TTB permits was a required component of compliance with her state’s liquor laws (as is the case in many states) then Bernadette and her counsel need to do some quick thinking about how to handle the state licensing issue. It is possible that her state doesn’t yet know that her TTB permit terminated. And so Bernadette may be tempted to let sleeping dogs lie and not alert her state authorities of her plight. That is probably a mistake — this particular sleeping dog is likely to awaken and bite her.
IT IS QUITE LIKELY THAT THE SAME TRANSACTION THAT WAS A CHANGE IN CONTROL FOR PURPOSES OF BERNADETTE’S TTB PERMIT WAS ALSO A CHANGE IN CONTROL FOR PURPOSES OF HER STATE’S REGULATIONS. That means her business’ state license, permit or other authorization may have already terminated as well — or at a minimum she may be in violation of its requirements.
Also, just as Bernadette’s parents may have suggested years ago that coming forward to self-report youthful indiscretions is likely to be looked on with favor and result in reduced discipline, federal and state authorities also value and encourage selfreporting. If Bernadette comes clean now with her friends at her local liquor authority, that could go a long way toward reducing any sanctions they may want to impose if her business for operating without a valid state permit since the change in control, and may also help assuage any concerns they might have about allowing her to restart operations once her TTB situation is resolved. In terms of her second constituency, Bernadette will need to think seriously about what she should say to her new investor. She doesn’t necessarily have a legal obligation to update him on these developments if she isn’t asking him for additional capital or to make decisions (e.g., voting on annual director elections for the business). But even if she doesn’t
have a duty to tell him, principles of good corporate governance and stewardship would suggest that she needs to let him know. Of course, all of this could have been avoided if Bernadette had simply remembered that when something significant happens in the life of a DSP, the DSP needs to look carefully at that occurrence and consider what, if anything, needs to be done in order to maintain compliance. What’s that old saying about an ounce of prevention?
Brian B. DeFoe is a business lawyer at Lane Powell, where he focuses his practice on helping companies in the customer-facing food, beverage and hospitality industries. Brian can be reached at firstname.lastname@example.org, via phone at (206) 223-7948, on Twitter @ BrianBDeFoe or Instagram @HoochLaw. Visit www.hoochlaw.com for more thoughts on spirits and the laws that govern them. This is intended to be a source of general information, not an opinion or legal advice on any specific situation, and does not create an attorney-client relationship with our readers.
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