Real Property & Environmental Law Alert : New Jersey, New York, Pennsylvania & Delaware Lawyers & Attorneys for Real Estate Development & Environmental Law

On May 23, 2013, New Jersey’s Attorney General Jeffrey Chiesa and Division of Alcoholic Beverage Control (“ABC”) Director Michael Halfacre announced the details of “Operation Swill,” a year-long investigation involving more than 100 investigators throughout New Jersey. Operation Swill reached its climax one day earlier when ABC and Division of Criminal Justice personnel executed raids on 29 establishments throughout New Jersey suspected of substituting premium alcoholic beverage brands with “well brand spirits,” i.e., non-premium brands. N.J.A.C. § 13:2-23.19 prohibits a licensee from substituting another brand other than ordered by a customer unless agreed to by the customer. Approximately 1,000 bottles were seized during the raids, which will be held for further testing by the ABC and manufacturers.

The targeted establishments will have seven days to provide sales and invoice records that include information about the 20 brands of interest. Pursuant to N.J.A.C. § 13:2-19.11, penalties range from a 5 to 20-day suspension for each offense; thus, if further testing proves any of the seized bottles did not contain the correct labeled alcohol, that bottle could result in multiple violations based on the potential drinks that could have been poured. According to the ABC, establishments could also face a 30-day suspension pursuant to ABC regulations for any illegal activity on the licensed premise, and an additional 30-day suspension for not cooperating in the investigation.

Brett S. Theisen is an Associate in the Gibbons Financial Restructuring & Creditors' Rights Department. Mark B. Conlan, a Director in the Gibbons Financial Restructuring & Creditors' Rights Department, and Howard D. Geneslaw, a Director in the Gibbons Real Property & Environmental Department co-authored this post.

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On May 1, 2012, a law took effect that will allow New Jersey farmers and wineries to skip wholesalers and sell directly to retailers and consumers. The new law grants similar rights to out-of-state wineries and finally cleared the way for the Garden State to begin issuing new winery licenses to growers. While local business and political leaders are hoping the relaxed regulations will encourage further investment in the state’s wine industry, producers, retailers, and wine lovers alike are cheering the increased access to locally-grown wines ahead of the summer tourism season.

The new law, which we reviewed here in January, resolved the constitutional dispute at the heart of the Third Circuit’s decision in Freeman v. Corzine. That decision invalidated an earlier law, passed in 2010, that granted the same direct-to-retailer-and-consumer privileges to New Jersey growers, but at the expense of out-of-state wineries. The new licenses created by the law fall into two categories: (1) a Plenary Winery License, available for $938 and (2) a Farm Winery License  (which limits production to “not more than 50,000 gallons per year”), available for between $63 and $375 depending on production volume. Both licenses allow growers that produce “not more than 250,000 gallons per year” to distribute wine directly to retailers for an additional fee. Retail shipping fees are graduated depending on the amount of wine produced each year, and range from $100 to $1,000. In addition, growers may ship up to twelve cases of wine per year, directly to any individual consumer located anywhere inside or outside New Jersey. Finally, growers may also open up to 15 “salesrooms” throughout the state for sampling on the premises and for retail sale and consumption on and off the premises. The fee for each salesroom is $250.

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On January 17, 2012, Governor Chris Christie signed into law a bill allowing out-of-state winemakers to sell directly to New Jersey consumers and retailers. The bill was in response to the Third Court’s decision in Freeman v. Corzine, which we reviewed on this blog a year ago. The decision invalidated a New Jersey law allowing certain New Jersey farmers and wineries to skip wholesalers and sell directly to retailers and consumers. The Court determined that the law ran afoul of the Constitution’s Dormant Commerce Clause because it imposed restrictions benefiting in-state wineries and farmers at the expense of their out-of-state competitors. This new law is intended to balance the competing rights of in-state and out-of-state wineries.

The Third Circuit ordered the case remanded to the District Court to remedy the constitutional violation. In short, the District Court was being asked to choose between (1) extending the same in-state privileges to out-of-state wineries and farms, or (2) nullifying the privileges enjoyed by in-state wineries and farms. Rather than leaving the matter with the courts, state legislators introduced several competing bills aimed at resolving the violation. On July 25, 2011, at the request of all parties, the District Court ordered the case “administratively terminated” through March 2012 in anticipation of a legislative resolution.

After months of back and forth negotiations, the new law finally garnered enough votes to pass on the final day of the 2010-2011 legislative session. The law is a compromise measure that will resolve the constitutional issues identified in Freeman v. Corzine and protect New Jersey wine growers’ right to sell directly to consumers. As a result, the District Court litigation has been rendered moot.

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Pennsylvania’s state-run stores could be on the verge of losing their decades-old monopoly on wine and liquor sales. On December 13, 2011, the Pennsylvania House of Representatives’ Liquor Control Committee voted 15-10 to approve an amended version of Pennsylvania House Bill 11, (“Pa. H.B. 11”), which would allow the state’s 1,200 beer retailers to sell wine to the public, in competition with the Pennsylvania Liquor Control Board’s (“PLCB”) 620 state-run stores. Notably, large supermarket chains within the state stand to gain an enormous benefit from the proposed law, which would allow for the first time in-store wine sales, as well as limited in-store tasting events. The proposed legislation now sits before the full House, awaiting floor debate, additional amendments, and a possible vote. The process could begin as early as this month.

Under the amended proposed law, a license to sell wine, called an “enhanced distributor’s license,” would be available to any “holder of a distributor license” - i.e., an entity currently selling beer in the state - after payment of a “conversion fee” of $50,000. In addition, an enhanced distributor would be required to pay an annual $15,000 renewal fee. The enhanced distributor licenses would be subject to the same population-tied cap as the current distributor licenses. Presently, the number of distribution licenses available for the retail sale of beer is limited to one license for every 3,000 inhabitants in any county, exclusive of licenses granted to certain public venues and other venues specifically identified by the Legislature.

The original version of Pa. H.B. 11 sponsored by House Majority Leader Mike Turzai and supported by Gov. Tom Corbett, would have gone even farther in breaking up the state-run monopoly. The original bill called for the complete privatization of all retail and wholesale wine and liquor sales in the state by closing and selling all state-run stores. A study commissioned by the bill’s proponents indicated that the sales could generate between $1.3 and $1.9 billion up front, with an additional $400 million in annual revenues thereafter. Following the sale of state-run stores, there would be a public auction of 1,250 retail licenses to sell beer, wine, and liquor to the highest bidders. Because the current version of the bill keeps the state-run stores open, the re-employment provisions contained in the first draft of the bill that were designed to assist displaced PLCB employees find new employment have been deleted in the amended bill.

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The time period to renew an expired New Jersey alcoholic beverage license is rapidly coming to a close and will end on November 8, 2010. Under a provision of the Alcoholic Beverage Control Act, N.J.S.A. 33:1-1 et seq., enacted earlier this year, a person holding an expired license, which was not renewed within the five years prior to May 6, 2010, may file for renewal of that license provided that (i) the applicant pay all renewal fees for the years in which timely renewals were not filed, and (ii) the applicant’s failure to apply for a renewal during that period was due to circumstances beyond his control or due to other extraordinary circumstances.

Prior to the passage of this provision, an applicant holding an expired license could file for a renewal only for one year following the expiration of the license renewal period for the license. The provision in question, P.L. 2010, c. 14, § 1, is codified at N.J.S.A. 33:1-12.18.

Howard D. Geneslaw is a Director in the Gibbons Real Property & Environmental Department.

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