Pizza Pub of Burnside, Kentucky, Inc. v. Commonwealth, Department of Alcoholic Beverage Control
Docket: No. 2012-CA-002031-MR
Court: Court of Appeals of Kentucky; November 26, 2013; Kentucky; State Appellate Court
Pizza Pub of Burnside Kentucky, Inc., operating as The Pub of Burnside, appealed the Franklin Circuit Court's affirmation of the Kentucky Alcoholic Beverage Control Board's (ABC Board) decision to revoke its alcohol sales license. The court agreed with Pizza Pub that its due process rights were violated, particularly because the ABC Board failed to postpone the administrative hearing to allow Pizza Pub to secure new legal representation.
Pizza Pub, owned by Gerard A. Weigel, Jr., holds a Limited Restaurant License obtained in November 2008, permitting the sale of alcohol under specific conditions related to food sales. An audit in May 2010 revealed that Pizza Pub's food sales constituted only 45%, failing to meet the required 70% threshold. Consequently, the ABC Board notified Pizza Pub of a hearing scheduled for August 5, 2010, regarding alleged violations of state statutes related to food sales and tax arrears.
Before the hearing, Pizza Pub's attorney communicated efforts made by Weigel to improve food sales ratios. However, the ABC Board canceled the hearing and instead arranged a prehearing conference on August 23, 2010, where Pizza Pub presented operational changes aimed at increasing food sales. The ABC Board agreed to require Pizza Pub to submit monthly sales reports over a six-month period to monitor compliance, allowing negotiation for a non-revocation penalty while the Department requested further substantiation of the sales data provided.
At the end of a six-month assessment period, Auditor Brown conducted a compliance review of Pizza Pub and submitted a report in April 2011, which indicated that Pizza Pub failed to meet the required 49% food sales threshold of its limited restaurant license. The audit revealed attempts to misrepresent alcohol sales as food sales, leading the Department to seek the revocation of Pizza Pub's license from the ABC Board. A hearing was scheduled for July 6, 2011, with the stipulation that any corporate entity must be represented by legal counsel. On June 30, 2011, attorney McShurley withdrew as counsel for Pizza Pub, indicating that Mr. Weigel would seek new representation and requested time for this transition to ensure due process. However, at the hearing, Mr. Weigel and his wife appeared without an attorney. The hearing chairman noted that non-attorneys cannot represent corporations, preventing Mr. Weigel from speaking on behalf of Pizza Pub. During the hearing, the Department's attorney confirmed that he had discussed the withdrawal with McShurley and had indicated that a notice of withdrawal was sufficient. The hearing proceeded with Auditor Brown providing testimony regarding the violations, while Mr. Weigel was not allowed to participate in the hearing due to the lack of legal representation.
The Board Chairman firmly stated that Mr. Weigel could not represent the licensee as he was not an attorney, referencing the notice that specified legal representation was required for the administrative hearing. Mr. Weigel acknowledged this but mentioned that his first lawyer had withdrawn. The ABC Board later issued a final order on September 21, 2011, revoking Pizza Pub’s license after detailing the representation issues. Initially, Pizza Pub was represented by attorney Jay McShurley, who withdrew on June 30, 2011, shortly before a scheduled hearing. Despite Mr. McShurley’s withdrawal, the Board proceeded without new counsel present for the Licensee. The Board confirmed that Pizza Pub had violated KRS 241.010(27)(a) and KRS 242.185(6) by not maintaining a proper food-to-alcohol sales ratio, and KRS 243.500(2) and KRS 243.490(1) by misreporting food sales. However, the Board dismissed a count related to unpaid taxes due to insufficient evidence. Consequently, Pizza Pub’s Limited Restaurant License No. 100-LR-289 was revoked effective October 24, 2011, based on the violations found in Counts 1 and 3.
On October 17, 2011, Pizza Pub filed an appeal and petition for judicial review in the Franklin Circuit Court against the ABC Board's final order, claiming that the order should be reversed due to insufficient evidence, arbitrary actions by the Board, and violations of its due process rights. Pizza Pub argued that Mr. Weigel, a non-attorney, was denied the opportunity to represent the company or to postpone the hearing to secure new counsel. The ABC Board and the Department sought dismissal of the petition.
On November 8, 2012, the circuit court upheld the ABC Board's order, determining that Mr. Weigel could not represent Pizza Pub under SCR 3.020, and that due process rights were not violated as Pizza Pub was not prevented from presenting evidence. The court also ruled that the refusal to continue the hearing was not arbitrary or an abuse of discretion, and found substantial evidence supporting the Board’s final order regarding Pizza Pub’s violations.
Pizza Pub’s subsequent appeal continued to assert that its due process rights were infringed by the inability to present evidence and challenge the Board's findings without counsel. The Department and ABC Board responded, advocating for the circuit court’s decision to be upheld. The court's standard of review emphasized the great deference afforded to administrative agencies in determining facts and credibility, indicating that a decision may only be reversed if found arbitrary and capricious based on three criteria: adherence to statutory powers, procedural due process, and substantial evidence supporting the agency's action.
An agency's conclusions of law are reviewed de novo, meaning the court does not reinterpret but rather examines the agency's decisions. The primary issue at hand is whether Pizza Pub's due process rights were violated when the ABC Board ruled that Mr. Weigel could not represent the establishment and did not postpone the hearing. Procedural due process requires that all parties have the opportunity to be heard meaningfully. This includes a hearing, evidence consideration, fact-finding based on evidence, and judicial review when constitutional rights are implicated.
Pizza Pub was represented by counsel until shortly before the hearing and had not secured new representation on the hearing date. Mr. Weigel, as a non-attorney, attempted to represent Pizza Pub, which is against Kentucky law that prohibits non-attorneys from representing corporations in most contexts. The relevant rules state that while corporate officers may represent the corporation in small claims court, they cannot do so in other legal matters. Consequently, the ABC Board correctly refused Mr. Weigel's participation as he was not qualified.
Despite this, Pizza Pub's due process was violated because it was unable to participate in the hearing due to the absence of legal counsel. The previous attorney had requested additional time for Pizza Pub to secure representation and prepare for the hearing, highlighting the importance of due process rights in administrative proceedings.
The ABC Board did not address the request for a continuance made by Pizza Pub’s attorney, McShurley, during the hearing. Instead, the Department's counsel provided his perspective on the withdrawal of McShurley and deemed a continuance unnecessary. The Board's failure to consider this issue, even in its final order, led to the revocation of Pizza Pub’s license based on the evidence presented. The notice of McShurley's withdrawal was not filed until June 30, 2011, just six days before the hearing, leaving Pizza Pub insufficient time to secure new legal representation and for that counsel to prepare adequately. Consequently, Pizza Pub's due process rights were violated, preventing meaningful participation in the administrative hearing. The decision to proceed without representation was deemed arbitrary and an abuse of discretion. The ABC Board should have granted additional time for Pizza Pub to find new counsel and prepare. As a result, the circuit court’s affirmation of the ABC Board’s order was reversed, and the case was remanded for a new hearing. The order noted several violations by Pizza Pub, including failure to meet gross receipt requirements and tax obligations, as well as false statements made in applications. An amended appeal was filed by Pizza Pub on October 20, 2011, naming the ABC Board as a respondent. The relevant statute was repealed effective June 25, 2013.
