Empire Wine Litigation Leads to Legislative Proposal

This Monday, New York State Assembly Member Phil Steck (D-Colonie) introduced legislation aimed at curtailing the State Liquor Authority’s reach into other states. Assembly Bill 5920, co-sponsored by Assembly Member Dan Quart (D-New York City), would expressly prohibit the Liquor Authority ("NYSLA") from penalizing licensees for violating the laws of other states, unless the conduct in question (1) is a violation of the New York alcoholic beverage control law or (2) has resulted in a criminal conviction in another state.

A. 5920 was precipitated by recent NYSLA enforcement actions penalizing direct shipments of wine to consumers outside New York. The most notable of these, of course, is the ongoing Empire Wine litigation. On August 1, 2014, NYSLA charged Albany wine store Empire Wine ("Empire") with “improperly” shipping wine directly to consumers in 16 other states. The notice of pleading alleged that one of Empire’s shipments violated Alabama law. This case highlights the problems that can arise when laws and protocols fail to keep pace with technological development and changes in consumer behavior. The Internet has the potential to expand choice and enhance the convenience of wine shopping, but not without the right regulatory framework.

Empire sued NYSLA in state court before an administrative hearing could take place, claiming that the agency's actions violated the Commerce Clause and exceeded its authority, and that the state regulation relied on by NYSLA in prosecuting out-of-state shipments is unconstitutionally vague. Empire’s lawsuit was dismissed as premature, and NYSLA’s revocation hearing was rescheduled. The revocation proceedings were soon derailed when Empire and NYSLA butted heads regarding witnesses and Empire sued the agency under the Freedom of Information Law. It is no wonder that this administrative and judicial quagmire led to legislative action.

The bill justification for A. 5920 reads in part:

The State Liquor Authority has fined, and could suspend, revoke or cancel the license of small businesses for "improper conduct" due to online, direct to consumer interstate wine shipments to state(s) that may have laws restricting such sales and shipments. It is concerning that the State Liquor Authority (SLA) is conducting enforcement activity on behalf of other states, when these states have not requested their enforcement or intervention, nor has the New York merchant been found to have violated the law of those states. . . .

Current law authorizes NYSLA “to revoke, cancel or suspend for cause” licenses issued pursuant to the ABC Law. [N.Y. A.B.C. Law § 17(3).] A. 5920 would, as explained above, prohibit NYSLA from penalizing licensees for violating another state’s law unless the underlying conduct also violates New York law or has resulted in a  criminal conviction in the other state. It provides, in relevant part:

The liquor authority shall not have the power to revoke,  cancel,  or  suspend  any  license  or impose any civil penalty against any holder of a license or permit based upon conduct  which  the authority determines  to  be in violation of the laws of another state, unless such conduct independently violates a specific provision of  this chapter,  or  unless due process of law has been provided by authorities of competent jurisdiction in  such  other  state  and  the  licensee  or permittee  is found guilty[1] by such authorities of violating such state's laws.

To avoid confusion, the bill also provides:

"for cause" shall not include conduct which the authority determines to be in violation of the laws of another state, unless:

a. Such conduct independently violates a specific provision of this chapter; or

b. Due process of law has been provided to the licensee or permittee by authorities of competent jurisdiction in such other state and the licensee or permittee and such licensee or permittee has exhausted its due process rights according to such state's laws.

Clearly, the bill is intended to prevent a repeat of the Empire Wine saga, but without data on the number of enforcement actions rooted in violation of other states’ laws, it is unclear what impact it would have in practice beyond increasing out-of-state, direct-to-consumer alcohol shipments. Furthermore, NYSLA Chairman Dennis Rosen, who steadfastly defended the action against Empire, allegedly acknowledged that the agency would not prosecute every violation. Presumably, then, NYSLA’s conduct has not deterred all retailers from serving out-of-state customers.

Perhaps A. 5920 creates more questions than it answers. Is this bill a harbinger of comprehensive legislative reform, or is it a quick fix for a very concrete problem? Will Assemblyman Steck become a champion of the state’s wine industry? What does this mean for the “for cause” standard? Will “for cause” be defined? Should it be? If it is defined for NYSLA, should it be defined for other agencies? Will NYSLA promulgate regulations expressly proscribing interstate shipments? When will interstate wine shipments have their day in court again, scrutinized with the high-power Commerce Clause lens of the judicial microscope?

A. 5920 is an important measure that is certainly worth watching. According to the Times Union, Steck is “close to securing a Senate sponsor” for the bill. I will continue to write about significant developments here.

[1] The references to due process and guilt indicate that a criminal conviction is required.