People ex rel. Loughran v. Flynn , 96 N.Y.S. 655 ( 1905 )

Ingraham, J.:

The question presented upon this appeal is whether the provisions of chapter 697 of the Laws of 1905, so far as they direct the Special Deputy Commissioner of Excise to revoke a liquor tax certificate issued to a .person intending to. carry on the traffic in liquor in connection with the business of a hotel, without notice to the holder of the liquor tax certificate or giving him' an opportunity to be heard, violates any provision of the Constitution of this State. Prior to the 1st clay of June, 1905, the relator duly paid the tax and applied for and received a liquor tax certificate .to traffic in liquor, in connection with the business of keeping a hotel at No. 2353 Third avenue, city of New York, pursuant to-chapter 112 of the Laws of 1896 and the various acts amendatory thereto. By the Liquor Tax Law (Laws of 1896, chap. 112) there was substituted for a license to traffic in liquor under the provisions of the Excise Law of 1892 (Laws of" 1892, chap. 401, as amd.) a system of taxation by which a tax was imposed upon each citizen of this State intending.to engage in the liquor business.

Subdivision 1 of section 11 of the act (as amd. by Laws of 1903, chap. 115) provides: “Upon the business of trafficking in' liquors to be drunk upon the premises where sqld, or which are so drunk, whether in a hotel, restaurant, saloon, store, shop, booth or other place, or in any outbuilding, yard or garden appertaining thereto or connected therewith, there is assessed an excise tax to be paid by every corporation, association, copartnership or person engaged in such traffic.” By section 17 (as amd. by Laws of 1897, chap. 312, and Laws of 1900, chap, 367) provision is made for the application to be made by each person, etc., desiring to engage in such traffic for a liquor tax certificate. This application must state the name of the applicant, the premises where the traffic is to be carried on; under which subdivision of section 11 of .the act the traffic in liquor is to be carried on, and what, if any, other business is to be carried on in connection therewith or on the same premises by the applicant. Subdivision 9 of section 17 (as amd. by Laws of 1897, chap. 312) provides that if the traffic in liquor is to be carried on in connection with the business of keeping a hotel, the applicant shall also show by his application that all the requirements of section 31 of the act in relation to hotels have been complied with. Section 18 (as amd. by Laws of 1903, chap. 486) requires the applicant to give a bond; and section 19 (as amd. by Laws of 1897, chap. 312) provides: “ When the provisions of sections seventeen and eighteen of this act have been complied with and the application provided for in section seventeen is found to be correct in form, and does not show on the face thereof that the applicant is prohibited from trafficking in liquor under the subdivision of section eleven under which he applies, nor at ,the place where the traffic is to be carried on, and the bond required by section eighteen is found to be correct as to its form, and the sureties thereon are approved as sufficient by the county treasurer, or if in a, county containing a city of the first class by the special deputy commissioner for such county, then upon the payment of the taxes levied under section eleven of this act the county treasurer of the county, .and in a comity containing a city of the first class, the special deputy commissioner for such county, or if the application be made under subdivisions four or five of section eleven of this act, the State Commi§sioner of Excise shall at once prepare and issue to the corporation, association, copartnership, or person making such application and filing such bond and paying such tax, a liquor tax certificate in the form provided for in this act,”

