions of the lots and individual bottles up for auction, often referencing their rarity, intriguing history, fine tasting notes, and former owners.[7] At the same time, in the small print at the back of the catalog, it is commonplace for auction houses to disclaim any and all warranties as to the correctness of the statements in the catalog and as to the authenticity of the wine. In other words, caveat emptor.

This leaves buyers with little recourse if they later find that the wine they have purchased is not authentic. For example, a New York State appellate court has recently ruled that a buyer could not sue auction house Acker, Merrall & Condit under New York consumer protection statutes for auctioning counterfeit wine because the catalog’s disclaimers would have alerted a reasonable buyer that it should not have relied on the alleged misrepresentations contained in the catalog.[8]

Buyers have an obvious interest in ensuring that the wine they purchase is genuine. While auction houses understandably would like to avoid liability for counterfeit bottles, they also have a reputational and financial interest in ensuring that the wine they offer for sale is authentic. In addition, although disclaimers may ultimately bar many legal claims stemming from the purchase of alleged counterfeit wine, the conditions of sale are not an absolute defense. Defending litigation is also costly to the defendant-seller in terms of both time, resources,[9] and—perhaps most importantly—reputation. The media has devoted considerable coverage to the issue of counterfeit wine and related lawsuits, forcing auction houses to go on the defensive both in the court room and the press.

In light of these concerns, this paper contends that reforming the standard conditions of sale governing wine auctions would be in the best interest of buyers and auction houses. Specifically, auction houses should consider inserting a provision into the conditions of sale that would allow buyers to receive a full refund of the purchase price if they discover that wine bought at auction is counterfeit. In return, buyers would relinquish the right to pursue damages or other remedies against the seller. Although this wavier would not necessarily bar claims for intentional fraud or other egregious misconduct, the limited guarantee would aid auction houses in resolving run-of-the-mill authenticity claims quickly and efficiently.

So as not to expose sellers to unlimited liability, this right should be limited. For instance, the conditions of sale could limit the time period during which buyers may claim a refund, restrict the rescission right to the original purchaser, require the buyer to return alleged counterfeit bottles to the seller in the condition in which they were sold, and condition rescission on the auction house’s own inspection of the wine. Two wine sellers, Chicago-based Hart Davis Hart Co. and Zachys Wine and Liquor in New York, have recently adopted similar provisions. Christie’s and the majority of the major auction houses, however, continue to disclaim all warranties and to sell wine “as is.”

The Scope of the Problem

While there is a tendency to dismiss counterfeit wine as a problem of wealthy oenophiles, it also affects ordinary consumers and institutional wine buyers, including hotels, wine stores, and restaurants.[10] One legal scholar to examine the issue has divided the types of wine fraud into “consumption fraud,” aimed at the general consumer and involving larger quantities of wine, and “collector fraud,” aimed at sophisticated buyers, many of whom purchase wine as an investment.[11] While this paper deals primarily with ways to address “collector fraud,” reforms addressing the problem of counterfeit wine serve to increase general consumer confidence in the wine industry, and may serve to deter future fraudsters. In addition, reducing the incentives to produce and sell fake wine advances several other important societal interests.

John Merryman advances five reasons why counterfeit cultural objects harm society, each of which applies with equal force to wine. Counterfeits are “morally offensive; they impair the search for truth; they skew the allocation of scarce resources; they misrepresent the artist; and they are convenient instruments of fraud.”[12] Forging a painting or concocting a homemade blend and passing it off as a rare Bordeaux are both morally repugnant acts and equally subject to social condemnation as frauds. Counterfeiting wine also has negative implications for collectors who seek and value authenticity when purchasing rare, old wines, particularly bottles with historical and cultural connections such as previous ownership by a historically important individual or chateau. It also skews resources by forcing all parties to the transaction to devote time, energy, and treasure to identifying and preventing fakes. Moreover, inauthentic wine misrepresents the original producer and devalues the vineyard’s reputation, brand, and goodwill. An additional issue not shared by counterfeit art is safety: fake wine does not, by definition, comply with food and beverage regulations and could contain harmful ingredients.

A final reason why counterfeiting merits attention is its negative impact on the global wine market. The economic costs stemming from fake wine are significant and include reducing revenue for authentic producers and distributors, lowering brand quality in the eyes of consumers, exposing producers to liability, and creating “ancillary costs associated with fraud prevention, audits and investigation, time spent with regulators and customs, pressure from legitimate distributors, and increased customer service costs.”[13] Meanwhile, given the low costs of production, those responsible for making and selling counterfeit bottles have the ability to turn a generous, unearned profit.

The size of the profits vary by market segment, with bottles sold at the high-end of the market generating enormous profits relative to those fakes targeted to the more price-conscious general consumer market.[14] Counterfeiting therefore has the potential to cause a significant distortion in the wine auction market, as a primary source for premium, rare, and trophy wines.

A.     The Wine Auction Market

Famed auction houses such as Christie’s and Sotheby’s call to mind wood-paneled rooms filled with bidders vying for sculptures, paintings, furniture, silverware, and other fine art and collectibles. In 2010, the worldwide auction market for art and collectable objects was $28.67 billion, with the US accounting for 27 percent, or $7.74 billion, of the total.[15] While the global market for fine and rare wines is much smaller, the space is profitable and continues to grow. Wine auctions therefore remain an important staple at Christie’s, Sotheby’s, and other auction houses traditionally focused on art sales.[16] They are also a major source of revenue for companies dealing solely in wine and liquor, including Acker, Merrall & Condit, Hart Davis Hart Wine Co., the Chicago Wine Company, and Zachys Wine and Liquor.

In 2009, consumers spent $180 billion on wine worldwide.[17] Auction sales of fine and rare wine make up a portion of the lucrative global wine market, totaling a record $478 million in 2011, representing a 17 percent increase from 2010.[18] The US auction market accounted for $154 million of this total, with 42,705 lots up for sale at an average price per lot of $3,428.[19]

In 2011, Hart Davis Hart led the US in wine auction sales, with $37.4 million in total sales. Zachys ranked second with $36.4 million, followed by Acker, Merrall with $33.4 million. When online auction sales are counted in the totals, Acker, Merrall tops the US list with $41.6 million in sales. There is a sizable drop-off after the three leading US wine sellers, with number four Sotheby’s grossing $13.5 million from American wine sales. Sotheby’s worldwide wine sales figures, however, reached $85.5 million.[20] Christie’s global total was slightly higher, estimated at more than $90 million,[21] and Acker, Merrall surpassed $110.5 million in global sales, including online auctions.[22] As the worldwide demand for wine continues to grow, it will continue to provide an attractive market for both legitimate and illegitimate producers.

