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APR 07, 2016

A clarification on New York’s Tied-House Laws

The distribution of alcoholic beverages in New York is accomplished through a three-tier system, where manufacturers sell their products to wholesalers who then distribute their products to retailers. The three-tier system, promulgated by New York’s Alcoholic Beverage Control Law (“ABCL”), is designed for “the prevention of monopolies and other undesirable influences within the alcoholic beverage industry.” RIHGA Intern. U.S.A., Inc. v. New York State Liq. Auth., 84 NY2d 876, 878 (N.Y. 1994). For example, manufacturers and wholesalers may not offer discounts, rebates, etc., to selected retailers. ABCL §101-b(2)(a). While manufacturers may limit which wholesalers sell their product, ABCL §101-b(4-a)(a), each of those wholesalers must be able to purchase the product at the same price from the manufacturer. ABCL §101-b(3)(a). A wholesaler must offer the same price, and any discounts, for liquor and wine to all retailers. ABCL §101-b(3)(b). With the exception of certain carveouts, manufacturers and wholesalers may not provide any gifts or free services to retail licenses. ABCL §101(1)(c)

 

The ABCL prevents an entity in one tier category (e.g., producers) to have an interest, direct or indirect, in another tier category (e.g., retailers). These restrictions are commonly referred to as “Tied House Laws.” ABCL §101(1)(a). For instance, the operator of a restaurant or a wine store (i.e., a holder of a retail on-premises license) cannot not hold an interest in a business that manufactures or distributes alcoholic beverages, even if the producer is a foreign-based entity. ABCL §106(13). Importantly, this prohibition applies regardless of whether the retailer sells the products produced or distributed by the company in which he has an interest. Another important nuance in the ABCL that is of note, the New York State Liquor Authority (the “SLA”) has no discretion once the tied house laws are triggered, unlike other provisions of the ABCL which give the SLA a certain level of leeway. RIHGA Intern. U.S.A., Inc. v. New York State Liq. Auth., 84 NY2d 876, 878 (N.Y. 1994). In other words, if the tied house laws apply, the license cannot be granted.

The principals of Madison Square Park based mega-food market, Eataly, learned about the stringent manner in which the tied house laws are enforced the hard way (see press article http://www.eater.com/2014/3/25/6255453/eataly-slapped-with-500k-fine-its-nyc-wine-store-to-close-for-six) . In 2014, the SLA fined Eataly $500,000, the highest fine in SLA history, and forced it to shutter its wine store for six months, after the SLA discovered that one of Eataly’s principals had an interest in a wine producer based in Italy.


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