STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF BUSINESS AND ) PROFESSIONAL REGULATION, ) DIVISION OF ALCOHOLIC )

BEVERAGES AND TOBACCO, )

)

Petitioner, )

)

vs. ) CASE NO. 95-2413

) BUBBLE ROOM, INC., d/b/a ) THE BUBBLE ROOM, )

)

Respondent. )

)

RECOMMENDED ORDER

Final hearing in the above-styled case was held in Tallahassee, Florida, on June 29, 1995, before Robert E. Meale, Hearing Officer of the Division of Administrative Hearings.

APPEARANCES

The parties were represented at the hearing as follows: For Petitioner: Miguel Oxamendi

Department of Business and Professional Regulation

Northwood Centre

1940 North Monroe Street Tallahassee, Florida 32399-1007

For Respondent: Harold F. X. Purnell

Rutledge Ecenia Post Office Box 551

Tallahassee, Florida 32302 STATEMENT OF THE ISSUE

The issue in this case is whether Respondent's beverage license should be revoked for a criminal violation of a person who is a shareholder and director of Respondent.

PRELIMINARY STATEMENT

By Administrative Action dated February 23, 1995, Petitioner notified Respondent that Petitioner intended to revoke, suspend, and/or fine Respondent's alcoholic beverage license. The basis for the administrative action was the felony conviction of Richard Johnson for making a false statement in an application for a passport. The administrative action alleges that the felony

conviction of an officer impairs Respondent's qualification to hold an alcoholic beverage license under Sections 561.15(2) and 561.29(1)(b).

At the hearing, the parties presented a stipulation with two exhibits, identified as Petitioner Exhibit 1 and 2. The hearing officer accepted the stipulation, and the findings of fact are derived from the stipulation.

Neither party ordered a transcript. Each party filed a proposed recommended order, and all of the proposed facts are adopted or adopted in substance.

FINDINGS OF FACT

1. At all material times, Petitioner has held alcoholic beverage license #46-00726, series 4-COP.

   
   

2. Richard A. Johnson is a director of Respondent and owns 98.75 percent of Class A common stock and 100 percent of Class B nonvoting stock.

   
   

3. On October 27, 1994, Mr. Johnson was adjudged guilty of two violations of 18 U.S.C. 1542 in the U.S. District Court, Southern District of Florida. The court fined Mr. Johnson $5000 and placed him on 18 months' probation.

   
   

   CONCLUSIONS OF LAW

   
   

4. The Division of Administrative Hearings has jurisdiction over the subject matter. Section 120.57(1), Florida Statutes. (All references to Sections are to Florida Statutes.)

   
   

5. Section 561.15 provides in relevant part:

   
   

   1. No license under the Beverage Law shall be issued to any person . . . who has been convicted within the last past 15 years

      of any felony in this state or any other state or the United States; or to a corporation, any of the officers of which shall have been so convicted. . . .

   2. The division may suspend or revoke the license under the Beverage Law of, or may refuse to issue a license under the Beverage Law to:

      1. Any person, firm, or corporation the license of which under the Beverage Law has been revoked or has been abandoned after written notice that revocation or suspension

         proceedings had been or would be brought against the license;

      2. Any corporation if an officer, director, or person interested directly or indirectly in the corporation has had his license under the Beverage Law revoked or has abandoned his license

         after written notice that revocation or suspension proceedings had been or would be brought against his license; or

      3. Any person who is or has been an officer of a corporation, or who was interested directly or indirectly in a corporation, the license of

         which has been revoked or abandoned after written notice that revocation or suspension proceedings had been or would be brought against the license.

         
         

         Any license issued to a person, firm, or corporation that would not qualify for the issuance of a new license or the transfer of an existing license may be revoked by the division. . . .

         
         

6. Section 561.15(4) provides relief in certain circumstances from the prohibitions set forth above. For a "corporation" convicted of certain felonies, the conviction is not an absolute bar if the corporation can demonstrate to the satisfaction of the division, in a public hearing under s. 120.57, that the corporation has terminated its relationship with any director, officer, employee, or controlling shareholder whose actions directly contributed to the conviction of the corporation. If a corporation is unable to qualify for or continue to hold an alcoholic beverage license because an officer of the corporation has been convicted of an offense enumerated in subsection (2), such conviction will not constitute an absolute bar . . . if the corporation can demonstrate to the satisfaction of the division that the corporation has terminated its relationship with the officer so convicted.

   
   

7. Section 561.15 is clear. Under Section 561.15(2), a beverage license may not be issued to any "person" convicted in the last 15 years of any felony or to a "corporation" if any of its "officers" have been so convicted.

