vs. ) CASE NO. 81-016
Respondent. )
Pursuant to notice, the Division of Administrative Hearings, by its duly designated Hearing Officer, R. L. Caleen, Jr., held a formal hearing in this case on December 11, 1951, in Lauderhill, Florida.
For Petitioner: Charles L. Curtis, Esquire
For Respondent: James N. Watson, Jr., Esquire
Whether petitioners' application for approval of a change in corporate officers of an existing corporate licensee should be granted, or denied on the ground that a disqualified person--a convicted felon--is interested either directly or indirectly in the business.
On or about August 15, 1980, respondent Division of Alcoholic Beverages and Tobacco (DABT") sought to deny the application of petitioners, Anita Grizaffi and Richard Zabel, for approval of a change in the corporate officers of an existing alcoholic beverage licensee, Cowboy's, Inc., on the ground that a disqualified person is interested with the petitioners in the business.
Petitioners contested DABT's proposed denial and, on December 30, 1980, this case was referred to the Division of Administrative Hearings for hearing.
Initially, hearing was set for March 18, 1981. Upon subsequent motion of petitioners, the hearing was continued and reset for November 17, 1981; then again continued and reset for December 11, 1981.
At hearing, the parties filed a joint Stipulated Statement of the Facts, with attached exhibits, and agreed to submit memoranda of law by January 31, 1982.
On or about February 18, 1980, Richard Zabel and Anita Grizaffi ("applicants") negotiated for the purchase and sale of the stock of Cowboy's, Inc., holders of beverage license No. 16-6859 SRX.
On that date, Richard Zabel and Anita Grizaffi, his sister, entered into a contract for the sale and purchase of all of the outstanding stock of the corporation called Cowboy's, Inc.
The purchase price of said stock was to be $300,000.
The closing for the purchase of the stock ownership in Cowboy's, Inc., was scheduled to be held in Fort Lauderdale on or about April 23, 1980.
Originally, the applicants intended to purchase the stock by borrowing
$300,000 entirely from Bern Builders, Inc. Bern Builders, Inc., is solely owned and operated by Anita Grizaffi and Bernard Grizaffi.
Prior to the closing and in anticipation of borrowing the purchase price entirely from Bern Builders, Inc., applicants filed with DABT their Notice of Stock Ownership and Certificate of Incumbency showing that they were the new officers, directors, and stockholders of the licensee corporation. In addition, applicants filed with DABT their personal data questionnaires and disclosed in the appropriate block that they intended to borrow the $300,000 from Bern Builders, Inc.
Just prior to the scheduled date of the closing, the sellers informed the purchasers that for reasons totally unrelated to any matters pertinent to this proceeding, they would not close the deal.
Applicants and their corporate attorney from Chicago, Irv Ribstein, forced the sale of the stock and the closing took place on April 23, 1950. In order to close the deal and since it was impossible for the applicants to receive the $300,000 from Bern Builders, Inc., as originally hoped, it was necessary for them to generate sufficient funds from other sources to pay the sellers. Those funds were obtained and then repaid in full in the following manner:
Anita Grizaffi borrowed $150,000 from the Commercial Bank of Chicago. This $150,000 obligation was paid in full from the proceeds of the ownership
interest of Anita Grizaffi in a yacht. The sale of this yacht took place pursuant to a Brokerage Purchase and Sales Agreement made April 14, 1980.
Anita Grizaffi borrowed $100,000 from the Chicago bank collateralized by her ownership of Certificates of Deposit. This $100,000 was repaid by Anita
Grizaffi.
A personal loan from Bern Builders,
Inc., was obtained in the amount of $50,000.
This loan was repaid by the applicants on July 1, 1981.
Subsequent to the closing and the original filing of the Certificate of Incumbency and the personal data questionnaires showing the financial arrangements, DABT notified the applicants that while it was not taking final action at that time, it was DABT's intention to deny the change of corporate officers because it believed that there was a person either directly or indirectly involved in the beverage license who was statutorily disqualified.
Prior to DABT sending out its official notification of its denial of the change of corporate officers, the applicants filed with DABT the supplemental financial information described in paragraph 8. It showed how the purchase of the stock actually was consummated.
