## Facts

- 125 Bar Corp. operated a Manhattan bar and held a restaurant liquor license beginning April 28, 1966, as successor to a prior licensee at the same premises.
- During 1966–1967, the State Liquor Authority issued four warning letters referencing alleged actual or threatened illegal conduct, and also relied on one additional incident.
- One warning concerned employment of felons by the predecessor licensee and another unrelated nearby licensee.
- Another warning alleged employment of a convicted gambler; the licensee denied employing the person, and no gambling incidents were reported at the premises.
- Other warnings involved reports of prostitution solicitations and a surreptitious narcotics sale at the premises, plus an additional prostitution-solicitation incident.
- The Authority did not contend that 125 Bar Corp. knew of, acquiesced in, or fostered the alleged misconduct when it occurred.
- After a nonrenewal interview conducted under the Authority’s regulations, the Authority denied renewal of the liquor license.
- The licensee brought an Article 78 proceeding; the Appellate Division confirmed the Authority’s determination, and the licensee appealed.

## Issues

1. Whether the State Liquor Authority’s denial of renewal after an interview was arbitrary and capricious because the information before the Authority did not provide a rational basis for nonrenewal.
2. Whether incidents tied to a predecessor or unrelated licensees, and isolated or weakly supported misconduct allegations without a showing of the current licensee’s knowledge or involvement, can rationally justify nonrenewal.

## Decision

- The Court of Appeals reversed the Appellate Division.
- The court annulled the Authority’s nonrenewal determination and remanded for further proceedings.
- The court held that, although substantial evidence was not required for a post-interview nonrenewal decision, the record still had to supply a rational basis, which was lacking here.
- The court treated the predecessor/unrelated-licensee employment warning as irrelevant to the petitioner’s renewal.
- The court treated the “convicted gambler” warning as hardly relevant given the denial of employment and absence of reported gambling incidents.
- The remaining prostitution and narcotics incidents, as presented, did not rationally support nonrenewal without a demonstrated nexus to the licensee’s management, knowledge, or condonation.

## Legal Principles

- In Article 78 review of liquor-license renewal determinations made after an administrative interview, the agency need not rely on substantial evidence or competent common-law evidence, but its action must have a rational basis.
- Administrative nonrenewal cannot rest on irrelevant data, including misconduct attributable only to predecessor or unrelated licensees, without a connection to the applicant’s operation.
- Isolated or weakly supported allegations of illegal activity at licensed premises, without a showing of the licensee’s knowledge, acquiescence, or operational responsibility, may be insufficient to rationally support nonrenewal.

## Conclusion

The Court of Appeals annulled the liquor-license nonrenewal because the Authority’s stated incidents, taken together, did not rationally support the determination as to the current licensee’s fitness, rendering the action arbitrary and capricious, and remanded for appropriate proceedings.


125 Bar Corp. v. State Liquor Auth., 24 N.Y.2d 174, 299 N.Y.S.2d 194 (1969)