Groupon Ruling May Prevent Manhattan Restaurants and Clubs from Violations

There is an old saying: “It’s better to beg for forgiveness than to ask permission.”

But Manhattan restaurant attorneys can’t recommend that philosophy when dealing with the New York State Liquor Authority. Rules of the State Liquor Authority (9NYCRR subtitle B) provide a means for requesting a ruling regarding whether or not a particular action violates any of the provisions of the Alcoholic Beverage Control Law. 

Thus ignorance is not bliss — nor is it a proper defense — to alleged violations of the ABCL.

Some may remember when Groupon was preparing to go public, the company requested such a declaratory judgment from the NYSLA regarding whether the company was violating the law by offering Groupons for 50 percent off alcoholic beverages at restaurants, bars and other establishments in New York. Ultimately, the NYSLA ruled the 50 percent off offer was legal and that it did not violate the law’s prohibition against “unlimited drinks offering.”

Too often, bars, nightclubs or event promoters will come up with a hook to lure patrons that runs afoul of the Alcoholic Beverage Control Law. Checking with an experienced restaurant attorney can save time, money and other resources. And, of course, those hit with a violation are best served by immediately consulting with an experienced NYSLA defense attorney in Manhattan. An establishment’s liquor license is often its lifeblood. Defending your business against alleged violations is critical to remaining in good standing with local, state and federal authorities.

Properly framing your argument before liquor authorities can also significantly improve your chances for success. In the Groupon case, the company was clear with the liquor board that Groupon would under no circumstances offer coupons for free liquor or offer coupons for more than 50 percent off the price of an alcoholic beverage.

Another issue the board tackled in this case was whether a third-party vendor like Groupon, which does not hold a New York liquor license, was prohibited by law from selling such drink coupons for a profit. ABCL111 prohibits anyone with a liquor license from making that license available to another entity. A license holder must also disclose to the agency any entity with a financial interest in the licensed establishment.

Historically, the board has ruled such arrangements would amount to reportable financial interest. However, the proposal limited a retailer’s coupon offerings to no more than 4 a year and no more than twice in any fiscal quarter. As a result, the board ruled Groupon’s financial interest in any one establishment would be insignificant under the law.

The law also forbids unlimited drink offers — or those offers which provide patrons unlimited drinks during a set time for a fixed prince. This is often a violation overlooked by bars and nightclubs running promotions. Violations of this clause can be subjective, too, as the law also prohibits any advertising or promotion that in the liquor authority’s view is designed to circumvent the law. Thus, the state views any offer of liquor at less than half a retailer’s price to be a violation under the law.

The Wright Law Firm is a business law firm located in Midtown Manhattan. Call (212) 619-1500 for a confidential consultation.