Matter of K & C Liquors Inc. v New York State Liq. Auth.

[*1] Matter of K & C Liquors Inc. v New York State Liq. Auth. 2018 NY Slip Op 51175(U) Decided on July 18, 2018 Supreme Court, Bronx County Brigantti, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on July 18, 2018
Supreme Court, Bronx County

In th Matter of the Application of K & C Liquors, Inc., Petitioner, For a Judgment under Article 78 of the Civil Practice Law and Rules,

against

New York State Liquor Authority, Respondent.



260039/2018



Counsel for petitioner: Allyn & Fortuna LLP (Megan J. Muoio, Esq)

Counsel for respondent: Christopher R. Riano, Esq., General Counsel for New York State Liquor Authority (Margaret Marisco, Esq.)
Mary Ann Brigantti, J.

The following papers numbered 1 to 6 read on the below motion noticed on April 16, 2018 and duly submitted on the Part IA15 Motion calendar of April 16, 2018:

Papers Submitted Numbered

Petition, Exhibits 1,2

Resp.'s Answer, Memo. of Law., Exhibits 3,4,5

Pet.'s Reply Aff. 6

Upon the foregoing papers by way of Order to Show Cause, petitioner K & C Liquor, Inc. ("Petitioner") seeks a judgment pursuant to Article 78 of the CPLR, (1) reversing the respondent's denial of Petitioner's liquor license application for an off-premises liquor license bearing Serial Number 1305729; (2) reversing respondent's denial of Petitioner's request for reconsideration dated November 22, 2017 and, upon reconsideration, granting Petitioner's application for an off-premises liquor license; and (3) such other and further relief as the Court deems appropriate. Respondent New York State Liquor Authority ("SLA") opposes the petition.

I. Background

Petitioner is a limited liability company based in the Bronx, and its principal is Francisca Burgos ("Burgos"). In December 2013, Burgos and her husband operated a liquor store called E & R Wine & Liquor ("E & R") at 557 East Fordham Road in the Bronx. E & R's liquor license [*2]was set to expire on March 31, 2015. Some time in March 2015, the Burgos family sold their business to Felix Diaz ("Diaz") of Krazie Eddie Liquor Store Corp. The new store owner then applied for a new liquor license on April 8, 2015. The license was issued on July 9, 2015. In June 2016, Diaz transferred the business back to the Burgos family and surrendered his liquor license to SLA. Petitioner thus took back its lease on 557 East Fordham Road under the assumption that it would be able to re-license the premises.

On December 9, 2016, Petitioner applied for a liquor license for its previously-licensed location at 557 East Fordham Road. Petitioner asserts that when it made this application, its attorney at the time failed to indicate that the premises was previously licensed. The application went before a Full Board hearing on March 2, 2017. Petitioner contends that its prior attorney did not appear for the hearing or notify Burgos of the proceedings. At the hearing, a representative of the Belmont Business Improvement District ("BID") allegedly raised concerns that Burgos' son, who has a criminal record, would be running the business. Petitioner claims that this allegation should not have been considered because Burgos and her husband, and not her son, had always operated the business. Reynoldo Garcia, the proprietor of a nearby liquor store Chury's Wine & Liquor, Inc. ("Chury's"), also opposed the application alleging that his sales would be affected. Petitioner alleges that Garcia failed to mention that he opened Chury's in October 2014, when E & R was already operating at 557 East Fordham Road. Petitioner states that its counsel failed to rebut the statements made in opposition to the application, and failed to otherwise argue why Petitioner would serve the public convenience and advantage. On April 12, 2017, the Full Board denied the application. In its decision, the SLA determined that there were at least five package stores operating within 0.4 miles of Petitioner's proposed location, and all but one of these stores reported declining annual gross sales over the last several years. SLA also noted that Petitioner submitted no evidence that it would offer unique goods or services unavailable at existing stores, or evidence of a change in neighborhood population or demographics that would warrant the addition of another retail liquor store. SLA also referred to a letter from the director of the BID noting its opposition to this application, given the number and close proximity of current licensees.

Petitioner thereafter requested reconsideration of the denial. On July 2, 2017, a "disapproval hearing" took place in front of an Administrative Law Judge ("ALJ"). Petitioner's prior counsel allegedly appeared at this hearing but presented no evidence and did not notify Burgos of the hearing. At the hearing, the ALJ reviewed the evidence and noted that Petitioner only alleged that SLA incorrectly evaluated the gross sales data, and for that reason, it claimed that the decision was incorrect. The ALJ noted that Petitioner ignored the SLA's other reasons for denying the application: the absence of evidence of changed population and demographics, the offering of unique goods and services, and the failure to demonstrate that the public convenience and advantage would be served by issuing a package store license for this location. The ALJ thus found a "clear rational basis" for the SLA's decision and found that it was not arbitrary or capricious.

