On certification to the Superior Court, Appellate Division.
(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).
The issues in this appeal are whether alcoholic beverage licensees are strictly liable under the Alcoholic Beverage Control Act for illegal acts committed on the licensed premises by their employees, and if so, what circumstances may be considered in determining the appropriate level of punishment.
Maynards, Inc. owns and operates Maynards Café, a restaurant and bar in Margate. Since 1954, Maynards' principals, Stephen Troiano and his late father, Al Troiano, have held alcoholic beverage licenses. They have not had any violations relating to their liquor licenses until the events giving rise to this appeal. In 2001, they hired Peter Barone as a cook after obtaining positive recommendations from his prior employers. After he began working at Maynards Café, Barone developed a cocaine addiction. To support his habit, Barone started selling small amounts of cocaine for his supplier. Police were tipped off about Barone. In March 2002, a confidential informant introduced Barone to undercover Officer Keith Carmack of the Atlantic County Prosecutor's Office. Over the next few months, Carmack made several purchases from Barone at Maynards Café, all following the same pattern: Carmack approached Barone at Maynards Café asking to buy cocaine; Barone waived Carmack into the bathroom, where Carmack gave money to Barone; Carmack waited at the bar until Barone called that his "order" was ready; and Carmack received the drugs from Barone in a white take-out bag at the kitchen counter. After Barone's supplier was arrested, Carmack's final attempt to buy cocaine from Barone was unfruitful. Barone was later arrested and charged with various cocaine possession and distribution offenses. He pled guilty in December 2002, and received a five-year term of special probation requiring participation in a rehabilitation program.
In the meantime, the Division of Alcoholic Beverage Control (State ABC) filed charges against Maynards alleging that on six separate occasions in 2002, it had "allowed, permitted or suffered" Barone's unlawful drug activity on its licensed premises, in violation of N.J.A.C. 13:2-23.5(b). The State ABC sought a penalty totaling 730 days of license suspension: 90 days for each of the six offenses, plus 190 days based on "aggravating circumstances." The matter was referred to the Office of Administrative Law. The State ABC sought a summary decision, arguing that the Alcoholic Beverage Control Act imposes strict liability on liquor licensees for failing to prevent illegal activity on the premises, regardless of the licensee's knowledge. Maynards argued that it did not "suffer" unlawful activity on its premises, as it had no knowledge of Barone's illegal activities, and that its efforts to prevent unlawful activity were issues of material fact that required consideration. The Administrative Law Judge (ALJ) denied the State ABC's motion for summary decision. The Director of the State ABC reversed, determining that Maynards was guilty of six separate violations of N.J.A.C. 13:2-23.5(b), and that a licensee's efforts to avoid illegal activity were relevant only as mitigating factors in determining the penalty.
On remand at a hearing on the penalty issue, the State ABC presented only the testimony of Carmack to prove any aggravating factors. According to Carmack's testimony on direct and cross-examination, cocaine was never stored at Maynards Café. Barone's sales were the result of deliveries made to Barone from his supplier. The surveillance system in place at Maynards Café, which included nine video cameras in the restaurant and bar area (none were inside the bathrooms), would not show anything out of the ordinary. There was no evidence that any other employee knew anything about Barone's illegal activities. Because of the way Carmack received the cocaine, everyone else would have thought it was a take-out order. Maynards submitted extensive evidence in mitigation, including testimony and certifications from an impressive array of witnesses, including law enforcement and other public officials; and a 1,800-signature petition. The evidence overwhelmingly established that the Troianos operated a responsible business with strong ties to the community, and that they would never tolerate drug sales at Maynards Café.
In determining the appropriate penalty to be imposed, the ALJ noted that the presumptive penalty is 90 days license suspension for each of the six violations, or 540 days. The ALJ found that the State ABC presented no proof of any aggravating circumstances, while many mitigating factors were present: Maynards took extraordinary efforts to detect and stop illegal activities on the premises; Barone's secretive illegal activity was undetectable and the Troianos were not involved; the Troianos have an otherwise spotless record; the Troianos and Maynards are well-respected in the community and have no tolerance for illegal activities on the premises; the occurrence of another offense is unlikely; and a lengthy suspension would create excessive hardship on Maynards and its employees. The ALJ concluded that lenience is warranted, as administrative penalties are designed to promote public safety and reform, not to punish wrongdoers; and reducing the penalty would encourage licensees to make efforts like Maynards to improve security and to be good community members. The ALJ determined that the penalty should be reduced to a 60-day suspension. The ALJ also urged the Director of the State ABC to consider allowing payment of a fine in lieu of a suspension.
