The Alcohol and Tobacco Tax and Trade Bureau under the Treasury Department recently accepted an $850,000 offer in compromise. It involves the Chicago area-based alcoholic beverage distributors RN Acquisition, LLC and City Beverage – Markham, LLC. The distributors allegedly violated the Federal Alcohol Administration Act’s tied house and exclusive outlet provisions. There was also a second violation for allegedly operating a warehouse without applying for a basic permit.
What is a “tied house”?
Legally defined in 27 United States Code, Chapter 8, Subchapter I, Section 205, a Tied House is the historic practice of requiring alcoholic beverage retailers to purchase some or all of its alcoholic beverages from a specific manufacturer. This led to the “Tied House Evil” of retailers encouraging over-consumption to ensure it met its contractual requirements. Modern Tied House Evil laws forbid the practice of manufacturers or distributors paying money or offering goods to be the exclusive (or primary) supplier of distilled spirits, wine or malt beverages to retailers. These violations can include:
- Acquiring or holding any interest in a retail license
- Acquiring an interest in real or personal property owned, occupied or used by the alcohol retailer
- Furnishing equipment, fixtures, signs, supplies, money, services, or thing of value
- Guaranteeing a loan or repayment of financial debt
- Offering credit to the retailer beyond the usual credit card period
- Requiring the retailer to take or dispose of a quota
The violations cited
In this case, the Chicago company allegedly sponsored a concert promotion company commonly owned and managed by an alcohol retailer. The company also reimbursed another industry member to induce retailers into an exclusive multipurpose deal to exclude competitor brands by sponsoring the venue and providing items for the retail concessionaire. It also allegedly engaged in selling items to the retailer at below market value in an effort to exclude competitors. If you are unsure of what you can and cannot accept from a distributor or manufacturer, or you are a manufacturer or distributor and you are not sure what you can provide, please contact an attorney before engaging in activities that might get you stuck in a similar situation.