## Facts

- Circle 10 Restaurant, LLC operated a restaurant in Livingston, New Jersey and held a Class C retail plenary consumption liquor license.
- Circle 10 borrowed about $375,000 from Northern Bank and Trust Company and granted a security interest in its personal property, including “general intangibles.”
- Northern Bank assigned its rights under the loan and security documents to RELM, LLC.
- Circle 10 filed a Chapter 7 petition, and the Chapter 7 trustee obtained authority to sell the liquor license free and clear of liens, with sale proceeds to be held for distribution.
- RELM filed a proof of claim asserting it was secured by the debtor’s personal property and by proceeds from the liquor license sale.
- The trustee moved to reclassify RELM’s claim as unsecured, asserting that New Jersey law treats liquor licenses as regulatory privileges that are not property subject to lien or attachment.
- The New Jersey Division of Alcoholic Beverage Control intervened, and other creditors and state tax authorities appeared in connection with treatment of the license and proceeds.

## Issues

1. Whether an Article 9 security interest in “general intangibles” can attach to a New Jersey retail plenary consumption liquor license.
2. If no security interest can attach to the liquor license, whether a creditor can nevertheless claim a security interest in the proceeds of the trustee’s sale of the license.
3. Whether U.C.C. § 9-408 can override New Jersey’s statutory and decisional law characterizing the liquor license as a non-property privilege.

## Decision

- The court granted the trustee’s motion to reclassify RELM’s claim, to the extent it asserted secured status based on the liquor license or its sale proceeds.
- The court held that, under New Jersey law, a retail liquor license is a revocable privilege and not “property” subject to consensual liens under Article 9.
- Because no security interest could attach to the liquor license, RELM had no derivative security interest in the proceeds from the license’s sale.
- RELM’s claim was treated as unsecured with respect to the liquor license and the sale proceeds.

## Legal Principles

- Article 9 security interests attach only to interests in “property” recognized as personal property under applicable state law; Article 9 does not create property rights where state law recognizes none.
- A New Jersey retail liquor license is a state-regulated privilege, not personal property subject to levy, execution, pledge, or consensual encumbrance (absent specific statutory authorization).
- U.C.C. § 9-408 addresses certain anti-assignment restrictions for qualifying collateral but does not convert a state-defined non-property license into Article 9 collateral.
- A security interest in proceeds is derivative; if no security interest attached to the original collateral, no security interest arises in proceeds from its disposition.

## Conclusion

The bankruptcy court ruled that New Jersey’s non-property characterization of retail liquor licenses prevents an Article 9 lien from attaching to the license, and, as a result, the creditor could not claim a secured interest in the trustee’s sale proceeds; the creditor’s claim was reclassified as unsecured in that respect.


In re Circle 10 Rest. LLC, 519 B.R. 95 (Bankr. D.N.J. 2014)