B.      Public and Private Responses to Counterfeit Wine

In light of the ever-increasing amount of money spent on wine, from the rarest, most expensive bottles to mass produced liquor store staples, it is no surprise that counterfeiting has emerged as a major problem confronting the wine industry. Producing a fake bottle of old wine is not especially difficult, as wine expert and writer Geoffrey Troy notes in a tongue-in-cheek set of instructions:

• Find an empty bottle of an old vintage of Bordeaux. It should preferably be pre-phylloxera as these vintages are worth a great deal of money and relatively few people know what they should taste like. The bottle should have an original label in good condition, if possible, because this adds greatly to the value of rare old wines.
• Fill the bottle with a carefully made combination of young Bordeaux, Rhone, Beaujolais, Crème de Cacao, etc. Use your imagination to make a good blend!
• Remove the cork from a bottle of young wine of the same chateau as the empty bottle you plan to recork. Do not use a conventional corkscrew, as that will ruin the cork, however an Ah-So cork puller that has the two prongs that slide down the side of the cork would work fine. It is very unlikely to damage the cork.
• Carefully sand the vintage date off the cork. Brand the correct “new” date on the cork to match the label of the old bottle being recorked.
• Recork and recapsule.

Now you have a beautiful bottle of rare old claret and you can make your haul as soon as an unsuspecting collector can be found who will purchase your fake bottle![23]

Although experts can often determine authenticity by examining the wine’s surface features, such as the bottle, label, cork, and capsule, the most accurate testing method—sampling the wine itself—is unavailable without completely destroying the retail value of the wine. For this reason, fake wine presents a unique challenge that has generated a variety of responses, including ex-ante preventive measures (e.g., using invisible ink or imbedding radio-frequency identification tags on wine labels)[24] and post-ante criminal and civil actions aimed at producers, direct sellers, and intermediary conduits like auction houses.

The pervasiveness of fake wine has become serious enough to merit government attention in the form of criminal investigations. These investigations have targeted both consumer and collector fraud. For example, in the early 1990s, federal prosecutors conducted an extensive investigation into the California wine industry, ultimately prosecuting several individuals and wineries for filling bottles with wine derived from cheap grapes and passing them off as more expensive varietals.[25] Another case of consumer fraud occurred in 2010, when French authorities convicted a dozen wine makers for producing fake bottles of pinot noir—really a blend of merlot and syrah—for American wine seller E.&J. Gallo’s $8-a-bottle Red Bicyclette brand.[26] “Pinotgate” ultimately led the US Alcohol and Tobacco Tax and Trade Bureau to conduct its own probe into the charges.[27]

In 2007, federal prosecutors turned to collector fraud, launching an investigation into counterfeit wine sales with assistance from the FBI’s specialized art fraud unit.[28] The inquiry focused on whether auction houses, collectors, or importers knowingly sold counterfeit wines in violation of federal fraud statutes.[29] Christie’s, Zachys, and Royal Wine Merchants all reportedly received subpoenas as part of the investigation, which began after several wine collectors pressured auction houses to take responsibility for the sale of fake bottles.[30] In addition to criminal actions, collectors and vintners have also turned to private investigators, the media, and the courtroom to combat wine fraud.

Wine Spectator magazine has termed this “the crusade against counterfeits.”[31] One of the goals of the “crusade” is changing auction houses’ conditions of sale under which the seller disclaims all warranties and the buyer takes the wine “as is.”[32] The words of avid wine collector William Koch, CEO of energy firm Oxbow Carbon and one of Forbes 400 wealthiest individuals,[33] illustrate the views of irate collectors:

I buy a lot of art and a lot of wine and I want people to know that if they’re cheating me, man, I’m coming after them. . . . [The auction houses] put out these slick catalogs that describe lots glowingly. If an auction house were to say this was Jesus’ bottle, we’ve inspected it, and you come back to them and say it’s fake, they say, oh, look at the fine print in the back of the catalog. It says that you can’t rely on anything we say. Everything is sold ‘as is.’ I find that extremely offensive.[34]

On the other hand, some wine industry insiders think that the problem of counterfeit wine is “being exaggerated” and that “the focus on counterfeits will scare away bidders.”[35] John Kapon, President and Auction Director at Acker, Merrall, told Bloomberg News in 2010, that “[i]t’s a bigger story than an actual problem.”[36] Christie’s International Head of Wine David Elswood identified another unintended result of the anti-counterfeiting crusade in an interview with Wine Spectator: “Twenty years ago nobody was screaming fakes. . . . But now we have put this idea that there are fakes out there and I am sure that in the course of that a lot of genuine bottles have been called into question.”[37] While the controversy over auction houses and counterfeit wine may have unintended consequences, the fact remains that buyers continue to press for seller accountability, and are increasingly willing to go to court to force the issue.

Impetus for Change: The Legal Landscape

Prior to 2006, auction houses and other sellers of fine wine had little impetus to revisit the “as is” language and other disclaimers in the fine print accompanying wine sales. Buyers did not seem particularly concerned with ferretting out counterfeit bottles. Even if they did find the occasional fake, purchasers likely settled these incidents privately, as evidenced by the dearth of lawsuits filed against auction houses or other sellers. The landscape for sellers changed after 2006, when William Koch filed suit in federal court against a consignor of expensive and rare wines.[38] In this new environment, auction houses and other sellers run the risk of being haled into court by buyers who have become alert to the existence of counterfeit wine and who are willing to use the legal system to address the problem. The threat of legal action as well as the lawsuits buyers have already filed present an incentive for auction houses to consider providing a limited guarantee to bidders who purchase counterfeit bottles.