DABT, on August 8, 1980, after receiving this supplemental financial information, sent its final agency action letter denying the applicants' request for a change of corporate officers.
The basis for DABT's denial of the application was that it believed that the husband of Anita Grizaffi, Bernard Grizaffi, was a convicted felon and that he was directly or indirectly involved in the beverage license.
The parties agree that a loan of $50,000 to the applicants from a corporation which had as one of its officers, directors, and stockholders, a convicted felon, would have given Bernard Grizaffi a direct interest in the beverage license in violation of the applicable provisions of the Beverage Law when that transaction occurred.
After the applicants had filed the additional supplemental information and DABT had denied the change of corporate officers, a deposition was taken in Tallahassee of Barry Schoenfeld, the Chief of Licensing for DABT. At said deposition, each source of financial investment utilized by applicants to purchase all of the stock of Cowboy's, Inc., was disclosed and thoroughly considered. Every dollar of the total investment was accounted for and through cancelled checks, every dollar lent to applicants by Bern Builders, Inc., was shown to have been paid back in full solely from' the proceeds of the operation of Cowboy's, Inc., and that no outstanding financial obligation existed to Bern Builders, Inc., or Bernard Grizaffi, individually.
At the deposition of Mr. Schoenfeld, affidavits from bankers in Chicago were submitted showing conclusively that a total of $600,000 would have and could have been loaned to Anita Grizaffi, individually, secured and collateralized by her independent financial interests" at any time during the year of 1980.
Bernard Grizaffi executed an affidavit stating that it was never his intention to have any interest whatsoever in the beverage license or the stock of Cowboy's, Inc.; that he had not, was not, and would not exercise any dominion and control whatsoever in the operation of Cowboy's, Inc.; that he was not owed any monies whatsoever by Cowboy's, Inc.; and that he would not be entitled to any benefit whatsoever from the operation of Cowboy's, Inc.
On May 16, 1980, the sworn statements of four principal managers and employees of Cowboy's, Inc., who were employees prior to, during, and subsequent to the actual closing of the sale and purchase of the stock of Cowboy's, Inc., were taken. Each manager or employee categorically stated that Bernard Grizaffi had no interest whatsoever in Cowboy's, Inc. ; that he had absolutely no power to control Cowboy's, Inc.; that he had never exercised any dominion or control in Cowboy's, Inc.; that they would only take orders from the applicants; and if Bernard Grizaffi ever tried to give them directions or orders, they would first check with applicants prior to doing anything. The only times Bernard Grizaffi had ever been observed in the licensed premises were on obvious social occasions and only on a couple of occasions.
On August 22, 1981, the applicants wrote to DABT and indicated that they had and could further demonstrate their financial independence from the otherwise disqualified person. In reply to that letter, DABT clearly demonstrated its policy of permitting changes of corporate officers under like circumstances. Those documents state in applicable part:
My client is in a position to show the Division [DABT] that she can and could have, at the time of the actual purchase of the stock occurred finance(d) the entire pur- chase solely from her signature loan. The fact that she chose not to do so at the time of the closing has previously been explained to the Division [DABT] as solely the result of the last minute exigencies necessitated by the sellers at the time of the closing of the deal.
My client is prepared to provide to the Division [DABT] affidavits from various bank officers in and around the Chicago area who will attest that each of them would have lent Mrs. Grizaffi, on her signature only, and collateralized by her interest solely, suf- ficient funds to finance the purchase of the stock and the corporation holding the license. At present we possess letters from at least three banks who have indicated that they
would have and would today lend to Mrs. Grizaffi in the manner herein contemplated, an amount in excess of $600,000.
In addition7 I am prepared to provide
to the Division [DABT], an affidavit of the husband that he never intended nor does he have today, nor has he had at any time dur- ing these proceedings, any interest, directly or indirectly, in either the financial acqui- sition of the stock or any right to any financial remuneration from the proceeds of the business. Nor does he have any right
nor desire to, nor has he at any time dur- ing these proceedings, run the business.
