New York State Cracks Down on Its Top Wine Merchants

By Robert Taylor

Business is getting tougher for wine merchants in one of America’s biggest markets, and consumers may pay the price. The New York State Liquor Authority (NYSLA) is taking a dramatic new tack in its role as regulator of alcohol sales in the state. The independent agency, created after Prohibition, is expanding its reach and heightening enforcement as part of an initiative by NYSLA chairman Dennis Rosen to reform what he sees as an unfair marketplace. To ensure those rules are followed, Rosen's team has imposed more than $3 million in fines on wholesalers and retailers in the past three years.

According to Rosen, first appointed in 2009, the rules are designed to make sure wholesalers and retailers aren't engaged in sweetheart deals. They are the latest tactic of this former assistant attorney general's multi-year campaign to improve efficiency and oversight at the agency.

Several merchants, however, say that the chairman has now gone too far, that the NYSLA is just making business more difficult and that Rosen's rules may make it harder for consumers to buy the wines they want at good prices. “[The NYSLA is] trying to level the playing field, but really what they’re doing is limiting business from taking place,” said Daniel Posner, owner of Grapes the Wine Company, a White Plains, N.Y.–based retailer. “Why is the state interfering with business?”

Before the new regulations, it was standard practice for wholesalers to offer discounted wines or rare wines to retailers who were loyal customers. The new NYSLA rules forbid those kinds of deals, mandating that wholesalers post prices with the state in advance of all sales and that all retailers have access to discounted and limited-availability wines.

“If I have a client that wants 10 cases of Rombauer Chardonnay for a wedding in two weeks, I have to tell him, ‘Sorry, I cannot get you 10 cases in time,’” said Posner. “How many states are limiting how much Rombauer Chardonnay you can purchase?”

Rosen says it's about leveling the playing field. “There were some large retailers who would get special deals because of their size,” Rosen told Wine Spectator. “The same retailers time after time would get the great deal, and it’s called a closeout, but it’s pre-sold to them, or an item that is of limited availability, they would get it all. That hurt the marketplace.”

The new rules impact business in what is already a highly regulated market. "Where do they come off dictating everything to us and ruining this industry?" asked Rona Vesce, wine and spirits manager at Peekskill-based distributor D. Bertoline & Sons. "Their guidelines are absolutely ridiculous, more and more. How do you not allow us to keep beer and wine in the same warehouse? It’s alcohol!"

Other members of the industry, however, are taking the new regulations in stride. "In one or two cases, we’re getting significantly less wine than we would have," said Jamie Wolff, partner at Chambers Street Wines. "But I’m hoping in the long run that this is balanced out."

Rules with Teeth

The first fine triggered by the NYSLA's new rules came in October 2011, when wholesaler Winebow paid a $600,000 penalty for anti-competitive market behaviors and failure to cooperate with an investigation. In October 2013, Southern Wine and Spirits settled for $200,000 over charges that it failed to post prices. The NYSLA fined wholesaler Empire Merchants $600,000 for selling discounted products to select retailers in March 2014.

Just this week, Palm Bay Imports agreed to pay $750,000—the largest fine ever paid to the NYSLA for a disciplinary case—for six charges of non-compliance including failure to post discounted prices which were offered to a small group of preferred retailers. In all, the NYSLA has collected $3.1 million in fines over the past three years.

Recent NYSLA Fines Against Wholesalers and Retailer

Rosen argues that the new rules are working, rejecting claims that his regulations are threatening to drive businesses out of the state. “No one is leaving New York state,” he said. “Since 2011, the number of [wine, beer and spirits] wholesalers in New York has gone from 1,381 to 1,977, an over 40 percent increase—in every area, we’ve had increased numbers. I don’t see people leaving.”

The chairman is also spearheading a crackdown on interstate retailer shipping (it’s illegal for a New York resident to order wine directly from an out-of-state retailer, but New York retailers may legally sell wine to customers in other states that allow such sales). In July 2013, the NYSLA revoked the license of Brooklyn retailer Liquors Galore for violating the shipping laws of at least 17 states.