Section 25 (as amd. by Laws of 1903, chap. 486) provides as follows: “ If a person holding a liquor tax certificate and authorized to sell liquors under, the provisions of this" act, against whom no. complaint, prosecution or action is pending on account of any violation thereof, and who shall not have violated any provision of the Liquor Tax Law during the excise year for which such certificate was issued, shall voluntarily, and before arrest or indictment for a violation of the Liquor Tax Law, cease to traffic in liquors during the term for which the tax is paid under such certificate, such' person or his duly authorized attorney may surrender such "tax certificate to the officer who issued the same, or to his successor in office, provided that such tax certificate shall have at least One month to run at the time of such surrender; * * *. Said officer shall thereupon compute the amount of rebate then due o'n said certificáte for the unexpired term thereof, and shall execute duplicate receipts therefor, * * *. One of such receipts said officer shall deliver to the person entitled thereto, and the other of such receipts he shall immediately transmit, with the surrendered certificate and the petition for the cancellation thereof to the State Commissioner of Excise. If within thirty days from the date of the receipt of such certificate by the State Commissioner of Excise, the person surrendering such certificate shall be arrested or indicted for a violation of the Liquor Tax Law, or proceedings shall be instituted for the cancellation of such certificate, or an action shall be commenced against him for penalties, such petition shall not be granted until the final determination of such proceedings or action; and if the said petitioner be convicted, or said action or proceedings be determined against him, said certificate shall be cancelled and all rebate thereon shall be forfeited, but if such petitioner be acquitted, ■and such proceedings or action against him be dismissed on the merits, then the State Commissioner of Excise shall prepare two orders for the payment of such rebate, one order for the one-half thereof, directed to the State Treasurer,-to be paid by him on the certificate of the Comptroller, and one order for the one-half of such rebate, directed to the fiscal officer of the proper" locality, to be paid by such fiscal officer out of any. excise of other moneys of such locality applicable thereto. * * * If a corporation,, association- or copartnership holding a liquor tax certificate shall be dissolved, or a receiver or assignee be appointed therefor, or a receiver, assignee or committee of the property of a person holding a liquor tax certificate be appointed during the time for which such cértificate was granted, or a person holding a' liquor tax certificate shall die during the term for which such tax certificate was given, such corporation, association, copartnership or receiver or assignee, or the administrator or executor of the estate of such person, or the person or persons who may succeed to such business, or a committee of the property of a person adjudged to be incompetent, may in like manner surrender such liquor tax certificate, or they may continue to carry on such business, upon such premises, for the balance of the term for which such tax'was paid and the certificate given.”

Section 27 (as amd. by Laws of 1897, chap. 312) provides that a liquor tax certificate, except á certificate issued under, subdivisions 3, 5 or 6 of section 11 of the act, may be sold, assigned or transferred during the time for which it was granted to any corporation, association, copartnership or person not forbidden to traffic in liquors under the act, or under the subdivision of section 11 under which such certificate was issued, upon the consent of the officer who issued the license or his successor in office; provided, however, that no such sale, assignment or transfer shall be.made except in accordance with the provisions of "the Liquor Tax Law. Subdivision 1 of section 28 (as amd. by Law's of 1897, chap. 312) provides, for a review by certiorari of the refusal to issue or transfer a. liquor tax certificate. Subdivision 2 of that section (as amd. by Laws of 1903, chap.'486, and Laws of 1905, chap. 680)."provides: “A*t any time after a liquor tax certificate has been issued to any corporation, association, copartnership or person under section eleven of this act, said liquor tax certificate may be revoked and cancelled if material statements in the application of the holder of such certificate were false, or if the consents required by section seventeen are not properly filed as required‘by said section, or if the holder of said certificate was not for any reason entitled to receive or hold the same, or to traffic in liquors, or if any provision of this act is violated at the place designated in said certificate as the place where such traffic is to be carried on.” Provision is then made therein for a judicial determination by a justice of the Supreme Court, or the Special Term of the Supreme Court, or the county judge, based upon a verified petition stating the facts upon which the cancellation is claimed. Upon the presentation of the petition, the justice, judge or court must grant an order requiring the holder of such certificate to show caqse before him, or at - a Special Term of the Supreme Court on a day specified therein why an order revoking and canceling such liquor tax certificate should not be. granted. A copy of such petition and order is required' to be served; upon the holder of such- certificate, and upon the officer issuing the certificate or his successor ill office, and upon the State Commissioner 'of Excise, fin the. manner directed hy.'such order, not less than five days before the return day thereof. ■" On the day specified in such order, the justice, judge or court before whom the same is returnable, shall grant such order revoking and "canceling the said-.liquor tax certificate, unless the holder of said liquor tax certificate shall present and file an answer to said petition denying 'each and every violation of the Liquor Tax Law alleged in the petition, and raising an issue as to any of the facts material to the granting' of such order, in which event the said justice, judge or court, shall hear, the proofs of the parties in relation to the allegations of the petition or answer. If the evidence establishes any of the facts hereinbefore set forth as sufficient to revoke and cancel a certificate, an order shall be. granted’ by said, justice, judge or court revoking and canceling such certificate. Sáid order shall also provide that the holder of said liquor, tax certificate, or any other person having-such certificate in his. possession or under his control,-shall forthwith surrender said certificate to the officer who issued the same, or to his successor in office.