On September 25, 2017, Petitioner retained new counsel and re-applied for an off-premises liquor license. This application was again denied by the SLA on October 25, 2017. In its decision, SLA noted that Petitioner's December 2016 application had been denied. SLA stated that "[t]he instant application contains no additional information or facts that alter the [*3]original cause for denial. The License Board finds that the reasons behind the original disapproval are still valid and relevant to the current application." On November 22, 2017, Petitioner requested reconsideration of the denial. By e-mail dated January 3, 2018, SLA denied Petitioner's request for reconsideration, which was SLA's final determination of the matter.

Petitioner thereafter commenced this proceeding, alleging that SLA's decision denying its September 2017 application for an off-premises liquor license was irrational and arbitrary, capricious, and unsupported by legally sufficient or substantial evidence and in violation of lawful procedure.

Petitioner argues that the 2016 application denial was based on incomplete information, since that application failed to alert SLA to the fact that the premises were previously licensed by Burgos and a successor business. As a result, SLA was led to believe that Petitioner was attempting to secure a new business in the neighborhood rather than continue business at a previously-licensed location. This was important because, according to Petitioner, SLA's December 2016 denial was also based on the incorrect assumption that the neighborhood was already being served by five other off-premises establishments and that the neighborhood had never had six licensed liquor stores. Petitioner also argues that in denying the 2016 application, SLA credited opposition from the BID and Chury's, alleging that the store would not serve the public convenience and advantage, and would be detrimental to Chury's sales. However, Petitioner asserts that there had been a licensed off-premises liquor store at 557 East Fordham Road from 2013 to mid-2016 which did not affect neighboring liquor stores and actively served the public, and the Petitioner's application was merely seeking to reinstate the status quo. Petitioner argues that crediting Chury's opposition was particularly arbitrary because Petitioner had operated E & R at 557 East Fordham Road before Chury's had applied for an off-premises license in October 2014. When Chury's applied for that license, there were already five liquor stores in the neighborhood, of which Petitioner was one, and yet SLA issued a sixth license without objection. Petitioner further alleges that Chury's claims of declining sales should not have been credited because, according to Burgos, Chury's had limited selection and erratic hours, often opening later than the posted time of 12PM and closing earlier than other stores in the area.

Petitioner alleges that its most recent application dated September 25, 2017 sought to rectify the failings of prior counsel. In denying the new application, however, SLA did not hold a hearing and "arbitrarily and capriciously" denied the application stating that there were no new circumstances from the December 2016 application. Petitioner thereafter requested reconsideration of that decision. In its request, Petitioner presented evidence that the population of the Belmont neighborhood had increased from 2000 - 2010, and the Bronx was the fastest-growing borough according to U.S. Census projections. Moreover, there had been recent development in the area including the new Fordham Plaza transit hub that was completed in 2016. Petitioner claimed that its proposed location was located in a part of the neighborhood that would serve residents, nearby Fordham University graduate students and employees, as well as commuters around East Fordham Road who would not venture south of East 187th Street to shop at a liquor store. SLA nevertheless denied reconsideration of Petitioner's application. Petitioner claims that this denial was arbitrary and capricious because SLA treated Petitioner differently from recent applicants. While SLA claimed that it denied the applications in 2016 and 2017 because there were already five liquor stores in the Belmont neighborhood, those five stores were [*4]in Belmont in 2014 when Chury's applied for an off-premises license. Petitioner's predecessor E & R was one of those stores in operation at that time. Despite that fact, the SLA issued Chury's a license without delay. Petitioner alleges that there was no rational basis on which this Court can conclude why Petitioner and Chury's were treated differently, other than by concluding that the SLA's decisions were arbitrary and capricious.

In opposition to the petition, SLA argues that Petitioner has failed to satisfy its heavy burden of proving that SLA's denial of Petitioner's off-premises liquor license applications was arbitrary, capricious, or an abuse of discretion. SLA concluded that the public convenience and advantage would not be promoted by the issuance of a liquor license. SLA noted that Petitioner would be selling the same products that are being sold by current licensees, that the gross sales figures of the existing stores had shown a consistent decline notwithstanding the fact that the population is experiencing a marginal upward trend, and Petitioner would be in close proximity to existing stores. Petitioner offered no explanation as to how another bullet-proof package store would benefit the community. Petitioner's mere disagreement with SLA's decision does not warrant a determination that the denial was without a rational basis.

