PNMv.TABC

Court of Appeals of Texas, Thirteenth District, Corpus Christi — EdinburgAug 29, 2007
No. 13-06-487-CV (Tex. App. Aug. 29, 2007)

No. 13-06-487-CV

Opinion delivered and filed August 29, 2007.

On appeal from the 117th District Court of Nueces County, Texas.

Before Justices YAÑEZ, RODRIGUEZ, and GARZA.

Memorandum Opinion by Justice GARZA.


MEMORANDUM OPINION


DORI CONTRERAS GARZA, Justice.

Appellant, PNM, Inc. d/b/a Star Trac #1 (PNM), appeals from the trial court's affirmation of the order of appellees, Texas Alcoholic Beverage Commission (TABC), cancelling PNM's "Wine and Beer Retailer's Off-Premise Permit" (permit number BQ-546829). By two issues on appeal, PNM claims that the administrative law judge's findings of fact and conclusions of law are not supported by substantial evidence. We affirm.

TABC filed two administrative cases against PNM, specifically, docket numbers 458-06-0206 and 458-06-0387. The State Office of Administrative Hearings (SOAH) held a hearing on both cases on November 2, 2005. PNM filed its petition for review of both cases with the district court. This appeal encompasses both cases, filed under appellate cause number 13-06-00487-CV.

I. Factual and Procedural Background

We note that although the SOAH made a tape recording of the hearings, and although section 155.43(e) of the Texas Administrative Code provides that, upon written request by a party, a written transcript of the tape recordings will be made, PNM did not avail itself of the option. Thus, we have not been provided with a transcript of the proceedings before the SOAH. Further, PNM did not provide the tape recordings to this Court.
As a result, on appeal, this Court was required to engage in the burdensome process of scouring through a lengthy record to determine the underlying factual background and to determine what testimony and evidence was actually before the SOAH.

The permit at issue was originally issued to Star Tex Oil and Gas Inc. (Star Tex) in 1997. Feroz Al Momin and Piarali Jalbhai Prasla were the original incorporators of Star Tex. The 2002 Texas Franchise Tax report shows Prasla as the vice president and secretary of Star Tex.

In October 2003, upon selling the Star Tex corporate entity, Momin and Prasla filed a supplemental change of corporation application requesting to have the Star Tex alcoholic beverage permit changed over to PNM, Inc. This change of corporation led TABC Agent Brian Tullis to conduct an investigation of Momin and Prasla. The supplemental application indicated that Momin was 51 percent owner and Prasla was 49 percent owner of PNM. The application was signed by Prasla. Momin was listed as the president and Prasla as the vice president and secretary on the original change of corporation application. Sometime later, Momin submitted a new change of corporation application for PNM, showing him as the sole officer and owner of 51 percent of PNM and showing Prasla only as a shareholder. In February 2004, with Momin listed as the president, PNM issued 510 shares to Momin and 490 shares to Prasla. TABC renewed the permit on January 14, 2005.

PNM was formed as a Texas corporation on December 23, 2002.

Through his investigation, Tullis discovered that Prasla is unauthorized to work in the United States. On April 30, 2004, Tullis issued an administrative notice charging PNM with employing a person without work authorization. Tullis entered the store and spoke to Stephanie Bernal, a store employee. Bernal indicated to Tullis that Prasla was her supervisor and that he hired her. She noted that Prasla was listed as the emergency contact for the store and that she believed he was the owner. On June 4, 2004, PNM agreed to pay a fine in lieu of a 15-day suspension of the permit.

Tullis continued to investigate PNM. On June 30, 2005, Tullis asked PNM to provide corporate records, including minutes, stock certificates, bank signature cards, income tax records for 2003 and 2004, and the last four months of financial records. PNM complied. The stock certificates identified Momin as 51 percent owner and Prasla as 49 percent owner. The documents indicated Prasla was authorized to sign on the corporation's business bank account, which was opened in 1997. Bank statements from April, May, and June 2005 revealed that several checks, noted as "payroll checks," were written to Prasla. The payroll checks issued to Prasla were all for the amount of $1308.33 and were issued bi-weekly. Prasla wrote at least one payroll check to himself. PNM reported to the State of Texas that Prasla's wages from January 2004 to February 2005 were $78,000, with $13,500 in wages reported for the first two months of 2005. Prasla also wrote payroll checks to other employees, and he wrote checks for alcohol, gasoline, inventory, utilities, alarm services, and other miscellaneous items for PNM. Other payroll checks were signed by Saukau K. Kadiwal. Kadiwal is believed to be Prasla's brother-in-law. Tullis also discovered checks made payable to Del Mar College and one check for repairs on a vehicle driven by Prasla. A check in the amount of $38,000 was made out to Prasla and signed by Pralsa. The check indicated it was for a loan refund. The records also showed that Pralsa made a $5,000 cash withdrawal, but there was no indication as to why the funds were withdrawn.

