Tied House Laws: Alive and Kicking

The New York State Liquor Authority issued a stern reminder that tied house laws are not only still on the books, but will be strictly enforced. On Tuesday, March 25, the NYSLA accepted a plea offer from the numerous entities associated with restaurateur Joe Bastianich to pay $500,000 penalty, close down Manhattan-based wine store Eataly Wines for six month, and remove Lidia Bastianich (Joe’s mother) as an owner of that store due to tied house violations.

Tied house laws are aimed at prohibiting alcohol beverage suppliers (manufacturers, wholesalers, importers) from exerting control over retailers (including restaurants, bars, and liquor stores). To that end, state laws typically prevent an owner of a licensed supplier from holding an ownership interest, direct or indirect, in a licensed retailer. In this case, Bastianich and a number of his partners apparently held ownership interests in a number of New York retail licenses while also holding ownership interests in wineries in Italy.

In a sign that not all publicity is good publicity, counsel for the NYSLA stated that their investigation started as a result of a cover story on Eataly owner Oscar Farinetti in Wine Spectator. The article reported that “Eataly now owns stakes in six wine estates across northern Italy” and that Joe Bastianich was the “owner of several Italian wineries….” NYSLA reviewed the various alcohol beverage retail licenses held by Bastianich-related entities and discovered that these various winery interests were never disclosed in the initial or renewal license applications.

The NYSLA’s enforcement of tied house laws is not surprising given past precedent. In 2011, the Authority issued two separate declaratory rulings stating that an applicant holding an interest in a foreign-based alcohol beverage manufacturer could not hold a New York retail liquor license under New York tied house laws. In fact, one of those rulings applied to an Italian wine producer seeking a New York restaurant license.

California also has tied house laws, but provides exceptions allowing winegrowers (i.e., Type 02 license holders) to own an interest in an alcohol beverage retail license so long as they disclose their ownership interests and accept certain restrictions. For example, under certain circumstances, a licensed California winegrower may own interests in multiple restaurants holding California alcohol beverage licenses so long as they do not sell their wine at more than two of those establishments and their wines do not constitute more than 15% of all brands offered for sale at those restaurants. (This exception does not apply to custom crush clients / “virtual wineries” that operate under a Type 17/20 license.). As the Eataly matter demonstrates, however, that winegrower would be barred from obtaining a New York alcohol beverage retail license.

For more information on wine law or tied house issues, please contact John Trinidad at [email protected]. Mr. Trinidad was interviewed by Levi Dalton of Eater NY in an earlier article on this same matter.