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ASIAN-AMERICAN LICENSED BEVERAGE ASSOC. v. COMMONWEALTH

November 3, 2005.

ASIAN-AMERICAN LICENSED BEVERAGE ASSOC., et al., Plaintiffs
v.
COMMONWEALTH OF PENNSYLVANIA, et al., Defendants.



The opinion of the court was delivered by: YVETTE KANE, District Judge

MEMORANDUM AND ORDER

I. Introduction

The City of Philadelphia is host to approximately 2400 businesses that are licensed by the Pennsylvania Liquor Control Board ("LCB"). Among these are licensed restaurants and eating establishments with "R" and "E" licenses that entitle their holders to sell beer and malt beverages for consumption off the licensed premises. In the parlance of liquor licensing, these establishments are known as "stop and go's." Among the operators of "stop and go's" in Philadelphia are the approximately 400 members of the Asian-American Licensed Beverage Association ("AALBA"). The AALBA, along with six individual Asian-American owned businesses in Philadelphia, bring this action to enjoin the implementation of legislative changes to licensing laws that impact their businesses. Defendants are the Commonwealth of Pennsylvania, the Pennsylvania Liquor Control Board ("LCB"), and the three current board members of the LCB. The City of Philadelphia has intervened as a Defendant.

  Plaintiffs brought this action by filing a Petition to Review in the Commonwealth Court of Pennsylvania. The Petition alleged that Sections 4 and 6 of Act 39 of 2005, which amended Sections 407 and 449 of the Pennsylvania Liquor Code, codified as 47 P.S. § 4-407, 4-442(a), and Section 479 of the Pennsylvania Liquor Code, codified as 47 P.S. § 4-479, are in conflict with other provisions of the Pennsylvania Liquor Code and violate the Pennsylvania Constitution and the Fourteenth Amendment of the United States Constitution. Following an expedited hearing on October 6, 2005, the Commonwealth Court issued an Order temporarily enjoining the enforcement of Act 39. On October 19, 2005, Defendants removed the action to this Court. On October 21, 2005, Plaintiffs filed a Motion for a Temporary Restraining Order and Preliminary Injunction. (Doc. No. 4.) On October 25, 2005, this Court heard argument on Plaintiffs' Motion for a Temporary Restraining Order and denied that motion as moot, finding that the order of the Commonwealth Court remained in effect pursuant to 28 U.S.C. § 1450.*fn1 The same day, the City of Philadelphia filed an unopposed motion to intervene and the Court granted the motion pursuant to Federal Rule of Civil Procedure 24(b)(2). (Doc. No. 17.)

  On Friday, October 28, 2005, this Court heard testimony on Plaintiffs' motion for a Preliminary Injunction. Argument on the motion was had the afternoon of Monday, October 31, 2005. Immediately prior to making their argument, Plaintiffs advised the Court and parties that it would be filing an Amended Complaint, adding a sixth claim alleging violations of the Equal Protection Clause of the Fourteenth Amendment to the United States Constitution by the City of Philadelphia. (Doc. No. 26.) The same day, this Court filed a modified Temporary Restraining Order, dissolving the Commonwealth Court's order to the extent that it enjoins the enforcement of § 4-479 of the Pennsylvania Liquor Code, and to the extent that it enjoins the LCB from accepting and processing applications for special permits. (Doc. No. 31.)

  II. Findings of Fact

  Historically, the City of Philadelphia has experienced a high rate of criminal activity in the areas of the city where "stop and go's" operate. In July, 2005, the Pennsylvania General Assembly passed and the Governor signed an omnibus amendment to the Pennsylvania Liquor Code, Act 39 of 2005. Act 39 addresses, inter alia, the law enforcement problems attendant to these businesses and Philadelphia's need to better ensure the public health, safety, and welfare in areas of the City where "stop and go's" operate. Effective September 6, 2005, Sections 4 and 6 of Act 39 create an added layer of regulatory oversight for retailers in Cities of the First Class, imposing a requirement that licensees who sell beer for off-premises consumption in Cities of the First Class first obtain permits from the City as a prerequisite to licensing by the LCB. Sections 4 and 6 of Act 39 provide that after October 31, 2005, the LCB shall not license any retailer who has not first obtained a permit from the city. The City is authorized to consider the issuance of a permit, weighing its effect on the "welfare, health, peace and morals of the city or its residents." Section 4 of Act 39, 47 P.S. § 4-407(b)(4) (2005). The City is afforded forty-five days to consider a permit application, and any application not acted on within that time is deemed to be approved by the City. Section 6 of Act 39, 47 P.S. § 4-442(a)(5) (2005). Appeal from the action of City Council is to the Court of Common Pleas in the county in which the city is located. Section 6 of Act 39, 47 P.S. § 4-407(a)(4). The requirement for a City permit was added to the original omnibus amendment to the Liquor Code through amendment of the House Liquor Control Board Committee on June 22, 2005, without remarks, without public notice, and without the opportunity for public debate. The Philadelphia City Council learned of this significant change to the licensing scheme one week after its enactment, leaving the city little time to establish procedures before the deadlines established in the Act.

