“Pocket Licenses” in Massachusetts

By John P. Connell & Robin E. Sosnow

“Pocket licenses,” as they are known in Massachusetts, are properly issued and current liquor license that are not being used because the licensed establishment, for whatever reason, has either temporarily closed its doors or stopped doing business altogether. Businesses can shut their doors for a host of reasons, such as temporary closures due to a fire or remodeling, or can permanently close due to financial distress, the loss of a lease or perhaps the death of the owner. When a licensed premise does close its doors, and stops using its liquor license, the license is then considered in the trade to be a “pocket license.”

In Massachusetts, the law is clear that, “[a] licensee cannot cease operations, sit silent and avoid contact with the local board without facing the real peril of the cancellation of its license.”In Re: Atara LLC dbaAtara Bistro (ABCC Decision dated October 17, 2003). “Pocket licenses,” therefore are considered to be in violation of the law and subject to cancelation by the local licensing board. “If the local licensing authorities determine that a license should be cancelled [for lack of use] the licensee may appeal to the [ABCC] . . . and the decision of the [ABCC] upon such appeal shall be final.” Bd. of Selectmen of Saugus v. Alcoholic Beverages Control Comm’n, 32 Mass. App. Ct. 914, 916 (1992), citing Mass. Gen. Laws ch. 138, § 77, as amended by St.1943, c. 542, § 19.

If a licensee’s closure is going to be temporary, the licensee should notify the local licensing board of the closure in advance and seek permission to be closed for the period of time it requires to be closed. If the closure is going to be permanent, however, as a result of financial distress, for example, the licensee will often want as much time as possible to market and sell the license at the highest price possible. It is common that a licensee will close its doors and neither the local licensing board nor the ABCC will be on notice of the closure for some time, and during this period a licensee will have the opportunity to market and sell the license before it receives a violation notice that it is not using its license.

When a business has closed and it has received notice from a licensing authority that it is not using the license, however, a race to sell the license before it is revoked will often ensue. As selling or transferring a license can take several months if not longer, the licensee that has received a notice of violation for non-use should first examine whether the licensing authority has properly provided it with notice and an opportunity to be heard on the issue.

Under the law, the holder of an inactive license is entitled to proper notice of a licensing board’s hearing on whether to cancel or revoke the license for non-use, and it shall be afforded “a reasonable opportunity to be heard.” See Mass. Gen. Laws, ch. 138, § 77 (governing cancellation of license upon cessation of licensed business); In Re: Atara LLC dbaAtara Bistro, (ABCC decision dated October 17, 2003). The issue of whether the violation notice provided to the license holder by a local licensing board, or the ABCC, regarding the potential cancellation of the license for non-use is sufficient under the law is governed by the Due Process protections afforded in the U.S. Constitution, which states that, “no one shall be deprived of life, liberty, of property without due process of law.” U.S. CONST., amend V, XIV. See Konstantopoulos v. Town of Whately, 384 Mass. 123, 135 (1981).

Accordingly, as a threshold matter, a licensee who is facing the prospect of losing its liquor license for non-use should examine whether it has received proper notice of a hearing, whether the notice signifies that revocation of the license may result from non-use and whether the hearing itself and the availability of witnesses will be sufficient to protect its Due Process rights. See Konstantopoulosat 138, n.10 (stating the licensee is “entitled to prior notice setting forth the specific chargeforming the basis of revocation”); Higgins v. License Comm’rs of Quincy, 308 Mass. 142, 145 (1941) (holding notice to the licensee setting forth the grounds upon which the board intends to proceed is a substantive right); Manchester v. Selectmen of Nantucket, 335 Mass. 156, 158-159 (1956) (stating the purpose of notice is to inform the license holder with reasonable particularity of the charges that he will be called upon to meet at the hearing so that he can properly prepare his defense).