The Director of the State ABC rejected most of the ALJ's findings of mitigation and ordered that Maynards' license be suspended for 370 days, with 240 days to be held in abeyance as long as Maynards is not found guilty of another violation within two years. The Appellate Division affirmed the Director's decision, holding that a licensee may be strictly liable under the Act for an employee's illegal behavior, regardless of its knowledge; and that the Director did not abuse his discretion in assessing the penalty. The Supreme Court granted Maynards' petition for certification.
The opinion of the court was delivered by: Justice Rivera-soto
To support his drug habit, Peter Barone, a cook at respondent Maynards, Inc., t/a "Maynards Café," sold drugs on several occasions to an undercover law enforcement officer from his place of employment, a restaurant and bar licensed for the retail sale and consumption of alcoholic beverages. That factual setting presents two issues on appeal. First, we must determine whether alcoholic beverage licensees are strictly liable for the acts of their employees and, if so, whether there are any limits to the application of that standard of liability. Second, assuming vicarious liability for an employee's conduct is found, the appropriate quantum of punishment to be imposed must be ascertained.
We hold that the Alcoholic Beverage Control Act, N.J.S.A. 33:1-1 to -97, imposes strict liability on a licensee for a violation of its provisions by its employees. We further hold that, even when strict liability is to be imposed, the fact that repeated unlawful conduct was the direct product of governmental action is relevant, together with all other relevant factors, in respect of the measure of punishment to be imposed.
Respondent owns and operates Maynards Café, a restaurant and bar located in Margate. Respondent's principal, Stephen Troiano, and his late father, Al Troiano, have been alcoholic beverage licensees since 1954, having operated Maynards Café since 1966 as a premises licensed for the sale and consumption of alcoholic beverages. Until the events giving rise to this appeal, the Troianos had not had a single violation in respect of their licensed alcoholic beverage operations.
In 2001, the Troianos hired Barone as a cook in the restaurant portion of Maynards Café. Prior to extending an offer of employment to Barone, Stephen Troiano personally interviewed Barone and contacted Barone's prior employers, each of whom provided favorable recommendations. Troiano explained that, in his interview of Barone, he observed that Barone "wasn't a drinker, and I knew he wasn't a drugger from just talking to him[,]" remarking that "when you're in a business all my life, . . . you can tell if somebody's up to something. There's certain signs, and you would pick it up." Barone commenced his employment with respondent in May 2001, where, in Troiano's words, "everybody liked him. The older people loved him. We had a lot of old, disabled people that he would cater to and bring their food to. He was a well liked person[.]"
After he started work at Maynards Café, Barone developed an addiction to cocaine. In order to support his addiction, Barone started making small cocaine sales as an intermediary for and on behalf of his supplier, William Foglio. Those sales did not go undetected. In March 2002, the Margate Police Department received an informant's tip that Barone was selling cocaine. Based on that information, on March 8, 2002, undercover Officer Keith Carmack of the Atlantic County Prosecutor's Office Narcotics Strike Force Unit was introduced by the confidential informant to Barone at Maynards Café and, later that evening, made the first of a series of purchases of cocaine from Barone. Carmack explained, however, that on that first sale, Barone was not then working at Maynards Café; Barone had worked earlier that day, completed his work, gone home, and returned to Maynards Café to socialize.
On April 17, 2002, Carmack returned to Maynards Café, sought out Barone, and inquired whether he could buy two $100 bags of cocaine. Barone told Carmack to wait and, sometime later, waved Carmack to join him in the bathroom. Once in the bathroom, Carmack asked if he could increase his order to three $100 bags of cocaine, and Barone explained it would not be a problem. Carmack handed $300 to Barone and was told to wait at the bar. A short while later, Barone called out to Carmack, telling him that his "order was up," and Carmack approached Barone at the counter in the kitchen area of the restaurant. Barone handed Carmack a white bag customarily used for take-out food orders; it contained the three packets of cocaine Carmack had purchased. Generally following that pattern -- with Carmack approaching Barone at Maynards Café asking to purchase cocaine; Barone waving Carmack into the bathroom, where Carmack would hand the money to Barone; Barone later calling out to Carmack that his "order" was ready; and Carmack receiving the drugs from Barone in a white "take-out" bag at the kitchen counter area -- Carmack purchased cocaine from Barone on five additional dates over the next two-and-one-half months. Carmack's final attempt to purchase cocaine from Barone, however, did not bear fruit as, by that point, Barone's supplier, Foglio, had been arrested and his drug supply seized.*fn1 Although later advised of these developments, at that time, Carmack was unaware of Foglio's arrest.
