In re Nejberger
| Decision Date | 28 September 1990 |
| Docket Number | Civ. A. No. 90-3515,Bankruptcy No. 89-13013. |
| Citation | 120 BR 21 |
| Parties | In re Daniel NEJBERGER, d/b/a Piccolo's Famous Pizzas and Il Pastaio. |
| Court | U.S. District Court — Eastern District of Pennsylvania |
Prince Atlee Thomas, Ernest D. Preate, Jr., Office of the Atty. Gen., Philadelphia, Pa., for appellant.
Douglas H. Weiss, Astor, Weiss & Newman, Philadelphia, for appellee.
The Pennsylvania Liquor Control Board appeals from the bankruptcy court's order of April 13, 1990 directing the renewal of debtor's previously expired liquor license. 112 B.R. 714. The bankruptcy court ruled that the 10-month grace period for license renewal allowed by the Pennsylvania Liquor Code, 47 P.S. § 4-470(a), constituted property of the debtor's estate — and that the board's termination of the license during the grace period violated the automatic stay provision of 11 U.S.C. § 362(a)(1).1
The following facts are agreed. See joint stipulation — appellant's appendix. Effective October 31, 1987 the Pennsylvania Liquor Control Board issued restaurant liquor license No. R-15538 to Daniel Nejberger for a one-year period ending October 31, 1988. On August 20, 1988 Nejberger filed an application to renew the license. On September 2, 1988 the board informed Nejberger that unless it received tax clearance from the Pennsylvania Department of Labor and Industry, the renewal application would be rejected.2 On September 8, 1988 the board notified him that clearance was required from the Department of Revenue.3
On March 8, 1989 having not received the tax clearances, the board formally rejected the renewal application. The board's decision letter stated: "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, bond, fees, etc. in abeyance, but in no event beyond the expiration date of the license term October 31, 1989." Joint stip. exh. 6.4
On August 17, 1989 Nejberger filed a chapter 11 bankruptcy petition and, on August 29, 1989 initiated an adversary proceeding in bankruptcy court to compel the board to renew the license. He contended that the refusal to do so until pre-petition debts — the delinquent taxes of $427,256.66 — were paid violated the automatic stay. By letter dated September 15, 1989 the board informed Nejberger that "in view of the fact that the 10-month period has now expired we are terminating the application and closing the file." Joint stip. exh. 7.
In its decision, the bankruptcy court noted that the board's sole reason for the non-renewal was the licensee's outstanding tax liabilities. 112 B.R. at 716-17. Had the debtor tendered payment or made other arrangements to do so during the 10-month grace period, the renewal application would, presumably, have been approved. 112 B.R. at 718. Because the 10-month grace period did not expire until August 31, 1989 — two weeks after the chapter 11 petition was filed — the debtor's estate retained a property interest in the expired license as of the date of filing of the bankruptcy petition. 112 B.R. at 718. The bankruptcy court also determined that the licensee should not be restricted to the 10-month period to cure its tax debts because the filing of the chapter 11 petition constituted a proposal for a "deferred payment plan," satisfying the tax clearance requirements of 47 P.S. § 4-477(a)(6)(iii). 112 B.R. at 720.
The bankruptcy court held that 112 B.R. at 721-22.5
On appeal, the board argues that the renewal grace period does not extend rights in a liquor license that had expired before the time of bankruptcy. It claims that under § 4-470 of the Liquor Code the licensee holds the license at the Liquor Control Board's discretion and that "because of the debtor's tax status at the time of his 1988 renewal application, there was no need for the LCB to deliberate further on the debtor's renewal application." Appellant's brief at 14.