If a licensee has received proper notice and a proper hearing, it is established in Massachusetts that upon the arrival of the notice of hearing, the license holder may be afforded a six-month grace period to transfer or reactivate the license. Board of Selectmen of Saugus v. A.B.C.C. 32 Mass. App. Ct. 914 (1992). The six-month grace period ruling in this lawsuit was observed by the ABCC in its July 5, 2006 ruling in the In Re: Stregare, Inc. case wherein a license holder never established or conducted business at the licensed premises even though it had possessed a liquor license for three years. The ABCC concluded that the license holder should have been provided a six-month window to transfer its license even though it had never been used and that the clock only began to run when the licensee was put on notice that its license was to be canceled for non-use.

The ABCC’s decision in In Re: Stregare has established a general understanding in the industry that if a licensee can prove that it has been attempting to transfer its license, and not merely “sitting on its hands” while the license is not being used, that the licensing authorities will allow it six months from the date it receives notice of potential cancelation for non-use to actually transfer its license before the license is canceled.

Pursuant to Massachusetts law, however, the local board or ABCC may still find after a hearing that if the evidence supports a conclusion that a licensee has ceased doing business than the license may be canceled pursuant to Mass. Gen. Laws, ch. 138, § 77. See BAA Massachusetts, Inc. v. Alcoholic Beverages Control Comm’n, 49 Mass. App. Ct. 839 (2000).

The ABCC’s decision in In Re:Stregare case further may serve no utility for a “pocket license” holder who makes no attempt to sell or transfer its license after it has been informed that it must do so or face cancelation. In the ABCC’s case of In Re: Ristorante Marino, Inc. 470 Atlantic Avenue (ABCC Decision dated June 14, 2005), the license holder failed to keep the local licensing board informed of its attempt to sell the inactive license after it had been informed that the license would be canceled if not transferred. In the In Re: Ristorante Marinocase, the license holder, after receipt of notice that its license would be canceled unless transferred within two months, made no contact with the local licensing board for ten months apart from its yearly renewal. The local licensing board then canceled the license even through the licensee had been making significant efforts to transfer the license to no avail. On appeal, the ABCC ruled that the general six-month grace period to transfer a license, which can be extended upon a showing of sincere efforts to transfer a license, does not authorize a license to either sit on its hands or attempt to transfer the license but fail to keep the local licensing board apprised of its efforts in this regard for some extended period of time. In particular, the ABCC held that no previous legal opinions “would excuse the dilatory behavior of the licensee in not contacting the Licensing Board and informing them of the progress of their negotiations for over 10 months.”In Re: Ristorante Marino, Inc. 470 Atlantic Avenue (ABCC Decision dated June 14, 2005)(emphasis added).

The ABBC, however, has proved more lenient when on notice of the underlying activity of the license holder. In the case In Re: CJS Market, Inc., dba Pearl Island (ABCC decision dated August 16, 2004), the Boston Licensing Board allowed the license of Rosi Pub to be transferred to the buyer of that license at a sheriff’s auction even though neither Rosi Pub nor the auction buyer had used the license for over a year due to the buyer’s inability to secure a leased location for the license. When the approved license transfer went to the ABCC for its approval of the license transfer, the ABCC acknowledged that although the license was as a “pocket license” for more than a year, and therefore in violation of Mass. Gen. Laws ch. 138, § 77, the buyer had “acted with all due diligence to effectuate a location for the license” upon purchase, and that “the transfer request period granted by the Boston Licensing Board was within a reasonable time frame.”

In summary, the holder of a “pocket license” is subject to having that license canceled at any time for non-use pursuant Mass. Gen. Laws ch. 138, § 77. The established practice in Massachusetts, however, is that once a licensee receives proper notice that its license will be canceled for non-use, the licensee will customarily be given at least six months to effectuate a transfer of that license. As a matter of practice, but not as a matter of law, the general six-month grace period provided to a licensee to transfer a license can in certain circumstances be extended upon a showing of both diligent efforts to do so and a record of communicating those efforts to the local licensing Board. This extended grace period, however, should never be assumed as an entitlement, and it cannot even be expected, if the licensee does not make diligent efforts to transfer its license or does not keep the local licensing board well informed of those efforts.