Could a federal bankruptcy court stop a Maryland liquor license from expiring under state law while the licensee was in bankruptcy?

Plain-English summary

The attorney for Cecil County's Board of License Commissioners asked the Attorney General whether a federal bankruptcy court in Delaware had the authority to stop the board from letting a restaurant's liquor license expire under Maryland's abandonment law. The restaurant had closed for financial reasons, and under Article 2B, §75(a), a license is automatically deemed expired ten days after the holder vacates the licensed premises, though the board had already used its power to extend that deadline by up to 20 days to avoid hardship. Before the license expired, the restaurant's corporate owner filed for bankruptcy, and the bankruptcy court issued a temporary restraining order blocking the board from letting the Maryland expiration law take effect against the license.

The Attorney General concluded the bankruptcy court had full authority to issue that order. Although Maryland law expressly states that a liquor license "shall not be regarded as property," the opinion explained that federal bankruptcy law defines the bankruptcy estate broadly to include everything of value the debtor possesses, and courts applying similar state schemes had concluded that a liquor license's real commercial value, its renewability, transferability, and status as part of a deceased licensee's estate, made it "property" under the federal Bankruptcy Code regardless of how state law formally labeled it. Because federal law is supreme when it conflicts with state law, and because the bankruptcy court's general power to issue orders "necessary or appropriate" to carry out the Bankruptcy Code extends to protecting estate property, the opinion concluded the court's order preventing the Maryland expiration statute from operating against the license was a valid exercise of that authority.

Currency note

This opinion was issued in 1991. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule mentioned here, particularly the current text of Maryland's liquor licensing abandonment and transfer provisions and any subsequent case law on how liquor licenses are treated in bankruptcy.

Common questions

Did Maryland law consider a liquor license "property" that could be protected in bankruptcy?
Under state law, no. The opinion noted that Article 2B, §72(a) expressly stated a liquor license "shall not be regarded as property or as conferring any property rights." But the opinion concluded that label did not control the federal bankruptcy question.

Why could a bankruptcy court still treat the license as part of the bankruptcy estate?
Because federal bankruptcy law defines estate property broadly to capture everything of value a debtor possesses, and the opinion found that a liquor license's real commercial value, including its renewability and transferability with board approval, made it "property" for bankruptcy purposes even though Maryland formally denied it that label.

Could Cecil County's liquor board have let the license expire anyway once the restaurant closed?
Not while the federal court's order was in effect. The opinion explained that once the bankruptcy court issued its order under 11 U.S.C. §105 to protect the property of the estate, the county board was barred from allowing the Maryland expiration statute to operate against the license during the bankruptcy proceeding.

Does this mean a bankruptcy filing blocks any state regulation of a liquor license?
The opinion did not go that far. It noted the automatic stay in bankruptcy does not bar a government from enforcing its police or regulatory power, and it expressly declined to address how far that limit might extend to a liquor board's ordinary regulation of its licensees or to occupational licenses more generally.

Background and statutory framework

Article 2B, §75(a) provided that an alcoholic beverage license was deemed expired ten days after the holder vacated the licensed premises, subject to the board's power to grant a hardship extension of up to 20 days. Article 2B, §72(a) separately declared that a license "shall not be regarded as property or as conferring any property rights," a position Maryland courts had already recognized, but the opinion found that other provisions of the same licensing law cut against treating a license as valueless: a licensee was ordinarily entitled to renewal absent a protest, a license could be transferred or sold with board approval, and a license passed as part of a deceased licensee's estate.

Under the U.S. Constitution's Supremacy Clause and Maryland's own Declaration of Rights, federal bankruptcy law prevails over conflicting state law. The federal Bankruptcy Code defines the bankruptcy estate to include virtually all property of the debtor, construed generously to secure for creditors everything of value the debtor possesses. Federal courts examining similar state schemes, including one from Ohio that also refused to formally call liquor licenses "property rights," had concluded that a license's practical value made it bankruptcy estate property regardless of the state-law label. Given that the license qualified as estate property, the opinion concluded the bankruptcy court's general statutory authority to issue orders necessary to carry out the Bankruptcy Code, including protecting estate property, supported the injunction against the license's expiration under Maryland's abandonment statute. The opinion was careful to note it was not addressing how far the Bankruptcy Code's separate "automatic stay" provision, which does not bar a government from exercising police or regulatory power, might otherwise limit a liquor board's ordinary regulatory authority over its licensees.

