New York Aims to Modernize State Alcohol Beverage Laws
New York alcohol beverage producers, wholesalers and retailers take note: there may be some changes coming your way. Governor Andrew Cuomo has announced the creation of an industry working group to recommend revisions to the state’s Alcoholic Beverage Control Laws. The group, to be headed up by NY State Liquor Authority Chairman Vincent Bradley, is scheduled to look into “reorganizing or replacing the current alcohol beverage control law” as well as the following issues:
- Removing outdated and redundant provisions;
- Modernizing statutory language for clarity;
- Improving and consolidating various licensing provisions;
- Clarifying the types of licenses available;
- Reducing mandatory paperwork; and
- Eliminating unnecessary restrictions imposed on manufacturers.
The working group’s first meeting is scheduled to take place on November 12, 2015 at 1pm at the NYSLA’s Harlem Office (317 Lenox Avenue). Video conferencing will be available in the NYSLA’s Albany and Buffalo office locations. Seating is limited, and parties interested in attending should RSVP by sending an email to [email protected] no later than noon on Wednesday, November 11.
NYSLA Proposes Advisory for Trademark Licensing Agreements
The New York State Liquor Authority is considering adopting an advisory regarding trademark licensing agreements between retailers and alcohol beverage producers. If adopted, the advisory would prohibit certain trademark licensing agreements between retailers and suppliers (i.e., producers and wholesaler) that involve a licensing fee based upon a percentage of sales or that otherwise “correlate[s] with sales.” According to the NYSLA, such arrangements violate state tied house law because they are indicia of a retailer having a direct or indirect interest in a supplier.
The draft advisory will be discussed at the June 30, 2015 NYSLA Board Meeting. Interested parties can submit comments to NYSLA Secretary Jacqueline Held at [email protected] by June 29, 2015.
6/30/2015 UPDATE – According to the NYSLA website, the hearing has been postponed until July 14, 2015.
NYSLA, Empire Wine and Due Process
On January 23, the New York State Liquor Authority is scheduled to hold a hearing to determine if retailer Empire Wine & Spirits (“Empire”) engaged in “improper conduct” that warrants the suspension, cancellation or revocation of the retailer’s New York liquor license. According to the SLA’s Notice of Pleading, Empire allegedly shipped wine to consumers in other states, including states that do not allow for retailer direct-to-consumer alcohol shipping, and this amounts to “improper conduct’ that warrants a disciplinary penalty. (For a summary of the issues involved, including some of Empire’s legal arguments to date, please see https://www.dpf-law.com/blogs/lex-vini/empire-wine-nysla-lawsuit/).
Under New York law, after the SLA has served a notice of pleading, and if the licensee pleads not guilty, the licensee is entitled to a hearing before an impartial decision maker – a basic tenet
ant of due process rights. Those same due process rights also prohibit the SLA from prejudging specific facts or laws that will be at issue in a hearing. For example, New York courts previously held that public statements by the Chairman or a commissioner of the SLA indicated prejudgment of facts at issue in a pending proceeding. Because the chairman / commissioner that made the statement had not disqualified themselves from the proceeding, licensee’s due process rights had been violated. If a “disinterested observer may conclude that [the administrative official] has in some measure adjudge the facts as well as the law of a particular case in advance of hearing it,” then that official is disqualified on the ground of prejudgment. Woodlawn Heights Taxpayers & Cmty. Ass’n v. N.Y. State Liquor Auth., 307 A.D.2d 826, 827 (N.Y. App. Div. 1st Dep’t 2003).
Recently, the SLA used its official Twitter and Facebook accounts to publish a link to an op-ed written by Craig Wolf, president of the Wine & Spirits Wholesalers of America, in which Mr. Wolf states that Empire “has for years shipped alcohol across state lines in violation of recipient states’ tax and licensing laws.” Mr. Wolf goes on to state that, “The SLA is doing what is right” by going after Empire, and argues that the SLA’s enforcement actions is supported by the 21st Amendment.
