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'Free' wine kiosk initiative costs state Liquor Control Board $300K

| Sunday, Jan. 25, 2015, 10:50 p.m.
Trib Total Media
Rob Borella, senior director of marketing and corporate communications for Giant Eagle, uses the selection screen on the self-serve wine kiosk at the Giant Eagle Market District store at Settlers Ridge in Robinson on Tuesday, Oct. 26, 2010.
Trib Total Media
Rob Borella, senior director of marketing and corporate communications for Giant Eagle, selects a bottle of wine using the control panel on the self-serve wine kiosk at the Giant Eagle Market District store at Settlers Ridge in Robinson on Tuesday, Oct. 26, 2010.
Jason Bridge | Trib Total Media
The wine kiosk in the Giant Eagle in New Kensington is up and running on Tuesday, Nov. 16, 2010.

The state Liquor Control Board has spent nearly $300,000 in legal fees to fight a lawsuit over its “free” wine kiosk initiative.

The kiosk maker claims the LCB is to blame for forcing it out of business.

More than three years after the LCB pulled the plug on the wine vending machines in supermarkets, the agency is mired in the lawsuit with Simple Brands LLC, the Montgomery County company that developed and produced the kiosks.

“The government is doing everything it can to delay this case,” said Alan Fellheimer, an attorney for Simple Brands.

The kiosks, which LCB officials touted as a convenient way for customers to purchase a bottle of wine with their groceries, were met with criticism from opponents and skepticism from shoppers wary of a multistep purchasing process that included blowing into a device to prove sobriety.

The machines held more than 50 varieties of wine, but many failed to hit weekly sales targets. Kiosks malfunctioned hundreds of times in the first six months: from screens freezing to ID cards not scanning to wine not dispensing properly.

The LCB shut down the kiosks in December 2010 for about six weeks and, once a scathing performance audit by then-Auditor General Jack Wagner was released, closed them for good in September 2011.

Simple Brands started legal action in December 2011. Since then, the parties have filed dozens of motions and are only now working through discovery, or sharing information and evidence before trial.

“We just keep pushing and pushing and pushing (by) filing motions,” Fellheimer said. “You can't get them to move any other way.”

Through an LCB spokeswoman, attorney Dean Piermattei of the Harrisburg law firm Rhoads & Sinon disputed that the agency is at fault for delays.

Piermattei said Simple Brands took six months — from July to December — to respond to a request for information, then dumped more than 126,000 pages of documents on the LCB.

“Obviously, it will take time to go through all of those documents, and we are simultaneously attempting to obtain more appropriate responses,” Piermattei said. “We want nothing more than to move this case along as expeditiously as possible, but we need information before we can proceed.”

Losses, liability argued

At issue is money.

Simple Brands claims the LCB violated a 2009 contract to place 100 kiosks in supermarkets statewide, leaving the company on the hook for more than $81 million in production costs and lost revenue. Simple Brands would have covered expenses through a fee per transaction and by selling ads on its machines.

Only 32 kiosks — provided to the LCB at no charge — made it into supermarkets before the program ended. About half of the machines were placed in Western Pennsylvania grocery stores, including Giant Eagle stores in Robinson, Monroeville, McMurray, North Huntingdon and New Kensington, and several Shop 'n Save stores, including in Gibsonia and Bethel Park.

“Basically, they put (Simple Brands) out of business. They didn't do anything they said they were going to do,” Fellheimer said.

The LCB alleges the company failed to deliver reliably functioning machines and owed the agency more than $1 million it spent to get the program up and running. The agency claims it's not liable to pay Simple Brands because no money was appropriated in the original contract.

The LCB offset most of its expenses by drawing from a $1 million pot of money that Simple Brands was required to set aside to cover any shortfalls, said agency spokeswoman Stacy Kriedeman.

Simple Brands is trying to recoup that money.

The experimental program — the first of its kind in the country — was billed as cost-free to the state.

But the LCB has paid Rhoads & Sinon nearly $300,000 to represent the agency in the case, legal invoices obtained under the state's Right to Know Law show. In October, the LCB renewed its contract with the firm for a year for an estimated $100,000. The cost covers representation in the Simple Brands suit and a separate matter.

Kriedeman said the LCB does not expect to recoup legal fees, even if it wins the case, because that provision was not spelled out in the original contract.

“Simple Brands initiated the current litigation, not the PLCB,” Kriedeman said. “You can't stop someone from suing you, and when you're sued, you have to defend.”

Beyond the kiosks

“This is a different agency than it was four years ago. We've moved beyond the kiosks,” LCB Chairman Joseph “Skip” Brion said.

As to whether the agency still believes the kiosk program was a learning experience — not a failure — as officials said at the time, Brion said: “The current board members had nothing to do with that program. None of us were on the board when the kiosk program began or ended. ... I'm not going to comment on what a previous board did or didn't do.”

Steve Miskin, spokesman for House Speaker Mike Turzai, R-Marshall, a critic of the kiosks who wants to privatize wine and spirits sales, called the “super wine gumball machine” program “a bad mistake that just keeps on giving.”

Kari Andren is a Trib Total Media staff writer. Reach her at 724-850-2856 or kandren@tribweb.com.

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