Petitioner Chenango Wine & Liquor, Inc. has commenced this special proceeding to, among other things, set aside the New York State Liquor Authority's issuance of a retail liquor package store permit to Johnson City Wine Partners, LLC. More specifically, petitioner contends that the issuance of said permit was arbitrary and capricious because the facts in the record did not support the Liquor Authority's determination of a public convenience and advantage and/or the issuance of the license was in derogation of various provisions of the Alcoholic Beverage Control Law due to disqualifying interests of Jason Wehle, the 80% owner of Johnson City Wine Partners, LLC.

Respondents Johnson City Wine Partners, LLC and Jason Wehle move in lieu of an answer for an order dismissing the petition on the grounds that the Liquor Authority's determination was not arbitrary or capricious, the petition fails to state a cause of action or, in the alternative, for an order converting the proceeding and granting summary judgment dismissing the petition. Additionally, respondents Johnson City Wine Partners, LLC and Wehle seek costs and disbursements pursuant to ABCL § 123 (1) (a).

Respondent Wegmans ^[FN1] Food Markets, Inc. ("Wegmans") moves in lieu of an answer for [*2]an order of dismissal of the petition pursuant to CPLR § 3211 (a) (7).

Respondent New York State Liquor Authority interposes an answer and opposes the petition in all respects.

The court heard oral argument from counsel on January 15, 2014.

In May 2013, respondent Johnson City Wine Partners, LLC applied for a retail liquor license for a new package store comprised of 15,000 square feet of which 9,623 is dedicated to sales with the balance for storage, etc. located at 650 Harry L. Drive, Johnson City, New York. On September 10, 2013, the Liquor Authority held a hearing on the application.^[FN2] At the conclusion of the hearing, after taking a short recess to enter executive session to consult with counsel, the Liquor Authority approved the retail package store license subject to four conditions: (1) the surrender of the license of Cory Enterprises, LLC; (2) the licensed premises will not expand past the 9,600 square feet of retail sales space; (3) the applicants will manage the store themselves and not hire an outside management team; and (4) the submission and acceptance of any and all conditions necessary to complete the application (Answer, Exhibit 1). The license was effective December 19, 2013.

Respondent Johnson City Wine Partners, LLC is a New York Limited Liability Company owned by two individuals, Jason Wehle and Christopher Maxwell.

Respondent Jason Wehle is the 80% owner of Johnson City Wine Partners, LLC. Mr. Wehle is the son-in-law of Daniel Wegman, CEO of Wegmans. Mr. Wehle is also employed by Wegmans as Director of Internet Marketing. As a managerial employee of Wegmans, Mr. Wehle participates in Wegmans' retirement plan which will be discussed in more detail below. Additionally, Mr. Wehle concedes that he owns 423 shares of Wegmans Class B stock, a non-voting, highly restricted stock which is made available to certain employees as part of their compensation.

Respondent Wegmans Food Markets, Inc. owns a shopping plaza located on Harry L. Drive in Johnson City and leases a portion of those premises to petitioner for the operation of the subject new liquor store. Wegmans is also the owner of a brand of vodka called "W Vodka".

Initially the court notes that the standard of review here is the same as if a liquor license had been denied, namely whether the Liquor Authority's determination "[w]as made in violation [*3]of lawful procedure, was affected by an error of law or was arbitrary and capricious or an abuse of discretion" or otherwise lacks a rational basis (CPLR § 7803 [3] Matter of Pizzaguy Holdings, LLC v New York State Liq. Auth., 39 AD3d 1072 [3d Dept 2007]). The test to be applied is whether the record discloses circumstances which leave no possible scope for the exercise of the Authority's discretion in the manner of which petitioners complain (Matter of Gambino v State Liq. Auth., 4 AD2d 37 [1st Dept 1957], affirmed 4 NY2d 997 [1958] Matter of Clubhouse, Inc. v New York State Liq. Auth., 134 AD2d 694 [3d Dept 1987] ["petitioner carries the burden of presenting a record which discloses no reasonable justification for respondent to have exercised its discretion in the manner it did"]).