   
   

8. A person may be a natural person or business entity, like a corporation. Section 561.01(14) (first two clauses). Either a natural person or business entity may apply for a beverage license and, in either case, the applicant must be free of felony convictions for the last 15 years. If the applicant is a corporation, its officers must also be free of convictions for the last 15 years.

   
   

9. Nothing in Section 561.15(2) applies to Respondent and Mr. Johnson. Respondent has not been convicted of anything, nor have any of its officers. Mr. Johnson is a shareholder and director, but not the licensee or one of its officers.

   
   

10. The relief provisions of Section 561.15(4) reflect the Legislative intent to predicate license revocation upon the acts or omissions only of the licensee or, if a corporation, the acts or omissions of any the licensee's officers, for which they are personally liable. If a corporation has been convicted, it can obtain relief by demonstrating its dissociation from the director, officer, employee, or controlling shareholder whose wrongdoing, on the corporation's behalf, resulted in the offense. If an officer has been convicted, the corporation can obtain relief by terminating the officer's employment.

    
    

11. Section 561.15(4) omits mention of how a corporation can obtain relief from convictions of its shareholders or directors. The reason for this omission is that nothing in Section 561.15 predicates revocation, or other discipline, of a corporation's license upon convictions of its shareholders or directors.

    
    

12. Section 561.29(1)(b) provides that Petitioner may revoke or suspend a beverage license if it finds a "[v]iolation by the licensee or, if a corporation, by any officers thereof," of any laws. This provision is

    consistent with Section 561.14(2) in disciplining a corporate licensee only for its own wrongdoing and the wrongdoing of its officers.

    
    

13. By contrast, Section 561.29(1)(e) predicates revocation or suspension for certain violations by "the licensee, or, if a corporation, by any officer or stockholder thereof" of any rules. And Section 561.29(1)(f) allows revocation or suspension for a determination that "a person who is interested directly or indirectly in the license or licensed business . .. is not qualified." When the Legislature wanted to extend the basis for liability more broadly, it did so, in one case covering shareholders and in another all persons interested in the license or licensed business.

    
    

14. Sections 561.15 and 561.29 construct a detailed framework in which to determine the extent to which corporate licensees will be held responsible for the wrongdoings of their officers, directors, and shareholders. In general, a corporation is liable for its own acts or omissions, which are necessarily the acts and omissions of persons, such as officers, directors, and controlling shareholders, acting on behalf of the corporation. But the corporation can obtain relief by terminating its relationship with those officers, directors, shareholders, or other representatives on whose acts or omissions the corporation liability was based. A corporation is also liable for the acts and omissions of officers, even if the corporation is not itself guilty of wrongdoing. But again the corporation can obtain relief by terminating its relationship with the guilty officer.

    
    

15. In contending that it may revoke or otherwise discipline Respondent's beverage license, Petitioner argues that Mr. Johnson is a person to whom the license has been issued. Petitioner bases this argument on the last clause of Section 561.01(14), which defines "persons" and "licensees" to include shareholders. Section 561.01(14) states:

    
    

    "Licensee," "applicant," or "person" means an individual, corporation, firm, partnership, limited partnership, incorporated association, unincorporated association, professional association, or other legal or commercial entity; a combination of such entities; or any such entity having a financial interest, directly or indirectly, in another such entity. (Emphasis added.)

    
    

16. Petitioner's application is literally correct, but conflicts with the obvious Legislative intent of Sections 561.15 and 561.29.

    
    

17. It is unclear who is directly or indirectly financially interested in a corporation. Shareholders are, but officers and directors are probably not. (Section 561.15(3)(b) and (c) refer respectively to "an officer, director, or person interested directly or indirectly in the corporation" and a "person who is ... an officer of a corporation, or who was interested directly or indirectly in a corporation."

    
    

18. The flush language of Section 561.15(3) identifies persons with direct or indirect interests as including lessors receiving gross revenues under a lease (with an exception for certain shopping mall lessors) and publicly traded corporations (with an exception for companies not traded over the counter). Section 561.32(1)(b) identifies holders of secured interests in beverage licensees as persons indirectly interested in corporate licensees. Other

    possible direct or indirect financial interest include other lenders to a corporate licensee and franchisors with an interest in the profits of the corporate licensee. The point is that the list of potential persons directly or indirectly interested financially in a corporate licensee is a long one and extends well beyond shareholders.

