Three prominent Boston restaurant companies, accused of accepting tens of thousands of dollars in illegal kickbacks from a beer distributor, asked for leniency at a state disciplinary hearing Tuesday and questioned the legality of the charges against them.
Attorneys for the Glynn Hospitality Group Inc., the Wilcox Hospitality Group Inc., and an affiliate of the Cronin Group LLC appeared before the Alcoholic Beverages Control Commission to face charges stemming from the agency’s crackdown on so-called “pay-to-play” in the state’s beer industry.
Investigators say the companies were among five restaurant operators that received about $120,000 from an Everett beer distributor, Craft Brewers Guild, to put the distributor’s beers on tap at their Boston bars and freeze out brews sold by competing distributors. The ABCC said the payments were part of a “pervasive illegal enterprise” aimed at shoring up the distributor’s sales.
The bar owners acknowledged receiving the money from Craft Brewers Guild, but said the payments were offered unprompted by salesmen and managers for the distributor.
Attorneys for each of the three companies said the ABCC’s ban on such payments was undermined by the repeal in 1970 of a state law banning inducements in the alcohol industry.
Moreover, James Byrne, an attorney for the Wilcox Group, argued the ABCC hadn’t enforced pay-to-play rules in decades and should issue a warning to the retailers instead.
“There’s little to be gained by imposing some kind of crippling sanction on a small business,” said Byrne, whose client faces punishments that can range from a suspension to revocation of its alcohol licenses.
Craft Brewers Guild, part of the multistate beer wholesaling empire controlled by the Sheehan Family Companies, paid a record $2.6 million penalty earlier this year to avoid serving a three-month license suspension, but is contesting the fine in state court.
The bar owners’ defense at the ABCC hearing Tuesday largely focused on the legal basis for the agency’s crackdown. After the state law was repealed in 1970, the attorneys argued, the ABCC failed to reauthorize its own regulation against inducements, rendering it void. In addition, they said, the language of the rule only prohibits distributors from offering such inducements — not bars from accepting or even demanding them.
“The regulation doesn’t apply to the [retail] license holder. The regulation applies to the party that’s giving something,” said Thomas R. Kiley, an attorney for Rebel Restaurants Inc., an affiliate of the Cronin Group. “A label like ‘pay-to-play’ doesn’t change the basic law. If the ABCC wants to prohibit a licensee from making a demand for a discount, that’s something they can do, but this regulation doesn’t do that.”
The ABCC’s chief investigator, Ted Mahony, said he believed the rule was in “full force and effect” and applied to retailers and wholesalers alike.
The pay-to-play ban, enacted in the 1940s, was intended to prevent deep-pocketed national brewing companies from dominating local markets. The practice of suppliers and distributors paying stores for prime placement on shelves is common and legal in the grocery and other industries, but prohibited in the tightly-controlled alcohol business.
Nick Velez, an ABCC investigator, argued at the hearing Tuesday that the restaurant groups had essentially “permitted” the inducements to be given to themselves.
Louis Cassis, an attorney for the Glynn group, derided that interpretation as “a torturous reading of a very simple” regulation.
‘What happened here was simply an effort by someone to market and support beer.’Louis Cassis, attorney for Glynn group of bars
Byrne acknowledged that the Wilcox Group, which owns the Tip Tap Room, Lower Depths, Bukowski Tavern, and other bars, took $20,000 from Craft Brewers Guild in 2013, or $1,000 each for 20 tap lines. In exchange, investigators said in a report, the company’s eight bars served Lagunitas, Magic Hat, and other brews sold by the distributor.
Investigators said the Cronin Group’s Rebel Restaurant operation, which owns the Jerry Remy’s Sports Bar & Grill in the Seaport, Atlantic Beer Garden, and others — cashed numerous checks from Craft Brewers Guild in 2013 and 2014. Kiley acknowledged the company received payments totaling $8,420 for purchasing kegs of Wachusett, Cisco, Sierra Nevada, Brooklyn Brewery, and Smuttynose beers from the distributor.
The Glynn Hospitality Group, which owns Clery’s and Dillon’s among other local bars, acknowledged Tuesday taking $39,000 from Craft Brewers Guild from 2013 to 2014. In exchange, investigators said, the company stocked 22 brands offered by Craft Brewers Guild at its restaurants.
Cassis, the Glynn group’s attorney, characterized the arrangement as a simple promotional program that “blew up in the face” of the company.
“When the public reads about this case, they think some horrible, evil thing is going on,” Cassis said at the hearing. “But this is the only industry where this is prohibited. . . . What happened here was simply an effort by someone to market and support beer that was otherwise unknown and would never get to market.”
The ABCC’s commissioners will decide later this year whether the restaurant companies are guilty and mete out any punishment.
Two other large Boston-area restaurant groups accused of taking kickbacks from Craft Brewers Guild, the Lyons Group and the Briar Group, will face ABCC hearings later this year. Investigators are also examining whether other distributors have paid kickbacks to bars and liquor stores.Dan Adams can be reached at email@example.com. Follow him on Twitter @DanielAdams86.