Petitioner challenges the Liquor Authority's approval of this package liquor store license for Johnson City Wine Partners, LLC based upon: (1) a failure to meet the standard of public convenience and advantage; and (2) that respondents Johnson City Wine Partners, LLC and Jason Wehle should be disqualified from holding a retail liquor store license due to various conflicts, namely Wehle's pension investments via his employer Wegmans, as well as Wehle's ownership of Wegmans stock since Wegmans in turn owns a brand of vodka.

A.Public convenience and advantage

The Liquor Authority's approval of this license states, in part, as follows: "[t]he members of the Authority have considered all of the facts and circumstances of this Package Store application and determined in the exercise of their sound judgment and discretion that public convenience and advantage would be promoted by the approval of this package store at this location" (Answer, Ex. 1). When challenged in court, as here, the Liquor Authority must show a rational basis for its conclusion as to public convenience and advantage (Matter of Forman v New York State Liq. Auth., 17 NY2d 224, 229 [1966]).

Petitioner argues that public convenience and advantage would not be served because the area is saturated, the population has decreased, revenues are down at some nearby stores, and the proposed 15,000 square foot area is larger than four of the closest stores combined which leads to an unfair pricing advantage.

The public convenience and advantage argument may be dispensed with quickly. Public convenience refers to the accessibility of stores and involves considerations such as distance and overcrowding of present facilities (Forman, 17 NY2d 224; Matter of Circus Disco v New York State Liq. Auth., 51 NY2d 24 [1980]). Public advantage is a broader term which brings into play social and similar problems (Forman, 17 NY2d 224; Circus Disco, 51 NY2d 24).

Upon a review of this record, including a viewing of the hearing before the Liquor Authority, the court finds that these arguments were previously raised by petitioner before the Liquor Authority. In response to petitioner's arguments of saturation, the Liquor Authority imposed a condition requiring the surrender of the license from a nearby store which respondents represented they had purchased. In response to petitioner's arguments concerning the size of the proposed store, the Liquor Authority imposed a condition prohibiting future expansion of square [*4]footage. Petitioner conceded at oral argument that this court must give great deference to an agency's determination and that the arguments concerning public convenience and advantage were not seriously in issue. That being said, the court nonetheless finds the Liquor Authority clearly had a rational basis for its determination that this license would be consistent with public convenience and advantage which is buttressed by their imposition of certain conditions on the license. The court finds that the Liquor Authority's determination that this license would be consistent with public convenience and advantage was not arbitrary or capricious and, as such, the petition fails to state a cause of action in that regard.

B.Disqualification issues

Next, the petition originally raised a myriad of issues that allegedly disqualified Wehle and Johnson City Wine Partners, LLC from holding a retail liquor license including that Wehle is the son-in-law of CEO Daniel Wegman; Wehle owns two liquor stores in New Jersey; Wehle is employed full time at Wegmans as Director of Internet Marketing; Wehle does not live within reasonable commuting distance from the Johnson City store; Wehle owns stock in Wegmans; Wehle is interested, directly or indirectly, in a manufacturer by stock ownership or other because as an employee of Wegmans Wehle participates in the company pension plan which has holdings in manufacturers and/or wholesalers; and Wegmans owns a brand of vodka called W Vodka. During oral argument all parties agreed the key issues are the pension fund, stock ownership and W Vodka and, as such, these are the three issues the court will address.

A brief introduction to the Alcoholic Beverage Control Law is warranted to set the following discussions into context. The express policy underlying the Alcoholic Beverage Control Law is "[t]hat it is necessary to regulate and control the manufacture, sale and distribution within the State of alcoholic beverages for the purpose of fostering and promoting temperance in their consumption and respect for, and obedience to, the law" (ABCL § 2). This policy is implemented in part by recognizing that the industry is comprised of three tiers, namely retailers, manufacturers, and wholesalers. The Alcoholic Beverage Control Law regulates these tiers, by way of the so-called "Tied-House" laws, which prohibit any entity in one tier from having an interest, directly or indirectly, in an entity in another tier (ABCL § 101 [1][a]). The Alcoholic Beverage Control Law specifically defines each of these tiers as follows:

ABCL § 3 (20):"'Manufacturer' means and includes a distiller, brewer, vintner and rectifier; 'Manufacture' means and includes distilling, rectifying, brewing and operating a winery".