Section 30 (as amd. by Laws of 1;S97, chap. 312) specifies the persons to whom liquor shall not 'be sold or given away, and that section-and section 31 (as amd. by Laws of 1903, chap. 486,. and Laws of 1904^ chap. 205) designate what are illegal sales and selling. Section 31 (as amd. by Laws of 1903, chap. 486) provides' that the holder of a liquor tax certificate under subdivision 1 of section 11 of the act, who is - the keeper of a hotel, may sell liquor to the' guests ' of such hotel,, except to such persons as are described in clauses'1, 2, 3, 4, 5 and 6- of section 30 of the act, with .their meals, or in their rooms therein, except between the hours of one o’clock ■ and five o’clock in the morning, hut not in the barroom or other similar room of such hotel. The section" then defines the term hotel, and who are srnests within the meaning of this section. . ' Section 33 provides that any person engaged in the traffic in liquors, whether as officer of a corporation or association, or as a member of a copartnership or an .individual, shall, upon conviction of á violation of any of the provisions of the act,, be liable for and suffer the penalties imposed therein: Section 34 (as amd. by

Laws of 1897, chap. 312 ; Laws of 1899, chap. 398 ; Laws of 1900, chap. 367; Laws of 1903, chap. 486, nud Laws of 1905, chap. 680) specifies the penalties for violations of the act. Subdivision 2 of section 34 (as amd. by Laws of 1900, chap. 367) provides that any corporation, association, copartnership or person who. shall make any false statement in the application required to be presented to the county treasurer or other officer to obtain a liquor tax certificate, or to obtain a transfer thereof, or who shall violate any of the provisions of sections 11, 21, 22, 23, 24, 30 or 31^* shall be guilty of a misdemeanor and upon conviction therefor shall be punished as therein specified and shall forfeit the liquor tax certificate, and be deprived of all rights and privileges thereunder, and of any right to a rebate of any portion of the tax paid thereon, and such-certificate shall be surrendered to the officer who issued it, or to his successor in office, who shall immediately forward the same to the State Commissioner of Excise for cancellation.

Section 36 (as amd. by Laws of 1903, chap. 486, and Laws of 1905, chap. 68Ó) provides for the collection of fines and penalties.

Section 42 (as amd. by Laws of 1897, chap. 312) provides, among other things, for the collection of additional penalties from any corporation, association, copartnership or person who shall traffic in liquor contrary to the provisions of the Liquor Tax Law, or who shall make a false statement upon application for . a liquor tax certificate, to be recovered by the State Commissioner* of Excise in an action brought in his, name as such commissioner.

