I Gotcha, Inc., D/B/A Illusions v. Texas Alcoholic Beverage Commission

Citation: Not availableDocket: 02-07-00150-CV

Court: Court of Appeals of Texas; July 31, 2008; Texas; State Appellate Court

Original Court Document: View Document

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I Gotcha, Inc. d/b/a Illusions (Illusions), a topless bar in Fort Worth, appeals a final judgment from the trial court that upheld a $13,500 civil penalty imposed by the Texas Alcoholic Beverage Commission (TABC) for violations of the Texas Alcoholic Beverage Code. Illusions holds a mixed beverage permit, originally issued on December 16, 1983, and has been continuously renewed. 

The case centers on an incident occurring on February 12, 2005, when TABC agents, Brian Miers and Ralph May, conducted an undercover operation at Illusions. During their visit, they interacted with Taquisha Lawson, a dancer, who offered sexual services for a fee. Following this encounter, the agents reported the incident, leading to Lawson's arrest for solicitation. 

On December 15, 2005, TABC issued a notice of hearing against Illusions, alleging that the establishment's operations posed a risk to public welfare and morals, primarily due to Lawson’s solicitation. A hearing took place on May 8, 2006, where evidence of Illusions’s prior violations was presented. The administrative law judge (ALJ) concluded that Lawson, as an employee, engaged in conduct that violated the Alcoholic Beverage Code. The ALJ subsequently recommended either a sixty-day permit suspension or a $13,500 civil penalty, which was ultimately affirmed by the trial court.

On October 30, 2006, TABC issued a final order suspending Illusions’s permits for 60 days starting January 3, 2007, unless a $13,500 civil penalty was paid by December 27, 2006. Illusions subsequently filed notices, requests for reconsideration, and a petition for judicial review. The trial court upheld TABC’s order on April 5, 2007, leading to the current appeal.

The standard of review applied to TABC's administrative ruling is the substantial evidence rule, which focuses on the reasonableness of the agency's decision rather than its correctness. Courts may not question the agency's fact-finding authority or substitute their judgment on evidence weight. An agency's decision is upheld if reasonable minds could support the conclusion reached by the agency, and the burden of proof lies with the opposing party to demonstrate a lack of substantial evidence.

Illusions argues that the trial court erred by affirming the ALJ's finding of violations under sections 11.61(b)(7) and 104.01(7) of the Code. Illusions claims insufficient evidence to support that Lawson was its employee, that he solicited Miers and May, or that the business's conduct justified permit suspension. Section 11.61(b)(7) allows for suspension or cancellation of permits based on the public welfare, while section 104.01(7) prohibits lewd or immoral conduct on the premises. Illusions distinguishes Lawson as an independent contractor rather than an employee, emphasizing that contractors maintain control over their time and activities, unlike employees who do not.

The term "employee" lacks a definition in the Code, necessitating reliance on its ordinary meaning. Employees are generally individuals working for another under a contract of hire, where the employer controls the means of the work rather than just the outcome. Texas courts identify key factors distinguishing employees from independent contractors, including the worker's business independence, responsibility for tools and materials, the employer's control over work progress, duration of employment, and payment methods.

At the hearing before the Administrative Law Judge (ALJ), evidence was presented regarding dancers at Illusions, indicating that they must complete paperwork, adhere to club rules, and pay a stage fee. Dancers do not have fixed schedules and may be reassigned to different clubs. Illusions exercises significant control over performances, including stage rotation and song selection. Compensation for dancers comes primarily from tips and drink commissions, with no tax filings made by Illusions for them. Based on this evidence, the ALJ concluded that Illusions had sufficient control over dancer Lawson's activities to classify her as an employee.

Illusions argued that the ALJ's ruling lacked substantial evidence, claiming Lawson's solicitation of Miers and May was based solely on the testimony of an interested witness. For such testimony to establish a fact, it must be unequivocal and lacking any discrediting circumstances. Miers testified that Lawson approached him and May, discussed a hotel meeting, and set a price, with corroborating nods of agreement. The ALJ, as the fact-finder, has discretion over witness credibility and may accept or reject testimonies. A reviewing court cannot question the ALJ's credibility assessments and must favor the administrative order if supported by substantial evidence.

Miers's testimony regarding events on February 12, 2005, involving Lawson, was found credible and uncontradicted, allowing the ALJ to conclude that Lawson solicited Miers and May for sexual purposes. Illusions argued that a single incident was insufficient to establish jeopardy to the public welfare, but the agency has broad discretion in such determinations, which will not be overturned unless arbitrary or unreasonable. Substantial evidence supported the ALJ's finding of violations of sections 11.61(b)(7) and 104.01(7) of the Code, including Illusions's history of prior violations. Regarding the civil penalty imposed under section 11.64, the ALJ was required to consider various factors, but the penalty must be within statutory limits and cannot be influenced by the permittee's financial condition. The ALJ did not abuse discretion in not relaxing the penalty, as section 11.64(b) provides discretionary grounds for doing so. Consequently, the appeal was denied, and the trial court's affirmation of the TABC's order was upheld.