Matter of Elsinore Shore Associates
| Decision Date | 02 April 1986 |
| Docket Number | Adv. No. 85-0242.,Bankruptcy No. 85-06058 |
| Citation | 66 BR 708 |
| Parties | In the Matter of ELSINORE SHORE ASSOCIATES, f/k/a Playboy Elsinore Associates, a New Jersey partnership, d/b/a the Atlantis Casino Hotel, Debtor. ELSINORE SHORE ASSOCIATES, f/k/a Playboy Elsinore Associates, a New Jersey partnership, d/b/a the Atlantis Casino Hotel, Plaintiff, v. NEW JERSEY DIVISION OF ALCOHOLIC BEVERAGE CONTROL and John F. Vassallo, Jr., in his capacity as Director of New Jersey Division of Alcoholic Beverage Control, Defendants. |
| Court | U.S. Bankruptcy Court — District of New Jersey |
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Crummy, Del Deo, Dolan, Griffinger & Vecchione by Karen A. Giannelli, Geraldine E. Ponto, Newark, N.J., for Elsinore Shore Associates.
Valore, McAllister, Westmoreland, Gould, Vesper & Schwartz by Alan I. Gould, Wildwood, N.J., for Creditors' Committee.
James C. Fogarty, Deputy Atty. Gen., State of N.J., Div. of Gaming Enforcement, Lee Barry, Barbara A. Pryor, Deputy Attys. Gen., State of N.J., Dept. of Law and Public Safety, Div. of Law, for New Jersey Div. of Alcoholic Beverage Control.
The instant matter is an Order to Show Cause and Complaint filed by the debtor, Elsinore Shore Associates, d/b/a The Atlantis Casino Hotel (debtor), against the New Jersey Division of Alcoholic Beverage Control (ABC) and its Director, John F. Vassallo, Jr.
In this case, the debtor filed a voluntary petition under Chapter 11 of the Bankruptcy Code on November 14, 1985. At the time of the filing of the petition, the debtor, as the owner and operator of the Atlantis Casino Hotel in Atlantic City, New Jersey, was a licensed retailer of alcoholic beverages in the state of New Jersey. Accordingly, the debtor made purchases of alcoholic beverages from approximately fifteen New Jersey wholesalers on a weekly basis in the ordinary course of its business. Purchases were made in the approximate amount of $16,000.00 to $17,000.00 per week, subject to credit terms with the wholesalers of net thirty days. At the time of the filing of the Chapter 11 petition, the debtor's total amount of unpaid invoices for prepetition purchases of alcoholic beverages from all of its wholesalers totalled $75,638.24.
Since the debtor filed its voluntary petition under Chapter 11 of the Bankruptcy Code on November 14, 1985, New Jersey wholesalers of alcoholic beverages have suspended the debtor's credit terms pursuant to N.J.Admin.Code tit. 13, § 2-24.4 (1984), a credit regulation promulgated by the director of the ABC. Pursuant to N.J. Admin.Code tit. 13, § 2-24.4 (1984), credit terms established by an individual wholesaler shall be offered equally to all retailers unless different terms as to an individual retailer are justified by the financial or credit history or risk of the individual retailer. N.J.Admin.Code tit. 13, § 2-24.4(a) (1984). The regulation permits wholesalers of alcoholic beverages to extend credit to retailers for a maximum of thirty days from the date of delivery of the alcoholic beverages. N.J.Admin.Code tit. 13, § 2-24.4(a)(1) (1984). If payment is not tendered within thirty days, wholesalers must transmit a "Notice of Obligation" to the defaulting retailer or its employee within three business days of the date the obligation was due. N.J.Admin.Code tit. 13, § 2-24.4(b) (1984). The "Notice of Obligation" shall inform the defaulting retailer of the amount due, the date the delinquency occurred, and the consequences of nonpayment. N.J.Admin.Code tit. 13, § 2-24.4(b)(1) (1984). If the debt still remains unpaid, a "Notice of Delinquency" must be transmitted by the wholesaler to all wholesalers of alcoholic beverages in this state, and to the retailer who is the subject of the notice. N.J.Admin.Code tit. 13, § 2-24.4(c) (1984). Wholesalers who receive a "Notice of Delinquency" may only sell liquor to the defaulting retailer on a cash basis, until the retailer pays the existing debt and a "Notice of Satisfaction" is issued by the wholesaler. N.J.Admin.Code tit. 13, § 2-24.4(c)(2)-(d)(1) (1984). Additionally, N.J.Admin.Code tit. 13, § 2-24.4(g) (1984) provides that in the discretion of the Director, the provisions of N.J.Admin.Code tit. 13, § 2-24.4 (1984) may be relaxed "where a formal debt liquidation plan has been entered into" by a debtor-retailer.