Koch’s lawsuit against German national Hardy Rodenstock broke new ground in civil litigation and presented auction houses with a novel challenge.[39] The complaint asserted claims for common law fraud and declaratory relief, alleging that Rodenstock was the source for bottles of fraudulent wine Koch purchased at auction.[40] Among the alleged counterfeits were several bottles of 18th century wine purportedly belonging to Thomas Jefferson.[41] (Made infamous in Benjamin Wallace’s book The Billionaire’s Vinegar, one of these bottles sold for $156,000 to Christopher Forbes at a 1985 Christie’s auction—the highest ever paid for a single bottle at auction at that time.[42]) Prior to Koch’s action, reported case law dealing with counterfeit wine was scant or non-existent. In light of the lack of precedent, the body of law relating to counterfeit works of art and other collectables provided an analogous source for case law and possible causes of action.[43]

Both fine art and fine wines are frequently sold at auction, subject to similar terms and conditions, and both commodities are recurrent targets of counterfeiting and fraud. Unsurprisingly, the Rodenstock complaint and subsequent fraudulent wine lawsuits pursued theories of relief similar to those found in suits involving fake art and collectibles. Although auction houses have ample experience with such litigation, counterfeit wine lawsuits present new challenges because of the unique nature of the product and the minor but legally significant differences between the standard conditions of sale for art and wine.

A.     Counterfeit Wine Lawsuits and Causes of Action

A buyer who purchases a painting or, by analogy, a bottle of wine that later turns out to be inauthentic may bring several causes of action against the seller. These include fraud, misrepresentation, mutual mistake, breach of contract, and breach of warranty.[44] Plaintiffs face significant hurdles in bringing these and other derivative claims. First, most are subject to statutes of limitations, which vary from state to state and may run from the date of the sale or actual discovery of the inauthenticity.[45] The plaintiff must either bring the claim within the specified time period, or, where applicable, demonstrate equitable tolling. Second, the plaintiff may have to prove intent to deceive (for fraud claims) or special expertise (for misrepresentation) on the part of the seller-defendant. Third, to the extent the purchase contract contained disclaimers, the plaintiff will have to overcome these provisions. These are significant obstacles, and will in many cases permit a defendant to prevail on a motion to dismiss or dissuade potential buyers from bringing suit in the first place.[46]

At the same time, the availability of multiple, separate causes of action increases the risk for the seller-defendant that it may not prevail on each asserted claim, and that the plaintiff therefore has a reasonable chance of success on at least one cause of action. This risk may push defendants to settle rather than take their chances with a full trial. Common in art litigation, these tensions are also present in the few lawsuits that have been filed over alleged counterfeit and fraudulent wine. Although a limited guarantee—already widely used in the art world—would not prevent all lawsuits, affording potential plaintiffs a readily available remedy (rescission of the purchase price) would discourage litigation while still allowing room for legal action where the seller and/or producer intentionally defrauded the buyer.

In order to examine the litigation-based incentives for revising wine auction conditions of sale, a brief overview of cases that have been filed is helpful. At least three separate plaintiffs have commenced actions for various iterations of collector fraud since Koch’s first lawsuit in 2006.[47]

i.                    Plaintiff William Koch

Following the Rodenstock complaint, for which Koch obtained a default judgment after the defendant refused to leave Germany to defend the suit,[48] Koch filed six additional lawsuits, all springing from an investigation into the authenticity of bottles he purchased from various different sellers. Koch launched the investigation in 2005 after a Boston museum notified him that one of the so-called Thomas Jefferson bottles he loaned to the museum was probably a fake.[49] Results of the investigation in hand, Koch sued fellow collector Eric Greenberg in 2007 for consigning counterfeit wine to Zachys, adding the seller as a defendant for auctioning the wine to Koch.[50] The complaint alleged common law fraud, negligent misrepresentation, and violation of New York State consumer protection laws (specifically, New York General Business Law § 349 (deceptive trade practices) and § 350 (false advertising)).[51] Although Zachys and Koch reached a confidential settlement in 2011,[52] the case against Greenberg is still ongoing.[53]

Koch’s subsequent targets were the Chicago Wine Company and Julienne Importing Company. He sued the pair in 2008 for importing and selling him numerous bottles of counterfeit wine, among them one of the Thomas Jefferson bottles, a 1787 Branne-Mouton that Koch purchased for $100,000.[54] The claims in this lawsuit included breach of contract, common law fraud, and violations of Massachusetts and Illinois consumer fraud and deceptive trade practices statutes.[55] Like Zachys, the Chicago Wine Company eventually settled with Koch on a confidential basis.[56] Both auction houses subsequently amended their conditions of sale to add a limited warranty provision applicable to counterfeit wine.[57]

Also in 2008, Koch sued Acker, Merrall & Condit in connection with five counterfeit bottles he purchased from the auction house between 2005 and 2006, alleging common law fraud, breach of contract, and violations of New York and Florida consumer protection laws.[58] As of August 26, 2011, all claims had been dismissed, and the New York Court of Appeals granted Koch leave to appeal the dismissal of the New York statutory claims.[59]

Following the Acker, Merrall lawsuit, Koch also commenced an action against collector Rudy Kurniawan as the purported source of the five counterfeit bottles Koch bought from Acker, Merrall.[60] The suit against Kurniawan, which is still pending, asserted claims for common law fraud, negligent misrepresentation, and violation of California’s unfair competition law.[61]

In 2010 and 2011, Koch filed two additional lawsuits against Christie’s in New York and Royal Wine Merchants in Florida. In contrast to the previous suits, these complaints alleged novel causes of action: civil violations of RICO, the federal Racketeer Influenced and Corrupt Organizations Act,[62] civil conspiracy to defraud, and aiding and abetting fraud.[63] In a published and widely reported opinion, the district court dismissed Koch’s suit against Christie’s in March of 2011.[64] The court held that Koch had not suffered the requisite injury under the New York deceptive business practices law because he knew the bottle at issue, an 1870 Lafite, was counterfeit before he purchased it in 2008.[65] The court dismissed the RICO and other remaining claims as time barred, finding that Koch was on inquiry notice since at least 2000 that the four bottles of Thomas Jefferson wine he purchased from Christie’s in 1988 may have been counterfeit.[66] The lawsuit against New York-based retailer Royal Wine Merchants and its principals Daniel Oliveros and Jeff Sokolin—known as the “sexy boys” in the fine wine community for describing the wines they sold as “sexy juice”[67]—is still pending before the federal district court in Miami.[68]

While there are not many remaining auction houses or major sellers that have escaped a Koch lawsuit, it remains to be seen whether he will continue to bring new actions in the coming years. Given Koch’s stated goal of eliminating fine print disclaimers, the lawsuits may not stop until more auction houses follow the lead of the Chicago Wine Company and Zachys in amending their conditions of sale or otherwise taking significant steps to curb sales of counterfeit wine.