ABCL§ 3 (26):"'Retailer' means any person who sells at retail any beverage for the sale of which a license is required under the provisions of this chapter".

ABCL§ 3 (35):"'Wholesaler' means any person who sells at wholesale any beverage for the sale of which a [*5]license is required under the provisions of this chapter".

Pursuant to ABCL § 101 (1) (a), "[i]t shall be unlawful for a manufacturer or wholesaler licensed under this chapter to....(a) Be interested directly or indirectly in any premises where any alcoholic beverage is sold at retail; or in any business devoted wholly or partially to the sale of any alcoholic beverage at retail by stock ownership, interlocking directors, mortgage or lien or any personal or real property, or by any other means."

Pursuant to ABCL § 105 (16), "[n]o retail licensee to sell liquors and/or wines for off-premises consumption shall be interested, directly or indirectly, in any premises where liquors, wines or beer are manufactured or sold at wholesale or any other premises where liquor or wine is sold at retail for off-premises consumption, by stock ownership, interlocking directors, mortgage or lien on any personal or real property or by any other means."

1.Wehle's ownership of Wegmans stock

Petitioner alleges that respondent Jason Wehle and thus Johnson City Wine Partners, LLC should be disqualified from holding a retail liquor store license because Wehle owns 423 shares of Wegmans Class B stock and Wegmans in turn owns a brand of vodka called W Vodka. Petitioner's argument is contingent upon the principle that Wegmans ownership of the vodka brand places Wegmans in the manufacturer's tier and thus disqualifies Wehle and Johnson City Wine Partners, LLC under ABCL § 105 (16).

The Liquor Authority opposes these arguments and contends that the allegation that Wegmans owns a brand of vodka has no bearing on whether a license may be issued to Johnson City Wine Partners, LLC. Additionally, the Liquor Authority argues that a licensed retailer may own a brand of liquor without having an interest in a manufacturer or wholesaler (ABCL § 101-b [3] [c]).

The court finds no legal authority for petitioner's conclusion that Wegmans is a "manufacturer" as that term is defined in the Alcoholic Beverage Control Law based upon mere ownership of a brand of vodka. As noted above, ABCL § 3 (20) defines a "Manufacturer" as "[a] distiller, brewer, vintner and rectifier" and each of those terms is further defined under the ABCL. Quite simply, the court finds nothing in this record substantiating petitioner's allegation that Wegmans is a manufacturer under the Alcoholic Beverage Control Law because it owns a brand of vodka nor has petitioner provided any authority other than a representation during oral argument. Thus, Wehle's ownership of 423 shares of Wegmans stock is of no moment. In view of the foregoing, the court rejects petitioner's claim that Johnson City Wine Partners, LLC and/or Wehle should be disqualified from owning a retail license because of Wehle's ownership of Wegmans stock since Wegmans in turn owns a brand of vodka.

2.Wehle's participation in Wegmans pension plan [*6]

Petitioner argues that any retail licensee and/or principal, such as Wehle, who participates in a pension plan that has an interest by stock ownership in the manufacturing or wholesale tiers of the alcohol industry is prohibited by the Alcoholic Beverage Control Law from holding a retail license because those pension funds in turn invest in alcohol manufacturers and/or wholesalers.

More specifically, petitioner argues that Wegmans pension investments include three large funds named Fidelity Freedom 2020, 2025, and 2030 and that these Fidelity Freedom funds hold shares in the alcohol manufacturing and wholesale tier industry members Constellation Brands, Diageo and Brown Forman. Petitioner argues that these investments - no matter how small - disqualifies Wehle under the Court of Appeals holding in Matter of RIHGA Intl. U.S.A. v New York State Liq. Auth., 84 NY2d 876 (1994). Petitioner's position is reliant on the holding in RIHGA which held that the Tied-House laws do not give the Liquor Authority discretion to ignore even a de minimis ownership.^[FN3]

In opposition, the Liquor Authority argues that these pension plans are not of the licensee Johnson City Wine Partners, LLC, but rather the landlord Wegmans and that in any event Wehle has no control over any company that may be held by way of his employer's pension plan (Answer, ¶¶ 33-37).

