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Attachment 16cLarkin Ho nan Memorandum Attachment #16-c larldn Hoffinan Daly & Undgren Ltd. 1500 Wells Fargo Plaza 7900 Xerxes Avenue South Minneapolis, Minnesota 55431-1194 GENERAU 952-835-3800 FAX: 952-896-3333 WES: wwwlarkinhoffman.com To: Frank Ball, Minnesota Licensed Beverage Association (M-LBA) . William C. Grfith. From: if Date: June 4., 2014 Re MLBA: Outline of Opposition to Woodbury Total Wine & More Off -Sale Liquor License Application; Our File # 37,117- 1. The 001 does not have a legal obligation to grant Total Wine & More's ("Total Wine") license. a. In Minnesota, the ability to sell liquor is a privilege, and no one has a right to sell intoxicating liquors. The City has broad discretion to deny a liquor license application. 1 b. Even if Total Wine's application is complete and meets the minimum application requirements, the City has no legal obligation to approve a liquor license merely because the application is complete.' 2, The City of Woodbury can and should deny Total Wine's liquor license application based on the proposed concentration of liquor stores, a. The proposed liquor license would result in two off -sale liquor stores in the same shopping center, and three liquor licenses within a quarter -mile of each other (Rainbow Wine & Spirits & MGM. Liquor Store). b. In Minnesota, the City can deny the license based on the proposed density of liquor stores if the City determines that its needs are met by the existing Sebes v. Minneapolis, 120 N.W.2d 871, 876 (Minn. 1963). See Country Liquors, Inc. v. City ofMinneopolis, 264 N.W.2d 821, 824 (Minn. 1978). establishments, or if the City Council believes that granting the license would be contrary to the welfare of the community,) C. Because the existing liquor licenses serve the City's needs, and the Total Wine's license would create an unnecessary density of uses, the license should be denied. 3. The City can and should deny Total Wine's license based on Dav,,I*d and Robert Trone's pattern and practice of disregarding liquor laws. a. Under City and state law, the Cit)/ cannot issue a liquor license to "a person not of good moral character or repute. b. Under the Godfather case, when the City evaluates the applicant's moral character and repute, it may consider the record of misconduct associated with any businesses that the Trones were involved with at the time that the misconduct 5 occurred. (1) This includes fines, liquor law violations, and payments to liquor authorities. C. In at least two states, the Trones agreed to pay the state liquor authorities "reimbursements" for costs of multi-year investigations into the Trones' business practices. Pennsylvania: In 1994, David Trone paid $40,000 to the Pennsylvania Liquor Control Board. (2) New Jersff: In 2002, Total Wine agreed to a settlement in which each of its four stores in the state would pay $250,000 over five years to the New Jersey Division of Alcoholic Beverage Control. ($1,000 000 total). AV I d. Both large settlement payments to the government required modifying Total Wi*ne/RSS1 business practices to comport with the law, e. Large cash settlements are simply a cost of doing business for the Trones ($],,040,000 total). See Polman v. Rovalton, 249 N- .2d 466 (Minn. 1977) (affirming the denial of a liquor license application where city's existing liquor establishments ""fulfilled the need of the community"),; State ex rel. Howie v. Common Council ofCity ofNorthfield, 101 N.W. 1063 (1,904). 4 Minn.. Stat. See. 340A.402. See Go4father, Inc. v. Bloomington, 375 N.W."d 68, 70(Minn. Ct. App. 1985) (upholding the city's denial of a liquor license application based on evidence of misconduct associated with the applicant's prior businesses). y . The Clone's f&*#alure to 4it i,ican and should deny Total Wine's license based on Total W disclose such liquor law violations voluntarily. a. Violation disclosures have grown from a single page to the thousand -plus page Waypoint Report, which isstill deficient with respect to Pennsylvania. b. The violations and the failure to disclose an accurate violation record bas a direct bearing on the applicants' moral character and ability to bold a license. C. ATTACHMENT: Violations Record. 5. The Godfather case also permits the City to consider the record of misconduct associated with Retail Services & Systems, Inc. (RSS)* a. The majority of the Trones' legal troubles and massive payments to liquor licensing jurisdictions arise out of RSSI's often indistinguishable overlapping -relationship with Total Wine, b. Total Wine's Waypoint Report provides the following insight about RSSI.- (I RS.S1 is David and Robert Trone's employer; (2) RI owns the name "Total Wine & More" and all of Total Wine's trademarks; (3) RSSI provides accounting, marketing and nianagenient services to all Total Wines; (4) R is central to David Trone's "centralized business model,. used to operate Total Wine and More; (5) RSS1 is owned by David and Robert Trone, and five trusts for their �w children; (6) R is currently associated with or has been associated with at least I I diffierent business entities in the State of Pennsylvania. c. Despite acknowledging RSSYs affiliation with these I I Pennsylvania businesses, 6. the Waypoint Report falls to disclose sclose any of the extensive violations against the RSSI-affiliates, d. ATTACHMENT-. Waypoint Report reference of at least I I entities in Pennsylvania, but failing to disclose anything about those entities. Pennsa* Total Wine continues to fail to disclose adverse facts. regarding 6. ylvnia* . RSSJ's extensive violation records in Pennsylvania., a. The WaypointReport stated that the data request to the State of Pennsylvania was expected to be completed by March 28, 2014; however, Total Wine has never supplemented the Waypoint report with the results of this request. b. The MLBA has received in excess of 5,000 pages regarding liquor licensing violations associated with the Trones and RSSI-affiliated businesses. C. The MLBA has identified at least twenty-tvvo (A2.2) liquor violations and $28,800 in fines, resulting from RSSI/Trone beer store operations in Pennsylvania, which Total Wine has still failed to disclose. d. This pattern of hiding adverse facts has a direct bearing on the applicants" moral character and ability to hold a license. 