The only connection between himself and the Cowboy's, Inc. is his marital status.
(Memorandum from Dennis E. LaRosa, Staff Attorney, to Mary Colson, Assistant Chief of Licensing.)
Re: Cowboy's, Inc.
In reference to Mr. Curtis's letter to
you of August 22, 1980, my opinion is that if Mrs. Grizaffi can demonstrate financial independence of her husband in the manner and method therein described, then the Divi-
sion may consider issuing the license. Also, an affidavit from Mr. Grizaffi concerning
his interests and intentions would be appro- priate. Please advise if further opinion is required.
(From note dated September 2, 1980, from Mary Colson to Barry Schoenfeld, Chief of Licensing.)
I agree with Dennis--It would not be the first time we have accepted such documen- tation--your comments, please.
Whereupon, applicants, owners of 100 percent of the stock of Cowboy's, Inc., requested a formal administrative hearing challenging the authority of DABT to deny their application for change of corporate officers.
Applicants, each individually, meet all of the requirements and qualifications to hold a beverage license.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the parties and subject matter of this proceeding. Section 120.57, Fla. Stat. (1981).
Before engaging in the business of selling alcoholic beverages, a person must apply to DABT for a license. Section 561.17(1), Fla. Stat. (1981). The application must be denied:
[i]f the applicant or any per-
son who is interested with the applicant either directly or indirectly in the busi- ness or who has a security interest in the license being sought or has a right to a percentage payment from the proceeds of the business, either by lease or otherwise, is
not qualified Conviction during the preceding
15 years of a felony in any state is a statutory disqualification. Section 561.15(2), Fla. Stat. (1981).
The same statutory disqualification applies when an existing licensee seeks to change its executive officers or directors. See, Sections 561.32(2) , 561.17(3) , 561.15(2) , Fla. Stat. (1981); Rules 7A-2.07, 7A-3.37, F.A.C. If-- by changing corporate officers--a statutorily disqualified person would have a
direct or indirect interest in the business, the application must be denied.
Id. To fall within the statutory proscription, the interest of the disqualified person must be a pecuniary one. Wilkenfeld v. Meiklejohn, 216 So.2d 237, 239 (Fla. 1st DCA 1968).
Here, petitioners apply for approval of a change in the corporate officers of Cowboy's, Inc., an existing beverage licensee; DABT seeks to deny their application, contending that Bernard Grizaffi--statutorily disqualified because of his felony conviction--would have a direct or indirect interest in the business.
Generally, in agency licensing proceedings, the applicant has the burden of establishing entitlement to the license. See, Rule 28-6.08(3), F.A.C.; Department of Transportation v. J.W.C. Company, Inc., 396 So.2d 778 (Fla. 1st DCA 1981). Once a prima facie case is established, the burden of presenting evidence in opposition to the applicant shifts to the agency. More than conjecture or even reasonable suspicion is required to deny a beverage license. Wilkenfeld, supra at 239.
Section 120.57 proceedings are de novo in nature. They "are intended to formulate final agency action, not to review action taken earlier and preliminarily." McDonald v. Department of Banking and Finance, 346 So.2d 569,
584 (Fla. 1st DCA 1977); J.W.C. Company, supra. An agency's notification to an applicant that it intends to deny a license application is free-form action; it is regarded as preliminary, irrespective of its tenor. J.W.C. Company, supra at 785.
Consequently, unless barred by agency rule, an applicant may substantially amend and supplement its application during a Section 120.57 proceeding. McDonald, supra at 584; J.W.C. Company, supra at 784.
In this case, that is what the applicants have done. Both parties agree that Bernard Grizaffi, a convicted felon, is statutorily disqualified from having a direct or indirect interest in Cowboy's, Inc. It is undisputed that Bern Builders, Inc., of which Mr. Grizaffi was president, initially loaned Anita Grizaffi $50,000 which was used to help finance the purchase of Cowboy's, Inc. It is also undisputed that the loan has been fully repaid. The parties agree that the applicants now have no outstanding financial obligations either Bern Builders, Inc., or Bernard Grizaffi (Stipulation, paragraph 14) . By sworn affidavit, Bernard Grizaffi denies any interest in Cowboy's, Inc., and any right to receive profits or other form or remuneration from its operation. (Stipulation; Exhibit 25.) In short, the stipulated evidence unequivocally establishes that Mr. Grizaffi has no direct or indirect pecuniary interest in Cowboy's, Inc.