This analysis of the act shows that a person receiving a liquor tax certificate based upon the payment of the amount assessed as a tax acquires, certain vested rights. . He. has paid to the' State a sum of money as a condition that he may conduct a , business, which, by the imposition, of a tax, becomes a legal business for one year from the-first of May in which the tax was paid. (See Liquor Tax Law, § 17,. as amd, supra ¡ Id.. § 20.). In consideration of the payment of this sum of money, the State issues to him a liquor tax certificate, and by an express provision' of section 31 (as amd. by Laws of 1903, chap. 486). the holder of a liquor.tax certificate, who is_ a. keeper of a hotel, is authorized to sell liquors to the guests of the said hotel. By the express provisions of the act. there was reserved to the holder of'the liqtior tax certificate the right to have ;the ■ same canceled át any time during the year, and if he has not been arrested for a violation of the Liquor Tax Law, and no proceeding based upon such a violation is pending against him, lie becomes entitled to-receive from the State and local authorb ties a proportionate amount of the money .that he has paid to the State for the permission to carry on the business during the year.' He is authorized to assign the right to transact the business for which he had paid. . The State does riot reserve the right to cancel the certificate or interfere with the person who had paid the tax during the period for which- the tax liad been paid, except Upon- conviction of the holder of the certificate in a judicial proceeding to which he must be a party; and an order revoking .the certificate can only be, made ■ upon proof in a proceeding to which the holder of the certificate' is a party, where the evidence establishes that the holder had been guilty of an act which the statute provides shall be a cause for the - cancellation of the cértificate. It was under this law that-the relator, prior to June 1,1905, paid to the State- the sum of $1,200. He had the right on July first, if no proceedings were periding against him based upon a violation of the law, to present his certificate for cancellation, aptl if that were,done he was entitled to receive back eleven-twelfths of the sum which lie had paid. He paid the money to- the. State upon an express -provision of the statute giving him that right,land providing that the State could revoke the certificate only after-a judicial proceeding in the Supreme Court, based upon proof that the holder had violated some provision of the act.' On June 3, 1905, chapter 697 of the. Laws of that year was passed, to take effect immediately. Section 1 of. that act- provides that during the'year 1905 a Special Deputy Commissioner of Excise or county treasurer empowered to issue a liquor tax certificate, under subdivision 1 of section 11 of the Liquor Tax Law, who has issued a liquor tax certificate upon a statement by which it appears- that the business of keeping a hotel is to be carried on in connection with the traffic in liquors orí the premises for which such certificate is applied for, shall at any time after the issuance of such certificate, at the request of a taxpayer, serve, or cause to be served, upon the superintendént or executive officer of the building department of the city, borough or village in which such declared hotel building is situated a written or printed notice stating that an application lias* been made to carry on the business of trafficking in liquor in connection with the business of keeping a- hotel. The section further provides that within thirty days after the receipt of such notice, the officer receiving the same is required to cause an inspection of the building and premises of such declared hotel, and to file with the Special Deputy Commissioner or county treasurer a written report stating, among other things, whether or not such building and premises comply with the provisions of the laws, ordinances; rules and regulations of the State and locality relating to the fireproof construction of hotels, however defined, in force, and effect since 1892, affecting hotels erected after that date, and also with the provisions - of subdivisions 1 and 2 of clause k of section 31 of the Liquor Tax Law. Section 2 provides that if it shall appear from such report that the declared hotel building referred to in the application does not comply with the provisions of the Liquor Tax Law as to! hotels, and in certain specified cases with the laws, ordinances, rulés and regulations of the State and locality relating to the fireproof construction of hotels, the said Special Deputy Commissioner of Excise or county treasurer shall revoke any liquor tax certificate, issued to any person proposing, to carry on the traffic in liquor at such place in connection with the business of keeping a hotel, -and the said Special Deputy Commissioner of Excise or county treasurer shall immediately notify such chief executive officer of the building department that such liquor tax certificate has been revoked. The section further provides that every superintendent or other officer of the building' department, upon receiving 'such notice, shall at once notify the owner and occupant of said building that,' the building does not comply with the laws, ordinances and regulations in relation to hotels, a'nd shall cause the use of such building as a hotel to cease within ten days - after the notification and shall c-iuse all partitions.forming bedrooms alnd. which were formerly used in connection with a hotel or saloon'in such building to be removed within thirty days. Ho notice is to be given to the owner of the liquor tax certificate until after it is revoked, and he has no opportunity of knowing that ^proceeding is commenced against him until he receives the notice that his liquor tax certificate has been canceled and revoked. He has no oppoi'tunity, either before or after the revocation, to dispute the fact certified by. the superintendent of buildings, no opportunity to be heard whether his case comes within the act; but without notice to him and without a judgment of any Court or tribunal, the right acquired by him on the payment of the tax, including the right to surrender the certificate and receive back a proportion of the money paid for the right to carry on the business is revoked,, and the superintendent of -buildings is directed to enter his premises and to remove therefrom all partitions forming bedrooms which were formerly used in connection with the hotel or saloon in such building. The holder of this certificate has liad no notice of any proceeding against him. Ho court has decided that he lias violated this' act or been guilty. of any offense. The State has $1,200 of his money, paid under a statute which in express terms authorized him, in consideration of that payment, to sell liquor to guests in his hotel for one year from May 1,1905, reserving to him.the right to surrender the certificate and receive back a proportion of the money paid if- he should discontinue that business, and which in substance provided that the certificate could not be revoked except by an order of the Supreme Court or a justice thereof upon notice to him based upon proof of a violation by him of the. provisions of the act. In this proceeding, because the relator refused to recognize such revocation, he is held for the commission of a.crime.

