Opinion ID: 1700887
Heading Depth: 1
Heading Rank: 5

Heading: under south dakota's uniform commercial code, is a liquor license property to which a valid security interest can attach?

Text: The trial court held that the liquor licenses, presently in the name of Kurylas, were subject to a valid security interest previously given to Bank by the former license holder, Ceasar's, Inc. Kurylas challenges this holding on the grounds that under South Dakota law, a liquor license is not property, and thus does not fall within the scope of our state's UCC (Uniform Commercial Code). Property interests are not created by the Constitution, `they are created and their dimensions are defined by existing rules or understandings that stem from an independent source such as state law.... Cleveland Bd. of Education v. Loudermill, 470 U.S. 532, 538, 105 S.Ct. 1487, 1491, 84 L.Ed.2d 494, 501 (1985). Many other jurisdictions have faced this issue with various results and rationales. While these decisions are of some value in the context of analysis of the UCC, it is apparent that a proper review of the issue greatly depends on South Dakota's unique liquor statues and our state's definition of personal property. The Twenty-first Amendment grants the States virtually complete control over ... how to structure the liquor distribution system. Cal. Retail Liquor Dealers Assn. v. Midcal Alum., 445 U.S. 97, 110, 100 S.Ct. 937, 946, 63 L.Ed.2d 233, 246 (1980). Under our state's version of the UCC, parties may create a security interest in personal property which includes general intangibles. See SDCL 57A-9-102(1)(a). If a liquor license is found to be personal property rather than a privilege, it must be a general intangible as it clearly does not fit any other categories of personal property described in the code. Under SDCL 57A-9-106, general intangibles are defined as any personal property (including things in action) other than goods, accounts, chattel paper, documents, instruments, and money. The UCC, however, fails to define what constitutes personal property. Where such definitions are not contained within the confines of the UCC, other statutory definitions control. SDCL 57A-1-103. First Federal v. Union Bank & Trust, 291 N.W.2d 282, 285 (S.D.1980). [1] South Dakota has a general definition of personal property found in SDCL 2-14-2(17): personal property includes money, goods, chattels, things in action, and evidences of debt. This definition does not include licenses. [2] Therefore, were this definition held to be exclusive, it would settle the issue in favor of Kurylas. [3] However, as a general rule, this court has held that property interests should be liberally, rather than strictly, construed. Carlson v. Hudson, 277 N.W.2d 715, 719 (S.D.1979). This court has recognized various other property interests which clearly fall outside of this statutory definition. [4] Thus, in order to determine whether a liquor license is a property right or a mere privilege, we must compare our liquor statutes and the UCC. Statutes are to be construed to give effect to each statute and so as to have them exist in harmony. State v. Woods, 361 N.W.2d 620, 622 (S.D.1985); Matter of Exploration Permit Renewal, 323 N.W.2d 858, 860 (S.D.1982). It is a fundamental rule of statutory construction that the intention of the law is to be primarily ascertained from the language expressed in the statute. Petition of Famous Brands, Inc. 347 N.W.2d 882, 884 (S.D.1984). In addition, we are statutorily mandated to interpret uniform laws such as the UCC to effectuate its general purpose to make uniform the law of those states which enact it. SDCL 2-14-13. See also SDCL 57A-1-102. It is the generally held rule in other jurisdictions that as between the state and a licensee, there exists no property right in the license but merely a privilege to conduct that state regulated business. Gibson v. Alaska Alcoholic Beverage Control Bd., 377 F.Supp. 151 (D.Alaska 1974); Roehm v. Orange County, 32 Cal.2d 280, 196 P.2d 550 (1948); Weller v. Hopper, 85 Idaho 386, 379 P.2d 792 (1963); State v. Saugen, 283 Minn. 402, 169 N.W.2d 37 (1969); Harding v. Bd. of Equalization, 90 Neb. 232, 133 N.W. 191 (1911); Nelson v. Naranjo, 74 N.M. 502, 395 P.2d 228 (1964); In re Revocation of Liquor Lic., 72 Pa.Commw. 