ii.                  Plaintiff Russell H. Frye

On August 31, 2006, the same day that Koch sued Rodenstock, Massachusetts wine collector Russell H. Frye filed a lawsuit against California wine merchant The Wine Library.[69] Frye accused The Wine Library of selling him more than 30 bottles of fake wine, at least some which were obtained from Rodenstock.[70] The parties reached a private settlement in 2007. Although Frye has not filed subsequent lawsuits, he continues to be active in raising awareness of counterfeit wine as the founder of the wine industry watchdog website WineAuthentication.com, dedicated to providing resources “to help people determine the authenticity of [rare] bottles.”[71]

iii.                Plaintiff The London Wineman

The Texas case of Mewhinney v. London Wineman, Inc. appears to be the only published decision dealing with a counterfeit wine case that proceeded to a full jury trial and verdict.[72] If the lawsuits filed by collectors Koch and Frye demonstrate some of the pitfalls awaiting plaintiffs hoping for a victory in counterfeit wine litigation, then Mehwinney stands for the hazards facing seller-defendants should these cases indeed proceed to trial.

In 2007, in response to advertisements seeking a buyer, the president of The London Wineman contacted Michael C. Mewhinney about purchasing the contents of his wine cellar. The London Wineman purchased wine from individuals and resold it through auction houses, including Hart Davis Hart.[73] After inspecting the wine with a Hart Davis Hart representative, The London Wineman decided to buy five bottles of 1945 Chateau Mouton Rothschild from Mewhinney for $6,000 each.[74] Once the bottles arrived at Hart Davis Hart, a subsequent inspection revealed that four of them had corks branded “1955,” marking the bottles as fakes. After Mewhinney refused to refund the purchase price, The London Wineman sued him for breach of contract, negligent misrepresentation, and violations of the Texas Deceptive Trade Practices Act. A jury found in favor of The London Wineman on its negligent misrepresentation and deceptive trade practices claims, awarding the plaintiff $24,000 in damages and $60,000 in attorneys’ fees.[75]

On appeal, Mewhinney argued, inter alia, that the plaintiff’s pre-purchase inspection negated the element of detrimental reliance necessary to show that the defendant has engaged in a deceptive trade practice.[76] The appellate court disagreed, holding that the scope of the plaintiff’s investigation was not sufficient to reveal the truth about the counterfeit wine because it was carried out to determine whether the wine was in good resale condition, and not to authenticate the bottles. The appellate court ultimately affirmed the judgment against Mewhinney.[77]

Although not every counterfeit wine case that reaches a jury will result in a verdict for the plaintiff (after all, jurors may have a great deal less sympathy for a billionaire collector than for a small business), this case does demonstrate that juries are willing to hold sellers liable for counterfeits even absent a finding of knowing or intentional conduct by the seller. The Mewhinney case also belies another concern of counterfeit wine plaintiffs: the buyer-beware theory that jurors may exhibit “feelings of resentment or a general attitude that someone traveling in circles where bottles of wine to be purchased or consumed run into the thousands of dollars should know better than to blithely rely upon the representations of a seller.”[78] At least in Mewhinney, this concern never materialized, despite the high price of the bottles at issue and the sophistication of the purchasers.

iv.                Summary

One cause of action common to nearly all of the counterfeit wine cases on record is some formulation of fraud. Fraud is problematic for auction houses and other potential seller-defendants for several reasons, all of which argue for addressing the problem of counterfeit wine through private contracting, including through the conditions of sale, rather than the court system. First, allegations in a public filing that an auction house has defrauded its customers is never good for business. Second, the complexity of adjudicating a fraud claim in the context of counterfeit wine litigation demonstrates at once the sophistication required to defend such lawsuits and the ability for plaintiffs to prevail under the right conditions—a risk most auction houses would and should be hesitant to take on.

To prove fraud in New York state, the plaintiff must show a “misrepresentation or a material omission of fact which was false and known to be false by the defendant, made for the purpose of inducing the other party to rely upon it, justifiable reliance of the other party on the misrepresentation or material omission, and injury.”[79] As the trial court noted in Koch’s lawsuit against Acker, Merrall, there can be no justifiable reliance on a representation that has been explicitly disclaimed in the agreement.[80] An exception to the rule that specific disclaimers defeat the element of justifiable reliance nevertheless applies where the misrepresented facts are peculiarly within the defendant’s knowledge.[81] Whether the defendant had peculiar knowledge depends on two factors: the sophistication of the buyer and the accessibility of the underlying information.[82] Just as Koch, an knowledgeable wine collector, was unable to convince the New York trial court that he was not a sophisticated buyer,[83] it is unlikely than an experienced wine buyer would prevail under the first factor. Plaintiffs may, however, have more luck with the accessibility prong.

Although Koch did not ultimately persuade the judge in his suit against Acker, Merrall that information about the wine’s authenticity was not accessible to him, he was able to do so in his action against Greenberg. In that case, the complaint alleged that wine experts had informed Greenberg on two separate occasions that his cellar contained counterfeit bottles, yet he nevertheless consigned the bottles to Zachys.[84] The district court found this evidence sufficient to show that information material to Koch’s purchase was not accessible to him at the time of the bidding, and that the peculiar knowledge exception therefore applied even though he was a sophisticated buyer.[85]

The fact that the fraud analysis in the Acker, Merrall and Greenberg cases came out the opposite way, even though they involved the very same plaintiff, demonstrates the highly fact-specific nature of the inquiry. The analysis also arguably hinges on the role of good (read: expensive) lawyering, making counterfeit wine cases a boon for law firms, perhaps, but a time-consuming and expensive exercise for both parties to the suit. The right reforms, however, can reduce the motivations for disgruntled buyers to turn to the courtroom while increasing the incentive for auction houses to carefully inspect consignments for counterfeits or other irregularities before putting them on the block.

Reform: Aligning Interests Through Conditions of Sale

Auction houses and potential buyers have similar interests in promoting a robust wine market and preventing the spread of counterfeits. After all, the distinction between buyer and seller is not always black and white: many buyers purchase wine at as an investment, with the aim of re-selling their collections at a later date, often through consignment to an auction house.