On November 19, 1985, Majestic Time & Spirits, a wholesaler of alcoholic beverages to the debtor, issued a "Notice of Obligation" to the debtor pursuant to N.J.Admin.Code tit. 13, § 2-24.4(b) (1984) informing the debtor that it was delinquent in payment of two prepetition invoices for the purchase of alcoholic beverages. On November 25, 1985, the debtor was informed by the ABC that enforcement of the provisions of the credit regulation in this case would not be relaxed. On or about December 2, 1985, the debtor received a "Notice of Obligation" from Harrison Beverage Co., another of its wholesalers, for a prepetition delivery of alcoholic beverages.
Beginning with the debtor's first post-petition purchase of alcoholic beverages, alcoholic beverage wholesalers placed the debtor on a "c.o.d.-only" basis since the debtor had failed to pay prepetition invoices to them. The debtor alleges that the c.o.d. payment requirement has severely disrupted its business, specifically the purchasing and accounting functions thereof. The debtor further contends that application of N.J.Admin.Code tit. 13, § 2-24.4 (1984) to it penalizes it for complying with federal bankruptcy law, and constitutes discriminatory treatment from which it is entitled to protection pursuant to 11 U.S.C. § 525. Additionally, the debtor claims that imposition of the regulation interferes with the debtor's right to a breathing spell in violation of the automatic stay provisions of 11 U.S.C. § 362(a)(1), and does not fall within the police power exception to the automatic stay contained in 11 U.S.C. § 362(b)(4). In the alternative, the debtor asserts that if the enforcement of the regulation falls within the exception to the automatic stay, the court should enjoin the enforcement of the regulation under 11 U.S.C. § 105(a).
By its complaint and order to show cause, the debtor seeks an order and judgment (1) declaring the operation of N.J.Admin.Code tit. 13, § 2-24.4 (1984) as enforced by the ABC and its director against the debtor, discriminatory treatment from which the debtor is protected under 11 U.S.C. § 525; (2) declaring the operation of N.J.Admin.Code tit. 13, § 2-24.4 (1984) to be subject to the automatic stay provision of 11 U.S.C. § 362(a), and; (3) requiring the ABC and its director to remove the debtor from any delinquency list on which the debtor's name appears as a result of the debtor's failure to pay dischargeable prepetition invoices of wholesalers for prepetition purchases of alcoholic beverages. In the alternative, the debtor seeks: (1) an injunction prohibiting the enforcement of N.J.Admin.Code tit. 13, § 2-24.4 (1984) against the debtor, and compelling the removal of the debtor's name from any delinquency list circulated to New Jersey wholesalers of alcoholic beverages pursuant to 11 U.S.C. § 105(a), and; (2) other and further equitable relief.
The ABC and its director, the defendants herein, seek dismissal of the debtor's complaint. Defendants contend that they have not taken any action against the debtor based upon the debtor's Chapter 11 status. Furthermore, defendants claim that they should not be precluded from enforcing N.J.Admin.Code tit. 13, § 2-24.4 (1984) against the debtor because: (1) the debtor may still serve alcoholic beverages to its customers; (2) the debtor may establish a funded line of credit against which future purchases may be drawn, and; (3) the debtor may obtain reestablishment of a credit arrangement pursuant to N.J.Admin.Code tit. 13, § 2-24.4(g) (1984) when it enters into a reorganization plan.
Furthermore, the defendants, by way of their answer, raise the following defenses: (1) the complaint fails to set forth a cause of action upon which relief can be granted; (2) this court lacks jurisdiction over the subject matter; (3) the plaintiff has not been deprived of any right, privilege or immunity secured by the United States Constitution or any Act of Congress; (4) defendants acted at all times in good faith and without fraud or malice; (5) defendants did not know, and were not expected to know, that any actions taken by them with respect to the plaintiff were in violation of plaintiff's constitutional rights; (6) plaintiff's request for injunctive and declaratory relief is barred by the Eleventh Amendment of the United States Constitution; (7) 28 U.S.C. § 157 does not authorize a non-Article III bankruptcy court to invalidate a state statute or regulation; (8) plaintiff's position pursuant to N.J.Admin.Code tit. 13, § 2-24.4 (1984) does not constitute an "action" or "proceeding" and thus is not within the provisions of 11 U.S.C. § 362(a); (9) if 11 U.S.C. § 362(a) is applicable in the instant matter, defendants are exempt from operation of the automatic stay under 11 U.S.C. § 362(b)(4); (10) 11 U.S.C. § 525 is inapplicable to this action; (11) plaintiffs have not suffered irreparable harm; (12) under the Twenty-First Amendment of the United States Constitution, the State of New Jersey has the right to promulgate rules and regulations governing the conduct between alcoholic beverage retail licenses, and wholesalers and distributors of alcoholic beverages, and; (13) N.J.Admin. Code tit. 13, § 2-24.4 (1984) is a reasonable regulation which promotes stability of the alcoholic beverage industry and provides for the welfare of the people of New Jersey.
This court must first address the issue of this court's jurisdiction over the instant action.
On July 10, 1984, the Bankruptcy Amendments and Federal Judgeship Act of 1984 (1984 Act) became law. The 1984 Act amended 28 U.S.C. § 1334 to vest the district courts with ...
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