Opinion
No. 5-229 / 04-1021
Filed June 15, 2005
Appeal from the Iowa District Court for Webster County, Ronald H. Schechtman, Judge.
The Iowa Alcoholic Beverages Division appeals from the district court's decision reversing the denial of Tony's Tap, Inc.'s liquor license renewal application. REVERSED.
Thomas J. Miller, Attorney General, and John Lundquist and Karen Doland, Assistant Attorneys General, for appellant.
Leonard Holland, Dayton, for appellee.
Heard by Sackett, C.J., and Huitink and Vaitheswaran, JJ.
I. Background Facts Proceedings
The facts in this case are undisputed. Tony McFarland has owned and operated Tony's Tap, Inc., in Duncombe, Iowa, since 1997, and each year until 2002, the Iowa Alcoholic Beverages Division (hereinafter Division) renewed his liquor license. However, McFarland's renewal application was denied in 2002, after the Division determined that McFarland failed to disclose four prior criminal convictions in his original 1997 application, and one criminal conviction in his 2000 renewal application. McFarland's omissions were discovered when he filed an application to open another establishment in Fort Dodge. McFarland subsequently disclosed the previously omitted criminal charges and convictions in his 2002 renewal application.
The City of Fort Dodge denied McFarland's application based on his failure to disclose his previous convictions. An administrative law judge affirmed the City's decision and McFarland did not appeal.
In his original liquor license application form submitted in 1997, McFarland was asked to list "all convictions of any offense against the laws of the United States, or any state or territory thereof, or any political subdivision of any such state or territory." Even though he had been convicted of reckless driving in 1976, and domestic abuse assault, criminal mischief, assault, and wanton neglect of a minor in 1994, McFarland answered "None" on his application. In his renewal application of 2000, he was asked to, "List below all arrests, indictments, summonses, convictions and deferred judgments . . . since the license/permit was last issued." McFarland again answered "None" even though he had been charged with serious assault and later found guilty of simple assault in 1999. As a result of these omissions, and the City of Fort Dodge's decision to deny his application, the Division denied McFarland's renewal application. In its September 23, 2002, letter, the Division stated:
The licensing requirements for obtaining a liquor license, wine or beer permit in Iowa are the same whether the license application is filed in Fort Dodge or Duncombe. In the appeal hearing regarding your license denial by the City of Fort Dodge, the evidence presented established that you do not possess the `good moral character' to hold a license in Iowa.
Thereafter, the Division's decision was affirmed on appeal by an administrative law judge on January 28, 2003, and the Division administrator on July 16, 2003. The administrator's decision on appeal states:
In this case, it is well-established that the Licensee failed to disclose the requisite criminal history information in the Licensee's original application in 1997 and in each renewal application thereafter. It is difficult for the Administrator to believe that the Licensee failed to disclose the Licensee's criminal history due to confusion or misunderstanding. The language requesting the criminal information is clear and easily understood. The Licensee had to have read the language requesting criminal history information or the Licensee would not have known that the word "NONE" was the appropriate response for applicants with no criminal history.
The Division learned of the Licensee's criminal history when the City of Fort Dodge denied the Licensee's application for a new liquor license for an establishment known as Hog Heaven. The City's denial was based on the Licensee's misrepresentation of material facts — criminal history — on the license application, and the Licensee's lack of "good moral character" for failure to do so. It wasn't until after the City of Fort Dodge denied the Licensee's application for a new liquor license that the Licensee's criminal history information came to the attention of the Administrator.
At the hearing, the Licensee bore the heavy burden of proving that the Licensee is eligible for renewal of the liquor license, including proving that the Licensee has the requisite "good moral character" to retain the license. The Licensee argues that the Licensee's record of voluntary compliance in the operation of Tony's Tap in Duncombe over the past five years, more than demonstrates that the Licensee is a person of "good moral" character and, therefore, eligible to hold the license.
The Administrator understands and is sympathetic to the economic development concerns of small communities. Renewal of the Licensee's license in spite of the material misrepresentations contained in the Licensee's prior applications for the above-captioned premises, however, would result in serious public policy implications undermining the regulatory scheme of the licensing process. The licensing process is dependant upon licensees being forthright and forthcoming in their responses to all questions contained in the application. Without that trust, the Division cannot effectively regulate who is and is not eligible to hold the license or permit in Iowa.
