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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 settlement of this matter. The Director rejected MAG's objections in a decision dated December 31, 2008, denying the motion for reconsideration.

MAG did not accept the Division's monetary offer as required by January 2, 2009. MAG filed a notice of appeal on January 21, 2009. On February 23, 2009, MAG filed a motion with the Director seeking a stay of the revocation pending disposition of its appeal. The Director issued an order dated February 24, 2009, denying MAG's motion.

The Division moved before us for summary affirmance of the Director's supplemental decision or, alternatively, for accelerated disposition of the appeal. We entered an order on March 31, 2009, denying the Division's motion for summary disposition but granting its motion to accelerate the appeal. On May 5, 2009, MAG filed a motion for a stay of the revocation. We filed an order on June 2, 2009, staying the revocation.

In this appeal, MAG argues that the Director exceeded his jurisdiction on remand and that the penalty imposed is arbitrary, capricious and unreasonable. MAG also contends that the penalty constitutes an egregious abuse of governmental authority and a violation of its constitutional rights. MAG asks that we exercise our original jurisdiction and establish a different monetary offer to bring this matter to a conclusion.

The scope of our review in an appeal from a final decision of an administrative agency is limited. Circus Liquors, Inc. v. Twp. of Middletown, 199 N.J. 1, 9 (2009). We must sustain the agency's action in the absence of a "'clear showing' that it is arbitrary, capricious, or unreasonable" or "lacks fair support in the record[.]" Ibid. In reviewing an agency's action, we consider:

(1) whether the agency's action violates express or implied legislative policies, that is, did the agency follow the law; (2) whether the record contains substantial evidence to support the findings on which the agency based its action; and (3) whether in applying the legislative policies to the facts, the agency clearly erred in reaching a conclusion that could not reasonably have been made on a showing of the relevant factors. [Id. at 10 (quoting Mazza v. Bd. of Trustees, 143 N.J. 22, 25 (1995)).]

In weighing these considerations, we must acknowledge, when appropriate, an agency's "'expertise and superior knowledge of a particular field.'" Ibid. (quoting Greenwood v. State Police Training Ctr., 127 N.J. 500, 513 (1992)).

Furthermore, we are required to accord "substantial deference" to a determination of the Director of the Division enforcing the State's regulation on the sale of alcoholic beverages. Ibid. The "'Director has powers of supervision and control which set him apart from any other formal appellate tribunal."' Ibid. (quoting Blanck v. Mayor of Magnolia, 38 N.J. 484, 491 (1962)). Moreover, because the State's regulation of liquor is "a subject by itself," we cannot indiscriminately apply principles we otherwise apply when we review actions of administrative agencies. Ibid. (quoting Blanck, supra, 38 N.J. at 490).

We have carefully considered MAG's arguments in light of our prior decision, the record on appeal and the aforementioned standards of appellate review. We are convinced that there is no merit in MAG's arguments and accordingly affirm substantially for the reasons stated by the Director in the supplemental decision on remand and the decision denying MAG's motion for reconsideration. R. 2:11-3(e)(1)(A) and (E). We add the following.

MAG maintains that the Director exceeded the scope of our remand. MAG argues that the Director was only permitted to establish the amount of the monetary offer and had no authority to impose additional conditions, such as the requirement that MAG pay the penalty within ten days of the municipality's approval of the sale of the license and the requirements related to the investigation of the proposed purchaser of the license. However, as the Director stated in his decision denying reconsideration, these terms are merely "clarifying details" of the offer and they "are no[t] different" from requirements typically "placed on other proposed transfers" of liquor licenses.

MAG further argues that the Director improperly required it to waive its right to appeal his supplemental decision, thereby "eviscerating" the purpose of our remand. We disagree. As the Director pointed out in his decision denying MAG's motion for reconsideration, "one purpose of any settlement is to avoid future litigation." Indeed, an agreement to forgo further litigation is an appropriate condition of any settlement. In our judgment, it is unreasonable for MAG to expect that it could accept the offer of settlement and yet appeal the decision making the offer.

MAG additionally argues that the Division's monetary offer is arbitrary, capricious and unreasonable. MAG contends that the monetary penalty is unfair because it was calculated in part using its gross per diem profit rather than its net profits. MAG also asserts that the Director should not have used December 21, 2007, as the starting point for calculating the penalty because that would "penalize" MAG for exercising its right to appeal the Director's initial decision.

Again we disagree. The Director's use of MAG's gross profits to determine the per diem penalty amount was based upon the methodology that the Division has employed for twenty years in suspension cases. Furthermore, the use of December 21, 2007, as the starting point for the calculation of the penalty was reasonable because that was the day the Director first determined that MAG's license should be revoked. In this regard, we note that, as a result of the stays entered in this matter, MAG has continued to operate since December 21, 2007, despite the Director's finding that its actions warranted revocation of the license, a finding we have affirmed.

MAG also argues that the Director's decision to require it to remit ninety percent of the contract sales price for the license is arbitrary, capricious, unreasonable and unfair. MAG maintains that, because the cost of selling the business is about ten percent of the sales price, it is effectively being required to tender all of the proceeds of the sale.

Even so, the Director's decision to allow MAG to pay a penalty in lieu of revocation of its license provided a substantial benefit to MAG. The Director's offer made clear that if MAG's license is revoked, its owners would be required to divest themselves of any interest they have in the subject license and any other New Jersey alcoholic beverage license. On the other hand, if MAG had accepted the offer, its owners would have been required to sell the subject license but could have maintained their interests in the other licenses.

We therefore conclude the Director's monetary offer was reasonable and does not shock "one's sense of fairness." Div. of Alcoholic Bev. Control v. Maynards, Inc., 192 N.J. 158, 184 (2007). Because MAG did not accept the Division's offer by January 2, 2009, as required by the Director's decision, MAG's license has been revoked. As stated previously, the revocation was stayed pending disposition of this appeal.

We vacate the stay, effective ninety days from the date of this opinion so as to permit orderly closure in light of the length of time this matter has been pending and the uncertainty surrounding the penalty amount. Furthermore, consistent with our understanding of the intent of the Director's supplemental decision, MAG and its owners will have six months from the date the revocation takes effect to divest themselves of any interests they may have in other New Jersey liquor licenses.


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