Yet the conditions of sale that currently govern the majority of wine auctions do little to advance these shared interests. The rancor driving the so-called crusade against counterfeiting has at least something to do with the standard auction house practice of touting rare, expensive wines in glossy catalogs while simultaneously stating in small print that “[a]ll property is sold ‘as is’ without any representation or warranty of any kind.”[86]

Adding a limited warranty for counterfeit bottles, accompanied by a corresponding limitation on the buyer’s remedy against the seller, would benefit both parties in three important ways. First, limiting the buyer to a pre-determined remedy would decrease the risk of costly and arduous lawsuits over counterfeit bottles. Second, offering protection against counterfeits has the potential to stimulate the wine auction market by increasing buyers’ incentives to purchase more rare and expensive wines. Third, such a provision could help stem the flow of fakes and stimulate preventative measures by ensuring that all parties to the transaction, including consignors, auction houses, and buyers, are aware of the problem.

Although certain risks accompany the addition of a limited warranty clause, auction houses that sell art already employ much broader warranty provisions for paintings and other objects of art. The standard length of a limited warranty for art is five years from the date of the sale.[87] Additionally, two wine sellers have recently adopted limited warranties for wine sold at auction, demonstrating that, at least in their view, the potential benefits of the provision outweighed the costs.

A.     Existing Limited Warranties

In 2011, the Chicago Wine Company and Zachys inserted new provisions into the conditions attending their wine auction sales. These provisions represent a significant deviation from the industry standard in that they allow buyers to obtain a refund of the purchase price for wine that is “counterfeit” or “has indicia that it is not authentic” (see Fig. 1). It is not clear whether the auction houses instituted these changes as part of the terms of separate, confidential settlement agreements with Koch, or whether the changes were a voluntary reaction to Koch’s lawsuits, put in place to address counterfeiting and head off future litigation. The real reason may lie somewhere in between, but either way these auction houses have become the pioneers for what is arguably a necessary and positive response to the problem of counterfeit wine.

Figure 1. Limited Guarantees in Wine Auction Conditions of Sale
The Chicago Wine Company	Zachys Wine & Liquor
Notwithstanding any other provision to the contrary or any disclaimer, TCWC agrees to refund the purchase price to the purchaser of any wine from TCWC that is not of the vintage or from the producer as was represented by TCWC, including but not limited to situations where the wine is counterfeit or has indicia that it is not authentic sufficient to make the value materially less than if such indicia were not present, provided that the purchaser directly purchased the wine from TCWC and returns such wine to TCWC.[88] (Emphasis added).	Notwithstanding any other Condition of Sale, provision or disclaimer to the contrary, Zachys agrees to refund the purchase price to the Buyer of any property purchased from Zachys that is not of the vintage or from the producer as was stated in the catalogue or otherwise represented by Zachys, including but not limited to property that is counterfeit or has indicia that it is not authentic sufficient to make the value materially less than if such indicia were not present, provided that the Buyer directly purchased the property from Zachys and returns such property to Zachys within 90 days of the date of delivery of such property to (i) New York Fine Wine Storage, Inc. (“NYFWS”) under a storage agreement between Buyer and NYFWS or (ii) the address designated by Buyer.[89] (Emphasis added).

As shown in Figure 1, Zachys limits the warranty to 90 days from the date of delivery. Ninety days may be too short (collectors often wait years to inspect their purchases, only doing so if they intend to drink the wine or re-sell it), or too long (consignors may be unwilling to wait much longer than a month or so, as they have an interest in ensuring that sales are final). But instituting some version of a time limit would be prudent if the goal is to avoid unlimited future liability. Another sensible limit that both Zachys and the Chicago Wine Company include is restricting the warranty to the original buyer. This prevents downstream buyers or other parties not in privity from bringing a claim against the auction house, again reducing liability risk. Auction houses could also require buyers to return alleged counterfeit wine to the seller in the original condition and make rescission dependent on the auction house’s experts carrying out an independent examination of the returned wine.

Only time will tell if the decision by Chicago Wine Company and Zachys to adopt limited warranties will help align the interests of buyers and sellers, but a review of the potential pros and cons of the warranty suggests that some form of guarantee would result in a net benefit to both parties.

B.      Benefits and Drawbacks of Limited Warranties

Giving buyers a limited right to rescission should they discover that they have purchased counterfeit wine would benefit buyers in several ways. First, should they actually discover a fake bottle, buyers can quickly and easily receive a refund. Second, on a broader level, the very existence of the right would give buyers more faith in their purchases and in the auction house. It would signal that auction houses took the problem of counterfeiting seriously and thereby reduce buyer acrimony and ambivalence toward sellers. Third, a limited warranty would encourage bidding by individuals who desire to participate in the market but might otherwise be hesitant to spend thousands of dollars on wine that could later turn out to be fake.

A limited warranty would also result in a significant upside for auction houses, including a lowered risk for counterfeit lawsuits. The incentives to file suit would fall because of increased buyer confidence in wine bought at auction, increased trust between buyers and sellers, and the ready availability of a remedy in case of authenticity issues. The addition of a limited warranty could also have beneficial effects on the auction house’s reputation among collectors, institutional buyers, and other interested members of the public. Finally, as a general disincentive to selling counterfeit wine, a warranty might spur collectors to check their cellars more thoroughly before consigning bottles, easing the auction house’s inspection burden.

These benefits are not without risks, however, and both parties should be aware of the potential drawbacks attending changes to the conditions of sale. For instance, buyers would be limited to a particular remedy and, if the auction house adopted a time limit, would only be able to seek this remedy within a specified period. This limitation does not seem as troublesome, though, when considered alongside the fact that time limits in the form of statutes of limitations already apply to most possible causes of actions. Further, a limitation on the form of remedy is necessary for the warranty to be acceptable to both parties. For example, it is unlikely that an auction house would be willing to expressly permit actions for damages.

Another possible drawback is that overly-cautious auction houses might use sparser language to describe catalog entries, resulting in less-informed buyers that may be less willing to open their wallets. Yet it might not be such a negative thing to encourage caution rather than baseless hubris in catalog descriptions. Furthermore, this concern is overstated to the extent that the target audience of collectors and institutional buyers already possess sophisticated knowledge of wine, and will be able to read and understand the catalog offerings whether or not they contain flowery descriptions.

A more pressing concern is that a limited warranty could slow the market for fine wines by making consignors hesitant to offer their collections for sale at auction, particularly those sellers with extensive cellars of rare wines that may unwittingly include counterfeit bottles. But as long as the global wine auction market continues to grow, collectors will likely continue to treat rare wines as valuable and prestigious investments and continue to seek out the most lucrative platforms to buy and sell premium bottles. As the wine market enters an era of global expansion and new technology, including online sales, adopting limited warranties would help auction houses remain competitive as one of the most attractive, profitable, and reliable venues for trading fine wines.

