BILL NUMBER: S5718

SPONSOR: HOYLMAN
 
TITLE OF BILL:  An act to amend the alcoholic beverage control law, in
relation to licensing restrictions for manufacturers and wholesalers of
alcoholic beverages and retail licensees

 
PURPOSE OR GENERAL IDEA OF BILL:

To limit the application of New York's tied-house provisions to New York
licensees.

 
SUMMARY OF SPECIFIC PROVISIONS:

This bill would amend § 101(a) and § 106(13) of the Alcoholic Beverage
Control Law to limit the application of the New York's "tied-house"
provisions to retailers and wholesalers and manufacturers licensed by
the New York State Liquor Authority.

 
JUSTIFICATION:
              

New York's Alcoholic Beverage Control Law prohibits a distributor
(wholesaler) or manufacturer from holding an interest, directly or indi-
rectly, in a licensed retailer of alcoholic beverage, such as a restau-
rant. Likewise, a retailer may not hold an interest, directly or indi-
rectly in a distributor or manufacturer. These are known as the
"tied-house" laws.

The original intent of these post-prohibition statutes was to ensure
that manufacturers and/or wholesalers of alcoholic beverages were not
positioned to exert undue influence over retail establishments.  In
other words, tied-house laws barred vertical integration in the liquor
business. Today, in most jurisdictions, the danger to be avoided is
spelled out more specifically by prohibiting "undue influence" and/or
"inducements" between the manufacturer and wholesaler tiers and the
retail tier of the "three-tiered" system in order to trigger a tied-
house issue. New York, on the other hand, has among the most restrictive
tied-house laws in the country, consisting of an interpretation that any
relationship, however remote or deminimis, between a wholesaler and
retailer is prohibited. Unlike the federal tied-house statute and those
of many other states, New York does not require any indicia of the evil
to be avoided in order to restrict a business relationship between a
manufacturer or wholesaler and a retail establishment -- even when there
is no undue influence remotely present. But what really separates New
York from the rest of the country is a Court of Appeals ruling that
supported the State Liquor Authority's interpretation that New York's
tied-house laws could be applied extraterritorially.

While originally aimed at promoting competition, in today's highly
complex corporate world, current law and its strict interpretation in
New York creates unintended consequences particularly in light of the
incredibly complex corporate structures that have come to dominate the
business landscape. For example, a global corporation may technically
"own" five subsidiary corporations. Company A may own a winery in France
while Company D may own a hotel containing a restaurant in New York.
Under New York Law, the liquor license for the restaurant would be
prohibited - and it could be subject to financial penalties. Or consider
another corporation where Subsidiary 1 operates a wholesale business in
New York City and Subsidiary 2 owns a restaurant in Miami, Florida. In
this case, the State Liquor Authority could, consistent with New York
Law, revoke the wholesale license of the New York wholesaler and fine
Subsidiary 2. And to what end?

Continued reliance on a statute enacted for circumstances that existed
in 1933 is no longer tenable and is placing New York-based businesses at
an unnecessary disadvantage. Unfortunately, three recent administrative
rulings of the State Liquor Authority have confirmed New York's adher-
ence to a statutory construction that preceded World War II.

This measure would go a long way toward bringing New York into the 21st
Century by statutorily eliminating the extra-territorial reach of
 New York's strict-construction tied-house laws.

 
PRIOR LEGISLATIVE HISTORY:

New bill

 
FISCAL IMPLICATIONS:

None

 
EFFECTIVE DATE:
This act shall take effect immediately.