After reviewing the records, Tullis followed up with Momin. Tullis asked Momin to fax documentation showing Prasla's authorization to work. Tullis never received the requested documentation. On October, 3, 2005, Tullis observed Prasla unloading supplies, including drinks, water, and food, from the back of his vehicle and carrying them into the store. Tullis subsequently obtained confirmation from the United States Department of Homeland Security that Prasla was not authorized to work in the United States.

On October 5, 2005, while conducting surveillance of the premises, Tullis noticed an outdoor advertising violation. He entered the establishment to issue a warning for the violation. Inside the store, Tullis met J. Patel, a store employee. Patel stated to Tullis that Prasla was the owner and manager of the store and that Prasla hired him. Patel did not know and had not heard of Momin. Patel showed Tullis PNM's check book, which contained blank checks pre-signed by Prasla. The register also showed payroll checks and other checks signed by Prasla. Patel was called as a witness and testified that Prasla was the "boss" and had hired him. However, Patel also claimed that Kadiwal was the manager, signs his check, schedules his hours, and writes checks to the store's vendors. Patel stated that Prasla does not go by the store everyday.

On October 5, Tullis also faxed PNM asking for Prasla to appear at the local TABC office and provide documentation of his authorization to work in the United States. No response was provided. A second written request was faxed on October 10, 2005, which also obtained no response.

On October 12, 2005, Tullis issued a formal notice stating that a case was being prepared against PNM for subterfuge and for failing to provide requested documents. The notice required PNM to meet with Tullis on October 18, 2005. Momin responded by asking that the meeting be moved to Houston or to the first week in November. Because another hearing involving PNM and concerning similar allegations was already scheduled for the first week in November, Tullis decided to bring the matter to the SOAH. Again, Tullis never received any documentation from PNM showing Prasla's immigration status.

Although not defined within the provisions of the Texas Alcoholic Beverage Code, "subterfuge" is commonly recognized as "a clever plan or idea used to escape, avoid or conceal something `a subterfuge to avoid liability under a statute'." Black's Law Dictionary 1162 (7th ed. 2000).

TABC subsequently brought a disciplinary action against PNM, alleging that PNM violated the Texas Alcoholic Beverage Code by allowing the use or display of its beverage permit in the conduct of its business for the benefit of a person not authorized by law to have an interest in the permit. See Tex. Alco. Bev. Code Ann. §§ 61.71(a)(15), 109.53.

Section 61.71(a)(15) provides that TABC may cancel a retail dealer's on- or off-premise license if it is found, after notice and hearing, that the licensee permitted the use or display of his license in the conduct of a business for the benefit of a person not authorized by law to have an interest in the license. Tex. Alco. Bev. Code Ann. § 61.71(a)(15) (Vernon 2007).

Pursuant to Texas Alcoholic Beverage Code section 109.53, the majority of a corporation's stock must be owned by a resident citizen of Texas; however, no such residency requirement exists for minority stockholders. See Tex. Alco. Bev. Code Ann. § 109.53 (Vernon 2007). Section 109.53 provides, in relevant part, that:


No person who has not been a citizen of Texas for a period of one year immediately preceding the filing of his application therefore shall be eligible to receive a permit under this code. No permit . . . shall be issued to a corporation unless the same be incorporated under the laws of the state and unless at least 51 percent of the stock of the corporation is owned at all times by citizens who have resided within the state for a period of one year and who possess the qualifications required of other applicants for permits. . . .

. . . .

It is the intent of the legislature to prevent subterfuge ownership of or unlawful use of a permit or the premises covered by such permit; and all provisions of this code shall be liberally construed to carry out this intent, and it shall be the duty of the commission or the administrator to provide strict adherence to the general policy of preventing subterfuge ownership and related practices hereinafter declared to constitute unlawful trade practices.

See id.

TABC brought a second administrative action against PNM alleging that PNM failed to provide records, documents and information requested by TABC regarding the residency status of Prasla. Tex. Alco. Bev. Code Ann. § 5.32 (Vernon 2007) (providing that TABC may require the filing of reports or other data by persons engaged in the alcoholic beverage business which TABC finds necessary to accomplish the purpose of the alcoholic beverage code); see Tex. Alco. Bev. Code Ann. § 11.61(b)(2) (Vernon 2007) (providing that TABC may cancel a permit if the permittee violated a provision of the alcoholic beverage code); § 61.71(a)(1) (providing that TABC may cancel a retail dealer's on-or off-premise license if the licensee violated a provision of the alcoholic beverage code or a TABC rule).

