Business

State agency to investigate liquor license practices in Cambridge

State Treasurer Deb Goldberg said her office was “looking into any allegations of wrongdoing that violate state law.”
John Tlumacki/Globe Staff/File 2016
State Treasurer Deb Goldberg said her office was “looking into any allegations of wrongdoing that violate state law.”

A state agency is investigating the way liquor licenses have been issued in the city of Cambridge, officials said Tuesday, and is focusing on practices that may have violated state laws.

State Treasurer Deb Goldberg, who oversees the Massachusetts Alcoholic Beverages Control Commission, said she found “troubling” the findings in a Boston Globe report on Sunday that examined liquor license transactions in Cambridge. She said her office was “looking into any allegations of wrongdoing that violate state law.”

In particular, the state is examining whether some landlords sought to control liquor licenses in violation of state law, according to an official briefed on the investigation. In Massachusetts, each municipality decides which establishments get liquor licenses, but the ABCC must approve each transaction and ensure compliance with regulations. It has the power to suspend and revoke licenses and impose fines.

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The Globe report described the opaque and arbitrary practices of the Cambridge License Commission. Over 30 years, a two-tiered system emerged, in which commissioners granted licenses for free to some restaurateurs, while others had to pay up to $450,000 — sometimes at the direct urging of city officials.

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Among the approximately 250 liquor licenses currently active in Cambridge, close to 40 percent were issued for free, according to city data.

But the rules for pursuing a free license were never clearly posted.

Restaurateurs faced a fog of confusion about how to apply for one instead of buying an expensive license from another restaurant owner. With little guidance from the city, many restaurant owners turned to a handful of well-connected attorneys for help.

Cambridge City Manager Louis A. DePasquale in a statement said he has “full confidence” in the liquor commission’s work. He said the city will cooperate with Goldberg’s investigation and, “We look forward to the findings of any investigation.”

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Questionable practices in Cambridge include: The commission, without the necessary state approval, barred free licenses from being sold, and also let some restaurants hold two licenses at once, in violation of state rules.

The Globe story also examined an unusual case involving a landlord, two attorneys, and a restaurant owner who now fears she overpaid for her license.

As a first-time business owner, Tracy Chang paid $230,000 in 2015 for a license for her Pagu restaurant at 310 Massachusetts Ave. It turned out the price had been prenegotiated by her landlord and the license seller, according to interviews and records obtained by the Globe.

Under Chang’s restaurant lease, the landlord, Forest City Realty Trust, also secured the right to buy the license from her if she decides to sell it in the future.

Landlords are not allowed to own or control liquor licenses in Massachusetts.

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Two attorneys involved in Chang’s transactions, including influential Cambridge lawyer James Rafferty, who appears frequently before the commission, said the city and state had the opportunity to review the paperwork and did not flag the arrangement.

As a first-time business owner, Tracy Chang paid $230,000 in 2015 for a license for her Pagu restaurant on Massachusetts Avenue.
John Tlumacki/Globe Staff/File 2017
As a first-time business owner, Tracy Chang paid $230,000 in 2015 for a license for her Pagu restaurant on Massachusetts Avenue.

Rafferty was the lawyer in the license part of the transaction, representing Chang, as well as the seller. Both signed waivers acknowledging the dual representation.

A spokesman for Cleveland-based Forest City did not respond to requests for comment Tuesday, but previously defended their actions as “transparent and above board.”

Rafferty also did not respond to requests for comment Tuesday. He previously told the Globe he had informed Chang of all her legal options and represented her fairly.

The lawyer who handled Chang’s lease agreement, Eugene Magier of Needham, declined to comment.

In some other cases not previously reported by the Globe, powerful real estate owners and developers found creative ways to help ensure their tenants got liquor licenses, according to interviews and hearing transcripts.

For example, John DiGiovanni, president of Trinity Property Management, financed two tenant liquor licenses, loaning hundreds of thousands of dollars to the former Fire & Ice restaurant and the Beat Brasserie, records show. Fire & Ice, which is now closed, has had trouble selling its license and still owes DiGiovanni on its debt, he said.

“We were forced to jump through hoops to allow restaurants to operate,’’ DiGiovanni said. “I never felt that I owned them,” he said of the licenses. “I helped finance them.”

In a 2010 case, then-commission chair Richard Scali scolded real estate owner Raj Dhanda for allegedly controlling the fate of a liquor license at the former Om restaurant.

“I want Mr. Dhanda to understand this: He does not control those licenses; he cannot tell prospective tenants that he controls the licenses or somehow can get those licenses for them,’’ Scali said, according to a transcript. Dhanda did not respond to requests for comment.

In another case, the commission in 2013 approved a powerful developer’s purchase of a liquor license for a restaurant that didn’t yet exist. Carpenter & Co. paid $200,000 for a license for its proposed restaurant called Conductor’s, which never materialized.

They never used the license, but they later re-sold it for about $250,000 to Les Sablons restaurant.

“We purchased the license from the landlord as part of getting our restaurant open,’’ co-owner Shore Gregory of Les Sablons said. “We didn’t even explore could we get one for free, or going out into the marketplace. It was a fairly closed transaction.”

A new Cambridge license commissioner, Nicole Murati Ferrer, was appointed in January 2016 and has been overhauling rules to bring the system in line with state law.

Since July 2016, free licenses have become more available, and the commission stopped requiring restaurant owners to try to buy a license from another owner before applying for a free one.

Beth Healy can be reached at beth.healy@globe.com. Follow her on Twitter @HealyBeth. Sacha Pfeiffer can be reached at sacha.pfeiffer@globe.com. Follow her on Twitter @SachaPfeiffer.