IS ORGANIZED CRIME BUYING ABC LICENSES?
Or, Whose Bar Is This Anyway ?
By Ralph Saltsman with Stephen Solomon
And Stephen Jamieson
Not really from a screenplay:
Tony Soprano: It’s getting too hot at this end. We
gotta branch out.
Paulie Walnuts: More trash trucks; more clubs? What?
Tony: No. It’s Jersey. The whole east side. We gotta
get the --- outta here.
Silvio Dante: Outta Jersey? What’s outta Jersey?
Christopher: Hollywood. Movie Studios.
Tony: Nah.
Paulie: More trash; more clubs. But not in Jersey?
Tony: Bars. Bars in California.
Christopher: Hollywood. I’m on the way.
Paulie: F’rgetabout it. Not you. We need a front.
Tony: Yeh. I’m thinkin’ Carmella’s cousin in LA.
His name. Our money.
Silvio: One bar, two bars. Ten bars.
Tony: Yeah. The cousin’s name on the license. Our money
up. Our money back.
Christopher: Maybe a house at the beach.
Or maybe it’s not the Soprano’s. Maybe it’s John
Gotti’s family. Wouldn’t the late Teflon Don’s heirs love to
have a string of bars and licensed restaurants in California where
the Gotti family only finances the deals and takes the profits? Of
course, the Gotti family could end this partnership expeditiously.
As the Dapper Don said: “Every time we got a partner that don't
agree with us, we kill him." What Tony Soprano and the Gotti
family should know is that False Ownership of a licensed premises
in California violates state law. All too often the apparent and
factual owner of licensed premises is not the person on the ABC
license. All those niceties about disclosing past criminal history
and past ABC violations are all about the applicant for the
license. Financial sources are provided so the ABC will know who
it’s licensing. Tony Soprano’s past won’t be disclosed
because Tony’s true ownership won’t be disclosed. Carmella’s
cousin will be the licensee and Tony will reap the profits after
putting up the front money.
Rest assured there are persons and groups wholly not qualified to
be on an ABC license who are the de facto licensees through
investment, control and by deriving profits from sales. The ABC
would dearly love to find out who these folks are so those
licenses can be revoked.
It’s important to know that false ownership can lead to the
revocation of the affected license as a violation of the ABC act.
Where two or more individuals agree to violate the ABC act (in
this and in other ways) the participants may be engaging in a
conspiracy, a felony. For example, an attorney, a consultant and a
licensee conspired in 1988 to violate the ABC Act. The Court of
Appeal upheld the conspiracy conviction of the attorney in People
v. Anderson (1991).
Four occurrences of false ownership come to mind: 1) There are the
unsophisticated participants who just don’t know what they’re
doing and end up buying and selling a business without actually
finishing the transaction with a license transfer. 2) Then
there’s the knowledgeable seller taking advantage of the
unwitting buyer who ends up paying a lot of money for nothing. 3)
There are the criminal conspirators who agree to a fraud. 4)
Lastly there’s any one of those three groups being guided by
either someone who is also unaware of ABC law or is helping one
party take advantage of the other or is architect or willing
participant in the fraud. Note that there are attorneys out there
who sadly don’t understand that a purchase and transfer of an
ABC licensed business entails an application process.
Sometimes the de facto owner isn’t the true culprit. Innumerable
bar “owners” really don’t intend to violate the law when
they pay exorbitant sums to the true licensee in order to take
over a bar business without ever actually filing for a license
transfer. Unfortunately, and unlike lawyers who are licensed by
the State Bar, unscrupulous ABC consultants (there are some of
those) who engineer this type of fraud can do so without much fear
of retribution since consultants are not licensed by any
governmental agency and are neither supervised nor regulated by
the ABC or any other state agency for that matter.
What’s left after Mr. Smith pays licensee Jones $100,000 for Mr.
Jones’ bar? Smith has a bar; has all the risk and
responsibilities of bar ownership but has no license and therefore
no administrative rights. If Jones wants his bar back, there’s
no ABC regulatory recourse for Smith to follow. Jones could
surrender or even cancel the license. If Jones cancels the
license, does Smith get the $100,000 back? Good luck, Mr. Smith.
Sometimes the selling licensee intentionally defrauds the naive
buyer. Sometimes both buyer and seller don’t understand that the
license must be transferred through the application process before
true ownership can vest in the buyer. In both of those instances,
the respective rights of the parties would be protected if only
they would seek legal counsel to guide them through the process.
Sometimes both buyer and seller knowingly and willingly agree to
circumvent the legal requirements involved in a true transfer of
ownership. A legal transfer requires the purchase money to be put
into a proper escrow and the buyer to apply to the ABC for that
license transfer.
False owners have gone to great lengths to defraud the government.
For example, the Appeals Board in Sandhu v. Department AB 7411 and
7413 (2000) upheld license revocations where applicant actually
used his brother’s driver’s license to apply for an ABC
license transfer. The application was signed in the brother’s
name (under penalty of perjury), and a seller’s permit was
obtained from the Board of Equalization under the brother’s
name. The false owner represented himself to others as the true
owner. The Board noted: “In every false ownership case, the
license has been issued to a person or persons who are either not
owners in any capacity, or are only co-owners with others
unnamed.”
In another case, Perez v. Department AB 7868 (2002), the
false owner unwittingly explained to the ABC investigator that she
didn’t want to disclose her ownership interest to the ABC
because of a prior “B” Girl problem at a place she owned
earlier. Similarly in Robbins v. Department AB 6866 (1998),
the Appeals Board upheld a license revocation where the licensee
was “at best the nominal owner” since the de facto (unlicensed
owner) paid the bills, took the money, pocketed 80% of the profits
and ran the bar.
Now you be the judge. With the following facts, does the ABC find
an “undisclosed partner?”
1. State quarterly tax return with Appellant’s
(licensee’s) name.
2. Appellant’s son files for a federal employer identification
number with the son indicated as owner. The son is not a
licensee.
3. Later, appellant offers to sell the business to the son (the
sale to include a bar, license, sales of commodities, and
takeover of the lease).
4. Federal quarterly tax return signed by the son as owner.
5. Federal tax deposit coupon book sent to son as general
partner at the premises address.
6. U.S. Partnership returns of income show son as general
partner at 50% of profits and losses at the premises address.
7. Son files forms for, and qualifies as, manager of the
premises.
At the administrative hearing appellant testified she didn’t
remember if she had entered into a partnership agreement with her
son, but she and her son shared in the profits of alcohol sales.
Along with a shopping list of other violations, the Appeals Board
found the above facts sufficient to affirm a revocation of the
license based on the false ownership allegations and noted: “The
false owner violation is a revocation violation….”
It should be clear even to the casual observer that the ABC wants
and needs to know who its licensees are and scrupulously enforces
its obligations in that arena. Sorry Tony, that bar business you
had planned probably won’t work here. The false owner, whether
naïve and unknowing or criminally conspiratorial, faces a lot of
grief. The true licensee can take back the business or cancel the
license; or the ABC can revoke the license outright. This is
particularly more likely in the intentional fraud context.
Competent and trustworthy counsel can protect the buyer and
seller. For all these parties, that’s advisable. For the
unsophisticated, really, it’s mandatory.
Solomon, Saltsman & Jamieson are
attorneys practicing in the areas of ABC law, ABC Appeals Board
cases, and all related Land Use Matters such as City and County
Conditional Use Permits, Variances, Police and Fire permits,
Entertainment law, and Gambling Law; as well as Business and
Personal Injury litigation. Solomon, Saltsman & Jamieson can
be reached at 800 405 4222."
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