Corruption Case Makes Clear: Prince George’s County Must Do Away With Competitive Liquor Licensing Process

I just finished reading the plea agreement regarding a liquor licensing attorney in Prince George’s County who pleaded guilty to bribery on Friday. The underlying facts were that this attorney made payments to a public official to secure his assistance in influencing liquor licensing decisions. The statement of facts contains verbatim quotes, demonstrating that either someone was cooperating or that phones were tapped. In any case, this statement from the lawyer jumped off the page at me:

            “Two Gs is nothing man … for what they got.”

What the lawyer was referring to was the $2000.00 payment made to the public official to help this business get a liquor license.

As noted by the statement of facts, “[l]iquor licenses in Prince George’s County are extremely valuable.” The statement notes that they can sell for “$5000.00 or more.” Try five or six times that and you have a more accurate statement.  This might explain why this attorney and his client were happy to pay $2000.00 to obtain a liquor license.

Which all brings up a fundamental issue as it relates to the liquor licensing process in Prince George’s County: namely, that licenses are awarded on a competitive basis. That is to say, the Board will announce that it is awarding a certain type of license (e.g. a beer, wine, and liquor license) on a certain date, and that it will accept applications for that license up to a certain deadline. Then, at the hearing, each applicant will present its best case to the Board and the Board will choose which applicant gets the license. How they make that decision is left almost entirely to the discretion of the Board.

There could be 3, 4, or 5 applicants – but only one goes home with the license.  Only one business gets not only the right to make much more money at its restaurant by selling alcohol, but also is awarded an asset valued at tens of thousands of dollars. Is it any wonder that a business (or unscrupulous advocate) might be tempted to try to find a way to influence the decision of the Board – either directly or indirectly?  And here its worth noting that other businesses (via this same attorney it appears) allegedly paid bribes directly to a member of the Board himself, who also has been indicted and is facing trial next year.

That is why the statement of this attorney was so jarring, but also so unsurprising, because it was undeniably true: “two Gs is nothing man … for what they got.”

It certainly will not fix everything, but it should be clear from this case (if it was not already self-evident) that the competitive liquor licensing process invites corruption. And even where there is no corruption or improper influence (which is the vast majority of cases), the possibility of the process being fixed in some way puts the County Liquor Board in the unenviable position of having its own motives — almost certainly unfairly — questioned.

And making matters worse, this suspicion of unfairness or corruption is invited for no compelling public policy reason. There is not a glut of restaurants in Prince George’s County such that they must be artificially limited. In fact, it is quite the opposite – business and governmental leaders are trying to attract development and investment, and the County’s affluent population is clamoring for more dining choices. One need look no further than the success of National Harbor (which is exempt from the competitive process) to see this is the truth. The competitive liquor licensing process that exists elsewhere throughout the County, and the expense and uncertainty it imposes, only drives would-be restaurant owners to other jurisdictions, most often Montgomery County, where there is no such limitation on liquor licenses and which enjoys a much more varied and vibrant restaurant scene.  So the policy is self-defeating on every level.

There is a new legislative session starting in a few months. Prince George’s County’s leaders and representatives should strongly consider doing away with the competitive liquor licensing system. Such a move would allow the Board do its important job without the specter of suspicion and unfairness that hangs over the current process, and would make Prince George’s County a much more welcoming place for restaurants to do business.

Prince George’s County Liquor Board Seeks 5 New Members, Cancels Upcoming Hearings

The Prince George’s County Liquor Board, which is already down to three members due to the resignation of its chairman (following a guilty plea in a DUI matter) and another member (following a bribery arrest) will get an entire new membership later this year.  Pursuant to legislation passed in the recent 2017 Maryland General Assembly, the Board last week published a notice seeking applications for these members.

On that same date, the current members of the Board voted to cancel the upcoming hearings scheduled for June 27, July 12, and July 25, inviting the question of whether there will be any liquor board hearings at all until the new members are seated.  As the Board is required to approve all new and transfer liquor license applications, that will mean no new liquor licenses can be issued in Prince George’s County until at least August, and quite possibly later than that.  Not being able to issue any new licenses during the summer months is, of course, not a good look for the County, which is touting its development boom and holding itself out as an alternative to high-priced Montgomery County and areas of Northern Virginia.  This delay and overhaul will not help those efforts, at least in the short term.

It has been a difficult few years for the liquor board in Prince George’s County.  In addition to the well-publicized arrests noted above, in 2015, the former chairman of the Board  to the new chairman appointed by (at the time) incoming Governor Hogan.  This led to chaos at at least one hearing (of which I was in attendance), and the cancellation of multiple scheduled hearings before the the controversy was finally resolved.