Unfortunately, the Licensee failed to demonstrate how the factors in the Fort Dodge case have been corrected or are inapplicable to the Licensee's business in Duncombe. The Division would be negligent in its duty to enforce the statewide statutory standards for licensure if the Administrator were to reverse the Division's action to deny the Licensee's license.
McFarland sought and was awarded a temporary stay to allow him to operate Tony's Tap pending the result of his appeal to the district court. On June 10, 2004, the Administrator's decision was reversed on judicial review.
The district court's resulting ruling provides:
This Court concludes that the agency's decision was not supported by substantial evidence in the record when that record is viewed as a whole; that it did not consider important matters relating to the propriety and desirability of its action that a rational decision maker would have considered; based upon an irrational, and unjustifiable interpretation of a provision of law; and it is unreasonable, arbitrary, capricious, and constitutes an abuse of discretion.
The denial of the 2002 renewal application was an effort to punish the applicant, rather than to credibly look at its past history and its operation to determine the relevancy of misdemeanor convictions that happened eight years before. It was, as argued, form over substance. The formal denial of September 23, 2002, contained reasons for its denial, all of which assumed erroneous facts or applied erroneous conclusions from those facts. The hearing officer was the same hearing officer as the Fort Dodge denial, and adopted the same criteria.
. . . .
Those findings by the agency are, indeed, unreasonable, arbitrary and capricious and an abuse of discretion. To allow the renewal of the license would not serve as a reward to McFarland for violating the law, but rather constitutes an acknowledgement that experience justifies issuance within the policy and purpose of our regulatory act. The agency, when confronted with relevant hindsight of five years (now seven) of compliance, chose to abandon its duty and delegated it to the Fort Dodge authorities, which did not have similarity of issues and considerations.
The Division appeals this decision.
On appeal, the Division raises the following issues for review:
I. WHETHER ADMINISTRATOR WALDING'S FINAL ORDER DENYING McFARLAND'S LIQUOR LICENSE APPLICATION BASED ON LACK OF GOOD MORAL CHARACTER IS AMPLY SUPPORTED BY SUBSTANTIAL EVIDENCE IN LIGHT OF McFARLAND'S LONG-TERM DECEPTION, MATERIAL MISREPRESENTATIONS UNDER OATH, AND CRIMINAL HISTORY.
II. WHETHER ADMINISTRATOR WALDING FULLY ASSESSED ALL RELEVANT AND IMPORTANT MATTERS RELATING TO THE DENIAL OF McFARLAND'S LIQUOR LICENSE IN MAKING A DECISION WELL WITHIN THE BOUNDS OF REASONING OF A RATIONAL DECISION MAKER.
III. WHETHER THE FACT THAT REPEATED LYING UNDER OATH IN THE APPLICATION PROCESS IS A STATUTORY GROUND FOR LICENSE REVOCATION UNDER IOWA CODE SECTION 123.39 DOES NOT PRECLUDE THE ADMINISTRATOR FROM RELYING OF THE SAME WRONGFUL BEHAVIOR IN DENYING A LICENSE BASED ON LACK OF GOOD MORAL CHARACTER UNDER IOWA CODE SECTION 123.30.