At the administrative law hearing, Tullis stated that in his opinion, the corporate structure used by PNM is a subterfuge. Tullis specifically pointed to the original supplemental application, which showed Prasla as an officer and to the later application which showed Prasla only as a shareholder. Tullis stated that 51/49 percent ownership splits are classic corporate models of subterfuge. Tullis testified that he believed PNM knew the application would be denied if Prasla was listed as an officer; therefore, PNM supplemented the application and listed Prasla only as a shareholder. Tullis stated that TABC records show that Kadiwal and Prasla had previously been involved in submitting a false application to TABC for a store in Kingsville, Texas. Criminal charges and an indictment were filed against Kadiwal for making a false statement and for subterfuge. Tullis testified that he believes Kadiwal is part of the subterfuge scheme and that Kadiwal's involvment with Prasla circumvents the code because Kadiwal is authorized to work in the United States, while Prasla is not. Tullis explained that this allows PNM to argue that Kadiwal runs and manages the store when, in fact, Prasla does. At the hearing, TABC urged that the evidence demonstrated that Prasla's actual interest in PNM exceeded his 49 percent record ownership and that PNM's corporate structure was a subterfuge. Thus, TABC alleged that PNM allowed the use of its license to benefit Prasla — a person not authorized by law to have an interest in the license — in violation of section 61.71(a)(15). See id. § 61.71(a)(15).

PNM countered the subterfuge argument by presenting documentary evidence, as well as Momin's testimony. Momin testified he lives in Houston and visits Star Trac #1, which is located in Corpus Christi, once every six months. Momin stated that although he lives in Houston, he controls PNM. Momin testified that at one point, Prasla had a work visa and worked at Star Trac #1. Momin countered that although TABC alleged that Prasla continued to overstep his lawful interest, after PNM received administrative notice, Prasla quit working at the store. Momin maintained that he is, and always was, the sole officer of PNM, and that Prasla is only a shareholder that looks after Star Trac #1. Momin contended that Prasla was not involved in the day-to-day operation of the store, but admitted that Prasla was paid $1,500 every fifteen days for his efforts related to the management of Star Trac #1. Momin testified that he does not know who buys inventory or makes deliveries to Star Trac #1. He also testified that Kadiwal, who is authorized to work in the United States, is the manager of Star Trac #1, not Prasla.

After the hearing(s), the administrative law judge (ALJ) issued findings of fact and conclusions of law in cause numbers 458-06-206 and 458-06-0387. The ALJ found, inter alia, that PNM's corporate structure is a subterfuge which allows Prasla, who never established Texas residency, to have an interest in the permit, either as an officer of PNM or as a manager of the licensed premises. See Tex. Alco. Bev. Code Ann. §§ 61.71(a)(15), 109.53. The ALJ also found that PNM's business operations were carried out by Prasla; that Prasla currently acts as a corporate officer because he signs corporate checks, withdraws cash, withdraws his own shareholder draws from the corporate account; that Prasla currently manages and controls the licensed premises, exercises control over the employees, signs payroll checks, pays bills, and orders and delivers supplies and inventory. The ALJ further found that Prasla is an employee of PNM, receives a salary, performs certain duties for the business, that PNM benefits financially from the business, and that PNM failed to provide the requested documents to TABC.

Based on the foregoing findings of fact, the ALJ entered the following contested conclusions of law: (1) PNM allowed the use or display of its Wine and Beer Retailer's Off-Premise permit BQ-546829 in the conduct of a business for the benefit of a person not authorized by law to have an interest in the permit in violation of sections 25.04(b), 61.71(a)(15) of the Texas Alcoholic Beverage Code, and (2) PNM failed to provide requested documents in violation of section 5.32 of the Texas Alcoholic Beverage Code. See Tex. Alco. Bev. Code Ann. §§ 5.32, 25.04(b), 61.71(a)(15) (Vernon 2007).

On June 5, 2006, TABC adopted the findings of fact and conclusions of law of the administrative law judge and entered an order cancelling PNM's permit. See Tex. Alco. Bev. Code Ann. § 25.04(b) (providing that the provisions of the code are applicable to the cancellation of a wine and beer retailer's permit); Tex. Alco. Bev. Code Ann. § 26.03(b) (Vernon 2007) (providing that the provisions of the code are applicable to the cancellation of a wine and beer retailer's off-premise permit); see also 16 Tex. Admin. Code § 37.60(a) (2007) (providing that cancellation of the permit is the appropriate sanction for subterfuge). The order became final on June 26, 2006. On appeal, the district court concluded that the TABC order was supported by substantial evidence and affirmed the cancellation of PNM's permit. This appeal ensued.