On August 20, 2002, three months after Carmack's unsuccessful last attempt to purchase cocaine from Barone, Barone was arrested and, on October 31, 2002, the Atlantic County grand jury returned an indictment against both Barone and Foglio. The grand jury charged Barone with one count of second-degree distribution of cocaine, in violation of N.J.S.A. 2C:35-5(a)(1) and -5(b)(2); two counts of second-degree conspiracy to distribute cocaine, in violation of N.J.S.A. 2C:5-2 and N.J.S.A. 2C:35-5(b)(4); six counts of second-degree distribution of cocaine within five hundred feet of a public housing facility, public park, or public building, in violation of N.J.S.A. 2C:35-7.1; six counts of third-degree distribution of cocaine, in violation of N.J.S.A. 2C:35-5(a)(1) and -5(b)(3); five counts of third-degree conspiracy to distribute cocaine, in violation of N.J.S.A. 2C:5-2 and N.J.S.A. 2C:35-5(b)(3); and six counts of third-degree possession of cocaine, in violation of N.J.S.A. 2C:35-10(a)(1). On December 12, 2002, pursuant to a plea agreement, Barone pled guilty to one count of second-degree distribution of cocaine and one count of second-degree conspiracy to distribute cocaine in exchange for a recommended sentence of not more than four years imprisonment. The plea agreement further provided, however, that Barone would apply for, and the State would not object to, the imposition of special probation requiring his participation in a rehabilitation program, as provided in N.J.S.A. 2C:35-14. On January 31, 2003, finding that Barone was "an addict who will remain lawless until the addiction is dealt with effectively[,]" the trial court granted Barone's application for special probation, "afforded [him] this opportunity to address his addiction[,]" and sentenced him to a five-year term of special probation.*fn2
In the interim, petitioner the Division of Alcoholic Beverage Control (State ABC) filed charges against respondent, alleging that, on six separate occasions in April and May 2002, it had "allowed, permitted or suffered on [its] licensed premises, unlawful activity pertaining to controlled dangerous substances . . . involving [its] employee, viz., Peter Barone[,] in violation of N.J.A.C. 13:2-23.5(b)."*fn3 That notice of charges explained that "[t]he total penalty sought by the [State ABC] is 540 days suspension of . . . license." It also emphasized that the State ABC "will seek an additional 190 days suspension based upon aggravating circumstances, therefore the total penalty sought by the [State ABC] is 730 days suspension of . . . license." Respondent entered a plea of not guilty in respect of those six charges and requested that "this matter be forwarded for a hearing."
After the matter was referred to the Office of Administrative Law as a contested case, the State ABC moved for summary decision, pursuant to N.J.A.C. 1:1-12.5(b). As noted by the Administrative Law Judge (ALJ) in an initial decision dated February 5, 2004, the State ABC alleged that the Alcoholic Beverage Control Act "imposes near strict liability on the holders of liquor licenses for illegal activity on the licensed premises" so that "whenever there is a failure to prevent the prohibited conduct by the licensee, regardless of knowledge, there is responsibility, and the mere fact that the violation occurred is sufficient to establish a licensee's guilt[.]" Thus, the State ABC "contend[ed] that it need only establish the occurrence of these activities in order to establish that it is entitled to summary decision in this matter." In contrast, and relying principally on Ishmal v. Division of Alcoholic Beverage Control, 58 N.J. 347 (1971), respondent asserted that "it did not allow, permit or suffer unlawful activity on its premises" and that "the measures undertaken by a licensee to prevent unlawful activity on its premises create genuine issues of material fact concerning a licensee's efforts to eradicate such activity."
In his February 5, 2004 initial decision, the ALJ concluded that "even in the absence of knowledge [of unlawful activity on the licensed premises] on the part of the licensee, whenever there is a failure to prevent the prohibited conduct there is responsibility, and the fact that the violation occurred is sufficient." However, the ALJ found that "the measures undertaken by a licensee to prevent unlawful activity on the licensed premises may be relevant  not only to determine guilt or innocence, but also to determine the appropriateness of a penalty if there is a finding of guilt." As a result, the ALJ denied the State ABC's motion for summary decision.