Citations and references

Statutes:

• Article 2B, §75(a), Maryland's license-expiration provision for a vacated licensed premises
• Article 2B, §72(a), declaring that a liquor license is not "property" or a source of property rights under state law
• Article 2B, §68(a), giving a licensee an entitlement to renewal absent a protest
• Article 2B, §74(a), allowing transfer or sale of a license with board approval
• Article 2B, §78, providing that a license passes as part of a deceased licensee's estate
• 11 U.S.C. §541(a), defining the bankruptcy estate to include virtually all property of the debtor
• 11 U.S.C. §105, the bankruptcy court's general authority to issue orders necessary to carry out the Bankruptcy Code
• 11 U.S.C. §362 and §362(b)(4), the automatic stay provision and its exception for governmental police or regulatory power

Cases:

• Segal v. Rochelle, 382 U.S. 375, 379 (1966), on the broad, generous construction given to "property" of the bankruptcy estate
• Federico v. Bratten, 181 Md. 507, 30 A.2d 776 (1943), Maryland authority recognizing that a liquor license is not "property" under state law
• In re Terwilliger's Catering Plus, Inc., 911 F.2d 1168, 1172 (6th Cir. 1990), holding a liquor license under a similar Ohio scheme is nonetheless "property" for bankruptcy purposes
• In re Hoffman, 65 B.R. 985, 986 (D.R.I. 1986), holding a debtor's liquor license constitutes bankruptcy "property"
• Fisher v. Cushman, 103 F. 860 (1st Cir. 1900), early authority treating a liquor license as bankruptcy property
• In re Gencarelli, 14 B.R. 751 (Bkrtcy. D.R.I. 1981), same holding
• In re Lamping, 12 B.R. 38 (Bkrtcy. E.D. Wis. 1981), same holding
• In re Matto's, Inc., 9 B.R. 89 (Bkrtcy. E.D. Mich. 1981), same holding
• In re Davis, 730 F.2d 176, 184 (5th Cir. 1984), on the bankruptcy court's authority under 11 U.S.C. §105 to issue orders necessary to carry out the Bankruptcy Code

Source

• Landing page: https://oag.maryland.gov/resources-info/Pages/attorney-general%E2%80%99s-opinions.aspx
• Original PDF: https://oag.maryland.gov/resources-info/Documents/pdfs/Opinions/1991/Volume76_1991.pdf (this opinion appears at printed pages 31-34 of the bound annual volume; Maryland's site does not publish a standalone PDF of this opinion)

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain — the linked PDF is authoritative.

Alcoholic Beverages - Licenses - Bankruptcy - Authority of
Bankruptcy Court to Enjoin Expiration of License

                          May 21, 1991

David H. Parrack, Esquire
Attorney to Board of License
Commissioners for Cecil County

  You have requested our opinion whether the United States

Bankruptcy Court for the District of Delaware had the authority to
enjoin the Board of License Commissioners for Cecil County ("liquor
board") from enforcing the operation of a Maryland law that would have
caused the expiration of an alcoholic beverage license issued by the
liquor board.

  For the reasons set forth below, we conclude that the bankruptcy

court did have the authority to issue the injunction in question.

                                 I

                              Facts

  The liquor board had issued a Class B beer, wine and liquor

license to the officers of a corporation that operated a restaurant in
Elkton, Maryland. Due to financial problems, the restaurant was closed
by its operators.

  Under Article 2B, §75(a) of the Maryland Code, on the 10th day

after a holder of an alcoholic beverage license has vacated the premises
for which the license was issued, the license is deemed to have expired.
The liquor board is authorized to postpone the expiration under §75 for
a period not exceeding 20 days in order to avoid undue hardship and in
fact did so in this instance.

  At some time prior to the expiration of the license, the corporate

operator of the restaurant filed a bankruptcy petition in the United States
Bankruptcy Court for the District of Delaware. On motion of the
debtor, the court issued a temporary restraining order that restrained and
enjoined the liquor board and its employees "from proceeding with or
continuing in any manner in the enforcement of, proceedings against, or
actions related to or regarding the expiration, termination or forfeiture
of the alcoholic beverage license of the debtor which shall remain
available for transfer, pending the final hearing and Order." The
temporary restraining order further provided that "the operation of
Article 2B, §75 of the Annotated Code of Maryland or any other
applicable Maryland law is specifically tolled, restrained, and enjoined
from operating to cause an expiration or forfeiture of the alcoholic
beverage license of the debtor pending the final hearing and Order."

  This particular matter has now been resolved. However, given the

possibility of another similar case in the future, you ask whether the
bankruptcy court had the authority to enter the temporary restraining
order described above.

                                     II

                                Analysis

  The Constitution of the United States provides that the Congress

shall have the power to "establish ... uniform Laws on the subject of
Bankruptcies throughout the United States." Article I, §8, cl. 4.
Congress has exercised this power by enacting the Bankruptcy Code,
codified as Title 11 of the United States Code.