In an affidavit, SLA's Chairman Vincent G. Bradley states that there are already at least five liquor stores within 0.4 miles of the proposed location, and three of the nearest stores showed steadily declining sales, and the closest store that opened in 2014 also reported declining annual gross sales over the last several years. The Chairman states that SLA also received a strong letter of opposition from the BID indicating that the area was being adequately served. After the December 2016 application was upheld by the ALJ, the Full Board formally upheld the ALJ determination. Petitioner's new 2017 application contained nothing new. While Petitioner's request for reconsideration stated that the population of the area had been increasing, the fact that gross sales figures had been steadily decreasing since 2012 indicates that the area does not warrant an additional retail license. The Chairman also noted that in his experience, an oversaturation of liquor licenses in a community causes the stores to engage in violations just to stay in business, which is detrimental to the community. Further, there was no evidence that this store would offer products or services not already being provided by the existing stores. While Petitioner's principal feels entitled to a license because it was previously granted a license at the same location in 2013-2014, during this licensing determination, the Chairman reviewed the gross sales data from 2012-2016 of the closest five liquor stores and determined that an additional store would not serve the public convenience or advantage. Included among SLA's opposition papers are gross sales data letters from the liquor stores surrounding Petitioner's proposed location.

Petitioner submits an affirmation in reply arguing, inter alia, that SLA's opposition failed to mention that SLA did not review and later ignored new information relevant to the application, and SLA treated Petitioner differently than previously-granted liquor license applications. Petitioner further noted that the sales data supplied in opposition actually supports its contention that there is capacity and need for additional stores in the Belmont neighborhood. When coupled with SLA's disregard of information regarding the changing demographics and growth in the area, it is evident that SLA's denial was without a rational basis.

II. Standard of Review

In evaluating an administrative decision by way of Article 78 proceeding, this court must [*5]determine whether the determination was rational, arbitrary and capricious, or an abuse of discretion (CPLR 7803, Concourse Rehabilitation & Nursing Center, Inc. v. Novello, 80 AD3d 507 [1st Dept. 2011]). Stated another way, an administrative decision may be judicially reviewed as to whether "a determination was made in violation of lawful procedure, was affected by an error of law or was arbitrary and capricious or an abuse of discretion, including abuse of discretion as to the measure or mode of penalty or discipline imposed" (CPLR 7803[3] ). The administrative determination will be upheld if it is supported by a rational basis (Matter of Nehorayoff v. Mills, 95 NY2d 671 [2001]).

SLA is expressly empowered by the Alcoholic Beverage Control Law ("ABCL") "to determine whether public convenience and advantage will be promoted by the issuance of licenses to traffic in alcoholic beverages, the increase or decrease in the number thereof and the location of premises licensed, subject only to the right of judicial review herein provided for" (ABCL §2). SLA "is given wide latitude in the exercise of its powers" (Galaxy Bar & Grill Corp. v. New York State Liquor Authority, 154 AD3d 476, 478 [1st Dept. 2017][internal citations omitted]). In reviewing Respondent's determinations, "the test to be applied by the court is whether its determination has a rational basis in the record" (id., citing C. Schmidt & Sons v. New York State Liq. Auth., 73 AD2d 399, 404 [1st Dept. 1980] aff'd, 52 NY2d 751 [1980]). If the determination has a rational basis, it is not arbitrary or capricious (C. Schmidt & Sons, supra, 73 AD2d at 404, citing Matter of Pell v. Board of Educ., 34 NY2d 222, 231 [1980]). "Even if a court might reach a different conclusion, it should not substitute its judgment for that of an administrative agency...absent a demonstration of capriciousness or irrationality" (id. [internal citations omitted]; see also Paramount Communications, Inc. v. Gibraltar Cas. Co., 90 NY2d 507, 514 [1997]).

