Malum Prohibitum Alcohol-Regulatory Violations Do Not Automatically Void Equity-Compensation Contracts; “Tied House” Illegality and SLA Approval Cannot Be Decided by Prediction on Summary Judgment

Case: Copeland Holdings, LLC v Gravity Ciders, Inc.
Citation: 2026 NY Slip Op 02704 (248 AD3d 1628) (3d Dept Apr. 30, 2026)
Court: Appellate Division, Third Department (affirming Supreme Court, Chenango County)

1. Introduction

This appeal arose from a business relationship in the regulated alcoholic beverage industry. Defendant, Gravity Ciders, Inc. (“Gravity”), held a farm cidery license issued by the State Liquor Authority (“SLA”) and operated both manufacturing/distribution and a tap room. Plaintiff, Copeland Holdings, LLC (“Copeland”), served as Gravity’s exclusive management agent under a September 2020 management agreement.

The central contractual feature was an “equity as compensation” clause: part 7(c) promised Copeland a 5% ownership interest on September 1, 2022 and another 5% at the conclusion of the term (August 31, 2023). After the agreement ended by mutual consent and Gravity paid management fees, it did not transfer the promised ownership interest.

The dispute expanded beyond contract performance into (i) alcohol regulatory compliance—particularly “Tied House Rules” restrictions on cross-ownership between manufacturers and retailers—and (ii) property torts involving a corporate book allegedly containing blank stock certificates that Gravity demanded back from Copeland.

Gravity moved (twice) for pre-note summary judgment on three counterclaims: (1) conversion/replevin for the corporate book (second counterclaim), and (2) declarations that part 7(c) was illegal/void (third and fourth counterclaims). Supreme Court denied both motions. The Third Department affirmed.

2. Summary of the Opinion

3. Analysis

3.1 Precedents Cited

A. Summary judgment framework

• Reed v New York State Elec. & Gas Corp. and Durr v Capital Dist. Transp. Auth.
  The court used these cases to restate the movant’s prima facie burden: admissible evidence demonstrating the absence of material issues of fact.
• Aretakis v Cole's Collision
  Once the movant meets its burden, the nonmovant must show a triable issue. This burden-shifting structure mattered most on the conversion counterclaim, where Gravity’s demand-and-nonreturn proof shifted the burden to Copeland.
• Sovocool v Cortland Regional Med. Ctr. and White Knight Constr. Contrs., LLC v Haugh
  These cases supplied the “view evidence favorably to the nonmovant” rule and the prohibition against credibility determinations on summary judgment—critical to rejecting Gravity’s conversion theory at the summary judgment stage.

B. Illegal contracts; malum prohibitum vs malum in se

• Lloyd Capital Corp. v Pat Henchar, Inc.
  This was the central authority for the court’s illegality analysis. It articulates a pragmatic rule: even if a contract violates a statute (malum prohibitum), it is not invariably unenforceable unless the statute expressly bars suit or denying relief is proportionate to public policy demands. The Third Department applied this lens to Gravity’s Alcoholic Beverage Control Law arguments.
• Lizard O's, Inc. v Baha Lounge Corp.
  Cited as supporting authority for applying Lloyd Capital-type analysis in contexts involving statutory violations, reinforcing that statutory breach does not automatically eliminate the right to sue on the contract.
• Specialty Rests. Corp. v Barry (footnote discussion)
  The opinion used this case to define malum prohibitum (prohibited by statute) versus malum in se (inherently wrongful). That distinction framed why Gravity’s statutory arguments did not automatically defeat part 7(c) at summary judgment.

C. Alcohol licensing / tied-house principles and administrative discretion

• JRC Beverage, Inc. v K.P. Global, Inc.
  Cited “generally” to describe the Tied House Rules and their purpose: preventing vertical integration/cross-interest between manufacturers/wholesalers and retail outlets. It supported the court’s explanation of ABC Law § 101(1)(a) and § 106(13)(a).
• Matter of RIHGA Intl. U.S.A. v New York State Liq. Auth.
  Used to show that the SLA may lack discretion to grant “exceptions” to tied-house restrictions. But rather than producing summary judgment for Gravity, it highlighted that the ultimate tied-house compliance determination is administrative in the first instance—and was not yet ripe for judicial resolution by prediction.
• Ali-Hasan v St. Peter's Health Partners Med. Assoc., P.C.
  Quoted for the requirement of “sufficient evidence” to eliminate material factual issues. The court used it to reject Gravity’s attempt to win on summary judgment through speculative forecasting of how a not-fully-completed administrative process would end.

