Circus Disco Ltd. v. New York State Liquor Authority

• Decision Date: 08 July 1980
• Citation: 409 N.E.2d 963,431 N.Y.S.2d 491,51 N.Y.2d 24
• Parties: , 409 N.E.2d 963 In the Matter of CIRCUS DISCO LTD., Doing Business as The Electric Circus, Appellant, v. NEW YORK STATE LIQUOR AUTHORITY, Respondent.
• Court: New York Court of Appeals Court of Appeals

Page 491

431 N.Y.S.2d 491

51 N.Y.2d 24, 409 N.E.2d 963

In the Matter of CIRCUS DISCO LTD., Doing Business as The

Electric Circus, Appellant, v. NEW YORK STATE LIQUOR AUTHORITY, Respondent.

Court of Appeals of New York.

July 8, 1980.

Andrew S. Fisher, Harold L. Fisher and Gerald Gorinsky, Brooklyn, for appellant

Joseph S. Ryan and Warren B. Pesetesky, New York City, for respondent.

OPINION OF THE COURT

MEYER, Judge.

The State Liquor Authority is authorized by subdivision 6 of section 106 of the Alcoholic Beverage Control Law to control noise generated by a licensed on-premises establishment when the premises "become disorderly", but may not deny a license because it believes the noise, parking and traffic that may be generated by an establishment permitted by governing zoning regulations will adversely affect community residents, noise, parking and traffic being matters for consideration of the zoning authorities. Nor may a license be denied because of the existence of a school and some churches more than 200 feet away, because community residents and political leaders oppose its issuance, or because an applicant which reported one increase in the expected cost to equip and decorate the establishment failed to report a later increase, where investigation shows that the money has come from proper sources and there is no evidence that the applicant willfully mislead the authority. It is, moreover, improper for the Appellate Division to consider as a basis for upholding denial of the license a ground not considered by the authority or argued on appeal. The order of the Appellate Division should, therefore, be reversed, with costs, and the judgment of Special Term should be reinstated.

Petitioner, Circus Disco Ltd., planning to open what it expected to be the largest discotheque in New York City, rented the first three floors of a 16-story commercial building, located on the northwest corner of 15th Street and Fifth Avenue. The premises, in the southern portion of the Chelsea district, are zoned commercial, though the neighborhood includes a substantial residential population, due in good measure to loft conversions. Petitioner's proposed operation is a permitted zoning use, though the record does not establish whether the loft conversions are. In relatively close proximity, though beyond the 200-foot restriction of the Alcoholic Beverage Control Law, are a church and a school. Also nearby are at least 5 apartment buildings and 11 brownstone residences.

The proposed discotheque was conceived on a grand scale, encompassing more than 22,000 square feet of floor space on three levels, each with a separate dance floor and distinctively shaped bar, as well as a game room, a glass enclosed lounge, and banquet facilities. As initially designed the establishment was to be a private club, characterized by luxury and elegance, accommodating more than 1,400 people, and including as part of its decor a 1928 fire engine and a carousel from Coney Island's Steeplechase Park.

With petitioner's principals doing much of the work themselves, the amount initially budgeted for renovation and equipment was $125,000, but that was thereafter revised in writing to $167,000. By the time the project was completed, however, actual expenditures exceeded $359,000, with more than $100,000 additional in accounts payable.

In July, 1978, petitioner applied for a special on-premise license (theater and entertainment). The Alcoholic Beverage Control Board unanimously recommended approval on condition that the premises be open to the public rather than be operated as a private club, a condition which petitioner accepted. The board expressly found that there was no church or school within 200 feet nor any licensed premises within 400 feet. The authority, however, denied the application, finding that issuance of a license would pose a threat to the welfare of the community because (1) petitioner's principals were not experienced and did not plan to hire an experienced manager, (2) there were within one block of the club a school, church, townhouses and apartment houses, (3) the authority had received petitions from community groups and communications from elected officials in opposition, and (4) it was not satisfied that the premises would in fact be open to the public. Reconsideration was requested and a supplemental investigation made and the authority adhered to its determination to deny though for somewhat different reasons. Stated reasons were (1) opposition of community and political leaders, (2) that the area could not handle the parking and traffic that would result, (3) it was not satisfied that soundproofing would prevent disturbance outside the building, particularly during late night and early morning hours, (4) the operation would be disruptive of the life-style of local residents, and (5) that by failing to disclose its additional expenditures as required by 9 NYCRR 53.1(b) or the sources of funds used for them petitioner had evidenced an inability to comply with the authority's rules which was not cured by subsequent disclosure.

