Industry icons clash
By WILL ASTOR - 2/20/2009
Sherwood Deutsch and Lester Eber have been known as business owners and icons of the local wine and spirits industry for decades.
Both men sold their businesses and took jobs with their former firms' new owners some two years ago. But a dispute between them lives on-and has pulled in the owner of Deutsch's former business, Wegmans Food Markets Inc.
At issue is a bargain that Eber and Deutsch struck in 2001 to have Eber's liquor distributorship order fine wines from French vintners and deliver them to the liquor store Deutsch owned in Greece. Eber claims in a court complaint filed nearly two years ago that Deutsch's store received $620,000 worth of wines and never paid. Deutsch denies neither assertion but maintains that he was barred legally from honoring the arrangement's terms.
Deutsch was long known to local oenophiles as the wine-savvy owner of Century Liquor Inc. in Greece. The store and Deutsch developed a reputation over some 40 years for stocking fine vintages at relatively affordable prices. In 2007, Deustch sold the business to a Wegmans subsidiary, Nicole's Wine & Spirits Inc., which relocated the store to a Pittsford Plaza site near Wegmans' flagship supermarket. Deutsch continues to manage the store, now renamed Century Pittsford Wine & Liquor Inc.
Eber for many years owned and ran Eber Bros. Wine & Liquor Corp. of Gates. Until it was acquired by a Florida company, Southern Wine & Spirits of America Inc., the 75-year-old Eber Bros. was the largest liquor wholesaler in Upstate New York, employing some 500 salespeople, drivers and warehouse workers in locations from Buffalo to Albany.
Southern's takeover was not friendly. After a contentious court battle in which Eber accused Southern of paying millions in bonus money to lure away key Eber Bros. personnel, Eber let the sale close and took a vice president position with Southern. He continues to run a remnant of Eber Bros. as an independent liquor distributorship in Connecticut.
Eber describes his deal with Deutsch in a lawsuit targeting Century, Nicole's Wine & Spirits and Century Pittsford. He made the bargain as a favor to Deutsch, Eber says.
As laid out in Deutsch's answering papers, the deal was an illegal arrangement in which Deutsch should owe Eber nothing but Eber might owe Deutsch. While denying that Century owes Eber Bros. anything, Deutsch disputes Eber's contention that Nicole's inherited the Greece store's debts. Attorneys for Wegmans and Nicole's have not weighed in on the dispute.
The lawsuit, filed in state Supreme Court in July 2007, has yet to be resolved.
Eber would not comment on the case, said Eber Bros.' attorney, Paul Yesawich of Harris Beach PLLC. Wegmans spokeswoman Jo Natale referred all questions to Century's attorney, Mitchell Williams of Williams & Williams in Rochester; he also declined to comment.
Eber's court complaint states that the deal called for Eber Bros. to buy fine wines from French vineyards, have them first shipped to the Eber Bros. warehouse in Gates and then deliver them to Century. Eber claims in the brief to have struck the bargain as an accommodation to Century, which could not legally have bought wines directly from producers. In a sort of futures market arrangement, Eber prearranged the purchase of vintages chosen by Deutsch before they were bottled. Eber paid in advance with the understanding that Deutsch would pay for the wine when it was delivered.
Deutsch secretly arranged to bypass Eber Bros., Eber alleges. When the wines were ready to be shipped, Eber claims, Century had them rerouted to a spirits wholesaler in Mount Morris and then refused to pay for them.
In reply papers filed with the court in September 2007, Deutsch concedes that Century took delivery of the futures-contract wines that Eber Bros. had ordered and did not pay for them. However, Deutsch maintains that Eber Bros. never billed Century for the product and that paying for the wine would have been illegal.
Deutsch's contention rests largely on liquor-industry investigations conducted by former New York Attorney General Eliot Spitzer in 2005. Spitzer probed pay-to-play schemes in which New York liquor wholesalers allegedly circumvented state liquor law by giving out-of-line discounts and other price breaks to favored retailers. The investigation wrapped up in 2006 with several liquor wholesalers, including Eber Bros., paying $1.6 million in fines, penalties and court costs. Eber Bros.' share came to $385,000.
In announcing the settlement, Spitzer said practices uncovered by the inquiry violated New York's liquor laws but are legal and routinely used in other industries. Reform of the state's liquor laws to eliminate such discrepancies might be a good idea, he added.
Still, in a brief written to counter Eber's complaint, Deutsch contends that since Eber gave Century price breaks like those Spitzer targeted in his 2005 probe, any wine-futures contracts he and Eber agreed to were "illegal, void and unenforceable." Deutsch's reply also cites a system called a bank that Eber Bros. used to keep track of discount credits it owed to Century. By Century's accounting, its bank credits with Eber not only completely offset the disputed wine's cost but stand at some $705,000 after deducting the wine-futures shipment bills.
So while Century owes nothing to Eber Bros., Deutsch asserts, Eber Bros. owes Century $705,000 plus interest.
In a decision handed down last August, Commercial Division Justice Kenneth Fisher turned down a summary judgment motion from Century seeking to have Eber's complaint dismissed and to have Nicole's Wine & Spirits excused from the dispute.
Though illegal contracts may be unenforceable as a general rule, Fisher said, the case is not simple and neither side had proved its case. Though Deutsch's and Eber's wine-futures deal might have flouted state law, illegal contracts are deemed unenforceable for the public's good and not to let one party or the other wiggle out of a contract. On a more complete examination, Fisher added, it might turn out that their arrangement was a blend of legal and illegal provisions. And if that is the case, the deal's legal parts would be enforceable.
Fisher cited a quote from former U.S. Supreme Court Justice Oliver Wendell Holmes in support of his reasoning: "The courts are to be guided by the overriding general policy of preventing people from getting other people's property for nothing when they purport to be buying it."
Who might owe what in the case needs to be decided at trial, Fisher said. Whether Nicole's Wine & Spirits should be responsible for Century's liabilities would be part of the deliberations.
Century filed a notice of appeal in August shortly after Fisher handed down the ruling, but it has not yet filed papers with the Appellate Division's 4th Department, and Williams said this week that he expects the case to be decided in a trial. No trial date has been set.
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02/20/2009 (C) Rochester Business Journal