Grapevine: The Regulators Are Always Lurking in the Shadows
The world of wine distribution is a tangled, complex and many times confusing arena. With the repeal of Prohibition in 1933, the federal government felt compelled to regulate the newly revitalized domestic wine and liquor industry after its 13-year hiatus, by controlling the wine distribution pipeline and presumably preventing organized crime from exercising its political and logistical clout to control all, or a portion of, the industry.
The system in place today in New York is very much the same legal structure as was initiated by the federal government 80 years ago. This structure, commonly referred to as the “three-tier system,” dictates the roles of the three parties typically involved in the sale of wine (and liquor). A winery typically must engage a wholesaler to distribute its wines. A retailer or restaurant must engage a wholesaler to source its wines. With the wholesalers/distributors becoming the focal point of all wine sales, they are largely in control of the flow of all wine and liquor in New York and the rest of the United States.
Last week, a high-profile retail group of companies was identified as a possible violator of New York State Liquor Authority (SLA) regulations, subjecting the group to potential fines and temporary loss of its liquor license.
The retail group? The restaurants and food halls owned and run by the “Italian Triumvirate”–Mario Batali, Joe Bastianich and Joe’s mother, Lidia. Together they have an ownership interest in and manage over 10 eateries in New York, including Tarry Lodge (in Port Chester), Del Posto, Babbo, Felidia, Becco, Esca, Otto, Lupo, Casa Mono and their quasi-franchise Manhattan retail stores Eataly and Eataly Scuola. These three have spent decades creating a vast empire of highly regarded and highly popular restaurants.
While the SLA issues came as somewhat of a surprise, this group has stretched the legal boundaries before. Remember the tip skimming scandal at Del Posto last year that resulted in a multimillion dollar settlement?
The SLA referenced violations: interlocking interest and false material statement. There has been a consensus in the wine industry that the Bastianich family (but not Batali) has an interlocking interest by importing wines and offering them for sale at the wine shop at Eataly and on a few of their restaurant wine lists. Plus, this information apparently was not previously disclosed, thus the false statement allegation.
While perhaps not in compliance with the letter of the law, it seems the SLA has been leaving it to the Bastianiches to interpret the spirit of the law. Until now. The letter of the law states a retail wine shop/restaurant and a producer must maintain a legal wall between each operation. Apparently, it is the Eataly wine shop that is the target of the SLA.
The potential penalties are significant. A $500,000 fine and a suspension of the group’s liquor license at each named location for six months. Needless to say, this would be devastating; the restaurants would effectively be shut down. Even worse, one or both of the Bastianiches may be required to relinquish ownership in the restaurants, food hall and/or wine shop.
The likely penalties: Only the SLA can decide their fate, but it seems that, like most government agencies’ modus operandi, a hefty monetary penalty will be exacted for the state’s coffers. One or both of the Bastianiches may have to step away from one or more of their ventures. A rescission of the various liquor licenses seems onerous and will likely be negotiated out of a settlement.
I’m reminded of the legal precept from my college law class–the letter of the law trumps the spirit of the law. I would think that the SLA will consider intent as a primary consideration.
Are these issues the tip of the iceberg, extending to other importer/retailers, or a witch hunt against high-profile operators? By the time you read this column it is likely the SLA will have elaborated on its issues and perhaps negotiated a settlement. Shame on the Italian Triumvirate and their cadre of lawyers for opening the door to regulatory intervention.
Nick Antonaccio is a 35-year Pleasantville resident. For over 15 years he has conducted numerous wine tastings and lectures. He also offers personalized wine tastings and wine travel services. Nick’s credo: continuous experimenting results in instinctive behavior. You can reach him at nantonaccio@theexaminernews.com or on Twitter @sharingwine.
