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In re Chris-Don, Inc. v. State of New Jersey

308 B.R. 214 (D. N.J. 2004)

LIQUOR LICENSES — A lender may obtain a security interest in a liquor license and receive funds from the sale of that license.

(Reversed - In Re Chris-Don, Inc. 367 F.Supp.2d 696)

A corporate debtor owning a bar filed a voluntary chapter 11 petition. The case was later converted into a Chapter 7 bankruptcy. One of the debtor’s assets was a liquor license. It was sold by the chapter 7 trustee. The State of New Jersey and a lender each asserted liens on the proceeds. The lender had lent the debtor money for the bar’s operation. As collateral, the debtor granted the lender a security interest in its business assets, including its general intangibles. The lender filed a motion for summary judgment, arguing that it had a first priority security interest in the proceeds, and that it was entitled to the sale funds. Specifically, it alleged that the liquor license was a general intangible of the debtor. The State asserted that its liens were the only valid liens because New Jersey’s Alcoholic Beverage Control statute precludes a licensee from utilizing a liquor license as collateral for a loan.

The Court disagreed because, in 2001, the New Jersey legislature revised Article 9 of the Uniform Commercial Code. The revisions addressed new forms of collateral to increase a debtor’s ability to borrow money. The lender argued that these revisions overrode the provisions of the New Jersey Alcoholic Beverage Control statute. The State alleged that the Alcoholic Beverage Control statute controlled because it specifically addressed liquor licenses, whereas the Article 9 revision spoke to assignments generally. The State further argued that where two statutes conflict, the more specific governs the general. The Court, however, found no conflict. The revision to Article 9 stated that it “prevail[ed] over any inconsistent provisions of State statutes, rules, and regulations, other than” statutes addressing structural settlements and workers’ compensation agreements. The Court concluded that if the Legislature had intended to exclude the Alcoholic Beverage Statutes from the Article 9 revisions, then it would have done so. Additionally, the Court held that the Legislature intended that a business should be capable of obtaining loans by using all assets it has to secure the loan. For those reasons, the Court concluded that the debtor was allowed to utilize its liquor license as collateral for the loan.

As consideration for the loan, the debtor granted its lender a security interest in its business assets and general intangibles. The lender argued that its security interest extended to the debtor’s liquor license, because a liquor license is the debtor’s personal property and is therefore a general intangible subject to the lien. The State argued that a liquor license is not the property of the licensee and therefore it is not a general intangible. N.J.S.A. 33:1-26 states that, “under no circumstances ... shall a license ... be deemed property.” The Court held that the license was property of the debtor, and was a general intangible because the section of the statute prevented the assignment of a liquor license had also been superceded.

In conclusion, the Court held that the lender had a first priority security interest in the proceeds, and that it was entitled to the funds from the sale of the liquor license.

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