  The Constitutions of both the United States (Article VI, cl. 2) and

Maryland (Article 2 of the Declaration of Rights) provide that the
Constitution and laws of the United States shall be the supreme law of
the land. In the event of conflict between federal and state law, federal
law prevails. Thus, the starting point in this analysis is the existence of
a supreme federal bankruptcy law that is binding in Maryland.

  The filing of a bankruptcy petition creates an estate that comprises

virtually all "property" of the debtor as of the filing of the petition. 11
U.S.C. §541(a).1 The Supreme Court, in construing the predecessor to
§541, has held that the main thrust of this section "is to secure for
creditors everything of value the bankrupt may possess in alienable or
leviable form when he files his petition. To this end the term 'property'
has been construed most generously ...." Segal v. Rochelle, 382 U.S.
375, 379 (1966).

1
11 U.S.C. §541(a) provides that, with certain exceptions not pertinent
here, the estate of the debtor "is comprised of all ... property, wherever located ..."
including "all legal or equitable interests of the debtor in property as of the
commencement of the case."

  We recognize that Maryland law expressly denies that liquor

licenses are "property": "Licenses issued under the provisions of this
article shall not be regarded as property or as conferring any property
rights." Article 2B, §72(a). See, e.g., Federico v. Bratten, 181 Md.
507, 30 A.2d 776 (1943).

  Nevertheless, a license unquestionably has commercial value.

Unless a protest is filed, a licensee is "entitled" to renewal of the license.
Article 2B, §68(a). With liquor board approval, it may be transferred
or sold. Article 2B, §74(a). It is part of a deceased licensee's estate.
See Article 2B, §78.

  The value of a license, rather than its characterization under state

law, makes the license "property" for purposes of the federal bankruptcy
law. In considering a regime of Ohio law parallel to Maryland's, a
federal appeals court observed that, "[w]hile several Ohio courts have
refused to label the rights granted to the licensee as 'property rights,' the
state nonetheless has chosen to grant the licensee rights tantamount to
property rights in all but name." In re Terwilliger's Catering Plus, Inc.,
911 F.2d 1168, 1172 (6th Cir. 1990). Thus, "the license constitutes
property within the meaning of the Bankruptcy Code." Id. See also,
e.g., In re Hoffman, 65 B.R. 985, 986 (D.R.I. 1986) ("[I]t is clear
beyond cavil that the debtor's liquor license, whatever may be its
dimensions, ... constitutes 'property' within the Bankruptcy Code's
definition thereof."). Accord, Fisher v. Cushman, 103 F. 860 (1st Cir.
1900); In re Gencarelli, 14 B.R. 751 (Bkrtcy. D.R.I. 1981); In re
Lamping, 12 B.R. 38 (Bkrtcy. E.D. Wis. 1981); In re Matto's, Inc., 9
B.R. 89 (Bkrtcy. E.D. Mich. 1981). See generally 4 Collier on
Bankruptcy ¶541.09, at 541-63 (15th ed. 1991).

  Pursuant to 11 U.S.C. §105, a bankruptcy court has the authority

to "issue any order, process, or judgment that is necessary or appropriate
to carry out the provisions of this title." See In re Davis, 730 F.2d 176,
184 (5th Cir. 1984). Consistent with the Supreme Court's recognition
in Segal v. Rochelle that a fundamental purpose of the Bankruptcy Code
is protection of "everything of value that bankrupt may possess," §105
clearly authorizes the issuance of an order to protect the property of the
estate. The temporary restraining order issued in this matter preventing
the liquor board from enforcing §75(a) is thus authorized by 11 U.S.C.
§105.

2
The bankruptcy court's authority under §105 is complementary to the
self-executing injunction or "automatic stay" provided for in 11 U.S.C. §362. The
automatic stay, which arises upon the act of filing a bankruptcy petition, does not
bar a government from enforcing its "police or regulatory power." 11 U.S.C.
§362(b)(4). Your request does not call on us to discuss the extent to which the
automatic stay provision might limit a liquor board's authority to regulate those
licensees subject to its jurisdiction. Nor is this opinion intended to address issues
that might be more generally raised by the issuance of occupational licenses to
bankrupt persons.

                                    III

                               Conclusion

  In summary, it is our opinion that the United States Bankruptcy

Court for the District of Delaware had full power to enjoin the liquor
board from allowing the license in question to expire.

                                 J. Joseph Curran, Jr.
                                 Attorney General

                                 Gerald Langbaum
                                 Assistant Attorney General

Jack Schwartz
Chief Counsel
Opinions & Advice