In order to limit liability, investors use corporations or limited liability companies to house restaurants, taverns, and package stores.  But will these entities protect the investors from liability stemming from the service of alcohol?

Section 65 of the Alcoholic Beverage Control (“ABC”) Law provides, in part, “No person shall sell, deliver or give away or cause or permit or procure to be sold, delivered or given away any alcoholic beverages to . . . Any person, actually or apparently, under the age of twenty-one years; . . . Any visibly intoxicated person; . . . [or] Any habitual drunkard known to be such to the person authorized to dispense any alcoholic beverages.”

The New York State Liquor Authority (“SLA”) may bring charges against a licensee for violating Section 65.  If those charges are sustained it can result in a fine, suspension of its license, or the revocation of a license.  But the consequences for violating Section 65 may not end there.

Sections 11-101 of New York’s General Obligation (“GOB”) Law—known as the Dram Shop Act—allows someone injured by an intoxicated person or because of an intoxicated person to bring a lawsuit against another person who “shall, by unlawful selling to or unlawfully assisting in procuring liquor for such intoxicated person, have caused or contributed to such intoxication; and in any such action such person shall have a right to recover actual and exemplary damages.”

Similarly, GOB Law § 11-100—a similar Dram Shop law also referred to as the Social Host Law—provides, in part, “Any person who shall be injured . . . by reason of the intoxication or impairment of ability of any person under the age of twenty-one years . . . shall have a right of action to recover actual damages against any person who knowingly causes such intoxication or impairment of ability by unlawfully furnishing to or unlawfully assisting in procuring alcoholic beverages for such person with knowledge or reasonable cause to believe that such person was under the age of twenty-one years.”

Liability under these two laws is not limited to on-premises retailers.  The ABC Law permits off-premises retailers, wholesalers, and manufacturers to offer samples of alcoholic beverages to the public.  These tastings could also give rise to a lawsuit under the laws.  By serving a minor to the point of intoxication, a person also may become liable without any sale under the Social Host Law.

To be liable under the Dram Shop Act, a person must have sold, delivered or given away an alcoholic beverage in violation of the law.  In most cases, this means a sale to a minor or person who is visibly intoxicated.  Just serving the liquor to a person who then becomes intoxicated is not enough.  The injured person must also have been injured by the intoxicated person or by reason of that person’s intoxication.  Because the Dram Shop Act is a creature of statute, there is no need for proximate cause (required in negligence lawsuits).  Legally speaking, this means the sale of the alcohol does not need to be the direct cause of the injury.  Rather, it is sufficient if the illegal sale had some reasonable and practical connection to the intoxication of the person who caused the injury.  The liability extends to the server and the corporation or limited liability company, not to the shareholders or members who did not physically serve the intoxicant.  Of course, if the licensee were a partnership all of the partners would be liable and if the licensee were an individual proprietorship, the owner, as licensee, would be liable. 

To illustrate, a person enters Tavern A, consumes a few beers, and leaves.  She goes to Tavern B, orders a few more beers and some shots.  Soon she is visibly intoxicated.  Nonetheless, Tavern B serves her one more beer.  After leaving, she gets into a car accident and causes injury to a passenger in her car.  Tavern A would not be liable, but Tavern B and the person who served the woman would be liable for the injuries of the sober driver.

Even if the passenger were contributorily negligent, it would not help Tavern B.  Negligence is not a defense under the Dram Shop Act.  The statute is intended to foster compliance with the law and to punish those who serve minors or intoxicants.  But if the injured passenger caused, contributed to or procured the alcohol for the intoxicated person who caused the injury, then that would be a permissible defense under the Dram Shop Act.

Most insurance policies do not cover actions brought under the Dram Shop Act, unless the policy explicitly includes liquor liability insurance.  Those who sell or serve alcoholic beverages would be wise to check their policies to make sure they have the right coverage. The potential consequences of serving someone to the point of intoxication or who is under 21 years of age can be severe.  Not only is the liquor license put at risk, but so are the personal assets of the person who served the intoxicant.  It is imperative that people who are licensed to sell alcoholic beverages understand and follow these laws.