II. Standard of Review

The substantial evidence rule governs our review of both the trial court's judgment and the final order of the TABC. Tex. Alco. Bev. Code Ann. § 11.67(b) (Vernon 2007); Four Stars Food Mart v. Tex. Alcoholic Beverage Comm'n, 923 S.W.2d 266, 269 (Tex.App.-Fort Worth 1996, no writ). The test in applying this rule "is whether the evidence as a whole is such that reasonable minds could have reached the same conclusion that the agency must have reached in order to justify its action." Tex. Alcoholic Beverage Comm'n v. Sierra, 784 S.W.2d 359, 360 (Tex. 1990). Whether substantial evidence supports an administrative decision is a question of law. Tex. Dep't of Public Safety v. Alford, 209 S.W.3d 101, 103 (Tex. 2006). We focus our review on the reasonableness of the TABC order, rather than its correctness. Morgan v. Tex. Alcoholic Beverage Comm'n, 519 S.W.2d 250, 254 (Tex.App.-Texarkana 1975, no writ). The TABC findings and conclusions are presumed to be supported by substantial evidence and the burden is on the complaining party to overcome this presumption. Four Stars Food Mart, 923 S.W.2d at 269-70. Substantial evidence required to support the TABC's order is more than a mere scintilla, but less than a preponderance of the evidence. Arreaga v. Bexar County Sheriff's Dep't, 90 S.W.3d 899, 901 (Tex.App.-San Antonio 2002, no pet.). Accordingly, evidence may actually preponderate against the decision of an agency and still amount to substantial evidence. Garza v. Tex. Alcoholic Beverage Comm'n, 138 S.W.3d 609, 613 (Tex.App.-Houston [14th Dist.] 2004, no pet.) (citing Lewis v. Metro. Sav. Loan Ass'n, 550 S.W.2d 11, 13 (Tex. 1977)); Four Stars Food Mart, 923 S.W.2d at 269 (citing Haynes v. City of Abilene, 659 S.W.2d 638, 640 (Tex. 1983)). In applying the substantial evidence test, this Court is prohibited from substituting its judgment for that of the agency as to the weight of the evidence on questions committed to agency discretion. Garza, 138 S.W.3d at 613.

Furthermore, regardless of the agency's stated reasons for its order, a reviewing court may uphold the decision provided there is any valid basis for it in the record. Four Stars Food Mart, 923 S.W.2d at 270. We may uphold the agency's decision if there is substantial evidence to support one of the reasons given for its decision. Garza, 138 S.W.3d at 613 (citing Tex. State Bd. of Med. Exam'rs v. Scheffey, 949 S.W.2d 431, 436 (Tex.App.-Austin 1997, writ denied)).

III. Analysis

In its first issue, PNM contends no substantial evidence supports the administrative law judge's findings of fact and conclusions of law that PNM violated sections 25.04(b) and 61.71(a)(15) of the Texas Alcoholic Beverage Code. PNM claims that because they are not supported by substantial evidence, these findings and conclusions are erroneous and constitute an abuse of discretion. We disagree.

After reviewing the record, we conclude substantial evidence supports the administrative law judge's findings of fact and conclusions of law that PNM violated sections 25.04(b) and 61.71(a)(15) of the Texas Alcoholic Beverage Code. See Tex. Alco. Bev. Code Ann. § 11.67(b); Four Stars Food Mart, 923 S.W.2d at 269. The extensive testimony of Tullis, as well as the numerous exhibits admitted during the hearing, support the administrative law judge's findings of fact and conclusions of law. Accordingly, appellant's first issue is overruled.

We note that in its first issue, PNM specifically claims that its activities were legitimate under the Texas Business Corporation Act and/or the Texas Business Organization Code. Although it is possible that PNM is correct, our review concerns whether PNM's business operations were legitimate under the Texas Alcoholic Beverage Code. Because we conclude that there was substantial evidence to support the findings and conclusions that PNM's actions were in violation of the alcoholic beverage code, we need not address this contention. See Tex. R. App. P. 47.1.

Given our disposition of appellant's first issue, we need not address PNM's contentions in its second issue. See Garza, 138 S.W.3d at 613 (providing that this Court may uphold the agency's decision if there is substantial evidence to support one of the reasons given for the decision); Four Stars Food Mart, 923 S.W.2d at 270.

IV. Conclusion

The judgment of the trial court is affirmed.