The Cloister East, Inc. v. New York State Liquor Authority

Background

Cloister East, Inc., doing business as Cloister Café, held a liquor license issued by the New York State Liquor Authority (SLA). The restaurant reopened in July 2020 with outdoor dining during the COVID-19 pandemic. On August 7, 2020, SLA investigators and New York City Sheriff’s Office personnel visited the restaurant. The evidence described in the opinion included patrons in a partially enclosed area, alcohol service, alleged social-distancing violations, and a nightclub-like gathering. The investigators documented alleged violations, and the Sheriff’s Office issued seven criminal summonses to Nicholas Drobenko.

Later that day, without advance notice or an opportunity for the plaintiffs to be heard, the SLA board held an emergency meeting and summarily suspended the liquor license. A summary suspension is an emergency suspension that takes effect before a normal hearing. The SLA relied on its emergency authority under Section 401(3) of New York’s State Administrative Procedure Act. The SLA later began a separate proceeding to revoke or cancel the license and issued a notice containing eighteen charges.

Cloister East filed this action under 42 U.S.C. § 1983, alleging violations of procedural due process and equal protection. Procedural due process generally requires adequate procedures before or after the government takes away a protected property interest. The plaintiffs sought a preliminary injunction, meaning an order providing temporary relief while the case continued, requiring the defendants to reinstate the liquor license.

Preliminary-injunction standard

The court explained that a party seeking a preliminary injunction ordinarily must show irreparable harm and either a likelihood of success on the merits or serious questions warranting litigation combined with a decisive balance of hardships. The court considered the plaintiffs’ three theories: (1) inadequate procedures before the summary suspension; (2) an alleged due-process violation arising from the later revocation proceeding and comments by an SLA board member; and (3) unequal treatment during the summary suspension process.

Procedural due process and the summary suspension

The court assumed, without deciding, that a New York liquor license is a protected property interest. It applied the balancing approach from Mathews v. Eldridge, weighing the plaintiffs’ private interest, the risk of an erroneous deprivation and value of additional safeguards, and the government’s interests and administrative burdens.

The court found that the plaintiffs’ interest was strong because losing a liquor license could seriously harm a restaurant that relies on alcohol service. But the court said the plaintiffs had not provided enough financial information to show that the suspension would force the restaurant to close. The court also found that New York had compelling interests in protecting public health and safety and stopping potentially dangerous gatherings during the pandemic. Based on the evidence available to the SLA, the court concluded that the agency had a reasonable basis for acting quickly.

The court nevertheless stated that the SLA could have provided additional safeguards without undermining its emergency response, such as advance notice of the virtual hearing, an opportunity to observe it, or an opportunity to submit a short written response. The court rejected the SLA’s argument that its informal reconsideration practice was an adequate remedy because the practice was not described in rules or regulations, was apparently discretionary, and lacked known procedures.

The court did not decide whether the SLA’s revocation proceeding itself would provide an adequate remedy. Instead, it held that the plaintiffs could immediately bring an Article 78 proceeding under New York law to challenge the suspension. An Article 78 proceeding is a state-court procedure for reviewing state administrative action. The court concluded that the suspension was final for this purpose because it immediately deprived the plaintiffs of the ability to use the license and could remain in effect indefinitely. The court held that an Article 78 proceeding could provide an adequate post-suspension hearing, including review of the claimed lack of notice and opportunity to be heard.

Because that state procedure was available, the court concluded that the plaintiffs had not shown a likelihood of success or sufficiently serious merits questions on their first procedural-due-process claim. The court therefore did not decide whether the plaintiffs had shown immediate and irreparable harm on that claim.

Procedural due process and the revocation proceeding

The plaintiffs separately argued that an SLA board member’s recommendation that the license not be returned violated due process. The court concluded that this claim was likely not ripe because it concerned an ongoing revocation proceeding that had not resulted in a revocation order or other alleged deprivation. The court also stated that the claim likely would fail under Rule 12(b)(6), the rule allowing dismissal when a complaint does not adequately state a legal claim, because the plaintiffs had not alleged an unlawful deprivation caused by the statement. The court further stated that any injury from the revocation proceeding could be addressed through an Article 78 proceeding.

Equal protection

The plaintiffs claimed that the SLA treated them unequally by relying on a newspaper article instead of conducting a proper investigation and giving them the type of hearing allegedly given to other establishments. Because the plaintiffs did not allege discrimination based on a protected class, the court treated the claim as a “class-of-one” claim. That type of claim requires evidence that the government intentionally treated the plaintiff differently from similarly situated parties without a rational basis.

The court found that the record did not support the plaintiffs’ factual premise. The SLA had conducted an investigation and presented multiple forms of evidence to the board; the record did not show that the board relied only on the newspaper article. The plaintiffs also offered no evidence that a similarly situated business received different treatment in a comparable summary-suspension proceeding. The court therefore concluded that the plaintiffs had not shown a likelihood of success on the equal-protection claim.

Disposition

Judge Lewis A. Kaplan denied the motion for a preliminary injunction. The denial was without prejudice to renewal if an Article 78 proceeding did not result in a decision on the merits of the plaintiffs’ claim that the summary suspension was unconstitutional. The opinion resolved the preliminary-relief request, not the ultimate merits of every underlying claim.