Nejberger, In re, 90-1796

Citation934 F.2d 1300
Decision Date22 May 1991
Docket NumberNo. 90-1796,90-1796
Parties, 21 Bankr.Ct.Dec. 1199, Bankr. L. Rep. P 74,025 In re Daniel NEJBERGER, d/b/a Piccolo's Famous Pizza and Il Pastaio Pennsylvania Liquor Control Board, Appellant.
CourtUnited States Courts of Appeals. United States Court of Appeals (3rd Circuit)

Ernest D. Preate, Jr., Pennsylvania Atty. Gen., Prince A. Thomas, (ARGUED), Sr. Deputy Atty. Gen., Office of the Atty. Gen., Philadelphia, Pa., for appellant.

Edward J. DiDonato, (ARGUED), Aris J. Karalis, Ciardi, Fishbone & DiDonato, Philadelphia, Pa., for appellee.

Before MANSMANN, HUTCHINSON and WEIS, Circuit Judges.

OPINION OF THE COURT

WEIS, Circuit Judge.

Although the debtor's Pennsylvania liquor license had expired before he filed for relief under the Bankruptcy Act, a state statute left open the possibility that the license could be renewed. In these circumstances, we conclude that the bankruptcy estate has a property interest and the bankruptcy trustee may request the Liquor Board to consider an application for renewal. The district court had adopted similar reasoning and we will therefore affirm its order.

The Pennsylvania Liquor Control Board issued a liquor license to Daniel Nejberger for a one-year period effective October 31, 1987 to October 31, 1988. On August 20, 1988, he filed an application to renew the license for the following year.

In September 1988, the Board notified Nejberger that it would reject his renewal application unless it received tax clearances from two state agencies. The Department of Labor and Industry had asserted a balance due the Unemployment Compensation Fund of $72,808.41, and the Department of Revenue had claimed $354,448.25 for sales and income taxes. On December 21, 1988, the Board sent a formal notice of objection to renewal of the license because of the failure to verify that all tax reports had been filed and all taxes paid.

On March 9, 1989, the Board advised Nejberger that his application for renewal was "refused" for failure to pay the taxes due. The letter continued, "In view of the circumstance(s) for non-renewal of the license, you will be given a reasonable period of time to rectify this matter during which time we will hold the renewal application ... in abeyance, but in no event beyond the expiration date of the license term October 31, 1989."

On August 17, 1989, Nejberger filed a Chapter 11 Bankruptcy Petition. On August 29, 1989, he docketed an adversary action in the bankruptcy court to compel the Board to renew the license. In a letter dated September 15, 1989 the Board advised Nejberger, "in view of the fact that the 10-month period has now expired, we are terminating the application and closing the file."

The bankruptcy judge determined that the application would have been granted upon payment of the delinquent taxes on August 17, 1989, the date Nejberger filed the bankruptcy petition and, therefore, the estate retained a property interest in the license. He concluded that the taxes due were prepetition claims against the bankruptcy estate and therefore could not be grounds for denying a license. Accordingly, he directed the Liquor Board to grant the application for renewal. 112 B.R. 714.

On appeal, the district court agreed that the expectation created by the renewal grace period was an enforceable property interest of the bankruptcy estate. 120 B.R. 21. Nevertheless, because the decision to renew the license during the grace period was discretionary, and provisions of the Liquor Code other than the nonpayment of taxes could have some bearing, the district court believed the bankruptcy judge's order was overbroad. The district court, therefore, directed that the debtor could choose to resubmit an application to the Board, which would then consider the matter without regard to the unpaid taxes.

After the district court filed its order and opinion, the bankruptcy judge appointed a Chapter 7 trustee to replace the debtor in possession under Chapter 11. The trustee is now a party to this appeal.

On appeal, the Board contends that the license expired on October 31, 1988 and was not property of the estate at the time of filing for bankruptcy ten months later. The trustee asserts that because the case was converted from Chapter 11 to Chapter 7 and a trustee was appointed, the appeal is moot or the matter should be remanded. The trustee also maintains that the debtor did have an interest in renewal of the license that qualified as property under the Bankruptcy Act.

I.

11 U.S.C. Sec. 541(a)(1) defines property of the bankruptcy estate, with certain exceptions, as "all legal or equitable interests of the debtor in property as of the commencement of the case." As we said in Counties Contracting & Constr. Co. v. Constitution Life Ins. Co., 855 F.2d 1054, 1057 n. 3 (3d Cir.1988), the term is "broadly defined in 11 U.S.C. Sec. 541(a) ... [t]he legislative history makes it plain that the scope of this paragraph is pervasive." See H.R.Rep. No. 90-595, 95th Cong., 1st Sess. 367, U.S.Code Cong. & Admin.News, 1978, pp. 5787 6323 (1977), reprinted in L. King, Collier on Bankruptcy App. 2 (15th ed. 1990) ("The scope of this paragraph is broad. It includes all kinds of property, including tangible or intangible property, causes of action ... and all other forms of property currently specified in section 70a of the Bankruptcy Act....").

