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

May 21, 2008

P.T.K., L.L.C., PETITIONER-APPELLANT,
v.
GOVERNING BODY OF THE BOROUGH OF FORT LEE, RESPONDENT-RESPONDENT.
HANGAR, INC., PETITIONER,
v.
GOVERNING BODY OF THE BOROUGH OF FORT LEE, RESPONDENT.



On appeal from a Final Agency Decision of the Department of Law and Public Safety, Division of Alcoholic Beverage Control, Nos. 7107 and 7111.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Submitted April 21, 2008

Before Judges Graves and Sabatino.

This administrative law case involves the attempted transfer of a liquor license in the Borough of Fort Lee ("the Borough"). The proposed transferee, P.T.K., L.L.C. ("P.T.K.") appeals a final agency decision of the Director of the Division of Alcoholic Beverage Control ("ABC") denying the transfer because of various regulatory considerations. We affirm.

The liquor license in question is presently held by Hangar, Inc. ("Hangar"), which operates an establishment on Route 4 East in the Borough known as "Studio 4" or the "Hangar Nightclub." P.T.K. is a limited liability corporation. The sole shareholder of P.T.K. is Lorraine Karounos, who has no prior experience in the restaurant or liquor industry. Her husband, Ted (or "Teddy") Karounos, has previously owned and operated facilities with liquor licenses at one or more other locations.*fn1

In February 2004, an operating agreement for P.T.K. was executed, designating Mr. Karounos as its manager for a two-year term. The Director's final agency decision characterized the rights and duties assigned to Mr. Karounos under that agreement as "broad, unfettered and akin to rights of ownership."

In April 2004, P.T.K. and Hangar entered in a contract for the sale of Hangar's liquor license. Several months after that sales contract was signed, Hangar and P.T.K. also entered into two successive management agreements in September 2004 and February 2005. The management agreements are signed by Mr. Karounos on behalf of P.T.K., despite the fact that Mr. Karounos is not a P.T.K. shareholder. The February 2005 management agreement provides, among other things, that P.T.K. would have the exclusive right to establish prices, purchase inventories and supplies, hire, train and fire employees, maintain the books and records, prepare advertising, and otherwise "[p]erform all acts reasonably necessary in connection with the operation of the nightclub in a[n] efficient and proper manner." The management agreement also entitled P.T.K. to a monthly management fee, defined as "[100 percent] of the [n]et [p]rofits" of the nightclub.

In May 2004, P.T.K. submitted an application to the Borough for approval of a so-called person-to-person transfer of the Hangar license to P.T.K. The Borough assigned the application for investigation to Police Detective James Hunt.

Dissatisfied with the lack of progress in Detective Hunt's investigation and the Borough's failure to render a formal decision on its application, in July 2005 P.T.K. filed an administrative appeal with the ABC to review the matter under N.J.A.C. 13:2-7.7(d) and treat the Borough's inaction as a de facto denial. Meanwhile, Hangar applied to renew its license for the 2005-06 and 2006-07 terms. The Borough also failed to act on that application, and Hangar likewise filed an appeal with the ABC in July 2005. The related matters were referred to the Office of Administrative Law. The Borough participated in those proceedings as a respondent.

After several days of hearings, the administrative law judge ("ALJ") rendered an initial decision in January 2007. The ALJ recommended that the license be renewed and also recommended approval of its proposed transfer to P.T.K. The Borough filed exceptions to the recommendations with the Director.

Upon considering the Borough's exceptions, the opposition filed by P.T.K. and the administrative record as a whole, the Director issued a final agency decision on July 13, 2007. The Director adopted the ALJ's recommendation that Hangar's license be renewed, but rejected the recommendation to approve the transfer to P.T.K.

In his final decision, the Director determined, among other things, that the Borough had not been unreasonable in failing to render a decision on P.T.K.'s transfer application. He noted that the application was not complete in all material respects by June 2, 2005, the date that the Borough informed P.T.K. that it would deny the transfer application. In particular, the Director observed that P.T.K. had not obtained and presented to the Borough a tax clearance certificate, a document which he deemed necessary for the transfer under N.J.S.A. 33:1-17.1.

Aside from that procedural defect, the Director concluded that P.T.K.'s application was substantively flawed due to P.T.K.'s interest in the premises arising from its management agreement with Hangar. That interest had not been timely disclosed to the Borough. The Director reasoned that P.T.K.'s undisclosed interest, which he noted gave it the right to make business decisions for the nightclub and to keep all of its net profits, amounted to ...


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