Conclusion

“The fact is that fake bottles are really a bad thing,” collector and oenophile John Tilson writes in the Underground Wine Letter. “First, it is illegal to create and knowingly sell false products. Second, it undermines one of the most cherished material things in life—the enjoyment of a great old bottle of wine.” [90] Tilson then goes on to compare wine fraud to counterfeit art, finding it just as deplorable: “Society has pursued art forgers for centuries. The wine alchemists are relatively new, but they deserve the same fate. People who create and knowingly sell fake wines should be held accountable. That time is coming.”[91] While it is still necessary to develop viable methods for targeting the producers of counterfeit wine—the “wine alchemists” themselves—limited guarantees in wine auction conditions of sale are one way to reduce the presence and harmful effects of counterfeit wine in the marketplace.

The fact that at least two auction houses have adopted limited guarantees will hopefully influence the remaining market participants, including Acker, Merrall & Condit, Christie’s, Hart Davis Hart, and Sotheby’s, to examine the fine print and institute changes to respond to counterfeiting, reduce future liability, and remain an attractive platform for fine wine sales.

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[1] JD Candidate, 2013, Stanford Law School. This paper was prepared for Tracy Genesen’s Wine and the Law seminar, taught at Stanford Law School in the 2012 winter quarter. Many thanks to Tracy Genesen and John Hoche for their help.

[2] Vincendeau v. People, 119 Ill. App. 603, 605 (Ill. App. Ct. 1905) rev’d, 219 Ill. 474 (1906).

[3] Id. at 605-06.

[4] Vincendeau v. People, 219 Ill. 474, 475 (1906).

[5] Id. at 484.

[6] Id. at 483.

[7] For example, an entry for a magnum (equivalent to two bottles) of 1962 Romaneé-Conti, priced at $18,000-$26,000, included a description of the vineyard (“‘Romanée-Conti,’ as the local proverb goes, ‘is the central pearl of the Burgundian necklace.’ . . . This pearl, this small jewel, just under 5 acres, was coveted by a famous collector of jewelry, Madame de Pompadour, but she was out bid by the Prince de Conti, hence the name. The King’s minister won against the King’s mistress! In 1868 the vineyard passed to the de Villaine family and is still, today, managed by Aubert de Villaine. This offering represents a rare opportunity to pick up pristine examples of Romanée-Conti from the best vintages.”), the bottle itself (“Côte de Nuits, Domaine de la Romanée-Conti. Level: 5cm; domaine embossed lead capsule cut and missing prior to Christie’s inspection to reveal vineyard and vintage branded cork. Wildman import label partially overlapping front label.”), and tasting notes (“‘Wow! Wow! Wow! Super-ripe, super fresh, and super long. The ’62 RC delivered smoky campfire and savory, gamey notes up front followed by a ripe perfume of red fruits and violets, followed by a minerally, earthy firmness. On the palate the wine was powerful and dynamic, bet exquisitely balanced with no heaviness. Almost unbelievably long on the finish. Truly an experience to remember.’ At dinner with clients in Hong Kong, November 2009.”). Christie’s, Auction Catalog, New York: Fine and Rare Wines, Dec. 10, 2010, at 20.

[8] Koch v. Acker, Merrall & Condit Co., 901 N.Y.S.2d 271, 272 (N.Y. App. Div. 2010).

[9] For example, in 2008 Sotheby’s recorded a $1.5 million increase over the previous year “in client goodwill gestures, authenticity claims, litigation costs and other related charges.” Sotheby’s, 2008 Annual Report (Feb. 26, 2009), at 41, available at http://investor.shareholder.com/bid/annuals.cfm. Underlining the importance of reducing litigation-related expenses, Sotheby’s noted in its 2009 Annual Report that, as part of “cost savings initiatives enacted in response to the downturn in the international art market,” it “will continue to focus on containing general and administrative expenditures,” which include the cost of litigation. Sotheby’s, 2009 Annual Report (Mar. 1, 2010), at 27, available at http://investor.shareholder.com/bid/annuals.cfm. In both 2008 and 2009, general and administrative expenses made up approximately 28.5% of total expenses for the auction house. Sotheby’s, 2010 Annual Report (Feb. 28, 2011), at 35, available at http://investor.shareholder.com/bid/annuals.cfm.

[10] See, e.g., Eric Asimov, Wine Auctions Become a Buyer’s Market, N.Y. Times, Jan. 13, 2009, at D8 (“Daniel Johnnes, wine director for Daniel Boulud’s restaurant group . . . trawls auctions for older vintages to add to his list.”). NB: Boulud’s group includes the famed Daniel in New York City, which earned three Michelin Stars in 2012. Michelin, New York City 2012 Starred Restaurants (accessed Jan. 28, 2011), http://www.michelintravel.com/methodology/new-york-city-2012-starred-restaurants/.

[11] Lars Holmberg, Wine Fraud, 2 Int’l J. Wine Research 105, 106 (2010).

[12] John Henry Merryman, The van Meegeren Problem, reprinted in John Henry Merryman, et al., Law, Ethics and the Visual Arts 1057, 1060 (5th ed. 2007).

[13] Janice H. Nickel & Henry Sang, Jr., The Cost of Counterfeits, Hewlitt-Packard Laboratories, Aug. 9, 2007, at 3, available at http://www.hpl.hp.com/techreports/2007/HPL-2007-133.pdf.

[14] Id. at 2.

[15] Pascale Mollard-Chenebenoit, French Report: China Now Biggest Auction Market for Art, Auction Central News (June 23, 2011), http://acn.liveauctioneers.com/index.php/features/art-design/4898.

[16] For a good overview of the wine auction market, see Geralyn Brostrom & Jack Brostrom, The Business of Wine: An Encyclopedia 16-17 (2009). A major expansion in the wine auction market, previously confined mainly to the United Kingdom, occurred in 1994 after the New York legislature permitted wine auctions to be held within the state. Id. at 16.

[17] Suzanne Mustacich, Global Wine Sales Boom Despite Crisis, AFP (June 22, 2011), http://vinoenology.com/wine-news/read/2549.