Although section 541 defines property of the estate, we must look to state law to determine if a property right exists and to stake out its dimensions. See Butner v. United States, 440 U.S. 48, 54-55, 99 S.Ct. 914, 917-18, 59 L.Ed.2d 136 (1979); In re Roach, 824 F.2d 1370, 1374 (3d Cir.1987) ("property interests are created and defined by state law"). The label, however, that state law affixes to a particular interest in certain contexts is not always dispositive. The principal question is whether the substance of the right or interest in question brings it within the scope of estate property under the Bankruptcy Act.

In 21 West Lancaster Corp. v. Main Line Restaurant, Inc., 790 F.2d 354 (3d Cir.1986), we concluded that although not "property" subject to a security interest filed in accordance with state law, a Pennsylvania liquor license was nevertheless "property" subject to lien for unpaid federal employment taxes. We explained that "[w]hile state law creates legal interests and defines their incidents, 'the ultimate question whether an interest thus created and defined falls within a category stated by a Federal statute, requires an interpretation of that statute which is a Federal question.' " Id. at 356.

In this light we must read Replogle v. Pennsylvania Liquor Control Bd., 514 Pa. 209, 523 A.2d 327 (1987), and 1412 Spruce, Inc. v. Pennsylvania Liquor Control Bd., 504 Pa. 394, 474 A.2d 280 (1984). In Replogle the Pennsylvania Supreme Court held that a licensee has no "property interest in the right to sell liquor in this Commonwealth," and that a license is granted subject to the conditions the state may impose. 523 A.2d at 329. Therefore, when a license was terminated by virtue of an election held pursuant to a local option provision in the Liquor Code, the licensee could not recover compensation for loss of property.

In 1412 Spruce, Inc. the state court quoted the language of 47 Pa.Stat.Ann. Sec. 4-468(b.1), "The license shall continue as a personal privilege granted by the board and nothing herein shall constitute the license as property." 474 A.2d at 281. Based on that statutory text, the court determined that a liquor license was not property that could be subject to attachment and execution. See also In re Revocation of Liquor License No. R-2193, 72 Pa.Commw. 367, 456 A.2d 709 (1983) (liquor license does not constitute personal property subject to a security interest under the Uniform Commercial Code).

On the other hand, the state courts have recognized that a liquor license has value. The right to apply for a transfer of the license on the licensee's death "is a right which possesses value," In re Estate of Feitz, 402 Pa. 437, 445, 167 A.2d 504, 507 (1961), and "is a valuable asset of the decedent's estate." Id., 167 A.2d at 508. A licensee whose premises were condemned was entitled to have the loss and value of the license considered in the award of compensation. Redevelopment Authority of Philadelphia v. Lieberman, 461 Pa. 208, 336 A.2d 249, 257-58 (1975).

The Liquor Code also provides that a licensee may apply to the Board to have a license transferred from one person to another or one place to another. 47 Pa.Stat.Ann. Sec. 4-468 (Purdon Supp.1990). As a result, in practice, a liquor license can be bought and sold in the market place. 21 West Lancaster Corp., 790 F.2d at 357.

The reality is that in Pennsylvania a liquor license does have value. We are persuaded, therefore, that it is appropriately considered property of the estate within the broad definition of section 541 of the Bankruptcy Act. The Court of Appeals for the Sixth...

To continue reading

Request your trial
55 cases
  • In re Brockway Pressed Metals, Inc.
    • United States
    • United States Bankruptcy Courts. Third Circuit. U.S. Bankruptcy Court — Western District of Pennsylvania
    • March 30, 2007
    ...under Section 541, the reviewing court is required to use state law to determine whether a property right exists. See In re Nejberger, 934 F.2d 1300, 1302 (3d Cir. 1991); In re Kamand Construction, Inc., 298 B.R. 251 Furthermore, in this case, there are no federally created statutory proper......
  • In re Holmes, Case No: 15–14034 (RG)
    • United States
    • U.S. Bankruptcy Court — District of New Jersey
    • September 19, 2017
    ...stated by a Federal statute requires an interpretation of that statute, which is a Federal question.’ " 573 B.R. 573 In re Nejberger , 934 F.2d 1300, 1302 (3d Cir. 1991) (quoting 21 West Lancaster Corp. v. Main Line Restaurant, Inc., 790 F.2d 354, 356 (3d Cir. 1986) ). Under the Bankruptcy ......
  • In re Circle 10 Rest., LLC, Case No.: 13–14820(RG)
    • United States
    • U.S. Bankruptcy Court — District of New Jersey
    • November 7, 2014
    ...as property under federal bankruptcy law while being construed as not property for purposes of state law, as was held in In re Nejberger, 934 F.2d 1300, 1301–02 (3d Cir.1991). See Trustee's Reply at 4. Based on these principles, Trustee contends that this Court's authority to approve the sa......
  • In re Circle 10 Rest., LLC
    • United States
    • U.S. Bankruptcy Court — District of New Jersey
    • November 7, 2014
    ...as property under federal bankruptcy law while being construed as not property for purposes of state law, as was held in In re Nejberger, 934 F.2d 1300, 1301–02 (3d Cir.1991). See Trustee's Reply at 4. Based on these principles, Trustee contends that this Court's authority to approve the sa......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT