Bankruptcy Court: In April 2004, the United States Bankruptcy Court for the District of New Jersey held that recent revisions to Article 9 of the Uniform Commercial Code (“UCC”) override the anti-alienation provisions of the New Jersey Alcoholic Beverage Control Act and permit a lender to obtain a security interest in a New Jersey liquor license. In re Chris-Don, 308 B.R. 214 (Bankr.N.J. 2004). The New Jersey Alcoholic Beverage Control Act prohibits any type of lien in a liquor license, except for certain state tax liens. The UCC, as revised in 2002, provides that any law that restricts the creation of a security interest in general intangibles is ineffective, except if the law falls within one of the listed exceptions. N.J.S.A. 12A:9-408(c). Since the New Jersey Alcoholic Beverage Control Act was not listed as one of the exceptions, the bankruptcy judge found that the UCC overrides the anti-alienation provision of the New Jersey Alcoholic Beverage Control Act. The bankruptcy court concluded that a liquor license is a general intangible and available as collateral to secure a loan.
District Court: Unfortunately, several weeks ago the United States District Court for the District of New Jersey reversed the bankruptcy court’s decision. In re Chris-Don, Inc. Civil Action No. 04-2660(MLC)(D.N.J. March 31, 2005). The District Court found that a liquor license is in the nature of a privilege, not a property right, and does not fall within the definition of a general intangible under the UCC. As a result, a liquor license is “unavailable as collateral for a security interest under New Jersey’s current statutory scheme.”