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Know The Law: Choppy Waters

Posted on  | September 2, 2014   Bookmark and Share
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SLA has a new sting, and new shipping battleground

Fresh Target for SLA: Wholesale Sales by Retail Licensees

Recently, the New York State Liquor Authority (SLA) has shown a keen interest in retailer-to-retailer sales. A retail license only permits the license holder to sell to consumers. On-premise and off-premise retail licensees are not permitted to sell to other retail licensees. This is a hot topic for the New York State Liquor Authority. Recently a number of retailers have been charged with selling to other retailers.

In addition, the Authority is engaging in a new type of sting operation. Undercover operatives identifying themselves as club, restaurant or package store licensees engage retailers at their licensed premises and request to purchase one or two bottles of alcohol beverages for resale. If the sale is made, the retailer will be charged with selling at wholesale without a license. Please be careful.

The Quiet War on Common Carriers

New York Alcohol Beverage Control law permits New York licensed retailers and out of state wineries with direct shipping permits to ship alcoholic beverages directly to a consumer. Conversely, the New York ABC law prohibits out-of-state retailers from shipping alcohol beverages directly to New York consumers. Similar laws exist around the country and in some states; there is a complete ban on direct shipments of alcohol beverages, from out of state, to consumers. These regulations are intended to allow states to protect the integrity of the alcohol beverages purchased by the consumer by requiring licensed retailers to purchase inventory from wholesalers licensed by the state. They also protect the State’s tax revenue stream.

The rapid increase in e-commerce has forced many states, including New York, to confront a growing number of out-of state non-licensed retailers selling alcohol beverages to consumers over the internet. Because it is difficult to gain jurisdiction over an out-of-state retailer, some states are focusing on the common carriers that transports the alcohol beverages into that state.

Sometimes, the most significant changes in the alcoholic beverage industry come from litigation in an unrelated industry. That is happening now. In 2013, the United Parcel Service (UPS) settled a lawsuit brought by the United States Department of Justice, agreeing to pay $40 million in fines, for assisting in delivering prescription drugs purchased from illegal internet pharmacies. The company also agreed to create a compliance program aimed at identifying illegal pharmacies selling medication on the internet.

More recently, FedEx Corp. (FedEx), pleaded not guilty to federal charges that it conspired to distribute controlled substances, like pain and/or anxiety medication, from illegal internet pharmacies. The government is seeking to establish that FedEx delivered drugs on behalf of pharmacies allegedly selling prescription medication to customers who filled out online questionnaires but never saw a doctor, in violation of federal and state laws. According to the government complaint, FedEx allowed the internet companies to maintain accounts and continued to delivering after the government warned the Company that it was it was shipping on behalf of illegal pharmacies.

FedEx vehemently asserts that it has mechanism in place to ensure its services are used for legal purposes. At the same time, FedEx states that it is merely a transportation company and does not have the responsibility to inspect the millions of packages it transports daily.

These cases demonstrate a crucial issue common carriers face: How much responsibility do carriers bear to ensure that clients are using the services for legal purposes, regardless of whether the goods carried are alcohol, medication or otherwise?

Fedex and UPS are already strengthening their compliance standards for shipment of alcoholic beverages. The latest round of fines and litigation will likely have a significant effect on the relationship between retail shippers and the major shipping companies.


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