Section 4-470 of the Liquor Code, 47 P.S. § 4-470, states in relevant part:
(a) All applications for renewal of licenses . . . shall be filed with a new bond, requisite license and filing fees at least sixty days before the expiration date of same: Provided, however, That the board, in its discretion, may accept a renewal application filed less than sixty days before the expiration date . . . upon reasonable cause shown and the payment of an additional filing fee of one hundred dollars. . . . And provided further, That except where the failure to file a renewal application on or before the expiration date has created a license quota vacancy after said expiration date which has been filled by the issuance of a new license, after such expiration date, but before the board has received a renewal application within the time prescribed herein the board, in its discretion, may, after hearing, accept a renewal application filed within ten months after the expiration date of the license with the required bond and fees upon the payment of an additional filing fee of two hundred fifty dollars ($250.00) for late filing.
By statute, renewal of a Pennsylvania liquor license is contingent on board approval. Commonwealth v. Liederkrantz, 450 Pa. 423, 426, 300 A.2d 87, 89 (1973) (). Renewal applications filed during the 10-month grace period allowed by § 4-470 may be granted but only by the board acting "in its discretion . . . after hearing." 47 P.S. § 4-470(a). The board is divested of its discretionary renewal power only if applicant's "failure to file a renewal application on or before the expiration date has created a license quota vacancy . . . which has been filled" before applicant's renewal application is received. Id. See Pa. Liquor Control Board v. Wayside Bar, Inc., 120 Pa.Commw. 176, 547 A.2d 1309 (1988).
Notwithstanding the discretion accorded the board under § 4-470, an interest in a liquor license is property of a bankrupt estate under 11 U.S.C. § 541.6 In re Kramer, 71 B.R. 2, 5 (Bankr.E.D.Pa.1986). See also In re Hodges, 33 B.R. 51, 53 (Bankr.E.D.Pa.1983) (); In re Gencarelli, 14 B.R. at 752 ().
Citing Counties Contracting and Construction Co. v. Constitution Life Insurance Co., 855 F.2d 1054, 1057 (3d Cir. 1988) (), the bankruptcy court recognized and enforced debtor's "statutory right to renew after `expiration' of the license." 112 B.R. at 718. Inasmuch as the licensee's bankruptcy petition was filed during the renewal application grace period, the state regulatory scheme as to delinquent taxes was stayed by operation of the bankruptcy code — in this instance, the indefinite stay of § 362(a).7
The bankruptcy court was correct in ruling that the renewal grace period in this case was an enforceable interest of the bankrupt estate. The remaining question is whether it erred in ordering the Liquor Control Board to renew debtor's liquor license instead of enjoining the board from refusing to renew because of the outstanding state tax delinquencies. An injunctive remedy against discriminatory treatment under 11 U.S.C. § 525 has been utilized by some bankruptcy courts in similar liquor license renewal or transfer settings. E.g., In re Hoffman; In re William Tell II, Inc.; In re Blarney; In re Pizza of Hawaii, Inc.; and In re Gencarelli, supra, at n. 5. Compare In re Aegean Fare, Inc., supra, at n. 5 (license renewal ordered). By proceeding with an injunctive order not to consider the state tax delinquency for any purpose, a bankruptcy court achieves an appropriate Bankruptcy Code result with the least intrusion on the state's statutory and regulatory system.
The license renewal decreed by the bankruptcy court interdicts the state Liquor Code's procedure for annual renewal, the statutorily possible elimination of a license quota vacancy, and the discretionary nature of the board's renewal process.8 Here, that remedy is overly broad and unnecessary. The sole reason given by the board for non-renewal — the lack of tax clearances — does not compel the conclusion that, otherwise, the liquor license would have been renewed. Given the licensee's prepetition tax delinquencies, the board, by statute, could not consider the renewal application on the merits.
The predicate of the bankruptcy court order is that the unpaid taxes were the only impediment to renewal. However, the board submits that under the state statute it never had the opportunity to exercise its discretion. Appellant's brief at 14. The effect of a stay or injunction tailored to the state tax accounts should be to permit the board to review and act on the renewal application consistent with the unaffected provisions of the Liquor Code and without violating the Bankruptcy Code.
The order of the bankruptcy court directing the board to renew debtor's license will be vacated. This proceeding will be remanded to the bankruptcy court with...
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