Important Court Decisions

A liquor license requires a location in a proper zoning district.

An August 22, 2017 decision by the Howard County, Maryland Board of Appeals Hearing Examiner is both a detailed exposition of a liquor store as a permitted use under the zoning regulations and a wonderful treatise on the broader topic of land use law in that suburban Maryland county.

But this decision is much larger than this Howard County case alone. Today in commercial real estate, alcoholic beverage licensed businesses are increasingly more valuable because they are largely free from the downturn that most retail is seeing as a result of the Internet and online shopping. In most places alcoholic beverages cannot be bought online and shipped. And restaurants with food costs supported by alcoholic beverages are increasing in dramatic numbers.

This Howard County appeal was about an application by the property owner Science Fiction, LLC to the Planning Board to “clarify a liquor store does not have to be contained within the full service food and grocery store to be a permitted use.”

The prior existing regulation included as a permitted use, “l. full service food and grocery stores, and related uses, of 100,000 square feet or more.” The Planning Board’s counsel repeatedly told the Board, the issue was whether a liquor store use is compatible with a grocery store. Science Fiction also asked the Hearing Examiner “to consider [the FDP amendment application] as a zoning matter, not a liquor licensing matter.”

The 39 page decision is a great read beach weekend read for zoning geeks as it reveals the history of zoning, from the first 1916 New York City ordinance to the inapplicability of Euclidean principals in the James Rouse’s planned community of Columbia within Howard County where this liquor store was proposed.

But the liquor license industrial complex will delight in the portion of the decision discounting economic competition as a valid objection,

To the extent the Planning Board considered economic competition in its November 4, 2016 denial, meaning the impact of the proposed FDP amendment on other liquor stores, the Board’s action was arbitrary and capricious. Kreatchman v. Ramsburg, et al., 224 Md. 209, 219-220, 167 A.2d 345 (1961) (holding a liquor store owner in the Normandy Heights shopping center whose sole reason for objecting to a Zoning Board action was prevention of competition from a proposed shopping center further west on US 40 was not aggrieved when “[h]is only concern is with the threat of competition from a possible package liquor store in the [other] shopping center. It is to protect himself against that possible competition that he seeks the protection of the zoning regulations.”) Appellant Exhibit 6 is a Hearing Examiner decision and order addressing the inapplicability of economic competition considerations in zoning actions.

Appropriate zoning is required for all uses, not only alcoholic beverage related uses. The application of Science Fiction was approved, adding new subsection “.m” to the § 7D Permitted Uses text criteria, in the New Town zoning district,

m. Liquor store – located on the full service food and grocery store property and partitioned from the full service food and grocery store building. The liquor store has an independent entrance for deliveries and customers. “Partitioned” means walls or other physical divisions separating the full service food and grocery store and liquor store uses.

With zoning in place, an application may now be made to the liquor board for this liquor store adjacent to a Wegmans grocery store.

It is not surprising that in Maryland the determination as to whether the liquor license is owned by the individual applicants, or by a corporation that operates the business, depends on the circumstances of the particular case.

That said, Maryland law has been and continues to be that liquor licenses issued to individuals for the use of a corporation, which is the most common situation, are owned by the corporation.

The Baltimore County alcoholic beverage license that was the subject of the court challenge in 2001, in the widely discussed case of Rosedale Plaza Limited Partnership v. Lefta, Inc., et al., over who owned the license read, in pertinent part:

THIS IS TO CERTIFY, that Andreas Pitsos, Maria Papadimitriou, Irene A. Pitsos, Lefta, Inc., t/a Hillbrook Station Raw Bar & Grill/Chesaco Liquors, 1703–09–11 Chesaco Avenue, Baltimore, MD 21237 is licensed by the State of Maryland to keep for sale, and to sell all alcoholic beverages at retail at the place herein described, for consumption on the premises or elsewhere.