The next month, the NYSLA issued a cease-and-desist letter to New Jersey retailer Wine Library, instructing the owners to stop shipping wine to New Yorkers. (The NYSLA has no jurisdiction over another state's retailers, but Rosen says that UPS stopped bringing Wine Library deliveries into New York when the common carrier learned they were illegal.)

In August 2014, the NYSLA charged Albany retailer Empire Wine with 16 counts of improperly shipping wine to out-of-state customers. Sources familiar with the proceedings say that Empire Wine’s ownership rejected an offer to plead no contest to charges of improper conduct and “unsatisfactory character” and pay a $100,000 fine. Empire fired back with a lawsuit in state court challenging the NYSLA’s authority to regulate interstate shipping and declaring its rules “unconstitutionally vague.”

The NYSLA's charges against Empire Wine cite a statute granting the agency power to penalize a licensee for “improper conduct,” which Rosen clarified as violating the law. “Our perspective is that if you’re selling into a state that prohibits sales into their state, then you’re engaging in improper conduct.”

“When other states complain to us,” he added, “it seems logical for us to do something, because [the offender] is subject to our jurisdiction. The other state is totally impotent.”

Focused on Fair Play

Dennis Rosen grew up in New York City, the son of a small businessman. After graduating from Brooklyn College and Harvard Law, he worked for Legal Aid of New York for 10 years, followed by nearly three decades with the state attorney general’s office. He now presides over the NYSLA from his office in Albany, commuting to the authority’s Harlem office twice a month for hearings.

The Harlem office shares a building on Lenox Avenue with the New York Lottery; the office ambiance feels closer to DMV than to City Hall. It’s a workman-like atmosphere, but Rosen has an easy rapport with his staff, trading jokes before he sat down to discuss the new rules.

Rosen’s first dealings with the NYSLA came as an adversary of the agency: Beginning in 2005, under Attorney General Eliot Spitzer, Rosen was an assistant attorney general charged with investigating corruption in New York's alcohol industry and the NYSLA’s oversight of it.

“A lot of players in the industry came to [the attorney general’s] office, from each of the three tiers, saying that the SLA wasn’t doing a good job regulating the industry,” Rosen said, “and that you had to break the law on a regular basis and engage in illegal transactions, basically bribing people, and it was very hard to compete, especially for the small players.”

At the end of the 15-month investigation, Rosen drafted three consent-judgment court orders, agreed to by New York's major producers, distributors and retailers, that doled out $4.6 million in fines but also clarified the NYSLA’s policies. “My main mission was to address the lack of clarity, and to go to great length to describe what was OK and what was not OK,” he said.

Rosen’s successful turn at cleaning up the NYSLA and its policies led directly to his appointment as authority chairman by Gov. David Patterson in 2009. There was still considerable work to be done in an alcohol oversight agency critics called perennially dysfunctional.

First, Rosen set about reducing the more than 1,500 guideline advisories issued by the NYSLA since the end of Prohibition down to roughly 350 and made them visible to all through the authority’s website. At the same time, he made staff changes to improve efficiency of applications and enforcement.

Government cutbacks have reduced the NYSLA’s staff by about 20 percent in the time that Rosen has served as chairman, but, according to the agency, its 120 employees operate with greatly improved efficiency thanks to streamlined application processes, a revamped website and other technology advancements implemented under Rosen’s watch.

Rosen inherited a backlog of 3,000 licensee applications when he took office, which at the time each took an average of nine months to process. Since 2011, according to the NYSLA, the average time to process a manufacturing license in New York has dropped from 83 days to 38 days; liquor store license application waits have dropped from 142 days to 58; restaurant and bar applications have fallen from 100 days to 43; grocery stores from 101 to 38.

“When I look at that, I think of people wanting to feed their families,” Rosen said, “and if I’ve had an influence on somebody being able to feed their family months quicker than they would have were I not here, that makes me feel very good, and it justifies my being here.”