The current members of the Board (as well as its fantastic staff) are conscientious public servants who probably deserve better, but so do the people of Prince George’s County.  Here’s hoping that this overhaul (and increase in oversight) can get the Board back on track.  Prince George’s County is becoming more attractive to national and local restaurant chains (we’ve finalized several leases there just in the last couple of weeks), so a functional liquor board is vital to demonstrating that the County is someplace businesses should want to invest.

Big News: Private Liquor Stores May Be Coming to Montgomery County

As we continue our review of the 2017 Maryland legislative session, which ended last week, it is clear that, for those of us in Montgomery County, one of the most consequential – and overlooked – new laws relates to how hard liquor is sold in the County. For the first time since anyone can remember, private retailers will be able to obtain the right to sell spirits such as vodka, rum, whiskey, and gin in their stores.

Now, as with all good things, there are some restrictions on who can apply for these privileges – for example, convenience stores that sell items other than beer and wine (e.g. snacks or groceries) will not be eligible. And eligible stores will still need to contract with the County for the authority to make these sales (with that process still to be worked out via regulations to be formulated by the County DLC).  But still, don’t let anyone tell you any different – this is a very big deal.

Until now, anyone who wanted to buy a bottle of liquor to take home had to buy it at a County-owned retail store. This was a cause of great frustration to many, not only because residents were captive to the selection that the County Department of Liquor Control decided to stock in their retail stores, but also that there were only 26 such stores – for a population of over a million people.

With this change, there are now – immediately – approximately 150 stores that meet the requirements and are eligible to seek full beer, wine & liquor retail sale privileges. If even a fraction of those stores actually sought and obtained the right to sell liquor, the number of available outlets to buy spirits could double, or even triple. Presumably, many would attempt to differentiate themselves from the DLC-owned stores by offering more hard-to-find or craft spirit brands. This increased availability, variety, and overall competition will be great news for consumers.

But it is also wonderful news for so many of our County’s small beer & wine store owners, who are generally prohibited by law from owning more than one store and can often struggle to finds ways to maintain profitability. As lawyers who work with small business owners every day, and who do all we can to ease that struggle, it is gratifying to know so many of our clients will have the opportunity to expand their product offerings in such a dramatic manner.

New Maryland Law to Cure Liquor Licensing Glitch

Credit: CHRIS URSO, Tampa Bay Times

We wrote here last year about a glitch in Montgomery County liquor licensing laws that limited individuals to holding one beer & wine license in the county, whereas an individual could hold up to ten beer, wine & liquor licenses.  This, of course, made little sense and caused any restaurant with more than one location in the county to incur the additional cost and bear the additional regulatory burdens of a full liquor license, even if the restaurant just wanted to serve beer and wine.

The glitch in the law has been particularly frustrating to fast casual operators, who are likely to have several locations — and increasingly are moving to serve beer and wine
— but also do not generally need a full liquor license.

I am happy to report, however, that today Governor Hogan will sign into law a bill that will raise the number of beer & wine licenses an individual can hold to ten as well.  This new law, which will go into effect on July 1, will not only save many restaurants already operating in the county thousands of dollars a year, it will also make the county more attractive as a place for restaurant chains to grow and prosper.  (Note:  Anne Arundel County law is set to change as well, increasing the number of beer & wine licenses allowable for one individual from 2 to 5).

And how did this all come about?  As it happened, around the same time I wrote the post referenced above, I had the occasion to discuss this matter with senior licensing staff at the Montgomery County Department of Liquor Control, and explained that this was a frustration to many of my restaurant clients with multiple locations, and that it was likely a deterrent to smaller restaurants, particularly fast casuals, opening new locations in Montgomery County.  It was not any formal advocating for a change to the law; it was just an expression of frustration about the state of the law and the burdens it placed on my clients.

To the DLC leadership’s credit, however, within weeks I was told that the matter would be brought up with the county’s delegation to the Maryland General Assembly, and later last fall, was advised a bill was being prepared for presentation in the Assembly during the 2017 session.  The bill passed both houses unanimously and, as mentioned, is set to be signed today.  So, while I would like to take some credit for raising this issue in the first place, I commend DLC staff — notably the amazing Kathie Durbin — for being so responsive to the needs of our small restaurant owners here in Montgomery County.  This was good government at work, and we will all — businesses and consumers alike — benefit from it.