  The City responded by adopting temporary and then permanent "Rules Governing Requests for Approval of Permits to Sell Malt or Brewed Beverages for Consumption Off Premises in Philadelphia" (Pl. Ex. 5.) These Rules provide for the application for a City license, the posting of premises, the filing of protests, and for hearings related to the issuance of these permits. The Rules provide for an administrative hearing in the event that any person protests a permit application. Members of City Council are authorized to file protests. When hearings are required, they are conducted by Hearing Examiners who recommend to the City Council that a permit be approved or disapproved. Permits are finally approved or disapproved by vote of City Council. City Council members who have filed protests against a permit routinely recuse from the vote on the approval or disapproval of that particular permit.

  Pursuant to these Rules, as of the date this matter was heard, the City had received 781 permit applications and approved 546 of those applications as without protest. Of the 235 applications remaining, 138 received protests, and 97 applications are still within the 14-day protest period. In the 138 applications subject to protests, 26 protests were withdrawn and the permits approved. Twenty-eight of the remaining 138 are pending, and 34 permits were disapproved by City Council. Of the 781 applications filed with the City of Philadelphia for Act 39 permits, 184 are AALBA members. Of the 127 applicants noticed for Act 39 hearings, 97 are AALBA members. Twenty-nine of the 34 permit applications disapproved by City Council were submitted by AALBA members.

  The abbreviated review period and lack of notice provided by the General Assembly has resulted in deficiencies in the processing of Act 39 permit applications, and a loss of confidence by Plaintiffs that the law is being fairly administered. Hearings are scheduled soon after applicants are notified of a protest, leaving them little time to prepare. The identity of the protester is not revealed until the time of the hearing, also hampering an applicant's ability to prepare. Members of City Council, and at least one city employee, routinely serve as the protester. Hearings for permit applicants represented by the same counsel are set at conflicting times, so that some applicants are forced to appear unrepresented or to seek new counsel on short notice. Confusion exists over the ability of hearing examiners to grant continuances requested by applicants. When a permit is denied, official written notification of that fact is not immediately forthcoming, creating confusion regarding when the time for appeal to the Court of Common Pleas commences.

  These anomalies have created the specter of unequal enforcement. The City's own statistics, reflecting a disproportionately high number of hearings and permit denials respecting Asian-American applicants, reinforces this perception. Moreover, the decisions of City Council in particular cases raises concern that the Council's decisions are arbitrary and not based on substantial evidence. Although Defendants were afforded no opportunity to refute their claims, the Court heard testimony of individual Asian-American licensees that called into question the soundness of City Council's decision on their permits. These witnesses included: Adam Xu, Chairman of AALBA; Hung Ngo, owner of Haverford Deli; Chang Woo, owner of Conley Deli; Christopher Van Aun, owner of 63 CVA, Inc.; Sue Mae Tang, owner of Kitchen 89 Deli; and Yen Tran, Secretary/Treasurer of AALBA.*fn2

  Plaintiffs suffer adverse impact from the application of Act 39. Retailers under the Pennsylvania Liquor Code are relicensed bi-annually on a rotating basis, depending on their geographic location within the Commonwealth. This cycle holds that licensees in the City of Philadelphia be relicensed in the year 2005. Unless Plaintiffs receive a City permit necessary to obtain an LCB permit for off-premises sales, Plaintiffs will be able to sell beer and malt beverages only to patrons who consume these beverages on the premises. The application to some Plaintiffs will result in reduced sales of beer and malt beverages and reduced income.

  III. Discussion and Conclusions of Law

  A. Legal Standard for ...


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