On the State ABC's application for interlocutory review, the Director of the State ABC reversed the ALJ's findings. According to the Director, the ALJ's reliance on Ishmal was misplaced. In the Director's view, "Ishmal did not involve illegal activity by an employee" while, in this case, Barone was employed by respondent. The Director concluded that "[t]his case is more like Red Klotz*fn4 and 12 South,*fn5 in which an employee was involved in illegal activity[,] and efforts, if any, undertaken by the licensee to avoid illegal activity were considered as mitigating factors in determining penalty only." As a result, the Director found that "there is no genuine issue of material fact involving the drug charges and [respondent] is guilty of six separate violations of N.J.A.C. 13:2-23.5(b)." The Director "remand[ed] this matter to the Office of Administrative Law for a hearing on the issue of penalty only[,]" ruling that, "[a]t the hearing, the [State ABC] may present evidence of any aggravating factors and [respondent] may present evidence of any mitigating factors."
At the remand penalty hearing, the State ABC presented only the testimony of Carmack to prove any aggravating factors relevant to the charges that respondent had "allowed, permitted or suffered" the sale of controlled dangerous substances on its premises by its employee, Barone. Carmack's direct testimony recounted how he was introduced to Barone by a confidential informant and how, on six separate occasions, he purchased cocaine from Barone while at Maynards Café. On cross-examination, Carmack admitted that "there was never any cocaine at Maynards [Café], that it was always brought there by Foglio[,]" Barone's supplier. Carmack also admitted that he knew that there was a surveillance system within Maynards Café, that a review of any tape-recorded versions of his transactions with Barone would disclose nothing out of the ordinary, and that respondent's purpose in maintaining a video surveillance system was to "look for any problems."*fn6 Carmack conceded further that respondent conducts a "kitchen and take[-]out business" and that the manner and packaging by which he received the cocaine from Barone "was what to the outside world looked like a take[-]out order[.]"
Carmack testified that, although search warrants were secured and executed against both Barone and Foglio, no search warrant was ever sought for Maynards Café because the authorities understood that all of Barone's cocaine sales were made from deliveries made to Barone from Foglio and, more to the point, no controlled dangerous substances ever had been stored at Maynards Café. When specifically asked for "the hard concrete evidence that you can give to this Court under oath that one other employee knew anything about what Barone was doing[,]" Carmack promptly answered: "No, sir, I don't have any." Carmack admitted that "[t]he reason cocaine is getting through the doors of Maynards [Café] in Margate is [that he was] making a deal with a drug addict [Barone] knowing that he will call Egg Harbor Township [where Foglio lived] and have Foglio bring it to [Maynards Café] so he [Barone] can hand it to [Carmack.]" Finally, Carmack admitted that, as a result of their surveillance activities, the investigators knew that, as of the first undercover drug purchase from him, Barone's supplier was Foglio.
Respondent then presented its case in mitigation of punishment. Its prime witness in mitigation was Stephen Troiano, respondent's principal,*fn7 who recounted in detail his family's ties to the Margate community and its many civic and charitable endeavors on behalf of that community, particularly law enforcement. An impressive array of local witnesses also testified in respondent's favor.*fn8 We need not recount in detail the testimony presented by those witnesses. It is sufficient to note that each witness testified that respondent operated a clean, wholesome environment that would not tolerate illicit drugs on its premises; that, as proof of the strength of their views, they personally patronized Maynards Café together with their spouses and children; and that they were familiar with and favorably impressed by respondent's and the Troianos' civic and charitable contributions and support for law enforcement.
Respondent's mitigation proofs also included the certifications of four absent witnesses who certified that they personally frequented Maynards Café; had never observed illicit activity on the premises; and were familiar with respondent's and the Troianos' many charitable and civic contributions and cooperation with law enforcement.*fn9 In further support of its plea in mitigation, respondent also tendered eighty-one character reference letters, and a petition in support containing approximately 1,800 signatures. The aggregate of those proofs overwhelmingly established respondent as a responsible business that would never tolerate drug sales on its premises.
That conclusion was buttressed by Barone himself, who testified that he became addicted to cocaine after he was employed by respondent; that, inferentially, he sold cocaine to support his personal habit; that he conducted his drug sales covertly because he knew that behavior was strictly prohibited; and that, if his activities had become known to his employer, he "would've been fired right at the spot." Barone, who had by this time completed a court-ordered drug rehabilitation program and had relocated to another county, testified as follows:
Q: . . . . Did you actually start to use drugs sometime ...