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Division of Alcoholic Beverage Control v. MAG Entertainment

November 19, 2009


On appeal from the Supplemental Decision of the Director of the Division of Alcoholic Beverage Control.

Per curiam.


Argued October 26, 2009

Before Judges Reisner and Yannotti.

MAG Entertainment, L.L.C., t/a Cheerleaders Gentlemen's Club (MAG), appeals from a supplemental decision of the Director of the Division of Alcoholic Beverage Control (Division) dated December 8, 2008, following remand from this court. MAG also appeals from the Director's order of December 31, 2008, which denied its motion for reconsideration. For the reasons that follow, we affirm.

As noted in our prior opinion in this case, the Director ordered the revocation of MAG's liquor license because in April 2000, one of the bartenders at Cheerleaders served Humberto Herrera-Salas (Herrera) while he was visibly intoxicated and ejected him from the bar without taking steps to ensure that he did not drive. Div. of Alcoholic Beverage Control v. MAG Entertainment, L.L.C. t/a Cheerleaders Gentlemen's Club, No. A-2282-07 (App. Div. November 14, 2008) (slip op at 2). Herrera got into his car, drove the wrong way down a divided highway and struck an oncoming vehicle, killing two persons. Ibid.

After MAG moved for reconsideration, the Director modified his decision, giving MAG six months to sell the liquor license in lieu of revocation, provided that MAG reached a settlement with the Division to pay a monetary penalty. Id. at 2-3. We affirmed the Director's decision to revoke MAG's license. Id. at 48-50. We determined that the Director had the discretion to reach settlements with licensees in lieu of a license revocation. Id. at 51. We concluded, however, that the Director erred by incorporating an obligation to reach an agreement on the monetary penalty "without stating an amount that the agency would accept to resolve the matter[.]" Ibid.

We remanded the matter to the Division "for the limited purpose of issuing a supplemental decision stating an amount that the agency would accept in lieu of revocation provided the bar can produce a legitimate buyer for the license, and for such additional settlement efforts as the parties may thereafter attempt." Id. at 52. We noted that the Director had stayed the revocation while the appeal was pending. Ibid. We stated that the Director should extend the stay of revocation for six months after the issuance of the supplemental decision to afford MAG an opportunity to sell the license. Ibid.

On December 8, 2008, the Director issued his supplemental decision on remand. The Director initially noted that, according to a bulletin that the Division issued in 1988, the amount of the monetary offers in suspension cases is one-half of the per diem gross profit derived from the license, times the number of days of the suspension. The Director decided to modify the formula for use in this matter. The Director stated that the: determination of the applicable number of days in a revocation case is far more complex than in a suspension case. Although it is a relatively straightforward calculation to determine a monetary offer in compromise of a suspension, it is not so for a revocation, which is the case here. This is true because, by definition, a suspension is for a finite period of time; a revocation is forever. Application of the formula to a revocation would require me to determine "one-half the per diem gross profit" MAG would generate over an indefinite period of time. Further, the overwhelming majority of settlements involving monetary offers are reached prior to litigation. In this case, no settlement was reached and the Division has devoted substantial resources to the prosecution of the administrative charges. It is manifest that a party will settle a case for less prior to litigation, when the outcome is uncertain, than it will after it has won the case and been affirmed on appellate review. For these reasons, the constraints of the monetary offer formula used in suspension cases must be modified to fit the circumstances of this case.

The Director determined that the monetary offer would have two components: (1) the application of the suspension formula times the number of days that MAG operated under a stay and (2) the fair market value of the license. The Director therefore concluded that, in lieu of revocation, MAG must pay $617,925, plus ninety percent of the contract sale price of the license, no later than ten days after the municipality approves the transfer of the license.

The Director explained the manner in which he arrived at the $617,925 penalty. He found that MAG's per diem gross profits were $1,155, based on its 2006 tax return. He multiplied that amount by 535 days. That is the period from December 21, 2007, the date of the Director's initial decision revoking MAG's license, through June 8, 2009, which is the end of the six month stay that we said should be provided so that MAG could endeavor to sell the license.

In his supplemental decision, the Director further detailed the terms of the monetary offer. He stated that MAG must submit a legally binding contract for the sale of the license to a bona fide purchaser. MAG also must establish that the contract sale price is, in fact, the fair market value of the license, and if it fails to do so, the Division "will set a fair market value." In addition, the prospective purchaser must submit various documents and complete a questionnaire so that the Division can investigate the purchaser's fitness to hold the license.

The Director gave MAG until January 2, 2009, to accept his offer, to waive and/or withdraw any further appeals in the matter, and to enter a non vult plea in disciplinary matters then pending before the Office of Administrative Law (OAL).*fn1 The Director stated that, if MAG fails to agree to all of the terms set forth in his decision, or if MAG cannot consummate the sale of the license, MAG's license will be revoked on June 8, 2009, and MAG will not be required to pay the monetary offer. The Director added that, upon revocation of the license, MAG and its owners would be required to divest themselves by December 1, 2009 of "any other interest they may have in any other liquor license[.]"

On December 24, 2008, MAG filed a motion for reconsideration. MAG objected to the amount of the monetary offer. MAG asserted that it "made no sense" for it to pay the fine rather than allow the license to be revoked. In addition, MAG took issue with the terms of the offer pertaining to the investigation of the proposed purchaser. MAG also objected to the requirement that it pay the penalty and ninety percent of the contract price within ten days of the municipality's approval of the license. MAG additionally objected to inclusion of the pending OAL charges in the ...

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