Pennsylvania Liquor Control Board Investigations – Transfers and Operations
Evan C. Pappas, epappas@tuckerlaw.com, (717) 221-7979
Opening a bar, restaurant, brewery, or any other retail liquor establishment, will bring no shortage of challenges before you open the doors and sell your first drop. Many of these challenges, like the type of license you will seek and where the licensed establishment will be located, will be resolved early in your quest. However, you will eventually have the formidable task of submitting an application to the Pennsylvania Liquor Control Board for your permission to sell alcohol in the Commonwealth. Some license applicants will submit “transfer” applications while others may be filing for new licenses, however all of these applicants will be subject to similar requirements and, once licensed, will be subject to ongoing review.
As a liquor licensee in Pennsylvania, investigations of your business will be primarily from two main sources. The first level of investigation, initiated by the Pennsylvania Liquor Control Board (“PLCB”), begins immediately following your submission of an initial transfer or other application to the PLCB. The other variety of investigation, handled by the Pennsylvania Bureau of Liquor Control Enforcement (“BLCE”), occurs after you are approved and open for business, and pertains to your operations and compliance with the Liquor Code. Knowing the differences between the various investigatory bodies and what they investigate will make you more likely to get approved and less susceptible to citations and suspensions once you open.
PLCB Related Investigations:
The general purpose of the PLCB’s investigation process (upon receiving an application of some sort) is to ensure that you, the potential liquor license owner (1) have the financial means to purchase the license, (2) do not have a criminal record significant enough that they deem you to be incapable of operating responsibly, (3) have a suitable location, (3) and do not have an “interlocking business interest” with another class of license. [1] Consider this step a due diligence analysis intended to ensure that you, your business and your investors comply with the statutory requirements related to license ownership. Their investigation of the applicant (you) will begin with certain ordinary information related to you, the project and the business entity (LLC or corporation). For example, you should have residency and employment information for the last five (5) years, be aware of any prior felonies or misdemeanors for any owners of the company, and any details related to the space you will be occupying. Although not needed for the initial application, not having this information when needed can unnecessarily delay the process.
It is important to know that PLCB investigations are far broader than of you as a person or a potential operator of the premises. The investigation will also extend into your proposed acquisition and use of funds for the operation of the premises and purchase of real estate, if applicable. This means that you should have more than general plans for the use of any funds and be able to specifically articulate how funds will be allocated among the license purchase itself; the build-out costs for the location, if any; purchase of the real estate where the license will be located; furniture, fixtures and equipment; inventory; and initial operational costs. The intended premises location and proximity to other PLCB licensed establishments, schools and churches can also be considered in the PLCB approval process. Knowing these various factors in advance and ensuring that you can represent sufficient available cash for the transaction will facilitate your application.
Frequently, start-up business ventures are composed of a collection of friends or associates who are either owners of the business itself, or lend money to the business without equity ownership. All business owners and any investors providing financing (specifically, non-bank financing) will also be subject to the PLCB’s investigation. Individuals and non-financial institutions providing money to the project will need to confirm the existence of the funds committed for the project and, in some cases, may be required to produce up to six (6) months of bank statements showing the origination of those funds. In-person interviews with PLCB investigators are also often required. Knowing this scope in advance not only prepares you as an owner for these disclosures, but can help you prepare the other owners and investors for these investigations because they can sometimes be an unwelcome surprise.
Finally, the PLCB may also choose to investigate your landlord, its business/ownership structure and the relatedness of any alcohol businesses they may own. Although the burden of this investigation may be specific to the landlord, you and your counsel will be responsible to produce the information sought by the PLCB, which can include names of all members and the governing documents for the landlord’s entity, as well as any other sub-owner entities that have an ownership stake in landlord’s business. Some landlords are more than willing to provide this information and disclosure. However, in some larger commercial settings, this information can be inaccessible to the typical “tenant” of commercial space. Therefore, you should keep this in mind as a question for prospective landlords as you shop for possible locations for the business.
The PLCB liquor license application and transfer process can be thorough, time consuming and often feel inconsistent. For this reason, we encourage clients to plan with us months in advance of submitting an application to make sure that the plans will be deemed acceptable.
BLCE Investigations:
Once you finally become a licensed entity, you will have the added oversight of the BLCE, which investigates licensees’ conduct during their operation. The BLCE is a branch of the Pennsylvania State Police and its investigators, known as “Liquor Control Officers,” are authorized to issue citations to licensed entities for violations of the Liquor Code. Since the BLCE it is organized and managed separately from the PLCB, the BLCE has its own enforcement priorities which are not always intertwined with any interests of the PLCB. Enforcement Offers, who can appear announced or undercover, conduct investigations of licensed businesses on a random periodic basis, as well as pursuant to targeted investigations.
Depending on the type of liquor license you own, there will be different enforcement concerns. However, the BLCE can issue citations for any variety of infraction, from failure to become and remain RAMP certified, minor bookkeeping errors, proper beer tap cleaning, to patrons exhibiting visible intoxication or service to minors. It may be impossible to prevent every situation, however many citations can be avoided, or at least better defended against, with proper record keeping and knowledgeable employees.
Each “citation” issued by the BLCE to a licensed business initiates a civil adjudicative process which is heard by the PLCB’s Office of the Administrative Law Judge (“ALJ”). BLCE counsel prosecutes the adjudications, presenting witnesses and other evidence if necessary and the ALJ will render his or her decision, which can include fines and temporary suspension of operating privileges. In many cases, BLCE will offer a settlement option known as an Admission and Waiver, which is essentially a “guilty plea,” but only in a civil context. When such a waiver is submitted at the joint recommendation of both the licensee and BLCE, it is usually accepted by the ALJ and will avoid the hearing process.
Although mindless submission of an Admission and Waiver may help to avoid the cost of a hearing and counsel fees, BLCE citations are reported to the PLCB and will permanently remain on your operating history. The Liquor Code enables the PLCB to question the renewal of a license if a licensee has accumulated “two or more” adjudicated citations. These adjudicated citations will also be permanent records attached to each individual owner of that licensed business, and will be considered against them for purposes of any other licensed businesses they may own currently, or in the future.
Investigations by the BLCE will seem random and their presence often disguised by other patrons – but you should expect that they will be there to investigate you eventually. The best defense to liquor citations is proper planning, preparation and training of your employees to prevent the possibility of BLCE citations.
Do Not Overlook Taxes!
The single most common impediment and delay that we see with license applications relates to unresolved tax issues. The PLCB requires that all applicants who apply for the renewal or transfer of a liquor license be compliant with state taxing authorities. Therefore, although the PLCB does not directly regulate state tax matters, any deficient tax or other related infractions will stall the PLCB license process until the other issue is resolved. We often advise clients to check with their tax advisors well in advance of a PLCB application to ensure that their records and payments owed to the Department of Revenue and the Department of Labor and Industry are up to date and clear. This problem can also be avoided by forming a new business entity for the licensed business before the PLCB application is filed to create a fresh operational history.
In summary, it is important to understand the types of investigations that will occur and how to make the approval process seamless and not have to deal with issues once you are open for business.
[1] Without getting into the complexities of the interlocking business prohibition, licensees that own one class of license (either manufacturing, distribution or retail) are not permitted to own an interest in another license in another class.
Reprinted with permission from the February 13, 2023 issue of The Legal Intelligencer. © 2023 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.