How Long Does it Take to Get a Liquor License in Montgomery County?

cross1Just about every day, we get a call from a restaurant owner (or aspiring one) who is interested in opening a restaurant here in Montgomery County, Maryland. One of the questions that we are almost always asked is “how long will it take to get a liquor license?” It is understandable that this is a primary concern. Many restaurant leases require a tenant to open on or before a certain date, or incur penalties. If you cannot get your liquor license before that date, you are faced with the choice of opening without a license – and tell your customers, “next time you can get a beer, we promise!” – or incurring penalties from your landlord. Even where the lease does not require it, many restaurants understandably do not want to open until they can offer their guests the full experience, drinks included.

So we get it, and we do all we can do to expedite the process. But there are many steps involved, and when it comes to dealing with the government, some things just cannot be rushed. To help give restaurants a better sense of the overall process, and how long it takes, we thought it would be helpful to provide this overview so you can plan accordingly.

Step One: The Application

At this stage we work with you to complete the written application to the County Liquor Board as well as compile all the required affidavits, corporate documents, and other information the Board needs to review your application. If a resident agent needs to be named, or if any documents needs to be created as related to your company or restaurant, that will happen at this stage too. Finally, we coordinate with your landlord, as they will have to sign off and approve your license application as well.

Depending on how diligently we work at this stage to gather the information and prepare the materials, the time from when you contact our office to when the application is submitted can take 7 to 14 days. In certain circumstances, we have gotten applications submitted in as short as 48 hours, but that is not the norm – or our preference.  We find that rushing leads to mistakes, and can ultimately lead to unnecessary delay.

Step Two: Review and Supplementation

After we submit the application, it will be reviewed by licensure personnel at the County Liquor Board. These reviews occur once per week, so it is important to get the applications in before the review day, or you can end up losing a week. After review, Board personnel will contact my office and let us know if they have any questions or if anything is missing. While there are usually follow up questions or requests for further information, it is always our goal that nothing of significance is missing so that the application can be set for hearing. This process of review and supplementation usually takes about one week, but can drag on if there is anything important wrong with the application.  (See, that’s why we don’t want to submit it unless it is done properly).

Step Three: Publication and Posting

After review of the application, you will be provided with a hearing date for your application and a poster to put in the window of your restaurant. This poster will note the date and time of the hearing so any interested member of the public can attend the hearing and, for whatever reason, express support or disapproval of the license application. The hearing will also be publicized on the Board’s website as well as in certain other publications.

The poster must be in your window for a minimum of 30 days, but depending on the dates the hearings fall – they are only held twice per month – and whether the Board’s docket is full, the period between application and approval can be as much as 45 days or longer.  During this period, we try to stay in regular contact with liquor control personnel to make sure there are no last minute issues that we need to deal with.  We want there to be no surprises at the hearing.

Step Four: The Hearing

After the notice period is over, and after all this hard work is done, you will have the hearing on your application before the County’s five-member Liquor Board. Each of the Commissioners will have the opportunity to ask you questions about your business and your experience in the restaurant business and with serving alcohol. The Commissioners will also ask you about your policies and procedures as it relates to the service of alcohol and explore your familiarity with state and local liquor laws.

We usually meet with our clients during the week leading up to the hearing to go over these questions in detail and, at the hearing itself, are usually given the opportunity to ask our clients many of these questions ourselves. We pride ourselves on having our clients exceptionally well-prepared for their hearings.  The hearings can be nerve wracking and intimidating, and solid preparation helps them go more smoothly.

At the conclusion of the hearing, the Board members will vote on whether to grant the license.

Step Five: Final Inspection

Once the Board has voted to approve the application, the hardest work is done. The last step is to schedule your final inspection with the Department of Liquor Control. Someone from the DLC will come to your establishment and inspect the premises and ensure that your restaurant is compliant as it relates to, among other things, where your alcohol will be stored and how it will be served. After you pass your inspection, which will usually take place about a week after your hearing, you can pick up your license.

So, as you can see, this whole process can take anywhere from 8 to 10 weeks from the time you pick up the phone and call our office. We can do our best to try to shorten that time in certain circumstances, but it is rare for the process to take much less than two months from start to finish. And if the application is incomplete or not prepared properly in the first place, that time period can drag on longer.

So the sooner you get the process started, the better.

The Morris Law Firm’s Founder Featured in the Washington Lawyer’s Issue on Restaurant Law

fullsizerenderDemonstrating the critical importance and growing complexity of the legal issues surrounding restaurants, the Washington Lawyer dedicated its September 2016 issue to the intersection of the restaurant business and the law.  The cover story was entitled Behind the Kitchen Door and featured interviews with local restaurateurs, including celebrity chef Mike Isabella, and our founder, Sean Morris.