III. Applicable Law and Analysis

In this matter, SLA demonstrated that it had a rational basis for denying Petitioner's December 2016 application. Respondent's denial of that applications, after a Full Board Meeting, was based upon (1) the fact that at the time of the application, there were at least five other package stores within 0.4 miles of the proposed store location; (2) evidence that "all but one" of these stores reported declining annual gross sales over the last several years, (3) that Petitioner submitted no evidence that it will offer any goods or services that are not available at the existing package stores, (4) that there was no evidence of any change in the community's population or demographics that would warrant the addition of another retail liquor and wine outlet in the area, and (5) a letter from the director of the local Business Improvement District ("BID") opposing the application, given the number and close proximity of the current licensees. It is well-settled that the close proximity of other license holders, declining gross annual sales in some of those stores, and a finding that the community is adequately served by existing license holders constitutes a rational basis for denying issuance of a new retail liquor store license (see Matter of Liquors Ltd. v. Roth, 57 AD2d 961 [1st Dept. 1980], aff'd, 44 NY2d 653 [1978][close proximity of four liquor stores, declining sales in two of them, and submarginal volume of growth in third provided reasonable grounds for license denial]; 401 East 138th St. Wine & Liquor Corp. v. New York State Liquor Authority, 75 AD2d 730 [1st Dept. 1980][four other package stores adequately served the community, gross annual sales volume of two of the four existing stores were on the decline]; see Oliver v. State Liquor Authority, 34 AD2d 676 [2nd Dept. [*6]1970]). There is no evidence that, in denying the application, SLA improperly relied upon the allegations that Burgos' son, who had criminal record, would be running the store. Petitioner also fails to show that this denial was premised upon a "faulty assumption" concerning the number of liquor stores in the area previously or that SLA credited a letter in opposition submitted by the proprietor of Chury's. The decision cited additional factors such as no evidence of a change in population and demographics and no evidence that the store would offer anything new or different for the neighborhood that would service public convenience or advantage.

The SLA determination was upheld by the ALJ after a disapproval hearing, who found inter alia that "[o]ther than challenging the change in gross sales for two of the closest locations, that alone is not enough to compel a finding that the Licensing Bureau erred in denying the application, particularly because the applicant does not dispute or challenge the facts on which the Licensing Bureau based its decision, and does not address the absence of significant evidence." This ALJ determination was later upheld after a full meeting before members of the SLA, who found that Petitioner only challenged one of the factors relied upon that SLA relied upon in denying the application, and Petitioner could not submit new evidence that was not part of the original record.

Petitioner's most recent application - the one that is the subject of this proceeding - was also denied. Petitioner then requested reconsideration of the denial. In a letter with attached exhibits, Petitioner argued that reconsideration was warranted because significant issues were not raised in the prior application, notably the fact that Petitioner had been previously licensed at the same location from December 2013 - mid-2015. Petitioner would operate its store in a different part of the neighborhood, to serve customers near the newly-reconstructed, pedestrian-friendly Fordham Plaza. Petitioner highlighted the fact that the Bronx was the fastest-growing borough in terms of population. Petitioner also noted that the closest store - Chury's - opened after Plaintiff's predecessor E & R opened in the neighborhood. Apparently in 2014 Chury's concluded that the neighborhood could support a fourth liquor store, but now it opposes the re-licensure of the location at 557 East Fordham Road. Petitioner's request for reconsideration was denied by e-mail dated January 3, 2018.

Upon the entirety of the record before the court and following oral argument, Petitioner has made a sufficient showing that SLA lacked a rational basis for denying reconsideration of its denial of Petitioner's most recent off-premises liquor license application. As a part of its rational basis, SLA contends that the area was already adequately served because there are five liquor stores within 0.4 miles of Petitioner's planned location. However, the record demonstrates that the closest store to Petitioner's planned location - Chury's - applied for a liquor license in 2014. At that time, there were already five other liquor stores in close proximity - the same four stores that exist presently, as well as Petitioner's predecessor business. Nevertheless, Chury's was awarded a liquor license. There is no demonstration that Chury's offered anything new or different to the community at the time it applied for its license, and in fact Petitioner's proprietor asserts that Chury's has limited stock and erratic hours of operation. An agency determination may be considered arbitrary or capricious if the agency decides differently upon identical facts (see Matter of Lefrak Forest Hills Corp. v. Galvin, 40 AD2d 211, 217 [2nd Dept,. 1972], aff'd, 32 NY2d 796 [1973], cert den., 414 U.S. 1004 [1973] [internal citation omitted]; see also Matter of G.J. & S Pizza v. McLaughlin, 78 AD2d 653 [2nd Dept. 1980]), or where those similarly situated [*7]receive different treatment (Concord Assoc., L.P. v. Town of Thompson, 41 Misc 3d 1208[A] [Sup. Ct., Sullivan Cty., 2013], citing Frank Lomangino & Sons, Inc. v. City of New York, 980 F. Supp. 676 [E.D.NY 1997]). Here, SLA denied reconsideration without explaining why Petitioner's application was denied when Chury's was awarded a license two years earlier despite similar if not identical circumstances. SLA's Answer and submissions in opposition do not directly address the different treatment between Chury's 2014 application and Petitioner's most recent application.