D. Corporate change / approval condition comparisons

• B&A Realty Mgt., LLC v Gloria
  Used as a contrast point (“compare”) on whether an agreement can be conditioned on regulatory approval. Here, the Third Department found that part 7(c) did not unambiguously condition the ownership transfer on SLA approval, weakening Gravity’s theory that the clause was unenforceable as written.

E. Replevin and conversion elements

• Batsidis v Batsidis
  Established that replevin requires the plaintiff (here, Copeland) to be in possession of the property. Once the corporate book was returned, replevin did not lie.
• Cuprys v Volpicelli and Van Amburgh v Boadle
  Supplied the definition of conversion and the specific demand-and-refusal rule when initial possession is lawful (as with an agent). These cases anchored the court’s conclusion that the conversion claim presented factual disputes not suited for summary judgment.

3.2 Legal Reasoning

A. Why the court refused to declare part 7(c) unenforceable as “illegal” on summary judgment

Gravity argued that enforcing part 7(c) would violate the Alcoholic Beverage Control Law, either because (i) an ownership transfer required SLA-approved corporate change procedures, or (ii) the transfer would create forbidden cross-interests under the Tied House Rules due to plaintiff member Ian Rood’s separate interest in an entity holding a retail license.

The Third Department’s analysis proceeded in two steps:

• Step 1 — Characterization as malum prohibitum: The court treated the alleged statutory violations as malum prohibitum, invoking Lloyd Capital Corp. v Pat Henchar, Inc. to emphasize that unenforceability is not automatic unless the statute expressly withdraws the right to sue or public policy requires denial of relief in proportionate fashion.
• Step 2 — Failure of proof as a matter of law: Even if the statutes applied, Gravity did not show that they necessarily foreclosed contractual enforcement at this stage. The court found no statutory text in the cited provisions expressly depriving parties of their contractual remedies for violation, and it refused to use summary judgment to short-circuit an administrative determination the SLA had not yet made on the merits.

B. ABC Law § 99-d(2): filing requirement is not the same as an enforceability bar

For the “corporate change application” theory, Gravity relied on Alcoholic Beverage Control Law § 99-d(2), which states that “[b]efore any . . . corporate change . . . can be effectuated . . . there shall be filed with the [SLA] an application for permission to make such change.”

The court reasoned that: (i) § 99-d(2) requires filing but does not expressly state that the transfer is void or that contractual rights to sue are lost absent prior approval, and (ii) the management agreement’s text did not condition the equity transfer on SLA approval. Consequently, Gravity did not establish entitlement to a declaration of unenforceability as a matter of law.

The court also found other provisions invoked by Gravity—Alcoholic Beverage Control Law §§ 110(4) and 111(1)—to be “inapposite” to the requested declaratory relief on this record.

C. Tied House Rules: the court rejected “summary judgment by administrative prediction”

Gravity’s tied-house argument centered on Alcoholic Beverage Control Law § 101(1)(a) (restricting manufacturer interests in retail premises/businesses) and § 106(13)(a) (restricting retail licensee interests in manufacturing/wholesale premises). Gravity contended that because the SLA purportedly has no discretion to grant exceptions (citing Matter of RIHGA Intl. U.S.A. v New York State Liq. Auth.), it would necessarily deny a corporate change application if Rood acquired an interest in Gravity while also having an interest in Sundown (a retail licensee).

The court refused to grant summary judgment on that basis because the administrative process had not “fully run its course.” The record showed the parties’ two corporate change applications were rejected for paperwork defects—not for tied-house violations—so the asserted inevitability of denial was speculative. Under the summary judgment standards, speculation could not eliminate factual issues.

