Beer Garden, Inc. v. New York State Liquor Authority

• Decision Date: 26 March 1992
• Parties: , 590 N.E.2d 1193 In the Matter of BEER GARDEN, INC., Respondent-Appellant, v. NEW YORK STATE LIQUOR AUTHORITY, Appellant-Respondent. In the Matter of BAYSIDE BOWLING AND RECREATION CENTER, INC., Doing Business as Avanti, Respondent-Appellant, v. NEW YORK STATE LIQUOR AUTHORITY, Appellant-Respondent.
• Court: New York Court of Appeals Court of Appeals

Page 65

582 N.Y.S.2d 65

79 N.Y.2d 266, 590 N.E.2d 1193

In the Matter of BEER GARDEN, INC., Respondent-Appellant, v. NEW YORK STATE LIQUOR AUTHORITY, Appellant-Respondent.

In the Matter of BAYSIDE BOWLING AND RECREATION CENTER,

INC., Doing Business as Avanti, Respondent-Appellant, v. NEW YORK STATE LIQUOR AUTHORITY, Appellant-Respondent.

Court of Appeals of New York.

March 26, 1992.

[79 N.Y.2d 268] [590 N.E.2d 1194] Adrian C. Hunte, Stephen D. Kalinsky and Thomas J. Bepko, Jr., New York City, for appellant-respondent in the first above-entitled proceeding.

[79 N.Y.2d 269] Warren B. Pesetsky and Randye F. Bernfeld, New York City, for respondent-appellant in the first above-entitled proceeding.

[79 N.Y.2d 270] Adrian C. Hunte and Thomas J. Bepko, Jr., New York City, for appellant-respondent in the second above-entitled proceeding.

[79 N.Y.2d 271] Herbert Rubin, David B. Hamm and Miriam Skolnik, New York City, for respondent-appellant in the second above-entitled proceeding.

OPINION OF THE COURT

KAYE, Judge.

These appeals raise two administrative law questions: the validity of a regulation of the State Liquor Authority (the SLA), and the propriety of an SLA Commissioner's participation in final agency decisions against petitioner licensees. As to both questions we agree with the licensees: the regulation is invalid as applied because it conflicts with the authorizing legislation, and the Commissioner (who was SLA Counsel when the charges against the licensees were filed and heard) should have recused herself from the final agency determinations.

I.

Beer Garden, Inc.

In 1986, the SLA issued petitioner Beer Garden, Inc., a New York City nightclub, a license for the on-premises sale of alcoholic beverages. Three SLA notices are the focus of Beer Garden's appeal. First, in December 1988, a proceeding to cancel or revoke Beer Garden's license was initiated by a Notice of Pleading and Hearing charging that the "occurrence of noise, disturbance, misconduct or disorder in the licensed premises, in areas in front of or adjacent to the licensed premises, or in the parking lot of the licensed premises has resulted in the licensed premises becoming a focal point for police attention; all cause for revocation, cancellation or suspension of the license in accordance with Rule 36.1(q) of the Rules of the State Liquor Authority."

Second, in March 1989, the SLA served Beer Garden with notice of a proceeding to suspend its license, charging that the licensee had two months earlier sold alcoholic beverages to a minor in violation of Alcoholic Beverage Control Law § 65(1). The notice specified a 30-day suspension as the maximum possible penalty. Third, a Notice of Interview was served on Beer Garden in October 1989, informing the licensee that based on the same "focal point" allegation made in the first notice, an interview would be scheduled in connection with renewal of its license for 1989-1992.

All three notices were issued over the stamped signature of "Sharon L. Tillman, Counsel to the Authority." The first two notices advised Beer Garden that failure to appear and plead would be deemed "no contest" of the charges; all three notices stated that Beer Garden could be represented by counsel and, at any hearing or interview, could introduce evidence in its own behalf.

Under SLA regulations, the Administrative Law Judge is authorized to make findings as to whether the evidence sustained the charges, and may also recommend a penalty (see, 9 NYCRR 54.4[g]. Between November 1989 and April 1990, the ALJ conducted hearings on the revocation and suspension proceedings, during which he rejected Beer Garden's challenge to the agency's authority to promulgate rule 36.1(q); he concluded that under the rule it was unnecessary for the SLA to establish that the licensee was aware of the alleged misconduct. In March 1990, the ALJ found the charges sustained factually and, without recommendation as to penalty, he referred the matter to the Commissioners for final determination (see, 9 NYCRR 54.4[g]; 54.6).

The renewal interview was held shortly thereafter, on April 19, 1990, and the SLA's motion to incorporate the prior proceedings granted. The ALJ deferred to the Commissioners as to whether evidence of incidents occurring prior to the expiration of the current license (the same incidents supporting the "focal point" charge in the revocation proceeding) could support a determination not to renew Beer Garden's license.