367, 456 A.2d 709 (1983). While this court has never directly addressed this issue, it has referred to the right to sell alcoholic beverages as a privilege. Affiliated Distillers Brands Corp. v. Gillis, 81 S.D. 44, 130 N.W.2d 597 (1964); Burke v. Collins, 18 S.D. 190, 99 N.W. 1112 (1904). An examination of our liquor statutes supports this majority position. A liquor license is for a period of only one year and wide discretion is granted the local governing body and the state in determining whether it is issued or denied. Randall's-Yankton, Inc. v. Ranney, 81 S.D. 283, 134 N.W.2d 297 (1965). More significantly, the license can be voted out of existence by a municipal election before its expiration and its holder is entitled to no compensation for its loss other than a pro-rata refund of the license fee. SDCL 35-3-13, 35-3-15, 35-3-16 and 35-3-27. [5] We note that the license holder is granted fundamental due process rights such as a hearing, notice thereof and a right to be heard at such proceedings when consideration is given to grant, renew or revoke a license. However, such due process rights are guaranteed by the Constitution to license holders as well as property owners. Bell v. Burson, 402 U.S. 535, 91 S.Ct. 1586, 29 L.Ed.2d 90 (1971); Affiliated Distillers Brands Corp. v. Gillis, 81 S.D. 44, 130 N.W.2d 597 (1964). Thus, there clearly is no general property right in the license in South Dakota as between the state and the licensee. There remains, however, a second legal doctrine recognized by most of the jurisdictions cited above that there are property rights in the license as between the licensee and third parties such as creditors. These courts find no conflict with this position and the general rule that no property right exists as between the state and the licensee. Gibson, supra ; Roehm, supra ; Weller, supra ; Saugen, supra ; Nelson, supra . Kurylas admits that this majority finds a property right, often based on an analysis of the UCC, but counters that in South Dakota such a position is prohibited by the terms of our alcoholic beverage code. (SDCL Title 35) Kurylas maintains that granting a security interest in a liquor license is forbidden by SDCL 35-2-7, [6] which prohibits any transfers which are not state-approved bulk transfers where the transfer is to another party. However, the granting of a security interest is clearly not a bulk transfer exclusively controlled by that section. SDCL 57A-9-111 specifically mandates that a security interest is not a bulk transfer. See also Shannon Village, supra at 681-682. Such bulk transfers are completed under SDCL 35-2-7 when the transferee obtains a new license from the appropriate local governing body and the State of South Dakota. [7] SDCL 35-1-4 states that no person shall produce, transport, store or sell any alcoholic beverage except as authorized under the provisions of this title. This statute does not attempt to regulate or forbid the granting of a security interest in the license. Further, it has been held that wherever the legislature has made licenses assignable or transferable, and the transfer can be effected with the consent of the authorities to anyone qualifying under the statute, the property element in the license is sufficiently recognized to warrant its exposure to seizure by the creditors of the licensee. Saugen, 283 Minn. at 405, 169 N.W.2d at 40. The court in Saugen found the existence of such a property right based on Minnesota statutes which are similar to those found in the South Dakota code: 1. The license was specifically related to a particular location. See SDCL 35-4-74 and 75. 2. The number of licenses which can be issued is limited by law. See SDCL 35-4-10 through 35-4-11.1. 3. Upon the licensee's death, a personal representative may operate the license; it does not automatically expire. See SDCL 35-2-8. 4. The license is transferable to another person with consent of the appropriate governmental authorities. See SDCL 35-2-7. 5. The license could be revoked only for cause and after notice and hearing. See SDCL 35-2-13 and Application of Ed Phillips and Sons, 86 S.D. 326, 195 N.W.2d 400 (1972). See also Weller, supra ; Hom Moon Jung v. Soo, 64 Ariz. 216, 167 P.2d 929 (1946); Deggender v. Seattle Brewing, 41 Wash. 385, 83 P. 898 (1906). Thus the clear import of our alcoholic beverage code recognizes the existence of a valuable property right in the license as between the licensee and third party creditors. Therefore, under the UCC it clearly can become a general intangible subject to a security interest in favor of a creditor. Those cases cited by Kurylas which have refused to find the existence of a property right have done so on the basis that the applicable state liquor code specifically requires such a result. In re Revocation of Liquor License, supra ; Matter of Eagles Nest, Inc., 57 B.R. 337 (Bkrtcy.N.D.Ind. 1986); In re Rudy's, Inc., 23 B.R. 1 (Bkrtcy.E.D.Mich.1981). This may be an appropriate treatment of the issue, but such a determination is left to the political arena, and our legislature has chosen the other alternative, that being the recognition of commercial reality that a liquor license is frequently the most valuable asset that this type of business can own. [8] Thus we join with the majority of jurisdictions that have decided this issue and hold that our laws allow a creditor to take a security interest in a licensee's liquor license as it is property between those two parties. Bogus v. American National Bank, 401 F.2d 458 (10th Cir.1968); Paramount Finance Co. v. United States, 379 F.2d 543 (6th Cir.1967); In re Coed Shop, Inc., 435 F.Supp. 472 (N.D.Fla.1977), aff'd 567 F.2d 1367 (5th Cir.1978); In re Camelot Court, Inc., 21 B.R. 596 (Bkrtcy.D.R.I. 1982); and those cases already cited herein.