(Gillette, Wyo.) Growing concerns over businesses pledging liquor licenses as collateral could prompt the Gillette City Council to take action.
Last year, the city code was updated to reflect that liquor licenses couldn’t be used as collateral for purposes of borrowing money, City Administrator Patrick Davidson said during the city council work session on Jan. 9.
“The council took the step to put that (ordinance) directly into the code and we have acted accordingly,” Davidson said to the council.
City Communications Manager Geno Palazzari said, speaking after the meeting, that liquor licenses must be renewed every year.
According to Davidson, that time of the year is quickly approaching.
Recently, the city sent out letters to all current liquor license holders, announcing an audit that would determine which businesses had pledged their license as collateral and, therefore, were in direct violation of the city code.
The letters contained a reference to City Code §3-17, which states that no retail liquor license may be pledged as collateral for any purpose.
“The city owns all the liquor licenses that we give out. Because we own the liquor licenses, they’re not assignable as anything- as collateral especially,” City Attorney Anthony Reyes said to the council.
As of today, only 11 business have deigned to respond to the audit, with five of them saying they have pledged their licenses as collateral.
Over 20 businesses haven’t responded yet to the letter. According to language in the letter, a failure to respond may be sufficient cause for the city to initiate revocation hearings on their licenses.
If the city is to remain in compliance with its own ordinances, passed in June 2017, they shouldn’t renew, nor issue, any license that has been, or will be, pledged as collateral, Reyes said.
“It’s coming to that point where you have to make a decision with how you want to proceed,” said Reyes said.
Several options are available to the council.
First, the council can choose to suspend or revoke the liquor license for any business that is not in compliance with the city code, which currently states that the council has no other option than to do so.
The second option, is that the council could choose to renew liquor licenses in February, with stipulations that businesses remedy any code violations within a certain period of time.
“In other words, we could come and say ‘we understand your license is pledged as collateral, have it cleaned up by next year’,” Reyes explained.
Cleaning up the situation would require the business to take the license out of the hands of the bank.
The third option, is to repeal the section of the code preventing businesses from using the licenses as collateral all together, Reyes said.
“It doesn’t make it any more legal, I would say,” Reyes stated. “You’ve never been able to pledge something as collateral that you don’t own.”
Mayor Louise Carter-King inquired as to the possibility of a fourth option — compromising with the banks that currently hold the liquor licenses.
But Reyes was clear, even if the banks receive the license as collateral, they don’t actually own anything and have no basis to assert their claim on them.
Carter-King said that she didn’t see the problem as belonging to the city, but to the banks that have issued loans to business owners using liquor licenses in such a way.
“They are to ones who are going to lose if we take that license back, or we get it back,” Carter-King explained.
Even if a bank brings litigation against the city in an attempt to claim a liquor license pledged to them, Reyes said that, with the code reading the way it is, the city is on firm legal ground.
It appeared that Reyes statement was enough for the mayor.
“I just don’t think that (litigation) sounds like enough of a risk to the city to take away someone’s liquor license,” Carter-King asserted.
At the moment, the risk to the city is minimal, as no harm has been done to the banks.
Councilman Dan Barks urged caution, as a misstep by the council could put a liquor license holder out of business if the banks revoke any loans.
“We need to be careful not to do that,” Barks said.
Carter-King made a final suggestion to have Reyes write another letter to the five businesses, which have pledged their licenses, to see what could be worked out.
“That way, at least we have communication going with these license holders,” she said.
The mayor declined to comment further on the how the council is going to proceed, as no final decision has been made as of today.