Among the things Sean was asked about was what the first thing an aspiring restaurateur should do when considering opening a restaurant:

 

Sean Morris, founder of the Morris Law Firm, LLC, in Bethesda, Maryland, and an expert in restaurant law, urges aspiring restaurant entrepreneurs to talk to a real estate broker and a lawyer.  ‘Those two people can enable you to survey the legal landscape and the actual physical landscape of what the local real estate market is,’ Morris says.

Sean was also asked about upcoming changes to DC’s zoning laws as they relate to fast casual restaurants, liquor licensing issues, and the pitfalls of using social media to boost your restaurant’s profile.  The magazine also picked up on Sean’s advice to shore up the four most important legal relationships that you will encounter in your restaurant business and reprinted our blog post of the topic on the DC Bar’s website.

Finally, we were very proud to have Sean featured in the magazine’s Member Spotlight for September, which not only included a full page profile, but provided Sean with the opportunity to tell the story of why he was drawn to a practice in restaurant law:

Through college, through graduate school, throughout my pre-law school days, I always worked in restaurants. I washed dishes. I bussed tables. I waited tables. I’ve worked in kitchens. … I came back to this industry because I knew it and because I loved it. It’s an industry where there are a lot of good people working really hard who could use just a little bit of help, particularly from someone who knows their business.

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If you are interested, you can check out the full digital edition of the issue here.

 

Hooters Waves White Flag: Will Voluntarily Close Rather than Face Revocation

There are some battles that are just not worth fighting, apparently.  For the Rockville, Maryland Hooters restaurant that was charged with overserving the drunk driver who killed Montgomery County police officer Noah Leotta late last year, that would include the battle to save their liquor license.  The restaurant faced a show cause hearing before the Montgomery County Liquor Board this week over whether their license should be revoked, or some lesser penalty (a suspension and/or fines) should be levied.  Apparently seeing the handwriting on the wall, the restaurant opted to forego battle and accept terms of surrender — namely, the surrender of their license.  They will voluntary turn over their license and close their doors permanently in November.

Many may wonder why the restaurant wouldn’t at least try to defend themselves — after all, there is no stronger penalty the liquor board can levy than revocation, and this result is tantamount to that very outcome.  Moreover, in our experience, it is notoriously difficult to make the case that an individual became intoxicated at a particular establishment, and as a result of drinks served to him at that establishment.  This was, however, a very high profile case and Hooters — a nationally recognized brand — may have had strong business reasons to not engage in what seem like an exercise of shirking responsibility.  The individuals who held the license for this establishment may have also had a strong interest to avoid a hearing and not tinker with the possibility of revocation — had their license been revoked they would have been permanently banned from ever holding a license again.  By voluntarily surrendering their license, they avoided that fate.

Considering the business and legal implications, and the fact that the liquor board is not a court of law but an administrative body that has broad discretion to make decisions that it thinks are in the best interests of the community, this voluntary surrender and closure appears to be the proper result for all concerned.  Finally, considering that the establishment cannot face any civil liability under state law (because Maryland is one of only a handful of states that does not permit so-called “dram shop liability”), this should close the matter (and a sad chapter) for the restaurant and its licensees.

 

 

How a Glitch in Local Liquor License Laws is Hurting Fast Casual Restaurants

beer tapsI’ve written here before about how one of the distinguishing and appealing elements of fast casual restaurants is that, unlike more traditional “fast food” outlets, they often serve alcohol. Most often, however, these restaurants do not have a full bar and only want to serve beer and wine. That more limited offering can make things easier for the restaurant owner because they can simply obtain a beer and wine license, and not have to bear the heightened scrutiny and oftentimes greater regulatory burdens that come with the right to sell hard liquor.

Here in Montgomery County Maryland, where I do a significant amount of work, it doesn’t quite work that way due to a glitch in the local liquor laws. That glitch is this: an individual can hold up to ten full liquor licenses – i.e. those for beer, wine, and liquor – but are restricted to only one beer and wine license. Of course, very often fast casual restaurants have more than one location in a given jurisdiction, and several of my clients have more than one here in Montgomery County. If they want liquor licenses for all of their stores, the law requires them to apply for and obtain full liquor licenses, even if they only want to sell beer and wine. And while that full liquor license gives those restaurants the option to sell drinks containing spirits if they’d like, it also comes with it a much higher licensing fee and more burdensome administrative and regulatory requirements.  While many proceed anyway, and take these burdens on, others decide it is not worth it, and forego alcohol altogether.