Businesses Licensed by the NYSLA

  2011 2014 Percent Change Wine Wholesalers All Wholesalers Wine Stores Restaurants & Bars

Rosen’s reappointment as NYSLA chairman by Gov. Andrew Cuomo was unanimously approved by the New York state senate finance committee in June. At the confirmation hearing, Sen. Tim Kennedy called the NYSLA's performance over Rosen's first term a "tremendous turnaround."

"You’ve taken one of the least effective agencies in the state and turned it around into one of the most responsive,” Sen. Catharine Young said to Rosen, adding appreciation for his heavy focus on developing new economic opportunities for New York wineries, breweries and distilleries.

Even some of those subject to Rosen's expanded regulations credit him for improving NYSLA efficiency. "[The NYSLA] is pretty progressive in doing all the filings electronically, because New Jersey doesn't do that," said Regal Imports owner Charlie Trivinia, who does business in 35 states. "Most states we're still submitting paper."

A Culture of Fear

But now, some industry members believe Rosen has gone too far, forbidding what they consider fair business practices. They also accuse the NYSLA of being vindictive. Many New York licensees are hesitant to speak out and some who did agree to speak to Wine Spectator asked not to be identified.

Rosen insists that all state investigations are complaint-driven. “We’re not looking for trouble,” he said. “In this era of limited resources, and wanting to be industry-friendly, we don’t just pop up in people’s offices and say, ‘Show us your books’ for no reason. If somebody has been charged by us with something, you can bet that there was a complaint, by an industry member, about what they think is an unfair advantage that someone is gaining by breaking the law.”

Nevertheless, industry sources who might call on Albany to change the rules say they are cowed by the possibility of being investigated. “I’m very wary of drawing their gigantic, flame-ringed evil eye in my direction,” said one specialty wine retailer who admitted being “loathe to repeat” a previous “disagreeable run-in” with the NYSLA.

“If I’m even quoted or my company is referenced, it’s likely that [the NYSLA] would retaliate,” said a manager at a national importer and distributor. “Their policies are so obscure. They could point at literally anything and interpret that as a violation. They’ll march into our office and find a refrigerator with a beer in it and call it a million-dollar fine.”

Multiple sources within the industry say they believe that the out-of-state wine-shipping charges against Empire Wine stem directly from the upstate retailer’s refusal to cooperate in the 2013 investigation of distributor Winebow. A source with knowledge of that investigation confirmed that Empire Wine was the recipient of an illegal discount, not offered to other retailers, on Winebow’s allotment of Duckhorn Napa Cabernet, and that the NYSLA was displeased with Empire’s insufficient cooperation. “This appears to be somewhat of a retribution situation,” the source said.

Empire Wine owner Brad Junco said that the retailer had never received a complaint or cease-and-desist order from any of the states to which they had shipped wine, and Rosen wouldn't say what sparked the investigation. “We didn’t look for this,” Rosen said of the charges against Empire Wine. “There are reasons that Empire came to our attention that I won’t go into.”

Wine retailer Daniel Posner in his store. He is one of many who fear the NYSLA will cripple his business.

The case has added to a culture of fear. “Why don’t we have the freedom to just make a living? You’re always panic-stricken to do anything because you don’t want Big Brother watching you,” said Bertoline’s Vesce. “Everybody’s afraid [to talk] because then they’ll watch you like a hawk, and every little infraction, they’ll nab you.”

The Impact on Customers

Multiple industry members complain that their fear of investigation leaves them little recourse for trying to change the new regulations.

Rosen feels unfairly maligned but is standing his ground. “[Empire Wine] has been calling politicians and trying to exert political influence over this office,” said Rosen. “That won’t work with me. I didn’t come here to do anything less than the right thing.”

For consumers, however, both in New York and beyond, “the right thing” may have an unpleasant ramification: It could get harder to buy the wines they want. But Rosen is steadfast. He offers this advice to unhappy licensees and wine lovers: “If someone thinks we’re wrong, the proper route is to comply with the law and mobilize to seek legislation to change it, and that hasn’t happened in New York.”