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P.T.K., L.L.C. v. Governing Body of the Borough of Fort Lee

A-6068-06T2 (N.J. Super. App. Div. 2008) (Unpublished)

LIQUOR LICENSES — A liquor license may be denied to an applicant who delegates or intends to delegate all management responsibility from the licensed individual to an unlicensed individual because liquor sale operations are required to be under the supervision and control of the licensee.

An entrepreneur sought to purchase a liquor license from an established nightclub. She was the sole shareholder of a business she created to purchase the liquor license and run the nightclub. The entrepreneur had no experience in running a nightclub or any business that sold alcohol, but her husband had experience running establishments that had liquor licenses. The entrepreneur’s business entered into a contract with the nightclub for the purchase of the liquor license and for exclusive authority over all of the nightclub’s operations until closing. According to the contract, until closing, her business was to receive one hundred percent of the nightclub’s net profits in exchange for its management services. An application to transfer the license was made. The municipality where the nightclub was located assigned an investigator to determine whether use of the liquor license in this way was proper. The investigation went on and on. The business appealed to the New Jersey’s Alcoholic Beverages Commission arguing that a delay in the investigator’s determination was, in effect, a denial.

At an administrative hearing, the nightclub’s applications for a renewal of its liquor license and permission to transfer the liquor license to the business were granted. The Director filed an exception and as a result, the decision to renew the nightclub’s liquor license was upheld but the transfer to the business was denied. The Director found that a tax clearance certificate, which was necessary for the transfer, had not been presented to the municipality by the business. The Director was critical of the management agreement because the business would have held a right to retain all of the profits and to make all of the nightclub’s business decisions, which the director found would have given the business the benefits of running an establishment with a liquor license without obtaining regulatory approval. The Director also found that while the entrepreneur was the sole shareholder of the business, she had almost no involvement with the nightclub’s operations and that during the time that the business managed the nightclub there were numerous police incidents at the nightclub.

On appeal, the Appellate Division noted that decisions by administrative agencies, such as the Commission, were to be sustained unless found to be arbitrary, capricious or unreasonable. It also noted that there were virtually no limitations on the degree to which the sale of alcohol could be regulated. The Court pointed out that it was the liquor license applicant’s burden to prove that its request should be approved by the municipality. It agreed with the Director that the business failed to present the tax clearance certificate as required. The Court also pointed out that liquor sale operations are required to be under the supervision and control of the licensee and noted that, in this situation, the entrepreneur had delegated all of her management responsibilities to her husband. Thus, it held that the Director was warranted in denying the liquor license.

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