[18] Peter D. Meltzer, Global Wine Auctions Reach New High in 2011, Wine Spectator (Jan. 10, 2012), http://www.winespectator.com/webfeature/show/id/46258.

[19] Id. The average price per lot in Hong Kong, a strong growth area for fine wine auctions, was $8,227 in 2011.

[20] The Battle for Wine Auction Supremacy, Shanken News Daily (Jan. 11, 2012), http://www.shankennewsdaily.com/index.php/2012/01/11/2220/the-battle-for-wine-auction-supremacy.

[21] Leslie Gevirtz, Wine Sales Robust in 2011, May Drop More in 2012, Reuters (Dec. 27, 2011).

[22] Mollard-Chenebenoit, supra note 20.

[23] Geoffrey Troy, Another View, in John Tilson, The Sordid Story of Wine Manipulation & Wine Fraud Covering over 40 Years of Tasting Old Wines, The Underground Wine Letter (Jan. 10, 2012), http://www.undergroundwineletter.com/2012/01/the-sordid-story-of-wine-manipulation-wine-fraud-covering-over-40-years-of-tasting-old-wines.

[24] Peter Hellman & Mitch Frank, The Crusade Against Counterfeits, The Wine Spectator, Dec. 15, 2009, at 66.

[25] Cheap Grapes Turned Zinfandel in Wine Scam, Bowling Green Daily News, Dec. 12, 1993, at 13A.

[26] Dave McIntyre, Wine: Red Bicyclette Isn’t What You Thought It Was (Feb. 18, 2010), http://voices.washingtonpost.com/all-we-can-eat/wine/wine-red-bicyclette-isnt-what.html.

[27] Jon Bonné, ‘Pinotgate’ Controversy Gives Grape A Bad Name, San Francisco Chronicle, Mar. 7, 2010, at K1.

[28] John Wilke, U.S. Investigates Counterfeiting of Rare Wines; Auctioneer Christie’s, Others Are Subpoenaed; Liability Issues Loom, Wall St. J., Mar. 6, 2007, at A1.

[29] Id.

[30] Id.

[31] Hellman, supra note 24, at 46.

[32] See Adam Lechmere & Maggie Rosen, Koch Settles Suits with Zachys, Chicago Wine Company, Decanter.com (Jan. 27, 2011), http://www.decanter.com/news/wine-news/514376/koch-settles-suits-with-zachys-chicago-wine-company.

[33] Lisa Rab, The Other Koch Brother, The Village Voice News (Aug. 24, 2011), http://www.villagevoice.com/2011-08-24/news/william-bill-koch-the-other-koch-brother-tea-party/.

[34] Hellman, supra note 24, at 55.

[35] Id. at 62.

[36] Elin McCoy, Billionaire Koch Expects More Fake-Wine Lawsuits in 2010, Bloomberg News (Feb. 7, 2010), http://www.bloomberg.com/news/2010-02-08/billionaire-koch-expects-more-fake-wine-lawsuits-in-2010.html.

[37] Hellman, supra note 24, at 62.

[38] Koch v. Rodenstock, No. 06 Cv. 6586(BSJ)(DF), 2010 WL 2010900 (S.D.N.Y. May 18, 2010) [hereinafter Rodenstock].

[39] Complaint, Koch v. Rodenstock, No. 06 CIV 6586 (S.D.N.Y. Aug. 31, 2006), 2006 WL 3100431.

[40] Id. at ¶¶ 39-50.

[41] Id. at ¶¶ 20-21.

[42] Benjamin Wallace, The Billionaire’s Vinegar 76 (2008).

[43] William J. Casey & Andrew G. Wanger, Litigating a Case of Counterfeit Wine, in Wine in America: Law and Policy 329, 343 (Richard Mendelson, ed., 2011).

[44] Mari-Claudia Jiménez, So, You Bought a Fake? Now What?, 4 Art & Advocacy, 2009, at 3-5.

[45] Id. The author notes that “given the short statutes of limitations for the remedies available, art buyers who simply hang their new purchases on the wall and do not discover that their artworks are counterfeit until decades later are often left without any remedy at all.” Id. at 6. A similar risk attends counterfeit wine because fine wine, like fine art, is often bought by collectors who may not discover any issues until they decide to re-sell the bottles many years after the initial purchase.

[46] For good overview of these issues in practice, see Foxley v. Sotheby’s Inc., 893 F. Supp. 1224 (S.D.N.Y. 1995), in which a William Foxley sued Sotheby’s after he purchased a Mary Cassatt painting at auction that was revealed as a forgery nearly six years after the date of sale. The district court dismissed all but two of the plaintiff’s seventeen causes of action.

[47] There is a fourth case dealing with counterfeit wine, but it is a class action focused on consumer fraud stemming from the “Pinotgate” discussed above. Complaint, Zeller v. E. & J. Gallo Winery, No. BC432711 (Cal. Sup. Ct. July 11, 2011). The case settled in late 2011, with the wine retailer defendants agreeing to provide a $2 million settlement fund to reimburse consumers who bought fake pinot noir. Cathy Bussewitz, Gallo, Constellation Agree to Settle Lawsuit over Fake Pinot, The Press Democrat (Jan. 18, 2012), http://www.pressdemocrat.com/article/20120118/business/120119467.

[48] Rodenstock, at *2.

[49] Complaint, Koch v. Rodenstock, No. 06 CIV 6586 ¶ 22 (S.D.N.Y. Aug. 31, 2006), 2006 WL 3100431.

[50] Complaint, Koch v. Greenberg, No. 07 CIV 9600 (S.D.N.Y. Oct. 26, 2007), 2007 WL 7229127.

[51] Id. at ¶¶ 60-90.

[52] Lechmere, supra note 32.

[53] Currently pending before the court is Greenberg’s August 22, 2011 motion for summary judgment and Koch’s motion to dismiss a counterclaim Greenberg filed on October 13, 2011. Docket, Koch v. Greenberg, No. 1:07-CV-09600 (S.D.N.Y. Jan. 28, 2012).

[54] Complaint, Koch v. Chicago Wine Co., No. 08L3458 ¶ 22 (Ill. Cir. Ct. Mar. 23, 2008), 2008 WL 35794273.

[55] Id. at ¶¶ 125-78.

[56] Lechmere, supra note 32.

[57] Id.

[58] Koch v. Acker, Merrall & Condit Co., No. 601220/08, at 1-2 (N.Y. Sup. Ct. Apr. 9, 2009) [hereinafter Acker, Merrall].