Notably, plaintiff submitted a waiver of Rood’s interest in defendant; the court treated whether that “cures” a tied-house issue as a matter “best left to the SLA in the first instance,” underscoring the court’s insistence on proper sequencing between administrative licensing judgments and private contract enforcement disputes.

D. Replevin mooted by return; conversion remained fact-bound

While the summary judgment motion was pending, Copeland returned the corporate book (albeit incomplete). Under Batsidis v Batsidis, replevin requires the defendant to show plaintiff “is in possession” of the property; once returned, that element failed.

The conversion analysis followed Cuprys v Volpicelli and Van Amburgh v Boadle. Gravity showed that Copeland (as agent) lawfully acquired possession, the agreement specified Gravity’s ownership of records, Gravity demanded return, and Copeland did not promptly comply—facts that can establish conversion via demand and refusal where initial possession is lawful.

However, Copeland raised a triable issue through an affidavit stating it intended to return the book but alleged Gravity failed to communicate to facilitate transfer. That conflict created a credibility issue, and per Sovocool v Cortland Regional Med. Ctr., credibility disputes cannot be resolved on summary judgment. The court also noted that Gravity did not seek partial summary judgment based on missing portions (CPLR 3212[e] referenced in footnote).

3.3 Impact

• Contracts in regulated alcohol businesses: The decision signals that private agreements involving equity compensation will not be invalidated on summary judgment merely because performance may intersect with ABC Law compliance steps (e.g., corporate change filings). Parties asserting “illegality” must show more than a regulatory overlay; they must confront Lloyd Capital’s malum prohibitum framework and statutory text.
• Limits on “public policy” defenses: The opinion reinforces a measured approach: courts will hesitate to impose forfeiture of contractual remedies absent express legislative direction or a clear, proportionate policy necessity—particularly where a specialized agency (SLA) has primary responsibility for licensing outcomes.
• Tied House Rules litigation posture: Litigants cannot win civil contract cases by asserting that the SLA “would” deny approval, at least where the agency has not made a merits-based tied-house determination. This discourages “preemption by prediction” and encourages parties to develop an administrative record.
• Business-records disputes (conversion vs replevin): Returning property during litigation can moot replevin but not necessarily defeat conversion claims; conversion may still turn on demand, refusal, intent, and reasonableness—often fact-intensive and resistant to summary disposition.

4. Complex Concepts Simplified

• Summary judgment: A procedure to win without trial, available only when there are no material factual disputes. Courts do not decide “who is more believable” on summary judgment.
• Malum prohibitum vs malum in se: Malum prohibitum refers to conduct wrong because a statute says so (regulatory violations). Malum in se refers to conduct inherently wrongful. Courts are more willing to enforce contracts despite malum prohibitum violations unless the statute clearly bars enforcement or public policy strongly requires forfeiture.
• Tied House Rules: Statutory restrictions designed to keep alcohol manufacturers/wholesalers separate from retailers, preventing cross-ownership or indirect interests that could distort competition or encourage improper influence.
• Corporate change application (SLA): A required filing with the SLA when ownership/control changes occur in a licensed entity. The existence of this requirement does not automatically mean a private contract promising equity is void; enforceability depends on statutory text and public policy analysis.
• Replevin vs conversion: Replevin seeks the return of specific property and requires the defendant to still possess it. Conversion seeks damages for wrongful control over property; even if the item is later returned, a period of wrongful withholding can still be actionable.

5. Conclusion

Copeland Holdings, LLC v Gravity Ciders, Inc. is a procedural-and-remedial decision with meaningful guidance for disputes at the intersection of private contracts and alcohol regulation. The Third Department affirmed denial of summary judgment where the claimed illegality was, at most, malum prohibitum under the Alcoholic Beverage Control Law and where the movant attempted to win by forecasting an SLA outcome not yet determined on the merits. The court also clarified the practical distinction between replevin and conversion when business records are returned mid-motion and underscored that credibility disputes—especially about demand, refusal, and communication—belong at trial, not on summary judgment.