On June 30, 1990, Tillman left her position as Counsel to become an SLA Commissioner.

On August 1, 1990, the Commissioners voted to combine the first and second proceedings, adopt the ALJ's findings, and sustain the charges, imposing a penalty of revocation and $1,000 bond forfeiture. The Commissioners also sustained the ALJ's findings in the nonrenewal proceeding and directed entry of a nonrenewal order. Three of the five Commissioners, including Commissioner Tillman, concurred in the dispositions; two voted to adjourn the matter for a week.

The matter was reconsidered one week later at the request of Beer Garden's attorney, who had been unable to attend the earlier session, and at that time he asked that Commissioner Tillman recuse herself based on her role as SLA Counsel during the hearing process. She refused. Upon reconsideration, the three Commissioners adhered to their original determination, and the two who had voted to defer the matter voted to suspend, rather than revoke, Beer Garden's license. Beer Garden then commenced the present CPLR article 78 proceeding. 171 A.D.2d 565, 568 N.Y.S.2d 25.

Bayside Bowling and Recreation, Inc.

In September 1989, the SLA notified Bayside Bowling and Recreation, Inc. of the commencement of a license revocation proceeding based on a charge that the premises--a Queens discotheque--had become the "focal point" of police activity. The language of the charge was identical to that contained in the notice to Beer Garden. Tillman's signature, as Counsel to the SLA, was stamped at the foot of the notice, which--as in the case of Beer Garden--advised of the consequences of a failure to plead, the right to be represented by counsel, and the right to present evidence at a hearing.

After hearings during January and February 1990, the ALJ sustained the charge as to the period from April 6, 1988 through July 20, 1989 based upon approximately 18 incidents "recalled or recorded by police." In response to Bayside's contention that the charge could not be sustained without proof of the licensee's fault--or awareness of the alleged conduct--the ALJ held that rule 36.1(q) does not require any showing of "suffering or permitting," and "the absence of such a requirement indicates that the regulation is no-fault in nature."

A majority of the five SLA Commissioners--including Commissioner Tillman--voted to impose a 10-day license suspension and $1,000 fine. The two remaining members voted to sustain the charge, impose the fine, but defer suspension. Again, in response to a request from the licensee, Tillman refused to recuse herself. Bayside then commenced this article 78 proceeding to annul the SLA's determination.

Both article 78 proceedings were transferred to the Appellate Division, which held in each case that Commissioner Tillman's refusal to recuse herself mandated that the petitions be granted. The court concluded that inasmuch "as the very notice of charges brought against petitioner had been signed by Tillman, there was too great a possibility that she may have been predisposed to uphold those charges to permit her, over petitioner's objection, to subsequently assume an adjudicative role as to the same charges." (Matter of Bayside Bowling & Recreation Center v. New York State Liq. Auth., 171 A.D.2d 576, 576-577, 568 N.Y.S.2d 23.) In that the ALJ's factual findings were unaffected by the SLA's subsequent determinations, the Appellate Division remanded both cases to the agency for reconsideration without the participation of Commissioner Tillman. In neither case did the court reach the validity of rule 53.1(q).

II.

We first consider petitioners' argument, raised on their cross appeals, that rule 53.1(q) was invalid as applied. That argument--if successful--would result in dismissal of all charges but one.

Under rule 53.1(q), a license may be revoked, canceled or suspended when "any noise, disturbance, misconduct, disorder, act or activity occurs in the licensed premises, or in the area in front of or adjacent to the licensed premises, or in any parking lot provided by the licensee for use by licensee's patrons, which * * * results in the licensed premises becoming a focal point for police attention" (9 NYCRR 53.1[q]. ^*

Petitioners challenge the SLA's authority to promulgate this rule, arguing that the only statutory authority which might support the agency's authority is Alcoholic Beverage Control Law § 106(6): no person "licensed to sell alcoholic beverages shall * * * suffer or permit [the licensed] premises to become disorderly." Petitioners maintain that, as rule 53.1(q) represents the SLA's effort to implement the policy embodied in section 106(6), the rule must incorporate the "suffer or permit," or awareness, element of the statute. The SLA counters that, under rule 53.1(q), there need be no demonstration of a licensee's awareness, and cites as its authority for a no-fault rule Alcoholic Beverage Control Law §§ 2, 17, 114 and 118.

"Before a court can determine whether an agency acted reasonably in taking a particular action it must find that the agency had authority to act in the first instance." (Mancini v. McLaughlin, 54 N.Y.2d 860, 862, 444 N.Y.S.2d 901, 429 N.E.2d 408.)

Under the Alcoholic Beverage Control Law, the Legislature has granted the SLA specific and particular, rather than general, rule-making authority: "the power to make rules with respect to particular subjects is specifically granted to the SLA throughout the body of the Alcoholic Beverage...