By promoting Mr. Wolf’s article, one could argue that the SLA has already decided the facts before Empire has had any chance to present evidence at the hearing. Moreover, the SLA has conclusively weighed in on a key legal questions at issue in this hearing: does the SLA’s disciplinary action attempt to regulate interstate sale and distribution of alcohol in violation of the Commerce Clause, or is the SLA’s action permissible under the 21st Amendment? (For a review of some of Empire’s other legal arguments, please see
The SLA’s adoption and public promotion of Mr. Wolf’s views and statements may provide the basis for an appeal by Empire (if needed).
John Trinidad is an attorney at DPF and also serves as pro-bono General Counsel to the American Wine Consumers Coalition, an advocacy organization seeking to protect consumer rights and lower barriers to wine access. His full bio is available here.
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.
New York State Liquor Authority Sets 4/23 Meeting re Internet Wine Sales
The New York State Liquor Authority has scheduled a special board meeting for April 23, 2014 to consider two requests for declaratory rulings related to internet wine sales. Both Lot 18 and Connoisseur Encounters Co., Inc (doing business as “The Wine Cellar at Rye Ridge”) have asked the NYSLA for guidance regarding their proposed business operations. The Lot 18 petition is here and the Wine Cellar petition is here. According to its petition, Lot 18 plans to partner with “brand-strong Marketing Agents [such as magazines and other media entities] that have their own consumer lists, readership or website viewers, on-site customers and a recognizable brand” to deliver “personalized wine selections” to consumers.
Last year, the NYSLA rejected a request for a declaratory ruling regarding a platform that allowed for third party marketers, such as Lot 18, to operate in New York without an alcohol beverage license. The liquor authority subsequently held a hearing regarding internet-based sales of alcohol beverages, but to date has not issued any further guidance regarding third party marketing.
Earlier this year, we reported that Lot 18 had secured a New York state brick and mortar retail license.
DP&F does not represent Lot 18 in this matter.
Lot 18 Secures Brick & Mortar Retail License from NYSLA
Over the past year, the New York State Liquor Authority has wrestled with how to treat third party wine marketers like Lot 18. As we discussed in an earlier blog post, the NYSLA questioned whether third party marketers were essentially operating as unlicensed alcohol beverage retail business.
Although the NYSLA has promised to issue additional guidance for third party marketers, Lot 18 decided not to wait, and instead applied for a retail liquor store license which would allow them to legally ship wine to New York state customers. On January 14, 2014, Lot 18 representatives appeared before the NYSLA to answer questions related to their May 2013 application for a liquor store license for a storefront located at 2 Clark Place in Mahopac, New York. Lot 18 provided an overview of their online and brick and mortar operations, how orders and funds would be processed, how they would work with other marketers. After some deliberation, the board approved Lot 18’s request, and a declaratory ruling should issue in the next few weeks.
Lot 18’s decision to secure an alcohol beverage retail license is an interesting move by one of the most widely recognized online wine businesses. Most third party marketers have been operating based on an assumption that their business model does not require a state alcohol beverage license. Lot 18 went through a nine month process to apply for and secure a retail license, which will allow them to reach consumers in New York, which is second only to California in direct-to-consumer wine shipments (according to the ShipCompliant / Wines & Vines 2013 Direct to Consumer Wine Shipping Report).
DP&F does not represent Lot 18 in this matter.
New York Issues Survey re Proposed “At Rest” Legislation
For more information on wine law issues, please contact John Trinidad ([email protected]).
New York State Liquor Authority Approves Limited Availability Advisory
For more information or assistance on alcohol beverage law / wine law, contact John Trinidad ([email protected]).
This post is made available for general informational purposes only and none of the information provided should be considered to constitute legal advice
NYSLA Revises Proposed Advisory re "Limited Availability" Sales
The Board stated that it welcomed written comments submitted prior to the close of business eastern time on Friday, July 19. The Board will vote on the proposed advisory during the next meeting, scheduled for July 31.
If approved, the current version of the Proposed Advisory will be effective as of October 2013.
New York SLA Announces 8/19 Meeting re Online Alcohol Beverage Sales
UPDATE – 7/11/2013
The NYSLA has moved the board meeting to “solicit industry input regarding the regulation of Internet Sales” to Monday, August 19 at 10 a.m.
New York SLA Proposed Advisory for “Limited Availability” Wines
No licensee shall refuse to sell any brand of liquor or wine to any licensee authorized to purchase such brand of liquor or wine from such licensee at the price listed in the schedule of prices … provided the purchaser pays cash therefore….
There is some flexibility for items with limited availability. ABC §101-b(4-a)(d) states, “For good cause shown to the satisfaction of the authority, permission may be granted for the filing of schedules limiting the distribution or resale of a brand to retailers.“
The proposed advisory provides additional details on what constitutes a limited availability wine and how a distributor can allocate those wines while still complying with New York ABC laws. The advisory applies to wines which the manufacturer, importer or wholesaler “has reason to believe market demand exceeds or will soon exceed available inventory” as well as wines for which those entities has price posted for subsequent vintages (i.e., older vintages of wines the distributor previously sold and price posted in New York). It also applies to wine that the distributor “dos not intend to purchase or cannot purchase further inventory for a period of at least one year,” “seasonal item[s],” discontinued items, and wines from suppliers with whom the supplier has ended its relationship.
If a wine falls into these categories, the manufacturer can notify the NYSLA that those wines are “limited availability,” and describe how they intend to allocate those wines. The advisory also specifies acceptable means of allocating limited availability wines. For example, distributors will be able to favor on-premise accounts in allocating limited availability wines; take into account past sales; and also favor retailers identified in “respected third party sources” such as the Michelin Guide, Zagat Guide, or Wine Spectator’s restaurant wine list award.
The NYSLA will consider the proposed advisory on July 17, 2013, and public comments are welcome. If approved, the revised guidelines will go into effect in September of this year.
For a copy of those guidelines as well as additional information on where to send public comments, please go to: http://www.sla.ny.gov/proposed-limited-availability-advisory
For more information or assistance on alcohol beverage law / wine law, contact John Trinidad ([email protected]).
The NYSLA Ruling – What it Really Means to Licensees and Third Party Marketers
We have received several questions from clients regarding the New York State Liquor Authority’s ruling on April 9, 2013 regarding the “legality of internet advertising platforms.” The ruling, which addresses the relationship between a New York state wholesaler, a New York state retailer, a third party internet marketer and ShipCompliant, is narrow and specifically applies only to sales under ShipCompliant’s MarketPlace Platform conducted through New York’s three tier system. The NYSLA does however also provide some guidance as to the type of third party marketing arrangements that would be permitted, pending issuance of a more thorough advisory on the matter in the future.
It is important to note that the ruling does not address or impact shipping by out of state wineries that hold direct to consumer shipper licenses for New York or the legality of ShipCompliant’s Producer Direct program used by some wineries to assist with their direct to consumer shipments.
Summary of NYSLA Decision
Following an inquiry into the relationships and responsibility of the involved parties, the NYSLA found that the retailer and wholesaler in this case (the “licensed sellers”) exercised little to no control over the sales being made by the third party marketer/advertiser and played a “passive” role. The unlicensed third party marketer, on the other hand, exercised a “high degree of control over the business operations of the participating licensed seller”, including selecting which wines would be sold, setting the prices at which the wine would be sold, managing the storage and shipment of the wines sold and controlling the advertising for the wines sold, all with little to no oversight from the licensed sellers. According to the NYSLA, the third party marketer also received a “predominant proportion of the proceeds from the sale of alcoholic beverages,” while the licensed sellers simply received a flat fee. Based on these facts, the NYSLA held that the unlicensed third party marketer/advertiser was making sales without a license and that, therefore, the “relationship between the advertiser and the licensed seller in the MarketPlace Platform system” violates New York state regulations which “prohibit a licensee from making its license available to a person who has not been approved by the NYSLA” to hold that license.
Because of the narrow nature of this decision, the NYSLA stated that it intended to issue an advisory that will provide comprehensive guidance to the industry on the involvement of unlicensed parties in Internet sales of alcohol beverages to consumers. However, until such time, the NYSLA offered the following guidance to industry members:
* Licensees may rely on an opinion by the NYSLA Office of Counsel that provides that “a third party may allow a licensee to advertise its products on the third party’s website, provided that consumers are directed to the licensee’s website to place an order” and that the third party’s compensation is limited to a flat fee that is not contingent on the number of sales or the amount sold.
* Arrangements where licensed sellers take a passive role and/or incur no business risk are prohibited.
* Arrangements where an advertiser, third party marketer or other unlicensed party performs or is permitted to perform retail functions, such as deciding what products will be sold, what prices should be charged, how funds are controlled and distributed or the amount of the licensee’s profits are prohibited.
* Arrangements where the compensation to a third party constitutes a substantial portion of the sales or sales made are prohibited.
Notably, the NYSLA made clear that in evaluating the legality of these types of arrangements, it would not only look at the written agreements between the parties, but would also “evaluat4e the actual, practical, day-to-day functioning of the arrangements”, as it did in this case.
Comparison to California ABC Third Party Provider Advisory
On November 1, 2011, the California Department of Alcoholic Beverage Control issued an advisory on Third Party Providers, in which it stated that unlicensed third party marketers can facilitate the sale of wine over the Internet, provided that the benefited alcoholic beverage licensee at all times retains control over all sales transactions, including all decisions regarding pricing, selection, shipping and fulfillment. Under the California Advisory, a third party marketer would therefore be permitted to place advertising for an alcoholic beverage at the direction of a licensee, make buying recommendations to a consumer, direct consumers to specific licensees, receive orders and pass them on to the licensee for acceptance and fulfillment, process payments (although the licensee ultimately must control the funds and the flow of funds) and assist with shipping arrangements. But again, the licensee must at all times retain control over pricing, selection and fulfillment. The third party marketers may be compensated for their services, so long as the compensation is reasonable and does not result in any “actual or de facto control” over the licensee by the third party marketer.
The CA Advisory and the NYSLA ruling are consistent to the extent that both require that control for alcoholic beverage sales be held by a licensed seller. However, there are notable differences between the approaches taken by these two agencies and it is unclear whether the NYSLA’s ultimate stance on these issues will be in line with the CA ABC. For instance, the NYSLA suggested that, pending the NYSLA’s definitive statement on these issues, licensees should rely on an opinion by the NYSLA Office of Counsel that provides that “a third party may allow a licensee to advertise its products on the third party’s website, provided that consumers are directed to the licensee’s website to place an order” and that the third party’s compensation is limited to a flat fee that is not contingent on the number of sales or the amount sold. These requirements are not included in the CA ABC Advisory and in fact sales made on third party marketers’ sites (rather than on the licensee’s site) and reasonable fee arrangements (other than solely flat fees) would be permissible under California’s regulations so long as they comply with the remaining portions of the CA ABC Advisory and California alcoholic beverage rules and regulations.
A final decision on the permissibility of sales of alcoholic beverages using third party marketers will be forthcoming from the NYSLA and NYSLA intends to hold public hearings on the matter, allowing interested parties the opportunity to present their positions. In the meantime, license holders, third party marketers and other entities participating in third party marketing-type sales in New York should operate in accordance with the guidelines set forth by the NYSLA in the ruling.
In the end, licensees, third party marketers and other parties involved with these transactions should keep in mind that the sales of alcoholic beverages using third party marketers remains a grey area and should keep close eye on how these issues develop throughout the country.
For more information or assistance with third party marketing issues, please contact Bahaneh Hobel at [email protected]
New York State Liquor Authority to Examine Third Party Marketing
According to ShipCompliant and Wines & Vines presentation, New York is among the top three states for direct to consumer wine sales.
For more information on third party providers and third party marketing, please contact John Trinidad at [email protected].