7. Pennsylvania: Nature of RICO/Antitrust Settlement. a. In 1994, RICO and antitrust charges against David Trone were dropped in Pennsylvania only after he agreed to "reimburse"' the state for investigation costs and limit his ability to own liquor stores in the State of Pennsylvania. b. Criminal Charges were only dropped after David Trone agreed that neither he nor any business that he owned stock in (RSSI) could own any interest in a liquor license in the state for three years without approval from the state liquor control board. C. The agreement also required a $40,000 payment to "cover the costs" of investigating Trone's business activities. d. ATTACHMENT.- 7 -page settlement agreement. 8. New Jersey= Following several years of investigations into Total Wine & More W operations, Total Wine agreed to pay $1,000,000 in a settlement agreement to the State of New Jersey. a. Total Wine, RSSI, and the Trones were investigated for violations of New Jersey liquor licensing laws governing the ownership structure used to control. the four (4) Total Wine stores in. the state. b. David and Robert Trone entered into an agreement whereby they would make changes to the manner in which they operated their business and pay $1 "000,000 to the New Jersey Division of Alcoholic Beverage Control (ABC). C. The terms of the consent orders suspended the Total Wine licenses in the state for 30 days, but the suspensions were stayed, subject to the payment of $1,000,000 to the New Jersey ABC. d. The only explanation offered by Total Wine is that they, were making enormous amounts of money, and the $ 1,000,000 in settlement costs was just a cost of doing business. 0 e. This information was never voluntarily disclosed until after the MLBA uncovered it. f ATTACHMENT-. Consent Order. 9. Texas: Was sued for ownership subterfuge, or concealing the true nature of RSSI's ownership interests. a. In 013, a Texas court issued a restraining order against Total Wine's operating company (Fine Wines & Spirits of North Texas, LLC), finding that the opposing party (Gabriel's Investment) was likely to succeed on the merits of their case against Total Wine. b. At issue was the fact that Total Wine's appeared to be an independently owned and operated company, but it was in fact owned, controlled, funded and managed by RSSI in violation of state law. C. After what is understood to be a private agreement between the parties, Gabriel's dropped their suit against Total Wine. d. ATTACHMENT: Order granting restraining order. 10. Children own the majoriq, of Minnesota Fine Wine & Spirits, LLC. a. Minnesota Fine Wines & Spirits, LLC is ninety (90) percent owned by trusts for Wf the benefit of David and Robert Trone's children. b. Both Woodbury and Minnesota law prohibit issuing a liquor license to a person under the age, of twenty-one (2 1). However, 67.5% of the ownership interests are held by Trone children who are under twenty-one (2 1) and could not hold a license individually (their initials are NRT, RJT, and SPT). C. One of these children, SPT, is estimated to be no more than twelve (12) years old. d. This interest in Minnesota Fine Wine & Spirits, LLC's liquor license would circumvent Minnesota law by giving an ownership interest to children who are otherwise ineligible to hold a license. e. Even if the trusts prohibit distributions to minors, a future interest in a trust constitutes a beneficial. interest in the company. Furthermore, the Minnesota Fine Wine & Spirits operating agreement expressly references that SPT has an "interest" in the business that she can sell. Total Wine is, or was, actively engaged in misleading the residents of the City of Bloomington, a. Total Wine withdrew its liquor license application on April l0th. Notwithstanding the fact that Total Wine has not had a pending liquor license for more than a month, it has been actively spreading misinformation to Bloomington residents who visit the Roseville store. b. Bloomington residents were being told to contact their councilinembers to encourage the approval of Total Wine's non-existent liquor license application. C. The Citi, ofBloojnm*gton had to create a website to counter Total Wine's intentional misinfori-nation campaign about their attempts to get a liquor license in Bloomington. d. The*tv C 1 , Attorney directed Total Wine to cease its act'v*t)i. e. ATTACHMENT: Email from Sandy Johnson. 12. The applicant has a pattern and practice of misleading the public and regulatory authorities; violating the law; and when caught, using money to make regulator-)! problems go away. a. This has a direct bearing on the character and moral repute, and the liquor license application should not be granted. b. These business practices will be detrimental to the City of Woodbury-. C. The City should deny the liquor license. 4813-8934-7867, v. 2 No