C. Schmidt & Sons, Inc. v. New York State Liquor Authority

• Decision Date: 03 April 1980
• Citation: 73 A.D.2d 399,426 N.Y.S.2d 482
• Court: New York Supreme Court — Appellate Division
• Parties: C. SCHMIDT & SONS, INCORPORATED for review pursuant to CPLR Article 78, Petitioner-Respondent, v. NEW YORK STATE LIQUOR AUTHORITY, Respondent-Appellant.

Page 482

426 N.Y.S.2d 482

73 A.D.2d 399

C. SCHMIDT & SONS, INCORPORATED for review pursuant to CPLR Article 78, Petitioner-Respondent, v. NEW YORK STATE LIQUOR AUTHORITY, Respondent-Appellant.

Supreme Court, Appellate Division, First Department.

April 3, 1980.

Stanley Stein, New York City, of counsel (Warren B. Pesetsky, New York City), for respondent-appellant.

Arthur M. Handler, New York City, of counsel (Robert S. Goodman and Oscar A. Bloustein, New York City, with him on brief, Golenbock & Barrell, Salon, Bloustein & Raybin, New York City), for petitioner-respondent.

Before BIRNS, J. P., and FEIN, ROSS, LUPIANO and BLOOM, JJ.

PER CURIAM:

We are called upon to decide whether the determinations of the State Liquor Authority ("The Authority") rejecting the application of petitioner C. Schmidt & Sons, Inc. ("Schmidt") to effect certain corporate changes ("corporate change") were arbitrary and capricious and should be annulled. We hold that the determinations of the Authority had a rational basis and therefore were not arbitrary and capricious. Accordingly, we confirm said determinations.

Schmidt is the holder of a wholesale beer license issued to it by the Authority for premises located in Great Neck, Nassau County, New York. ¹

On May 5, 1976, an application for approval of corporate change was filed with the Authority by Schmidt, whereby William H. Pflaumer was to become the sole stockholder and chairman of the board of directors. The documents in support of Schmidt's application indicated that Schmidt had redeemed all its corporate stock and, on April 15, 1976, issued 9,240 shares of stock to William H. Pflaumer, leaving him Schmidt's sole stockholder.

An investigation was conducted and a memorandum prepared by the counsel to the Authority. The memorandum considered the question whether certain federal convictions of William H. Pflaumer mandated his disqualification as a principal of Schmidt under the ABC Law. The Wholesale License Unit of the Authority also prepared a memorandum for the consideration of the members of the Authority.

At a regular meeting of the Authority, held on May 24, 1978, the members thereof determined that Schmidt's application for approval of corporate change be disapproved. The Authority stated:

By this application for a corporate change, the licensed corporation seeks approval for the sale of all outstanding shares of its stock to William H. Pflaumer.

Pflaumer will be the chairman and director of the licensed corporation. Jacqueline A. Branson will be assistant secretary and Mark K. Kessler, Morris Gerber and Philip M. Shiekman become directors. William T. Elliott, formerly a vice president, becomes president and Fredrick H. Von Czoernig, formerly assistant treasurer, becomes vice president and treasurer.

C. Schmidt and Sons redeemed all its corporate stock and on April 15, 1976 issued 9,240 shares to William H. Pflaumer. The licensee has been operating since that time with an unauthorized corporate set-up in violation of the provisions of the Alcoholic Beverage Control Law.

In 1970 Pflaumer pleaded guilty to a federal indictment which charged him with transporting beer under a name other than the proper name, or brand name known to the trade as designating the contents of the casks containing said beer, in violation of Section 5683 of Title 26 of the United States Code. The offense involved the printing of counterfeit Piel's labels, affixing the counterfeit labels to casks containing Ballantine beer and transporting such unlawfully labeled casks to numerous taverns. Pflaumer was fined $1,000 and placed on probation. Pflaumer who held an importing distributor's license in Pennsylvania, was also fined $1,000 by the Pennsylvania Liquor Control Board.

In 1973 Pflaumer was again indicted. He pleaded guilty to two counts of a seven count indictment which alleged that Pflaumer and his co-defendants, William H. Pflaumer and Sons, Inc. and one Frederick A. Nichols, supplied beer to retail dealers in beer, utilizing a double set of invoices for the purpose of allowing the retailers to show receipt of less beer than they actually received and that the defendants camouflaged on the books of the corporation sales under the double invoicing system as sales to fictitious retail dealers or retail dealers who did not actually purchase the beer. Pflaumer pleaded guilty to selling (off-record) beer, and supplying invoices without retail dealers' names, addresses or customer numbers, and to counseling retail beer dealers to destroy invoices relating to illegal beer purchases.

Pflaumer further pleaded guilty to corruptly endeavoring to influence and obstruct and impede the due administration of justice by urging a prospective witness before the grand jury, one of the retailers named as a co-conspirator, to destroy all evidence, of illegal purchases and sales of beer and to further urging the witness to give false testimony before the grand jury.

Thereafter, Pflaumer resigned from William H. Pflaumer and Sons, turning the stock over to a trust established for his children.

The licenses held by this licensee and its wholly owned subsidiary in New Jersey were suspended for the balance of their terms due to Pflaumer's convictions. The action by the Division of Alcoholic Beverage Control is the subject of pending litigation.

The Authority finds that William H. Pflaumer, the incoming chairman and sole stockholder of the corporate licensee has pleaded guilty to crimes which show a flagrant disregard for the judicial process and for the proper conduct of a business licensed to sell alcoholic beverages. The Authority further finds that the conduct of the incoming principal outside the state of New York is indicative of a lack of proper respect for and the ability to strictly comply with the law. In view of this conduct, the Authority is not satisfied that William H. Pflaumer would properly operate this licensed business in compliance with the provisions of the Alcoholic Beverage Control Law.

The Authority has considered this application in the light of all the facts and circumstances currently before it and the Authority, in the exercise of its considered discretion and independent judgment, finds that the approval of this application for a corporate change would create a high degree of risk and hazard in the administration and enforcement of the Alcoholic Beverage Control Law; that such approval would not be conducive to proper regulation and control and the Authority determines that public convenience and advantage would not be served by such approval.

The application for corporate change is disapproved.

By letter dated November 20, 1978, Schmidt requested reconsideration of its application. At a regular meeting of the Authority held on December 6, 1978, its members granted the request for reconsideration and, upon such reconsideration, adhered to their original determination.

This proceeding was commenced on September 22, 1978 and an amended petition was served on February 20, 1979. Issue was joined on March 16, 1979, and the matter came before Special Term.

Special Term noted that Ohio and Pennsylvania had approved similar license applications. Relying on LaGreca Restaurant v. State Liquor Authority,...