In that case and despite a statute (.. that no longer exists), then Article 2B Section 9-101(a), which provided in pertinent part:

License issued to individuals; application for partnership.—A license may not be issued to a partnership, to a corporation, or to a limited liability company, but only to individuals authorized to act for a partnership, corporation, or limited liability company who shall assume all responsibilities as individuals, and be subject to all of the penalties, conditions and restrictions imposed upon licensees ..

The appellate court found that liquor license was owned by the corporation. And that has been Maryland law.

Note, Maryland is a minority jurisdiction in this regard and most other states hold to the contrary. But at least 38 states have a Dram Shop Act (but not Maryland) which raises the stakes on who is strictly liable to anyone injured by a drunken patron.

Consistent with the decision is Lefta, in another instance, the Court of Appeals held that a state tax lien of a corporation could be enforced by a writ of execution upon a liquor license issued for the benefit of that corporation. Similarly, in another case, the Court of Appeals accepted that a writ of execution that had been entered against the liquor license to satisfy a personal debt of the licensee arising from his divorce would be improper if the license was owned by a corporation.

Subsequent to all of that and if it were not already clear how Maryland courts will addresses this issue, there are now new sections Maryland Alcoholic Beverages Article of the Annotated Code (the recodified Article 2B), specifically entitled,

Section 4-103 Application on Behalf of Partnership

Section 4-104 Application on Behalf of Corporation or Club

Section 4-105 Application on Behalf of Limited Liability Company

While the current codes expressly provides, “[T]his section is new language derived without substantive change from the second sentence of former Art. 2B, § 9-101(a)(1) and the second sentence of (b)(2), as it related to partnerships,“ .. it is a substantive change in the statute to be consistent with the accepted interpretation.

None of this precludes an individual from doing business in his own name, as a sole proprietorship, and having the liquor license is his name.

There is now no question in Maryland liquor licenses issued to individuals for the use of a partnership, a corporation or an LLC, are owned by the that legal entity and, absent some express agreement to the contrary, the persons named on the liquor license as a licensees have no individual ownership interest in the liquor license.

The transfer of a liquor license in Baltimore City often involves issues of life and death, and in some instances, zombies and phantoms.

A recent decision by the Maryland Court of Special Appeals is instructive as to when a liquor license is really dead.

The 25 page decision is not for the faint of heart but is important for anyone acquiring a liquor license.

The Maryland appellate court explains at the beginning of the opinion, .. a zombie is defined as “the supernatural power according to voodoo belief may enter into and reanimate a dead body.” And the opinion goes on to make the distinction that a phantom is defined as “something (as a specter) apparent to sense but with no substantial existence.” Both are used as slang terms to refer to a liquor license that has been permitted by a local liquor board to survive, for transfer purposes, beyond the statutory expiration period.

Notwithstanding the extensive procedural history of this case, the dispositive facts were not in dispute. Turner’s, an establishment in Federal Hill, closed for business on July 11, 2009. The first application to the Baltimore City Liquor Board to transfer the liquor license was filed on June 19, 2009. That application was approved by the Board on July 23, 2009. There was little is any activity for a period of time. On February 25, 2013, a second application for transfer and expansion was filed. The original intent was to transfer the license to 1100-06 South Charles Street. Later, it was planned to expand and utilize the license at the original East Cross Street premises.

The appellate court read the state law that applies to Baltimore City, Article 2B Section 10-504(d)(2)(i) providing that an alcoholic beverage license shall expire 180 days after the holder’s business has closed or ceased alcohol sales, unless: “An application for approval of a transfer to another location or an application for assignment to another person pursuant to § 10-503(d) of this subtitle has been approved or is then pending.”

(2) 180 days after the holder of any license issued under the provisions of this article has closed the business or ceased active alcoholic beverages business operation of the business for which the license is held, the license shall expire unless:

(i) An application for approval of a transfer to another location or an application for assignment to another person pursuant to § 10-503(d)[13] of this subtitle has been approved or is then pending;

(ii) An application pursuant to § 10–506[14] of this subtitle has been approved or is then pending; or

(iii) A written request for a hardship extension, as provided in this subsection, is filed within the 180–day period.

