On appeal from Division of Alcoholic Beverage Control.
Brody and Long. The opinion of the court was delivered by Brody, J.A.D.
[221 NJSuper Page 294] Respondent Council of the Township of Old Bridge revoked appellant's plenary retail consumption liquor license on May 5, 1986, and denied appellant's application for its renewal. For ease of expression, we will refer to both sanctions simply as a revocation of the license. The Director of the Division of Alcoholic Beverage Control (the Director) sustained the revocation by neither modifying nor rejecting the Initial Decision of an Administrative Law Judge (ALJ) who also recommended revocation. N.J.S.A. 52:14B-10(c). We have stayed the revocation pending the outcome of this appeal. [221 NJSuper Page 295] The revocation is based upon the unlawful drug activities of appellant's former president and 60% shareholder, Thomas Sorrentino, before he was arrested in 1982 and convicted on February 11, 1986, of three drug crimes. Specifically the revocation rests upon violations of N.J.S.A. 33:1-25 and N.J.A.C. 13:2-23.5.*fn1 The statute, as relevant here, prohibits issuance of a license to a corporation if one or more of its stockholders owning more than 10% of its stock or one or more of its officers have been convicted of a crime involving moral turpitude; the regulation, as relevant here, prohibits a licensee from allowing, permitting or suffering on the licensed premises or any premises accessible from the licensed premises any unlawful possession
of drugs, unlawful drug activities or any other unlawful activities.
Thomas Sorrentino had transferred his shares in appellant to his wife Joie on January 4, 1986, a month before his conviction. She thereby became owner of all the shares. Although Joie Sorrentino had previously owned 40% of the shares, she had never participated in operating the business. Thereafter, as appellant's president, Joie took over management of the business. By the time that the Council revoked the license in May 1986, Thomas was no longer a stockholder or officer of appellant, and none of its stockholders or officers had been convicted of a disqualifying crime. The revocation was therefore erroneously based upon N.J.S.A. 33:1-25. See Trap Rock Industries v. Sagner, 133 N.J. Super. 99 (App.Div.1975), aff'd 69 N.J. 599 (1976) and In re Boardwalk Regency Corp. Casino License, 90 N.J. 361 (1982), app. dism. 459 U.S. 1081, 103 S. Ct. 562, 74 L. Ed. 2d 927 (1982).
It is not claimed that Joie Sorrentino is fronting for her husband who is now serving federal and state prison terms. Before Thomas was arrested in 1982, Joie had no knowledge of his criminal activities. She had already commenced a suit against him for divorce and was demanding that he transfer his shares of appellant's stock to her. After his arrest, Thomas persuaded Joie to withdraw the suit and her demands until after he pled guilty because the police wanted him to continue his criminal activities undercover before tendering his plea.
Thomas pled guilty to the drug crimes in October 1985 and when sentenced was given consideration for his cooperation with the police. Just before he was sentenced, Thomas transferred his shares to Joie and she reinstated her divorce suit. After acquiring her husband's stock, Joie immediately changed the name of the bar and fired all of appellant's employees. Thereafter she has successfully operated the business. These uncontroverted facts distinguish this case from Florence Methodist Church v. Tp. Committee, Florence Tp., 38 N.J. Super. 85
(App.Div.1955) and Niglio v. New Jersey Racing Commission, 158 N.J. Super. 182 (App.Div.1978), where we were satisfied that wives were fronting for their disqualified husbands.
The violation of the regulation stands on a different footing from the violation of the statute. Violation of the statute requires purging a licensee of the influence of a person who in his private life has committed a serious crime and therefore presents a risk that he will influence the licensee to violate one or more of the strict regulations that govern the operations of a licensed premises. Violation of an operational regulation requires punishing the licensee even though the punishment may hurt innocent people who had invested in the license. Valdivia's Bar, Inc. v. City of Elizabeth, 6 N.J.A.R. 161, 165 (1981). Put another way, disciplinary proceedings against a corporate licensee are proceedings in rem, and not in personam against its stockholders. See Senen Medina v. City Council of City of Trenton, ABC Bulletin No. 2301, Item No. 3 (Aug. 1, 1978).
It is therefore important to distinguish between criminal activities of a stockholder or officer of a licensee that did not occur on the licensed premises and criminal activities on the licensed premises that were committed or permitted by the licensee. Where the same criminal activities would both disqualify the individual and, if conducted on the licensed premises, violate a regulation governing the licensee's operation of the licensed premises, the trier of fact must specifically determine whether any of the activities occurred on the licensed premises before it can punish the licensee. Also, where there has been a violation of a regulation the distinction requires the licensing authority to focus its attention on the seriousness of the criminal activities occurring on the licensed premises in determining the severity of the penalty.
At the hearing before the ALJ, appellant defended the charge of violating the regulation by arguing that all drug activities occurred off the licensed ...