It is claimed that this certificate is void if the applicant had been guilty" of any misstatement in his application. Assuming that, to be true, before the fact could be determined against him and his property' right destroyed, he was entitled to notice of the charge made against him and an opportunity to contest the accusation of there having been a misstatement in his application. If the protection afforded by the Constitution means anything, it means that a person, is entitled to his day in court and to contest the charge against him and to be heard thereon, before his property can be taken from him and his rights destroyed.

That the holder of a liquor tax certificate acquires upon the payment of the tax a right which the court will protect has been expressly 'decided by the Court of Appeals in Matter of Lyman (160 N. Y. 96). The court, in affirming an order dismissing a proceeding to revoke a certificate,"said: “The company paid the tax on procuring the certificate, but the commissioner claims that this certificate thus procured has been forfeited because sales of beer were made upon the grounds by the holder at another place than that described therein. *' * * Liquor tax certificates, or the right to engage in the sale of liquors, constitute" under the present law, a species of property transferable by the party procuring-the same. * * * The privilege or right which it confers upon the holder cannot be j’evoked except in the manner and for the causes prescribed in the statute. The holder may invoke the general rules of law for the protection of property in any proceeding having for its object the forfeiture or destruction of the right which the certificate'confers.”'

Matter of Peck v. Cargill (167 N. Y. 391) was an appeal from an order revoking and canceling a liquor tax certificate. In thaAcase Judge O’Brien, in delivering the opinion of the court, says: “ These certificates are recognized by the statute under which they are issued as a species of property transferable from one to another. They are the evidence of a right or privilege ¿o carry on a certain kind of business, issued by the State to the individual, and hence a thing of. pecuniary value. In this case the holder of the certificate has been deprived of it by the order appealed from, which revoked and canceled it. This has been done on the ground that he was guilty of a violation of the law by selling liquor on Sunday. The order so adjudges. Ao one has testified, or even alleged, that he committed that offense. The petitioner does allege that yhe is informed and believes that the holder of the certificate has been selling beer, whisky and wine‘during the last three months’ on Sunday, and that is absolutely the only allegation or proof in the record to uphold the order .complained of. * * * When the law requires that the tacts shall be stated, as the basis of a summary proceeding to forfeit the right to carry on business by reason of acts which constitute a crime, it is not complied with by the presentation of a petition, every allegation of which is upon information and belief, without even a statement of the sources of the information or the grounds of the belief. The liberty and property or personal rights of the citizen have practically no protection if they can be taken away or destroyed by such a proceeding, oh the part of any one who is willing to : become a party to such a controversy, and without producing any proof whatever of the acts constituting the offense charged.” All of this .opinion was not concurred in by a majority of tiie judges, but there was no dissent from this proposition. And Martin,. J., in' concurring says: “While it' has been said that a tax certificate possesses some of the elements of property, and to an extent may be so regarded, still it is at most a qualified property, subject to. all the provisions of the statute and may be canceled or destroyed in the 'manner specified. In other words, the right of property is a conditional one, which is subject to all'the contingencies provided for by the statute,, among which is the liability of being canceled. ■ and annulled for any of, the reasons and in the manner specified in the statute,.”

In Niles v. Mathusa (162 N. Y. 546) the right acquired under such liquor tax certificate was before the court, the question being, whether the holder of such certificate could .mortgage it to secure the payment of a sum of money, and in determining that question the court said: “ The certificate differs essentially from the licenses issued under former excise laws; it maybe surrendered and the unearned portion of the tax is returned; it' can be assigned, subject I to the limitations of the statute, and if the holder dies it is an assetl in the hands of his executor or administrator who may collect the I rebate.' The certificate'is undoubtedly personal property under accepted definitions, but it remains tó be considered whether it is ini legal contemplation a chattel.” And as a conclusion the court says: “.The liquor tax certificate is personal- property, but it is notl a chattel -within the purview of the Chattel Mortgage Act.^* ”

