Circus Liquors, Inc. v. Governing Body of Middletown Tp.

• Decision Date: 06 May 2009
• Docket Number: A-25/53 September Term 2008
• Citation: 199 N.J. 1,970 A.2d 347
• Court: New Jersey Supreme Court
• Parties: CIRCUS LIQUORS, INC., Petitioner-Appellant, v. GOVERNING BODY OF MIDDLETOWN TOWNSHIP, Respondent-Respondent.

970 A.2d 347

199 N.J. 1

CIRCUS LIQUORS, INC., Petitioner-Appellant, v. GOVERNING BODY OF MIDDLETOWN TOWNSHIP, Respondent-Respondent.

A-25/53 September Term 2008

Supreme Court of New Jersey.

Argued January 21, 2009.

Decided May 6, 2009.

Lorinda Lasus, Deputy Attorney General, argued the cause for appellant Division of Alcoholic Beverage Control (Anne Milgram, Attorney General of New Jersey, attorney).

Larry S. Loigman, Middletown, argued the cause for appellant Circus Liquors, Inc.

Bernard M. Reilly, Red Bank, argued the cause for respondent.

Justice LaVECCHIA delivered the opinion of the Court.

N.J.S.A. 33:1-12.31 prohibits persons from holding a beneficial interest in more than two retail alcoholic beverage licenses in New Jersey. The question before us is whether the Director of the Division of Alcoholic Beverage Control (Director) exceeded his authority by applying the remedy of divestiture — that is, allowing sale of the license to an unrelated bona fide purchaser — when enforcing compliance with the two-license limitation in this matter. Because we conclude that divestiture is within the Director's authority, and that it was not arbitrary, capricious, or unreasonable for the Director to have resorted to divestiture as the means of unraveling the licensing violation that occurred here, we reverse the judgment of the Appellate Division.

I.

This matter was presented as a contested case before the Director, who referred the matter to the Office of Administrative Law. We recite the procedural history and facts as they were established in the contested case proceeding conducted by the Administrative Law Judge (ALJ) to whom the matter was referred.

Prior to 1998, Circus Liquors, Inc. owned two liquor licenses, Nos. 1331-32-005-003 and 1331-44-033-006, in Middletown Township. In December 1998, Middletown granted ownership of license No. 1331-44-028-003 to Food Circus Supermarkets of Middletown, Inc. (Food Circus). Circus Liquors and Food Circus were owned by the same group of shareholders (collectively "Circus"). Circus does not dispute that it owned all three licenses at all times relevant to this appeal.¹ Moreover, Middletown routinely renewed Circus's ownership of all three licenses each year through 2004, approving applications that clearly revealed the ownership interest in all three.

In June 2005, after reviewing Circus's renewal applications, Middletown discovered that it could not "validly renew all three liquor licenses owned by [Circus]" because N.J.S.A. 33:1-12.31 prohibits persons from holding a simultaneous beneficial interest in more than two retail alcoholic beverage licenses in New Jersey. Accordingly, Middletown passed a resolution denying renewal for license No. 1331-44-033-006 because it had been inactive for over two years and would therefore require a "Special Ruling from the State ABC [Director of the Division of Alcoholic Beverage Control]" for its renewal. Middletown renewed the two active licenses in a separate resolution.

In response to the license non-renewal, Circus filed two petitions with the State Division of Alcoholic Beverage Control (Division). The first petition challenged the non-renewal of the license, while the second sought a "Special Ruling" that would reactivate the license for the limited purpose of permitting Circus to "transfer the license so that the `two-license' limitation will become moot." The two matters were consolidated and transferred to the Office of Administrative Law.

In April 2006, the ALJ issued an Initial Decision granting summary decision to Middletown and dismissing Circus's petitions. The ALJ affirmed Middletown's non-renewal of the license, finding that Circus's ownership of three licenses clearly violated N.J.S.A. 33:1-12.31. Noting that "[t]he use of estoppel to require that a governmental agency perpetuate an illegal condition or to prevent it from enforcing the law ... is disfavored," the ALJ also refused to allow the license to be reactivated for the limited purpose of permitting Circus to transfer ownership in the license.

