Liquor License - Tools of the trade

[kmiller]

My trustee rejected my use of "Tools of the Trade" exemption for a Liquor License. I need to justify this to him. Does anyone have anything to support this or a case where it was accepted?

Chapter 7, option 2, California

[despritfreya]

I did a quick “search”. Found one case out of Ohio. It goes against you but, since I do not know California law, it may not apply. However, if it does, you may have been better off claiming any available wild card exemption under 703, instead of the tool of trade exemption under 704. Hopefully you have an attorney. If not, I recommend you find one.

___________________________________


In re Johnson, 255 B.R. 554 (Bankr.S.D.Ohio, 2000)

The debtors were holders of a liquor license, that expires on February 1, 2001, and was issued by the State of Ohio for the operation of their business, Martins Ferry Drive Thru Carry-Out. The debtors filed their chapter 7 petition on April 17, 2000, and the liquor license became property of the bankruptcy estate under 11 U.S.C. § 541. The debtors wish to claim an exemption under Ohio Revised Code § 2329.(A)(5) for the liquor license as "an implement or tool of their profession, trade, or business." The bankruptcy court for the Western District of Pennsylvania has considered the claim of exemption for a liquor license under the federal exemption provision, 11 U.S.C. § 522(d)(6), which is comparable to Ohio's exemption provisions under Ohio Revised Code § 2329.66(A)(5). Both provisions pertain to exemptions for tools of trade. In its decision, the Pennsylvania bankruptcy court held, "The claim that the license is subject to the exemption of $750 under 11 U.S.C. § 522(d)(6) for implements, professional books or tools of the trade of the debtor' is disallowed on the ground that a license confers a right or privilege to transact a type of business and is not a professional book or tool or implement by means of which acts involved in the conduct of a trade or business are performed." McNamara v. Kienholz (Matter of Stubenhofer), 31 B.R. 820 (Bankr.W.D.Pa.1983). The court then restated the same position in a separate case decided the same day. See Caylor v. Moss (citation omitted) The court did allow the liquor license to be exempted as property, in both cases, under 11 U.S.C. § 522(d)(5), the wildcard provision of the federal exemptions.

____________________

Des.

[justbroke]

My trustee rejected my use of "Tools of the Trade" exemption for a Liquor License. I need to justify this to him. Does anyone have anything to support this or a case where it was accepted?

I don't know how a liquor license is a "tool of the trade".

[chrisdfw]

Does the liquor license have a cash value? Is it transferrable?

I hold several licenses and none of them can be transferred to someone else. For example a doctor cannot sell their medical license to me and have me perform medical treatment.

[despritfreya]

Does the liquor license have a cash value? Is it transferrable

A liquor license, depending upon the "class" and State law has value. In my State a "class 6" license can be worth as much as $80k and there is no exemption that will protect it.

Des.

[HHM]

As with any asset, the 1st two questions are
1. Can the item be transferred or sold
2. How much is the item worth.

Since there is some negative case law on the books about liquor licenses, you probably have an uphill battle on the TOT. But if you are using CA system 2, you can probably just exempt it as an asset. But, if not, you may need to consider converting to chapter 13 or buy the license back from the trustee.

[IBroke]

A liquor license, depending upon the "class" and State law has value. In my State a "class 6" license can be worth as much as $80k and there is no exemption that will protect it.

Des.

Hi Des. Please check your PM.

[helpmeout]

I don't know how a liquor license is a "tool of the trade".

You can't sell alcoholic beverages without it. And if your business is a bar, well, you no longer have a business if you lose your liquor license.

[helpmeout]

Does the liquor license have a cash value? Is it transferrable?

I hold several licenses and none of them can be transferred to someone else. For example a doctor cannot sell their medical license to me and have me perform medical treatment.

In NJ, it is not easy to transfer or get a liquor license. And they are expensive. The Trustee simply can't take it and sell it quickly. S/he would have to find someone who can get an ABC license (separate from the liquor license) AND get the approval of the municipality. How easy it is in California is going to depend on state laws.

In NY, there really is no value as the liquor license has to be renewed annually.

[justbroke]

You can't sell alcoholic beverages without it. And if your business is a bar, well, you no longer have a business if you lose your liquor license.

That does not, in any way, transform a requirement to do business (such as a business license or sales tax certificate) into a "tool".

I know a little about liquor licenses, having had one. In many jurisdictions, the class of liquor license is key to determining value.

First, please remember that the Trustee steps into the shoes of the debtor and controls all property of the Estate. This is something people forget. If the owner could sell or otherwise transfer an asset (property of the Estate), so can the Trustee (with extremely limited circumstances where they cannot). I have never seen a liquor license treated as a tool of the trade. It's not a "professional" license either, so restricted transferability is another matter. However, I can agree that the transferee must be "suitable" to have said license under most municipal and state (or county) laws.

So, back to the basics and simplicity of what HHM wrote... is it transferable and does it have value. For most jurisdictions (and I don't know of one that doesn't allow it), the former is true. However, the latter is the part that will concern the Trustee more. Is it even worth the effort. I know that in some States and jurisdictions where liquor licenses are capped by ordinance or statute, the intrinsic value of said license is significant even though the "face" value or "renewal" costs are typically "cheap".

I'm now full circle where I started. If it's an asset, then just exempt it. If you don't have the exemptions to cover it, then you are probably going to lose it, unless the Trustee finds it to be of insignificant value or difficult to sell.

None of that changes the fact that in most cases, it's simply not a "tool" of the trade. See McNamara v Kienholz (In re Stubenhofer), 31 B.R. 820 (Bankr. W.D. Penn. 1983) (declining to exempt a liquor license as a tool of the trade). A liquor license is a "requirement" of doing business. It is not a "tool" by any definition; no more than a doctor's license to practice medicine, not a "tool" of the trade, but a requirement of doing business.

At least, that's my opinion based on my studies in this area.