Why this inconsistency in the law exists is difficult to say, but it appears it may simply have been an oversight as the laws were amended over the years. Indeed, for years full liquor licenses were by far the most desirable to restaurant owners and very few were interested in selling only beer and wine. Thus, when lobbying efforts were made to expand the number of licenses an individual could hold, the focus was on full beer, wine, and liquor licenses, and no changes were made to the laws regarding the more limited beer and wine licenses. As fast casual continues to boom, however, it would seem that greater attention needs to be given to this inconsistency, and that the right to hold beer and wine licenses be expanded in the next legislative session to meet the demands of this growing trend in the restaurant industry.

Last Call for Georgetown Liquor License Moratorium

Starting next week, for the first time in 27 years, restaurants in Georgetown will be able to apply for new liquor licenses.  The District of Columbia’s Alcoholic Beverage Control today voted not to extend its decades-old moratorium on liquor licenses for restaurants, which had been set to expire on April 8.  The moratorium was instituted in 1989 in response to the trash, noise and (some would say) mayhem that came from Georgetown being not only one of the city’s top nightlife destinations, but also home to (my alma mater) Georgetown University and its thousands of students.  In the ensuing years, however, some have blamed the license cap for Georgetown lagging behind the rest of the city in attracting new and exciting restaurants, which have proliferated in other parts of the District.

Some have questioned whether the lifting of the moratorium will make much of a difference, given the number of dormant liquor licenses that are in safekeeping with the District’s regulatory agency.  Those licenses were being held, however, because many of the holders were seeking to extract a significant (think mid-five figures) fee in exchange for a transfer.  That might have been cost prohibitive for smaller operators – particularly in the fast casual space.  Now that gatekeeping expense will be no more.

As was the case in Adams Morgan, which had its own moratorium on restaurant liquor license lifted in 2014, the moratorium on new tavern and nightclub licenses in Georgetown will remain in effect.  Next up will be the cap on new licenses in Georgetown’s neighbor, Glover Park, which is set to expire on May 3 of this year if not extended by the Board.

If you are interested in the possibility of applying for a restaurant liquor license in Georgetown, please do not hesitate to contact our office.

Is The End Near for Montgomery County’s Liquor Monopoly?

Montgomery County, our home jurisdiction, is the only county in the state of Maryland that exerts complete control over the distribution of alcoholic beverages.  With few exceptions, every pint of beer, glass of wine, and drop of spirits consumed in the county passes through the hands of the County government on its way from producer to customer.  This system has been in place since the repeal of Prohibition in 1933 left the regulation of the sale and distribution of alcohol to the states, and Maryland in turn essentially allowed counties themselves to determine how booze would been sold.  Up until last year, Montgomery County was accompanied by Worcester County in being such a “control jurisdiction,” but Worcester’s liquor monopoly ended last year.

Now, Montgomery’s system of liquor distribution is facing its own existential threat and, for the first time in a generation (or maybe ever), it seems like the forces seeking to end its monopoly may actually be in a position to do so.

Most prominently, Maryland’s Comptroller, Peter Franchot, has firmly expressed his desire to end the County’s liquor distribution monopoly and has announced his intention to work with state legislators from Montgomery County to introduce legislation to do so in the 2016 session.  (Note:  While such laws are county-specific, they must be passed by the entire Maryland General Assembly).  The Comptroller has forcefully stated that the County’s monopoly “eliminates competition, charges higher prices, offers fewer product choices and increases burdens on small businesses.”  Franchot’s position on this topic is particularly compelling because the Comptroller’s office is the top alcohol regulator in the state.

At the same time, a key group of Montgomery County legislators, led by Bethesda’s Bill Frick, has announced its own plan to put forth a bill in the 2016 session that would allow the County’s voters to weigh in via a referendum on whether the government liquor monopoly should continue.  This bill, like Franchot’s proposal, would not put the County out of the liquor business altogether, but rather require it to compete with private distributors.  That is precisely what occurred in Worcester County.

Under either proposal, even if they were to pass, the County’s control over liquor licensing, enforcement, and the like would not be effected or diminished at all (and, to be clear, our County’s regulators are among the best and most responsive in the State).  The proponents of proposals argue, however, argue that it is those activities — and those activities alone — that the County should be engaged in; and that commercial activities such as the sale and distribution of alcohol should be left to private industry.

This firm represents many bars and restaurants in Bethesda, Rockville, Silver Spring and other Montgomery County communities and I can scarcely think of any who would not welcome the opportunity to buy their products directly from private distributors who have the business incentive to provide a wide variety of products, at a competitive price, and in a timely fashion.  If you are a bar or restaurant owner — or simply a consumer — and have any thoughts on this matter, I invite you to contact me.  Due to the nature of my practice, I am often contacted by county and state officials on this matter and I would be pleased to pass along your thoughts.