It must, I think, be conceded that the person who paid to the State the tax imposed by the Liquor Tax Law and received a liquor tax certificate thereby acquired a property right to protect which he was entitled to appeal to the courts. This property right, of course, was subject to the conditions imposed by the statute, and it was subject to be rendered valueless by the procedure provided in the statute for its revocation. But under the statute, when the plaintiff’s certificate was issued, it could only be revoked or canceled by a judicial determination in a proceeding to which the holder of the certificate was a party and in which he had an opportunity of being heard. For the Legislature to deprive the holder of the certificate of his property right, without judicial proceeding and without the opportunity of being heard, seems to me to be a plain violation of the provision of section 6 of article 1 of the Constitution that no person shall be deprived of life, liberty or property without due process of law. ' Once establish the fact that the owner of. such certificate acquires by it a property right, whatever it may be called, he can only be deprived of that property right by due process of law; and any attempt of the Legislature to divest him of it without notice and without an opportunity of contesting the alleged facts upon "which it is sought so to divest him is depriving him of property without due process of law. “ Ho citizen shall arbitrarily be deprived of his life, liberty or property. This the Legislature cannot do nor authorize to be done. * * * It may,.however, be stated generally that due process of law requires an orderly proceeding adapted to the nature of the case in which the citizen has an opportunity to be heard and to defend, enforce and protect his rights. A' hearing or an opportunity to be heard is absolutely essential. We cannot conceive of due process of law without this.” (Stuart v. Palmer, 74 N. Y. 183.) In other cases where the question has been presented, it has been held that an act which in effect destroys property or a property right without an opportunity to its owner of being heard, is depriving a person of his property without due process of law. (Matter of Jacobs, 98 N. Y. 98 ; Gilman v. Tucker, 128 id. 190 ; Colon v. Lisk, 153 id. 188.) And the same principle has been reaffirmed in a late case m the Supreme Court of the United States. (Muhlker v. Harlem R. R. Co., 197 U. S. 544.) There the court said: “The command of the State, the duty of the railroad, to obey,, may encounter the '.inviolability of private property. And in performing the duties devolved" upon it, a railroad may be required to exercise the right of eminent domain., * * * We do not,, therefore, solve the - questions in this case by reference to the. power of the State and the . duty of the railroads;' the rights of abutting property owners must ,be considered, and, against their infringement, plaintiff urges the. contract clause of. the Constitution of the. United States and the Fourteenth Amendment.^* •' The latter is invoked because the act of 1892 ^† does not provide for compensation to property owners, and the former on account Of tlie conditions upon which the strip "of "land constituting the avenue was conveyed to the city.” And the'court concluded that if it was- the State, and not the railroads which-did the injury to plaintiff’s property, that permission or command . of the State can. give ho power to invade private rights, even, for a public purpose, without payment of compensation.

The State has received the relator’s money, for which it authorized him to conduct a certain, business within the State for .one year, the right to be subject to revocation and. cancellation as a result of a judicial prpceeding to which .the relator must be a party. That right is held to be a property right and can only be" revoked^ canceled or destroyed by a judicial proceeding in conformity with the grant of the right; and for tlie State to attempt by a legislative ■ enactment to revoke and cancel the right acquired by this certificate without notice to the holder is the taking of property without, due process, of law and, as I view-it, in direct violation of -the cónstitu tional provisions guaranteeing the protection of the owners of property. (Const, art. 1, §§ 1, 6.) We are only discussing an act that, affects certificates issued before its passage and this decision affects eñly that act.

It follows, therefore, that the order appealed from must be -.reversed. ■ and relator discharged. : . "’

O’Brien, B. J.,. and Patterson, J.

* See Laws of 1896, chap. 112, § 11, as amd. by Laws of 1903, chaps. 115, 486, and Laws of 1905, chap. 678; Id. § 21, as amd. by Laws of 1908, chap. 486; Id. § 12, as amd.'by Laws of 1897, chap. 312; Id. § 23, as amd. by Laws of 1900, chap. 367, and Laws of 1905, chap. 680; Id. § 24, as amd. by Laws of 1897, chap. 312; Laws of 1904, chap. 485, and Laws of 1905, chaps. 104, 677; Id. § 30, as amd. by Laws of 1897, chap. 312; Id. § 3Í, as amd. by Laws of 1903, chap. 486, and Laws of 1904, chap. 205.— [Rep.

* See Laws oí 1883, chap. 279, as amd.; revised in Lien Law "(Laws of .18971 chap. 418), § 90 et seq, as amd.— [Rep.

* U. S. Const, art. 1, § 10, subd. 1; id. 14th amendt. § 1,-f [Rep.

† Laws of .1892, chap. 339.— [Rep.