SLA alleges that it had a rational basis for denying the license because "all but one" of the five package stores within 0.4 miles of Petitioner reported declining gross sales over the last several years (SLA's Answer at Par. 17). However, this was not the case. According to the gross sales data letters provided by SLA, of the five stores in the immediate area, only two of them (North End Wine & Liquor Store, Inc. and Domix Wine & Spirits, Inc.) reported declining sales from 2012 through the first six months of 2016. Two stores showed increasing gross sales (Chris Antiques Furniture, Inc. and Chury's), and a third - Arthur Cantina, Inc., shows increased sales from 2011 through 2014, and a slightly decreased sales rate for the first six months of 2015. In an affidavit, SLA's Chairman states "[t]hree of the nearest stores showed steadily decreasing sales; the closest store was licensed in October 2014 and also reported declining annual gross sales over the last several years." Presumably the October 2014 store is in reference to Chury's. However, the gross sales data letter from Chury's demonstrates that it reported dramatically increasing, not decreasing sales. During the first six months of 2016, it reported $51,171.00 in gross sales, which was almost as much as Chury's reported for the entire calendar year 2015 ($54,809.00). While this Court cannot substitute its judgment for that of SLA, an agency's basis for its determination must be supported by the facts of reasonable persuasiveness (see Galaxy Bar & Grill Corp. v. New York State Liq. Auth., 154 AD3d at 479). It is evident that SLA's review of the gross sales data is at least partially inaccurate. The foregoing issue may not, alone, warrant a finding that SLA's determination was arbitrary and capricious, however when considered along with the fact that Chury's was granted a license two years earlier under similar circumstances, there is evidence that the determination was arbitrary and capricious. SLA fails to sufficiently explain why Petitioner was treated differently from Chury's - who applied for and received a license notwithstanding the fact that the area was already being served by five other liquor stores in close proximity, and the limited evidence submitted indicates that the sales figures of the surrounding stores had the same general pattern and trajectory, and there is no indication that Chury's offered any product or services different from the existing stores (see, e.g., Matter of G.J. & S Pizza v. McLaughlin, 78 AD2d at 655).

Where a determination is based in part upon inadequate or improper grounds, the determination must be annulled even if SLA also relied in part upon valid considerations (see Matter of Costco Wholesale Corp. v. New York State Liq. Auth., 125 AD3d 775, 776 [2nd Dept. 2015], citing P.G.P. Entertainment Corp. v. State Liq. Auth., 52 NY2d 886, 888 [1981]). SLA here relied on valid considerations in denying Petitioners' application - including evidence that the community was being adequately served despite the increased population in the neighborhood and recent renovations to Fordham Plaza, a letter from the local Business [*8]Improvement District stating as much [FN1] , as well as SLA's experience that an over saturation of liquor stores in an area can lead to instances were stores engage in violations just to stay in business, which is detrimental to the community. However, SLA failed to adequately address the evidence an earlier applicant in the neighborhood was granted a license under what appears to be identical circumstances, or the fact that the recitation of the area stores' gross sales data since 2012 is in part inaccurate. In light of the foregoing, this matter will be remitted to SLA for reconsideration of Petitioner's application, with an opportunity for both sides to address these issues (see P.G.P. Entertainment Corp. v. State Liquor Auth., 52 NY2d at 888).

IV. Conclusion

Accordingly, it is hereby

ORDERED that Petitioner's application is granted to the extent that the SLA's denial of Petitioner's request for reconsideration dated November 22, 2017 is annulled and the matter is remanded for further proceeding consistent with this Order.

This constitutes the Decision and Order of this Court.

Dated: July 18, 2018

Hon. Mary Ann Brigantti, J.S.C. Footnotes

Footnote 1:The Court does note, however, that adverse sentiment in the community alone is not a valid basis for denying a liquor license (see P.G.P. Entertainment Corp. v. State Liquor Auth., 52 NY2d at 888; Circus Disco, Ltd. v. New York State Liquor Auth., 51 NY2d 24 [1980]).