The DABT counters that Bernard Grizaffi helped finance the purchase of Cowboy's, Inc. The purchase was principally financed by $100,000 and $150,000 notes which were cosigned by Bernard Grizaffi; the $100,000 loan was collateralized by certificates of deposit which were jointly owned by Anita and Bernard Grizaffi. Although this may be true, DABT cannot avoid the effect of its explicit stipulation:
Anita Grizaffi borrowed $150,000 from the Commercial Bank of Chicago.
This $150,000 obligation was paid in full from the proceeds of the ownership
interest of Anita Grizaffi in a yacht. The sale of this yacht took place pursuant to a Brokerage Purchase and Sales Agreement made April 14, 1980.
Anita Grizaffi borrowed $100,000 from the Chicago bank collateralized by
her ownership of Certificates of Deposit.
This $100,000 was repaid by Anita Grizaffi. (e.s.)
By its stipulation, DABT has thus acknowledged that Anita Grizaffi borrowed the principal funds used to purchase Cowboy's, Inc. , and that she repaid the loans. Bernard Grizaffi provided tacit assistance to his wife in the purchase.
However, the Beverage Law does not prohibit an applicant from accepting assistance from an unqualified person; it only prevents an unqualified person from obtaining a pecuniary interest in the beverage licensee.
It is true that Anita Grizaffi and Bernard Grizaffi are married. But, such a relationship cannot, in itself, give Bernard Grizaffi a pecuniary interest in a business purchased by his wife. See, Fla. Const., Art. X, Section 5 (1968). Essentially, DABT bases its denial of petitioners' application on Bernard Grizaffi's initial involvement in helping to finance the purchase of Cowboy's, Inc. From that involvement--ending almost a year ago--DABT infers that Bernard Grizaffi now has a pecuniary interest in Cowboy's, Inc. However, this inference is based on suspicion, which, however reasonable, cannot substitute for substantial evidence of record. Enlightened suspicion cannot sustain a denial. Wilkenfeld, supra at 239. It must be concluded, therefore, that petitioners are entitled to approval of their application for a change in corporate officers. The court's observation in Wilkenfeld, supra, offers guidance:
The petitioner has filed a sworn state- ment as is required by law in support of his application for transfer. That statement includes the very material representation that he alone is or will be the owner of
the license sought to be transferred. It is not an idle statement for it is made on peril of being charged with perjury under Section 837.01, Florida Statutes, F.S.A., which imposes a penalty of up to twenty
years imprisonment on those convicted there- under. Moreover, should it later develop that the petitioner was suborned to commit perjury by any person having an undisclosed direct or indirect interest in the license sought to be transferred, a similar penalty may be imposed upon such person upon convic- tion of violating Section 837.03, Florida Statutes, F.S.A. In view of these penalties which the law may impose in proper cases, there is no necessity for the Beverage Department to unduly disbelieve averments contained in sworn documents which enjoy
jury laws. If it should later appear, based on competent substantial evidence, that Mr. Gordon or any other person who is disqualified from holding a license has a direct or indirect interest in the subject license, the Beverage Department may put into motion its administrative processes to determine whether petitioner may retain the license in question.
That petitioners' application to change the corporate officers of Cowboy's, Inc., be granted.
DONE AND RECOMMENDED this 15th day of March, 1982, in Tallahassee, Florida.
R. L. CALEEN, JR. Hearing Officer
Filed with the Clerk of the Division of Administrative Hearings this 15th day of March, 1982.
Charles L. Curtis, Esquire 1177 Southeast Third Avenue Fort Lauderdale, Florida 33316
James N. Watson, Jr., Esquire Department of Business
Richard A. Boyd Division of Beverage Post Office Box 8276
Charles A. Nuzum, Director Division of Alcoholic Beverages
