By: Brad Berkman*
Alcohol beverage licenses are fickle things. Like any meaningful and lasting relationship, they need to be cared for. When the dynamic is altered, when change occurs, it cannot be simply swept under the rug. The change needs to be confronted and dealt with swiftly and if not, one risks losing or at least paying a heavy penalty for lack of action.
Admittedly, having a meaningful relationship with a liquor license may be an odd thing and require some form of psychological counseling but unreported changes in fact will lead to problems. Both federal and state regulatory agencies refer to this as “changes after initial qualification.”
Think about the initial qualification process. Officers and owners had to be disclosed; percentage of ownership needed to be revealed. Management agreements and leases needed to be provided. The premises had to be described accurately, sketches provided, and in some instances, equipment needed to be described and its location identified. These sorts of disclosures serve a purpose, providing regulatory agencies with the information necessary to determine eligibility and compliance prior to qualifying to hold an alcohol beverage license. Changes in these (and other) areas need to be reported, usually on prescribed forms and following detailed procedures to ensure compliance. Failure to do so will almost surely result in charges being brought against the licensee by the State in the form of an administrative action. Penalties for infraction(s) range from monetary fines to outright license revocation (repeated violations usually required).
As a rule of thumb changes in proprietorship and changes in control must be reported (most notably changes in owners and/or officers). Changes to management agreements and concession agreements and additions or reductions in operating premises must be reported as well.
On the federal side, failure to report changes in a timely way usually results in automatic termination of the license or permit. Many a federal alcohol beverage license holder, unaware of reporting requirements after changes in initial qualification, continue to operate only to find out that they have been conducting business on an invalid permit (see the reprint of a TTB press release below). Granted, many federal permit matters arise in conjunction with other investigations but the consequences remain the same. Fines for operating without a permit can be severe.
At the federal level and as a rule of thumb, changes in proprietorship and control for upper tier industry member need to be reported. Changes of location and related matters must be disclosed. Failure to report in a timely way, particularly for breweries, distilleries and wineries (including craft) and brewpubs will result in monetary fines and in some instances operations must cease until the matter is resolved. For manufacturers, in some scenarios, business closure may last for up to six months.
Reporting changes after initial qualification for licensure is a very important compliance requirement. Failure to do so may result in costly administrative actions that put business operations in jeopardy. Prior to considering any changes of any sort in your alcohol beverage operation it is always best to consult with experts in the filed so proper reporting requirements are complied with and in a timely way.
The Hospitality, Alcohol & Leisure Industry Group at Greenspoon Marder is well prepared to assist in these matters.
TTB Press Releases
September 5, 2018
For Immediate Release
TTB Trade Practice Investigation Identifies Wholesaler Operating Without a Permit
Washington, D.C. — On August 29, 2018, TTB informed Skokie Valley Beverage Company, a Wheeling, Illinois, alcohol beverage distributor, that it does not currently hold a valid wholesaler basic permit due to unreported changes in ownership and control, and that continued operations without a valid permit may constitute a criminal offense under Title 27 USC 207.
Skokie Valley Beverage Company’s lack of a valid basic permit came to light subsequent to
joint operations that TTB conducted with the Illinois Liquor Control Commission in September 2017.
TTB’s trade practice investigation revealed evidence that Skokie Valley Beverage Company had violated the tied house provisions of the FAA Act by allegedly providing an unlawful inducement to retailers through a third party. Specifically, TTB contends that Skokie Valley Beverage Company paid a slotting allowance for placement of their malt beverage brands on draft at three retail locations. TTB believes this unlawful inducement resulted in the exclusion of products sold by Skokie Valley Beverage Company’s competitors. Skokie Valley Beverage Company has not admitted to these allegations.
TTB reminds industry members with FAA Act basic permits that they are required to file amended applications when there are changes in ownership and control, and that permits terminate automatically 30 days after unreported changes in ownership and control.
*Not An Attorney
* *The information in this article is provided for general informational purposes only, and may not reflect the current law in your jurisdiction. No information contained in this post should be construed as legal advice from Greenspoon Marder LLP or the individual author(s), nor is it intended to be a substitute for legal counsel on any subject matter. No reader of this post should act or refrain from acting on the basis of any information included in, or accessible through, this Post without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer licensed in the recipient’s state, country or other appropriate licensing jurisdiction.