    
    

19. Petitioner argues, in effect, that a criminal conviction of any entity within the definition of "person" or "licensee" in the last clause of Section 561.01(14) is grounds for revocation or other discipline of a beverage license held by a corporation. This includes violations by any shareholders (even of certain publicly traded corporations), most lessors receiving percentage rent, lenders holding security interests in beverage licenses, probably franchisors receiving a percentage of profits or gross revenues under the franchise agreement, and possibly many other parties.

    
    

20. Petitioner's application of the last clause of Section 561.01(14) in this case does not serve the clear intent of Sections 561.15 and 561.29, in which the Legislature has carefully distinguished between corporate licensees, on the one hand, and their officers, directors, and shareholders, on the other hand. Petitioner's application of the last clause of Section 561.01(14) in this case renders redundant Section 561.29(1)(e), which refers to a "violation by the licensee, or, if a corporation, by any officer or stockholder thereof."

    
    

21. Petitioner's application of the last clause of Section 561.01(14) in this case also does not harmonize with other important provisions. Section 561.15(4) grants relief for certain convictions of corporations if the corporation dissociates from the offending director, officer, "controlling" shareholder, or employee who caused the conviction of the corporation. Section 561.15(4) also grants relief for certain convictions of officers if the corporation terminates the officer.

    
    

22. But Section 561.15(4) does not describe any remedial procedure for the conviction of a noncontrolling shareholder, secured lender, lessor, or other financially interested party, any of which would be grounds for revocation under Petitioner's reading of the last clause of Section 561.01(14) because any such financially interested party is also the "person" holding the beverage license or the "licensee."

    
    

23. It does not make sense that Section 561.15(14) would provide remedial procedures for the wrongdoing of persons closely related to the corporate licensee--directors, officers, controlling shareholders, and employees--in connection with corporation convictions and for the wrongdoing of officers, but not for the convictions of persons of entities less closely related to the corporate licensee, such as noncontrolling shareholders, secured lenders, and lessors.

    
    

24. The reason why Section 561.15(14) does not specify the remedial procedures for the convictions of noncontrolling shareholders, secured lenders, and lessors is that the Legislature does not intend for Petitioner to revoke the beverage licenses of corporations because their lessors or secured lenders have been convicted of felony tax fraud, or even because their controlling shareholder and director has been convicted of a felony passport offense. As long as the controlling shareholder, director, lessor, or secured lender is neither the licensee nor an officer, Petitioner may not use Section 561.15 or

    561.29 to revoke the beverage license.

25. Absent additional guidance from the Legislature or courts, Petitioner should not apply the last clause of Section 561.01(14) to expand dramatically the coverage of the substantive law contained in Sections 561.15 and 561.29. For the unusual case, the broad scope of Section 561.29(1)(f) should be sufficient to reach directly or indirectly interested persons. The additional statutory condition for revocation or suspension under this provision is that such persons are not "qualified"; this provision ensures that the interested person bears some clear responsibility for the operation of the licensee.

    
    

26. Petitioner should instead reserve the last clause of Section 561.01(14) for the situations for which it was probably intended, such as where a disqualified person fraudulently obtains a beverage license in the name of a sham corporation (for instance, under circumstances that would permit disregarding the corporate entity for other purposes) or a disqualified person tries to control a beverage license or the licensee through sham transactions involving purported leases or loans.

RECOMMENDATION

It is

RECOMMENDED that the Department of Business and Professional Regulation, Division of Alcoholic Beverages and Tobacco, enter a final order dismissing the administrative action against Respondent.

ENTERED on July 13, 1995, in Tallahassee, Florida.

ROBERT E. MEALE

Hearing Officer

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-1550

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings on July 13, 1995.

COPIES FURNISHED:

Linda Goodgame, General Counsel Department of Business and

Professional Regulation 1940 North Monroe Street Tallahassee, FL 32399-0792

John J. Harris, Director Division of Alcoholic

Beverages and Tobacco Northwood Centre

1940 North Monroe Street Tallahassee, FL 32399-0792

Miguel Oxamendi

Department of Business and Professional Regulation

Northwood Centre

1940 North Monroe Street Tallahassee, FL 32399-1007

Harold F. X. Purnell Rutledge Ecenia

P.O. Box 551 Tallahassee, FL 32302

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions to this Recommended Order. All agencies allow each party at least 10 days in which to submit written exceptions. Some agencies allow a larger period within which to submit written exceptions. You should contact the agency that will issue the final order in this case concerning agency rules on the deadline for filing exceptions to this Recommended Order. Any exceptions to this Recommended Order should be filed with the agency that will issue the final order in this case.

Docket for Case No: 95-002413

Orders for Case No: 95-002413