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Pizza Pub of Burnside v. Commonwealth Department of Alcoholic Beverage Control

Court of Appeals of Kentucky

November 27, 2013

PIZZA PUB OF BURNSIDE, Kentucky, Inc., d/b/a The Pub of Burnside, Appellant.
v.
COMMONWEALTH of Kentucky, DEPARTMENT OF ALCOHOLIC BEVERAGE CONTROL; and Commonwealth of Kentucky, Kentucky Alcoholic Beverage Control Board, Appellees.

Page 781

Stephen G. Amato, Preston C. Worley, Lexington, KY, for appellant.

Stephen B. Humphress, Frankfort, KY, for appellee, Commonwealth of Kentucky Department of Alcoholic Beverage Control.

David A. Smith, Frankfort, KY, for appellee, Commonwealth of Kentucky Alcoholic Beverage Control Board.

Before COMBS, LAMBERT, and THOMPSON, Judges.

OPINION

LAMBERT, Judge:

Pizza Pub of Burnside Kentucky, Inc., d/b/a The Pub of Burnside, (" Pizza Pub" ), has appealed from the opinion and order of the Franklin Circuit Court affirming the decision of the Kentucky Alcoholic Beverage Control Board (" the ABC Board" ) to revoke its license to sell alcohol. Because we agree with Pizza Pub that its due process rights were violated and that the ABC Board should have continued the administrative hearing to allow Pizza Pub to retain new counsel, we reverse.

Pizza Pub, also known as The End Zone, is an incorporated establishment owned by Gerard A. Weigel, Jr., and is physically located in Burnside, Pulaski County, Kentucky. Pizza Pub obtained Limited Restaurant License No. 100-LR-289 on November 7, 2008, after a Kentucky Revised Statutes (KRS) 242.185(6) local option election measure passed, which permitted " the sale of alcoholic beverages by the drink ... at restaurants and dining facilities with a seating capacity of at least one hundred (100) persons and which derive at least seventy percent (70%) of their gross receipts from the sale of food [.]" [1] In May 2010, Investigator Mark Cassity, of the Kentucky Department of Alcoholic Beverage Control (" the Department" ) filed a report detailing the findings from an audit earlier in 2010 by Investigative Auditor Angela Brown. The findings established that Pizza Pub had failed to maintain the

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70%/30% food to alcoholic beverage sales requirement for the holder of a limited restaurant license and was indebted to the Department of Revenue. Auditor Brown determined that Pizza Pub had food sales of only 45%.

On June 16, 2010, the ABC Board notified Pizza Pub that a report of licensee investigation had been issued and ordered Pizza Pub to appear at a hearing on August 5, 2010, to determine whether it had violated KRS 241.010(27)(a) and KRS 242.185(6) for failure to maintain 70% food sales; [2]KRS 243.500(5) for incurring a tax arrearage of $9,600.23 as of May 7, 2010; [3]KRS 243.490(1) and KRS 243.500(2) for making false material statements in its license application and renewal application.[4] The notice provided that if the licensee was a corporation, " it shall be represented by legal counsel at all stages of the administrative proceeding. All licensees have the right to be represented by counsel, to present witnesses on its behalf, to cross-examine the Department's witnesses, and to make opening and closing statements."

Prior to the hearing date, Pizza Pub's attorney, Jay McShurley, sent a letter to the Department indicating that Mr. Weigel had implemented policies and restrictions on the sale of alcoholic beverages that established a trend toward the 70%/30% ratio of food to alcohol sales. On August 4, 2010, the ABC Board canceled the hearing and scheduled a prehearing conference to permit the parties to continue the settlement negotiations initiated in attorney McShurley's correspondence. The ABC Board held the prehearing conference on August 23, 2010, with attorney McShurley representing Pizza Pub. Mr. Weigel also attended, and he provided the ABC Board with information about the significant operational changes he had implemented since the Department's audit, including monthly sales reports that showed a continuing increase in food sales percentages which would soon reach 70%. Pizza Pub requested that the hearing be postponed to give it additional time to reach compliance and negotiate a non-license revocation penalty with the Department. While the Department did not object, it asked that Pizza Pub be required to provide additional information to Auditor Brown to substantiate the monthly sales reports. Therefore, the ABC Board ordered Pizza Pub to file with the Department monthly sales reports for a six-month period starting September 1, 2010, and ending February 28, 2011, to be run directly from the cash register system. At the conclusion of the six-month period, Auditor Brown was to conduct a review and prepare a report regarding Pizza Pub's compliance.