IV. WHETHER THE FACT THAT A DISTRICT COURT MAY WEIGH POLICY CONSIDERATIONS IN A DIFFERENT MANNER THAN THE DIVISION ADMINISTRATOR, EXCUSING LYING UNDER OATH AS LONG AS LOCAL AUTHORITIES SUPPORT LICENSURE, DOES NOT RENDER IRRATIONAL THE ADMINISTRATOR'S DETERMINATION THAT SUCH BEHAVIOR WARRANTS ADVERSE CONSEQUENCES IN THE STATEWIDE APPLICATION OF LICENSURE STANDARDS.II. Standard of Review
We review agency decisions for errors of law. See Cobb v. Employment Appeal Bd., 506 N.W.2d 445, 447 (Iowa 1993). An appeal of a district court's ruling on judicial review of an agency's decision is limited to determining whether the district court correctly applied the law in exercising its judicial review function under Iowa Code section 17A.19(8) (2003). Herrera v. IBP, Inc., 633 N.W.2d 284, 287 (Iowa 2001). The district court, as well as this court, is bound by the agency's factual findings if they are supported by substantial evidence, and are otherwise free of legal or other error. See IBP, Inc. v. Harpole, 621 N.W.2d 410, 414 (Iowa 2001); see also Iowa Code § 17A.19(10). "`Substantial evidence' means the quantity and quality of evidence that would be deemed sufficient by a neutral, detached, and reasonable person, to establish the fact at issue. . . ." Iowa Code § 17A.19(10)(f)(1). We will not interfere with an agency's decision when reasonable minds might disagree or there is a conflict in the evidence. Organic Techs. Corp. v. State ex. rel. Iowa Dep't of Natural Res., 609 N.W.2d 809, 815 (Iowa 2000). "We apply agency findings broadly and liberally to uphold, rather than to defeat, an agency's decision." Id.
Furthermore, Iowa Code section 17A.19(10) provides for relief from agency decisions that are unreasonable, arbitrary or capricious or characterized by an abuse of discretion or a clearly unwarranted exercise of discretion.
An agency's action is "arbitrary" or "capricious" when it is taken without regard to the law or facts of the case. . . . Agency action is "unreasonable" when it is "clearly against reason and evidence." An abuse of discretion occurs when the agency action "rests on grounds or reasons clearly untenable or unreasonable."
Dico, Inc. v. Iowa Employment Appeal Bd., 576 N.W.2d 353, 355 (Iowa 1998) (citations omitted).
III. The Merits
The Division argues the district court erred in concluding its decision to deny McFarland's renewal application was unreasonable, arbitrary and capricious, and an abuse of discretion. The Division believes its decision was supported by substantial evidence, and well-within the authority granted by the Iowa Alcoholic Beverage Control Act. See Iowa Code ch. 123. We agree.
The Iowa Alcoholic Beverage Control Act was created for the protection of the "welfare, health, peace, morals, and safety of the people of the state," and accordingly, the provisions shall be liberally construed to ensure its purpose is accomplished. Id. § 123.1. The Act provides that a liquor license may be issued to any person of "good moral character." Id. § 123.30(1)(a). A "person of good moral character" means:
The person has such financial standing and good reputation as will satisfy the administrator that the person will comply with this chapter and all laws, ordinances, and regulations applicable to the person's operations under this chapter. . . .
Id. § 123.3(26)(a). The Division has further promulgated certain regulations to help guide the administrator in its determination of an applicant's reputation:
A local authority or the administrator may consider an applicant's . . . good reputation in addition to the other requirements and conditions for obtaining a liquor control license, wine or beer permit. . . . .
b. In evaluating an applicant's "good reputation," the local authority or the administrator may consider such factors as, but not limited to the following: . . . licensee or permittee misdemeanor convictions, the recency of the misdemeanor convictions.
Iowa Admin. Code r. 185-4.2(4), 4.2(4)(b).
An applicant who fails to disclose information specifically requested by the Division jeopardizes the legitimacy and safety of the licensing procedures of the Iowa Alcoholic Beverage Control Act. Moreover, in determining an applicant's "good moral character," the Division is granted the authority to assess the applicant's "good reputation" by reviewing his misdemeanor convictions along with any other factors it deems appropriate. See id. (stating administrator not limited to factors listed). The fact that the Division gave McFarland's dishonesty more weight in determining his "good moral character" than his history of operation in Duncombe does not make the decision unreasonable, an abuse of discretion, or arbitrary and capricious. See Dico, Inc., 576 N.W.2d at 355. Because we are bound by the agency's factual findings if they are supported by substantial evidence and otherwise free of legal or other error, we reverse the decision of the district court and affirm the Division's denial of McFarland's liquor license renewal application. We have carefully considered the remaining issues raised on appeal and conclude they are either without merit or controlled by the foregoing.