Restaurant & Tavern Owners Ask Court to Uphold SLA Regulation Protecting Small Businesses from “Junk Fees” Charged by Liquor Wholesalers

A number of restaurants and taverns joined with the leading trade associations representing the state’s hospitality industry to call on the NYS Supreme Court to uphold the State Liquor Authority’s regulation prohibiting liquor wholesalers from charging exorbitant “junk fees” above and beyond the cost of goods. This regulation, which has been on the books for more than 40 years, was updated by the SLA last year after learning that some wholesalers were charging small businesses as much as $3.00 per bottle extra for splitting up a case of liquor and imposing a fee for delivery. An inquiry by the Liquor Authority determined that these extra fees added up to about $8,000 per year for a typical small establishment. Several liquor wholesalers filed an Article 78 petition with the Court seeking to invalidate the regulation. Oral argument before Judge Roger McDonough was scheduled for Friday, July 28th.

“Under New York State law, our members are forced to purchase liquor only from licensed wholesalers who, as a result of exclusive arrangements with liquor companies authorized by state law, have established a monopoly over each product leaving these small businesses at the mercy of the country’s largest liquor distributors,” said Scott Wexler, Executive Director of the Empire State Restaurant & Tavern Association. According to Wexler “the two largest distributors – Empire Merchants and Southern Glaser Wine & Spirits – have effectively created a duopoly and are using their market power to shake down our members by adding on these “junk fees” to their smallest customers while significantly reducing prices for larger businesses.”

New York State law prohibits wholesalers from discriminating against retailers and the SLA originally adopted this regulation in the 1960’s to authorize certain additional fees that wholesalers could charge retailers above and beyond the cost of goods without being in violation of the price discrimination law. Over the years the regulation was modified to permit the actual cost of delivery and to allow a per bottle “split case” fee for selling less than a full case of goods to a retailer to enable distributors to recoup the cost of providing this service. The regulation was last updated in 1981 to permit a fee of $1.92 per case which the distributors ignored while the SLA put their head in the sand despite repeated complaints until the current administration took a fresh look at the problem last year.

“For years the State Liquor Authority rolled over every time Empire and Southern came under scrutiny until last year when the Members of the Authority, including recently appointed Chair Lily Fan, examined the evidence before them and stood with small businesses,” Wexler said.  “It is not lost on our members that it took bold leadership from the Liquor Authority along with the strong support of Governor Hochul to overcome 40 years of indifference to these wholesalers’ monopolistic practices,” Wexler added.

New York State Senator James Skoufis, who has pressed liquor wholesalers on these fees in the past joined in the call for the regulation to be upheld. According to Skoufis, “liquor wholesalers have effectively maintained a stranglehold on mom-and-pop retailers for years. By charging ridiculous fees on run-of-the-mill purchases, these wholesalers are penalizing small businesses while padding their own pockets, all the while claiming it’s just the cost of doing business in New York. The wholesalers’ assertion that legislative inaction is equivalent to an endorsement of their “junk fees” is ludicrous and laughable; our retailers deserve the protection these SLA regulations offer, and I trust the court will agree.”

The SLA inquiry also found that these “junk fees” are not listed on the price postings liquor wholesalers file with the Authority each month as required by state law. A retailer looking up the price of ordering an individual bottle of liquor would not see the actual cost of the product until receiving their invoice. The revised regulation requires that these fees be included in the price posting for each product going forward.

“Not only are our members being squeezed for every last cent, but to make matters worse, a business orders a bottle of liquor with a list price of $10 and then is invoiced $13.00 for that same bottle – and then a delivery charge is added on top of that,” Wexler said.  “This court needs to make clear that the State Liquor Authority has the power to protect small retailers from these junk fees and that any costs for the purchase of a product must be included in the mandated price posting to be permissible under law,” Wexler concluded.

The New York State Supreme Court in Albany heard oral argument on Friday, July 28th on Article 78 petitions filed by Empire Merchants and Southern Glaser Wine & Spirits which seek to overturn the revised SLA regulation. Representatives of the hospitality industry have filed a motion seeking to intervene in the case as interested parties who are significantly impacted by this litigation. The judge reserved decision from the bench and agreed to issue a written decision.

The plaintiffs for the industry include the Empire State Restaurant & Tavern Association, the New York State Restaurant Association, the New York City Hospitality Alliance, Tess & Larry Inc d/b/a McGeary’s, O’Toole’s Ventures  LLC d/b/a O’Toole’s Pub, Nicholas Pitillo d/b/a Osteria 166, Nicholas Pitillo d/b/a Villaggio, John Urlaub d/b/a Rohrbach Brewing Company, 8th Avenue Social Club d/b/a 67 Orange Street, and Petra NY LLC d/b/a Bar Marseille. They are represented by James D. Linnan, of Linnan & Associates PA, Of Counsel to Cooper Erving & Savage LLP, of Albany, New York.

Our battle against split case fees and delivery charges will continue regardless of the results of this court hearing. Stay tuned for an update once the judge issues his decision.