In April 2011, Auditor Brown filed a report as ordered, and the Department filed the audit report with the ABC Board shortly thereafter. Based upon the results of the audit, the Department informed the ABC Board that Pizza Pub had failed to

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comply and maintain adequate food sales as required by its limited restaurant license, which constituted 49% of its total gross sales. The audit report also showed that Pizza Pub had attempted to defraud the Department and the ABC Board by reporting 67% food sales by programming the cash register system to categorize certain alcohol sales as food sales. The Department moved the ABC Board to set the case for a hearing where it would be seeking revocation of Pizza Pub's license. The ABC Board granted the motion and scheduled the hearing for July 6, 2011. The order again provided that " [i]f the Licensee is a corporation, LLC, or other artificial entity registered with the Kentucky Secretary of State, it shall be represented by legal counsel at all stages of the administrative proceeding."

On June 30, 2011, attorney McShurley faxed a notice of withdrawal as counsel for Pizza Pub to the ABC Board and the other parties. In the notice, he indicated that Mr. Weigel intended to retain other counsel and requested that the ABC Board provide Pizza Pub with additional time to retain new counsel and prepare for the hearing in order to provide it " with an opportunity to have all due process rights and a fair hearing[.]"

The parties appeared on July 6, 2011, for the administrative hearing. However, Mr. Weigel and his wife appeared without an attorney to represent Pizza Pub. When the hearing chairman recognized that Pizza Pub was not represented by an attorney, Stephen Humphress, counsel for the Department, indicated that Pizza Pub's prior attorney had filed a notice to withdraw the prior Thursday by fax. Attorney Humphress indicated that he had spoken with attorney McShurley three or four weeks before receiving the notice of withdrawal, and he told him he was getting out of the case. Attorney McShurley asked if he needed to file a motion and get a Board order; attorney Humphress told him a notice would be sufficient, and he expected another attorney to enter and make an appearance at the hearing. However, attorney Humphress received a voice mail message from attorney McShurley the Wednesday prior to the hearing stating that he was not aware if Pizza Pub had obtained counsel, but that he was still going to get out of the case. Attorney McShurley asked if he was agreeable to a continuance; attorney Humphress called the next day to say he was not agreeable to a continuance because the case was over a year old, and that Pizza Pub would have to retain counsel and file a motion to request a continuance, but he would oppose any such motion. Attorney Humphress then received the faxed copy of the notice of withdrawal. Attorney Humphress and the hearing chairman then discussed the procedural history of the case and that Pizza Pub's means to obtain compliance was to defraud the Department. The hearing chairman told Mr. Weigel, " The Kentucky Supreme Court has ruled that an individual who's not an attorney cannot represent a corporation, so I cannot let you speak at this hearing, sir."

The hearing went on as scheduled from there. The Department called Auditor Brown to testify about her investigation of Pizza Pub's violations, and at the conclusion of her testimony, the following exchange took place:

• Mr. Weigel: " Mr. Chairman, is it alright if I come up there just a second? I won't talk. I just need to ask you a question."
• Board Chairman: " I don't think you're allowed to, sir."
• Attorney Humphress: " Again he can't represent the licensee because that's an unauthorized practice of law. It's a crime."

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• Board Chairman: " That's what I'm saying. I ...

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