In November 2006, the Director adopted the ALJ's Initial Decision that affirmed, with modification, Middletown's denial of renewal of the inactive license. The Director agreed that Circus's ownership of three licenses was "facially inconsistent with N.J.S.A. 33:1-12.31," that Circus Liquors did not "have a valid claim of detrimental reliance since it could have no expectation of renewal of a license which would constitute a continuing violation of N.J.S.A. 33:1-12.31," and that the licenses did not fit into any exception to the two-license limit created by N.J.S.A. 33:1-12.31. At the same time, however, the Director modified the remedy recommended by the ALJ to allow Circus the opportunity to divest itself of all interest in the license. Staying the non-renewal until June 30, 2007, the Director "indefinitely suspended" Circus's use of the license, and allowed Circus the remainder of the license term to sell its interest in the license to an unrelated bona fide third party. The Director explained that he found the stay to be appropriate and necessary "to facilitate an orderly transition for both the municipality and the licensee while still ensuring compliance with [N.J.S.A. 33:1-12.31]."

Middletown appealed the Director's remedy that, in effect, delayed Middletown's non-renewal of Circus's third license. It argued that the Director's stay impermissibly perpetuated a continued violation of N.J.S.A. 33:1-12.31. The Appellate Division agreed and reversed the Director's decision to stay the non-renewal in order to permit Circus to divest itself of the license. Circus Liquors, Inc. v. Governing Body of Middletown, 398 N.J.Super. 220, 222, 225-26, 941 A.2d 616 (2008). While noting that it need not decide whether the Director might, under certain circumstances, authorize a brief period of technical noncompliance with the two-license limitation, id. at 226, 941 A.2d 616, the Appellate Division rejected the invocation of such authority in Circus's favor because of the license-holders' "stark and lengthy violation of N.J.S.A. 33:1-12.31," id. at 227, 941 A.2d 616. The panel concluded that Circus's "seven-year ownership of a third license is not a mere technical violation of [N.J.S.A. 33:1-12.31], but rather, a long-term, persistent violation of one of the chief evils the Legislature intended to prohibit." Id. at 226, 941 A.2d 616. Accordingly, the Appellate Division reversed the Director's remedy because "the Director mistakenly created a circumstance by which the license holders could continue to profit from their unlawful conduct." Id. at 226, 941 A.2d 616.

We granted, separately, the petitions for certification filed by Circus Liquors, 196 N.J. 343, 953 A.2d 762 (2008), and the Attorney General of the State of New Jersey on behalf of the Director, 197 N.J. 15, 960 A.2d 744 (2008), seeking review of the Appellate Division judgment.

II.

In this appeal, Circus argues that the Appellate Division erred in reversing the Director's preferred remedy of allowing an orderly divestiture rather than an immediate revocation of the license, given the circumstances of this violation of N.J.S.A. 33:1-12.31. It argues that the violation demonstrated error on both the part of Middletown and Circus, and that divestiture would allow for an orderly transition of the license. The Attorney General, on behalf of the Division, asserts that the Director's stay of non-renewal was wholly consistent with his legislatively delegated discretion to apply the remedy of divestiture when enforcing compliance with N.J.S.A. 33:1-12.31 and that its use was not arbitrary, capricious, or unreasonable in this instance.

Middletown, on the other hand, argues in support of the Appellate Division's analysis, which it contends is consistent with the licensing scheme. Pursuant to that licensing system, Middletown argues further that the Director had no discretion to overrule, or to delay through a stay, Middletown's determination that it was required, by N.J.S.A. 33:1-12.31, to deny Circus's license renewal.

III.

Fundamentally, this appeal is about the role of appellate courts when reviewing an administrative agency's decision. The limited nature of such review is well known. Appellate review of an agency's determination is limited in scope. See In re Herrmann, 192 N.J. 19, 27, 926 A.2d 350 (2007); In re Carter, 191 N.J. 474, 482, 924 A.2d 525 (2007). Without a "clear showing" that it is arbitrary, capricious, or unreasonable, or that it lacks fair support in the record, an administrative agency's final quasi-judicial decision should be sustained, regardless of whether a reviewing court would have reached a different conclusion in the first instance. See In re Herrmann, supra, 192 N.J. at 27-28, 926 A.2d 350. Three key determinations govern our review:

(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.

[Mazza v. Bd. of Trs., 143 N.J. 22, 25, 667 A.2d 1052 (1995) (citing Campbell v. Dep't of Civil Serv., 39 N.J. 556, 562, 189 A.2d 712 (1963)).]

In assessing those criteria, a court must be mindful of, and deferential to, the agency's "expertise and superior knowledge of a particular field." Greenwood v. State Police Training Ctr., 127 N.J. 500, 513, 606 A.2d 336 (1992). Even if a court may have reached a different result had it been the initial decision maker, it may not simply "substitute its own judgment for the agency's." In re Carter, supra, 191 N.J. at 483, 924 A.2d 525 (quoting Greenwood, supra, 127 N.J. at 513, 606 A.2d 336).

When evaluating an action of the Director of...