CH. 11 Did State ABC violate Automatic Stay?

[bkprlg722]

The Alcholoic Beverage Comission had taken a liquor liscense four days after the debtor filed his pro se petition for Chapter 11 bankruptcy. Yes there was money owed to them. ABC said that they are a reuglatory agency and did not have to honor the stay. Liquor liscense was taken after his filing. If the stay was violated where can I look in bankruptcy codes or court cases that will support this argument.
Thanks everyone for your time and I look forward to your replies.

[justbroke]

You look no further than 11 USC 362.

Additionally, there is some split on this. In most jurisdictions, the theory is that regulatory situations (licensing) are not stayed by the filing of the petition.

11 USC 362(b) The filing of a petition under section 301, 302, or 303 of this title, or of an application under section 5(a)(3) of the Securities Investor Protection Act of 1970, does not operate as a stay—
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(4) under paragraph (1), (2), (3), or (6) of subsection (a) of this section, of the commencement or continuation of an action or proceeding by a governmental unit or any organization exercising authority under the Convention on the Prohibition of the Development, Production, Stockpiling and Use of Chemical Weapons and on Their Destruction, opened for signature on January 13, 1993, to enforce such governmental unit’s or organization’s police and regulatory power, including the enforcement of a judgment other than a money judgment, obtained in an action or proceeding by the governmental unit to enforce such governmental unit’s or organization’s police or regulatory power;

Pretty clear to me.

[HHM]

Not a violation as Justbroke points out.

[despritfreya]

See, this is where facts need to be known. Why was the license taken? Was it because money was owed - which IS NOT an exercise of a regulatory power under (b)(4) but rather an attempt to collect a debt and is a violation of 362(a). Or, was there some code violation that resulted in the loss of the license?

The problem here is that the license is an asset of the estate and, in most instances, a very valuable asset. If the seizure of the license was due to money owed, I hope the debtor finds a good attorney. If it was for some other reason (serving liquor to minors is an example) then I doubt it will be recoverable.

Des

[justbroke]

Des brought up a very good point with regard to whether this is really the ABC performing a regulatory or policing function. Des, I think it would be worth arguing to see what the thinking is in that District. In Florida, it would be seen as exercising a regulatory/policing authority. I'm saying this because the initial post only eluded to money owed, and there may have been more reasons in the exercising of the regulatory authority by the board acting as the ABC.

It would be a cool stay violation contested matter, for sure.

[HHM]

I still doubt it is a stay violation. In many states, a liquor license isn't alienable, meaning, it can't simply be bought or transferred to another party, so it really has zero value to the estate.

In any event, Des raises a good point, this issue is very much dependent on state law issues, not bankruptcy. Why was the license taken, under what authority. Was it really taken because of a debt, (what is the underlying nature of that debt, excise tax, or some other type of debt), or was there a regulatory violation, e.g. got caught too many times selling liquor to minors, etc.

Also, a pro se chapter 11, talk about a disaster in the making.

[bkprlg722]

Ok found out more information.... He had owed the money to the state for back taxes. He was unable to show Certificate of Good Standing b/c of the back taxes and therefore ABC did not give him his liscense.

[justbroke]

Ok found out more information.... He had owed the money to the state for back taxes. He was unable to show Certificate of Good Standing b/c of the back taxes and therefore ABC did not give him his liscense.

There were some specific cases on this exact topic. An ABC licensee had the license revoked/cancelled for failure to pay back taxes. Let me look it up again.

In any event, one could argue that the ABC was performing a policing activity. It was not that the debtor owed money to the ABC for licensing. It was that the debtor failed to comply with the requirements of remaining in good standing with the Department of State. I would argue that this is not a violation based on 11 USC 362(d)(4).

I don't see a violation because it is not excepted from 362(b)(4) since it's not an action related to money. Now you could argue that it is indirectly related to money, but the action itself is for non-compliance.

However, In re William Tell II, Inc., 38 BR 327 (DCt ND 111. 1983); shows that a revocation of a liquor license for failure to pay taxes was not in the interest of public health or safety. That case would side with you that this is a stay violation.

Then you have Newport Assembly Rest., Inc., 142 B.R. 22 (Bankr. D.R.I. 1992) (court would not bar state from suspending liquor license for nonpecuniary violations), which is the opposite in which it was not a stay violation.

Now, what would Des say?

[bkprlg722]

Awesome thanks.

[HHM]

Based on those facts, I would agree with JustBroke, not a stay violation. The debtor was merely no longer eligible for the license, so it was revoked.

[despritfreya]

He had owed the money to the state for back taxes. He was unable to show Certificate of Good Standing b/c of the back taxes and therefore ABC did not give him his license.

I still doubt it is a stay violation. In many states, a liquor license isn't alienable, meaning, it can't simply be bought or transferred to another party, so it really has zero value to the estate.

Now, what would Des say?

You asked so, here it is. . . without citing case law or code section, having dealt with this issue, but not with the exact facts presented. . .

1. HHM, the license has/had value. In my State a "class 6" is worth upwards of $80k and a "class 12" is worth around $30k. Apparently Arkansas is no different. . .

http://www.businessnation.com/Businesses_for_Sale/Ads/South-Arkansas-Restaurant-With-Liquor-License-For-Sale-32066.html

2. It sounds like the license had expired and the state refused to issue a new one due to the back taxes. This is different than revoking the license post petition, which would have been a clear violation of the automatic stay. However, since a governmental entity cannot deny a license due to a bk and the taxes will be paid in a bk, I would venture that the refusal of the state to issue a new license is a violation of the anti discrimination provisions of the Code. Could be wrong on that one but that would be my argument.

3. Now, if the state revoked the license post petition, since the license would have been an asset of the estate and such revocation would have been an attempt to coerce one into paying the pre petition taxes, well. . . you get the picture. I would be all over this. One state agency acted on behalf of another state agency in attempting to force collection of a debt by taking control of an asset of the estate -bad, bad, bad. I have handled such issues before even dealing with a liquor license. Never a winner for the government.

Edt: The same argument - state discrimination - could be made as it relates to the "in good standing" issue.

Des.

[justbroke]

I agree, Des, that if it's coercive and the act was to enforce the collection of taxes, then it is clearly a violation. But my argument was (is) that if this was merely procedural, because the business was not in good standing (whether it was for taxes or for not filing certain required financial reports with the Secretary of State), then I see it as a policing activity and not for taxes.

Yes, it doesn't look good... and I'd certainly think it would be fun to challenge!

[despritfreya]

But my argument was (is) that if this was merely procedural, because the business was not in good standing (whether it was for taxes or for not filing certain required financial reports with the Secretary of State), then I see it as a policing activity and not for taxes.

Then I would imagine that there should be nothing preventing the debtor from starting a new business entity "in good standing", applying for and obtaining a new license and, assuming it is issued, resuming operations without much of an interruption in bar revenues.

Des.

[justbroke]

I agree with your point, though, that it was probably coercion between the taxing authority and the ABC. Now, that would be very bad!