[59] Koch v. Acker, Merrall & Condit Co., 2011-1092, 2011 WL 6223134 (N.Y. Dec. 15, 2011).

[60] Koch v. Kurniawan, No. B222464, 2011 WL 654717, at *1 (Cal. Ct. App. Feb. 24, 2011).

[61] Id.

[62] The most common formulation of a civil RICO claim is for the plaintiff to allege that he has been injured by a defendant conducting the affairs of an enterprise affecting interstate commerce through a pattern of racketeering. 18 U.S.C. § 1962(c) (2006). In Christie’s and Royal Wine, the alleged predicate acts forming a pattern of racketeering were mail and wire fraud, common allegations in civil RICO actions, see Roger T. Creager, A Current Guide to Civil Rico in New York Federal Courts, N.Y. St. B.J., Nov. 1994, at 20.

[63] Complaint, Koch v. Christie’s Int’l PLC, No. 10 CIV 2804 ¶¶ 177-201 (S.D.N.Y. Mar. 30, 2010), 2010 WL 1321797; Complaint, Koch v. Royal Wine Merchants, Ltd., No. 11CV81197 ¶¶ 88-113 (S.D. Fla. Oct. 27, 2011), 2011 WL 5121055.

[64] Patricia Hurtado, Christie’s Wins Dismissal of Koch’s Counterfeit Wine Lawsut, Bloomberg News (Mar. 18, 2011), http://www.businessweek.com/news/2011-03-18/christie-s-wins-dismissal-of-koch-s-counterfeit-wine-suit.html.

[65] Koch v. Christie’s Int’l PLC, 785 F. Supp. 2d 105, 119 (S.D.N.Y. 2011) [hereinafter Christie’s].

[66] Id. at 118.

[67] Mike Steinberger, What’s in the Bottle, Slate.com (June 14, 2010), http://www.slate.com/articles/life/drink/2010/06/whats_in_the_bottle.single.html.

[68] Thus, no court has reached the merits of civil RICO as applied to wine fraud. As discussed above, the court in Christie’s found that Koch knew the Thomas Jefferson bottle was counterfeit by at least 2000, well outside the four-year statute of limitations for civil RICO claims, see Agency Holding Corp. v. Malley-Duff & Associates, Inc., 483 U.S. 143 (1987). Perhaps learning his lesson the hard way, the complaint against Royal Wine Merchants, filed on October 27, 2011, alleges that Koch discovered in 2007 that 32 bottles of wine in his cellar originating from the defendants were counterfeit, which may place the discovery of his injury within the statute of limitations. Koch could also argue for equitable tolling based on fraudulent concealment by the defendants. This argument failed in Christie’s because the court found that, even taken as true, the fraudulent concealment did not prevent Koch from discovering Christie’s role in selling him counterfeit wine. Christie’s, at 117. Therefore, Koch would have to show that the Royal Wine defendants wrongfully concealed information about the authenticity of the 32 bottles and that this concealment prevented Koch from discovering the defendant’s role in his injury. If the Florida district court rules that Koch’s claims are time barred once again, this could sound the death knell for civil RICO and counterfeit wine—a very attractive cause of action for plaintiffs since the statute authorizes treble damages and attorneys’ fees. 18 U.S.C. § 1964 (2006).

[69] Frye v. The Wine Library, Inc., 06-5399 SC, 2007 WL 4357596, at *2 (N.D. Cal. Dec. 11, 2007).

[70] Howard G. Goldberg, Case Involving Rodenstock Bottles Settled out of Court, Decanter.com (Feb. 20, 2008), http://www.decanter.com/news/wine-news/485988/case-involving-rodenstock-bottles-settled-out-of-court.

[71] WineAuthentication.com, (accessed Jan. 29, 2012), http://www.wineauthentication.com.

[72] 339 S.W.3d 177 (Tex. App. 2011), reh’g overruled (Apr. 28, 2011), review denied (Sept. 30, 2011).

[73] Id. at 179.

[74] Id. at 179-80.

[75] Id. at 180.

[76] Id. at 182.

[77] Id. at 183.

[78] Casey, supra note 43, at 346.

[79] Lama Holding Co. v. Smith Barney Inc., 88 N.Y.2d 413, 421 (1996)

[80] Acker, Merrall, at 11.

[81] Id. at 12.

[82] Id.

[83] Id. at 12-13 (“Although Plaintiff [Koch] may not have the certified expertise to determine any given wine’s authenticity . . . he certainly has the resources to hire third party investigators with such expertise.”).

[84] Complaint, Koch v. Greenberg, No. 07 CIV 9600 ¶¶ 16-17.

[85] Koch v. Greenberg, No. 07 Civ. 9600(BSJ)(DF), 2008 WL 4778813 (S.D.N.Y. Oct. 31, 2008), at *3 (noting that “even if [Koch] had examined the wines before purchasing, he would not have discovered that two experts commissioned by Greenberg . . . had previously examined, the wine and determined it to be counterfeit”).

[86] Christie’s, Conditions of Sale, Auction Catalog, New York: Finest and Rarest Wines of France, Jan. 25, 2012.

[87] See, e.g., Sotheby’s, Conditions of Sale, Auction Catalog, Old Master & 19th Century European Art, New York, Jan. 27, 2012 (“[F]or all lots Sotheby’s guarantees that the authorship, period, culture or origin (collectively, ‘Authorship’) of each lot in this catalogue is as set out in the BOLD or CAPITALIZED type heading in the catalogue description of the lot . . . . In the event Sotheby’s in its reasonable opinion deems that the conditions of the Guarantee have been satisfied, it shall refund to the original purchaser of record the hammer price and applicable Buyer’s Premium paid for the lot by the original purchaser of record. . . . This Guarantee is provided for a period of five (5) years from the date of the relevant auction.”).

[88] The Chicago Wine Company, Terms and Conditions of Sale as of January 22, 2012.

[89] Zachys Wine & Liquor, Conditions of Sale as of December 2011.

[90] John Tilson, The Sordid Story of Wine Manipulation & Wine Fraud Covering over 40 Years of Tasting Old Wines, The Underground Wine Letter (Jan. 10, 2012), http://www.undergroundwineletter.com/2012/01/the-sordid-story-of-wine-manipulation-wine-fraud-covering-over-40-years-of-tasting-old-wines.

[91] Id.