In opposition to the petition and in support of their own motion, Wehle has submitted his own affidavit and that of Paul S. Speranza, Jr., Vice Chairman, General Counsel and Secretary to Wegmans, as well as Chairman of Wegmans' Retirement Plans Advisory Committee. Mr. Speranza avers that the Wegmans Retirement Plan is comprised of two components, namely a 401k Savings Plan - in which Wehle has not invested - and a retirement plan which is funded by Wegmans contributions. Mr. Speranza represents that Wehle's full investment, approximately $33,000, is invested in Fidelity Freedom Fund 2040 (not the 2020, 2025, and 2030 funds alleged by petitioner) which has assets exceeding $9 billion making Wehle's investment in the fund approximately .00003%. According to Mr. Speranza, the Fidelity Freedom Fund 2040 Fund does not directly hold shares but rather invests in other funds and is described as a "Funds of Funds" investment. Moreover, Mr. Speranza states that "there are no liquor or wine producers or wholesalers listed" in the top ten investments of the Fidelity Freedom Fund 2040 Fund (Speranza Affidavit, ¶ 21).

Furthermore, respondents Johnson City Wine Partners, LLC and Wehle argue that in addition to RIGHA, there is case law under ABCL § 105 (16) at issue here, which states that "the statute should be strictly enforced to carry out the legislative intent; but it should not, and may not, be extended beyond the 'mischief' it was intended to prevent, and be accorded impractical and burdensome constructions unrelated to its purpose" (Matter of Jonas v New York State Liq. Auth., 29 AD2d 529, 530 [1st Dept 1967] [emphasis added]). Respondents argue that there is legal authority under Jonas to favor a common sense construction over "impractical and [*7]burdensome constructions".

The court finds Jonas is consistent with RIHGA in that it reinforces the principle that a strict construction of the statute should only be applied when necessary to achieve the legislative goals of the Alcoholic Beverage Control Law. Stated another way, the Tied-House laws were implemented to prevent an entity in one tier from controlling and/or influencing an entity in another tier. Under RIHGA, when faced with a true Tied-House violation, the Court of Appeals held strict construction was required and that even a de minimus interest - direct or indirect - was sufficient to disqualify an applicant. Under Jonas, the First Department merely added the explanation that a disqualification for a de minimus holding is only proper when there is an actual Tied-House violation meaning that one entity would have actual control and/or influence of another entity in another tier.

Here, Wehle holds shares in a mutual fund that in turn holds shares in another mutual fund that in turn holds stock in a wholesaler. The record is clear from both the submissions as well as the hearing before the Liquor Authority that Wehle has no ability to control and/or influence any manufacturer and/or wholesaler by way of his "Fund of a Fund" investment.^[FN4] As such, the court finds that Wehle has no interest, be it direct or indirect, in any alcohol manufacturer and/or wholesaler based upon his pension fund investments. Moreover, if this court were to accept petitioner's arguments and find this pension investment equates to an unlawful interest, then there are likely hundreds of package store retail licensees across the state that would be disqualified based upon their passive investments in mutual funds that have holdings in manufacturers and/or wholesalers somewhere down the line in the mutual funds' vast portfolio. In view of the foregoing, the court finds that the Liquor Authority had a rational basis for finding that Wehle's pension plan investments do not equate to an interest, either direct or indirect, in a manufacturer and/or wholesaler and are not in violation of the Alcoholic Beverage Control Law § 105 (16).

In view of the forgoing:

(1)Chenango Wine & Liquor, Inc.'s petition is DENIED AND DISMISSED.

(2)Respondents' Johnson City Wine Partners, LLC and Wehle motion in lieu of an answer for an order dismissing the petition is GRANTED. Additionally, respondents' Johnson City Wine Partners, LLC and Wehle request for costs and disbursements pursuant to ABCL § 123 (1)(a) is DENIED. [*8]

(3)Respondent Wegmans' motion in lieu of an answer for an order for dismissal of the petition pursuant to CPLR § 3211 (a) (7) is GRANTED.

The foregoing constitutes an order and judgment of the court.

It is so ordered.

Dated:January 30, 2014

Binghamton, New York

s/ Ferris D. LebousHon. Ferris D. Lebous

Justice, Supreme Court