Petitioner then sought review in an article 78 proceeding. Special Term, finding that the zoning for the area permitted the operation, that the conclusion that it would be operated in violation of law or to the detriment of the community was speculation, and that the failure to disclose was an improper basis for denial, the additional cost having been revealed and the sources having been found satisfactory on investigation, annulled the authority's determination. The Appellate Division reversed, finding relevant considerations the impact of the proposed establishment on the community, the failure to disclose, and, though not a reason advanced by the authority in its decision on reconsideration and not briefed or argued in the Appellate Division, the lack of supervisory experience of petitioner's principals.

On appeal by petitioner to us from that reversal the issues for consideration are whether the Appellate Division could properly consider the experience issue, whether denial based on failure to comply with 9 NYCRR 53.1(b) was proper, whether in deciding whether to issue a license the authority may consider noise, parking and traffic, and to what extent may the authority consider opposition from community residents and community and political leaders? ¹

I

The first question need not long detain us. Following the Authority's initial determination petitioner obtained a professional manager and so advised the authority. Its supplemental investigation apparently satisfied it on the issue, for its reconsideration decision made no mention of the point which was not briefed or argued either at Special Term or at the Appellate Division. Since the Appellate Division must judge the authority's action solely by the grounds invoked by the authority (Matter of Barry v. O'Connell, 303 N.Y. 46, 50, 100 N.E.2d 127), and the authority correctly based its decision on this point on the facts existing at the time of its reconsideration (Matter of Whaley v. State Liq. Auth., 21 A.D.2d 977, 252 N.Y.S.2d 881), it was error for the Appellate Division to resurrect the issue as a permissible basis for denial of the license. ²

II

Denial of the application because of the untimely disclosure of the increased expenditures was, when all of the circumstances are considered, arbitrary and capricious. The present case is essentially indistinguishable from Matter of Farina v. State Liq. Auth. (20 N.Y.2d 484, 285 N.Y.S.2d 44, 231 N.E.2d 748). There we held it arbitrary to refuse to renew a license when there had been "no showing that when petitioner first applied for a license he willfully misled the Authority by designating funds different from those actually used" (20 N.Y.2d at p. 492, 285 N.Y.S.2d at 50) and we noted that petitioner's funds were honestly acquired and that "the innocence of the moneys used is strong evidence of the fact that there was no deliberate intent to conceal or suppress their source. The petitioner's sole transgression was the he used certain funds which were not originally contemplated in his application and failed to report this change * * * because he was ignorant of the requirement" (20 N.Y.2d at p. 493, 285 N.Y.S.2d at p. 50, 231 N.E.2d at p. 753).

Here, though petitioner was aware of the requirement, having once revised the figure upward, the authority concedes that the additional funds came from proper sources, and has presented no evidence other than the omission itself to sustain its characterization of petitioner's untimely disclosure as "concealment". Absent any evidence that petitioner willfully misled the authority or of any prejudice to the public interest, except in the technical violation of the regulation and there being no reason to believe that such laxness will continue, denial of a license, which would as a practical matter destroy the half-million-dollar investment of petitioner's principals, is, as we concluded in Matter of Shore Haven Lounge v. State Liq. Auth. (37 N.Y.2d 187, 190, 371 N.Y.S.2d 710, 711, 332 N.E.2d 883, 884) "so disproportionate * * * as to constitute an abuse of * * * discretion" (accord Matter of O'Brien's Butcher Shop v. State of N. Y. Liq. Auth., 47 A.D.2d 588, 363 N.Y.S.2d 379; Matter of Alvaro v. State Liq. Auth., 43 A.D.2d 902, 351 N.Y.S.2d 246).

III

To what extent and under what circumstances the authority may consider the possible adverse impact of petitioner's operation upon the community presents a more difficult issue. The authority relies upon the authorizations to it in subdivision 1 of section 17 of the Alcoholic Beverage Control Law to issue or refuse to issue licenses and in section 2 of that law to "determine whether public convenience and advantage will be promoted by the issuance of licenses to traffic in alcoholic beverages." The words "public convenience and advantage" appear from the Moreland Commission Report which preceded revision...