(3) The licensee or other appropriate interested parties may make a written request to the Board for an extension of the life of the license due to undue hardship, for a time period of no more than a cumulative period of 360 days after the date of closing or cessation of alcoholic beverages business operations of the business for which the license is held.

In its April 26, 2017 opinion, the appellate court held, the plain language of the statute supports the Liquor Board’s conclusion that the license had “expired.” The closing of Turner’s in July of 2009 triggered the 180 day rule (“180 days after the holder of any license . . . has closed the business or ceased active alcoholic beverages business operations . . . the license shall expire[.]” Article 2B, §10-504(d)(2)).

The protestants in the proceedings below called as a witness former Senator George Della, who had sponsored the 2000 legislation creating Article 2B § 10-504(d), which is commonly referred to as the “180 day rule.” According to Senator Della:

It basically says [a] license can remain dormant for 180 days. And then if there’s a hardship, then that licensee can come back to the [B]oard and make their case, if they’re in a hardship situation. And then the Board could then grant them another extension of 180 days. ..

Beyond that, if they don’t activate that license, that license is dead. That’s what the legislative intent is behind the 180 day rule. And the Board knew it.

Curiously, and despite that the license would have been considered dormant as of October 17, 2011, possibly in a last grasp for life, it appears that the contract purchasers filed their first and only request for a hardship extension in a letter dated August 13, 2014?

In sum, the Board correctly determined that the license had expired. And, neither the approved but uncompleted transfer nor the Board’s subsequent renewals of the license could imbue it with new life.

You can read the entire decision in Board of Liquor License Commissioners for Baltimore City v. Austin here.

There are no doubt many zombie liquor licenses in Baltimore City and throughout the State. If we can assist you with the due diligence to verify that a license is alive or otherwise in dealing in matters of alcoholic beverage law, do not hesitate to give us a call.

In a recent case, Maryland’s highest court held that liquor board rules and regulations may impose strict liability on liquor licensees for prohibited conduct that occurs on their premises whether the licensee is aware of the conduct or not.

In the instance before the court, the Board of Liquor License Commissioners for Baltimore City had charged Steven Kougl and his company, Kougl, Inc., with violating provisions of the Board’s Rules and Regulations that regulate sexual conduct and prohibit illegal activity on a licensee’s premises. The Liquor Board found that Kougl violated: Rule 4.17(a), which prohibits the solicitation of prostitution on a licensee’s premises; Rule 4.17(b), which prohibits indecent exposure on a licensee’s premises; and Rule 4.18, which prohibits the violation of federal, state, and local laws on a licensee’s premises, and ordered a 30 day suspension of the liquor license.

Kougl argued that because he had no knowledge that the employee had solicited prostitution and exposed her breasts, he had not violated Rules. He argued that the Rules require actual or constructive knowledge on the part of the licensee, and, therefore, he did not violate them, including that he was not even on the property at the time.

By way of background, Maryland’s intermediate appellate court, the Court of Special Appeals, found because there was no evidence of Kougl’s actual or constructive knowledge of the employee’s conduct that the Liquor Board erred in finding him guilty of violating the Rules at issue.

However, in a February 17, 2017 decision, in The Board of Liquor License Commissioners for Baltimore City v. Steven Kougl, et al., the Maryland Court of Appeals, Maryland’s highest court overturned the lower court decision and held that the Liquor Board Rules at issue impose strict liability on licensees for prohibited conduct that occurs on their premises. You can watch the argument before the high court here.

Strict liability is generally defined as “the imposition of liability on a party without a finding of fault.” So, Steven Kougl did not need to be at fault to have liability. The licensee had absolute legal responsibility without having knowledge. The Liquor Board need only prove that the prohibited activity occurred on the licensed premises.

While this case arose in Baltimore City under their Board’s Rules and Regulations, that have since been amended, this is an important case that changes Maryland law and has statewide implications.

All liquor licensees in Maryland should be aware that the standard for violation of Liquor Board rules may be strict liability. While the precise language of the local rules and regulations will control, be aware that The Liquor Board need only prove that a prohibited activity occurred on the licensed premises to find a violation.