By: John Hinman, Hinman & Carmichael LLP
The May 11, 2020 ABC “Emergency Rules” Doing Away with Licensee Rights to Due Process and Fair Hearings – Comments in Response Due by May 18th
'Emergencies' have always been the pretext on which the safeguards of individual liberty have been eroded. Friedrich Hayek
Late in the afternoon of May 11th the ABC released an “Emergency” Rule-Making Notice changing the process for administrative hearings to adjudicate violations of the ABC Act. The new “rules” do away with most due process protections for licensees including discovery of relevant evidence, responsive pleadings, time to prepare for hearing and mandatory live administrative hearings before license suspension or revocation being imposed. The new proposed rules also do away with the statutory right to appeal to the ABC Appeals Board and instead create a new process of appeal to the Superior Court of the county in the which the licensee is located.
Hearings for all violations subject to “emergency orders” would occur only if the ABC agrees to hold a hearing (the time frame from the date of the emergency order to implementation is not stated), the licensee could appear “if practicable” and discipline (license suspensions and revocations) would be imposed immediately. The new rules are permanent and do not go away if the COVID 19 “emergency” goes away. From now on an “emergency” is anything the ABC says is an “emergency.”
The nine categories of violations affected by the emergency rule making include common violations of the ABC Act related to alleged improper conduct on licensed premises or related to activities of licensees away from licensed premises. None involve actual emergencies.
The pretext was addressing the Covid 19 crisis. Because of the emergency orders (which have already been lifted in many places in the state), the notice continued, comments would have to be submitted within five working days or the Emergency Rules would be sent to the Office of Administrative Laws for adoption.
Five working days from May 11th is Monday, May 18th. On Friday May 15th, several trade Associations asked for an extension of the comment period. That letter can be found here. The ABC has not responded to the letter.
The notice and the proposed rules can be found here:
The Hinman & Carmichael LLP Comments Opposing the Emergency Rule Making
Our firm filed a nine-page comment letter with the ABC. That letter is attached here. We urge all licensees and interested parties who agree with our comments to send a letter or an email to the ABC today adopting the comments (or the parts agreed with) as their own.
Here are the addresses and email for the comments:
OAL Reference Attorney and Department of Alcoholic Beverage Control
300 Capitol Mall, Suite 250 3927 Lennane Drive, Suite 100
Sacramento, CA 95814 Sacramento, CA 95834
E-mail: staff@aol.ca.gov E-mail: RPU@abc.ca.gov
ABC Disciplinary Actions are Serious Matters; and so is the Potential for Regulatory Corruption
ABC disciplinary actions have serious financial impacts on licensees and their employees; penalties can include fines, license suspensions, license revocations and criminal liability. The very right of a licensed winery, brewery, distillery, restaurant, hotel, entertainment venue, sports stadium or other licensed business to survive is at stake If their basic right to sell alcoholic beverages is subject to being revoked at the whim of an angry neighbor, overzealous local police department or competitor filing a false or misleading claim on any of the unlimited grounds listed in the proposed emergency regulations.
Assessing penalties without due process and the right to appeal to the ABC Appeals Board leads to inconsistent treatment of licensees, favoritism, and the potential for corruption. Article 20, Section 22 of the California Constitution was passed in 1954 to address the corruption that existed on the part of many of the California liquor regulators in the period from the end of Prohibition up to that time. The Constitution created the ABC Appeals Board to oversee the affairs of the ABC. The scandals at the time were notorious and are briefly explained in the official records of the State Board of Equalization here.
The Violations the Proposed “Emergency Rules” Cover
Consider the nature of each of the nine listed categories of offenses that would be punishable almost instantly under the emergency regulation (rather than having to be proved as an offense in a hearing where there is pre-hearing discovery, witnesses are subject to cross-examination, and the Judge’s ruling is subject to correction on appeal), how each can be abused and the standard of proof typically required to state a violation:
(b) If occurring on a licensed premises, any adjoining property rented or leased by a licensee, or reasonably connected to the operation of a licensed business, the department has determined the following circumstances constitute an immediate threat to the public health, safety, or welfare that requires immediate administrative action through an emergency decision:
Comment: what does “reasonably connected to the operation of a licensed business” mean? relationships with vendors? actions of employees? actions of service providers? There is no limit on the authority granted here to charge a licensee for responsibility of the actions of others.
(1) The licensee, or an employee or agent of the licensee, sells, or negotiates the sale of controlled substances or dangerous drugs.
Comment: cannabis is a controlled substance. Does this mean a licensee can be shut down if someone employed by a licensee sells, or is involved in the sale of, cannabis off the licensed premises? The ABC regularly charges licensees with a violation for permitting cannabis use on licensed premises but this extends the offense to personal use and sale off the premises.
(2) The licensee, or an employee or agent of the licensee, permits the sale or negotiation for the sale of controlled substances, or dangerous drugs.
Comment: This is even broader than the offense in item (1). This means (under ABC decisional law) that the sale (or offer of sale, that is what “negotiation” means) happened whether the licensee knew about the sale or negotiation, or not. Not taking adequate steps to prevent a violation is “permission” as far as the ABC is concerned. And, as in (1), this is not limited to activities on the licensed premises.
(3) The licensee, or an employee or agent of the licensee, permits conditions to exist that create an immediate risk of violence against an employee, visitor, guest, or customer of the licensed premises;
Comment: This is classic “disorderly house” conduct. Loud music, unruly patrons making noise when leaving, excessive calls for police services and the like. This authorizes immediately closing premises where the local police (or neighbors) do not like the crowd attracted to the location. Typically, excessive police call cases turn out to be clashes between venue owners and neighbors objecting to the entertainment being offered and the patrons attracted to that entertainment. However, accusations have also been used against activities such as unruly wedding parties and tour bus visitors to wineries, breweries or distilleries. The typical result of such actions are conditions on exercising license privileges limiting hours or operation, type of entertainment and number of permitted patrons. The nature and characteristics of these offenses are subject to much dispute between the complaining parties and the licensees that can be sorted out in the administrative hearing process. These are not emergencies that justify license suspension without full hearing and appeal rights.
(4) The licensee, or an employee or agent of the licensee, engages in or permits activities that directly relate to human trafficking;
Comment: There are few (if any, we know of none) reported human trafficking cases at the ABC level; although if this refers to prostitution cases those need to be proved as criminal cases before being subject to liability as an ABC matter, and that is not an emergency,
(5) The licensee is convicted of, or pleads guilty to, a crime that reasonably shows the licensee is a danger or immediate threat to employees, visitors, guests, or customers of the licensed premises;
Comment: Conviction of a crime is grounds for suspension or revocation of an ABC license and, typically, all that is required to prove the violation is a copy of the conviction. We presume that the reference to “danger or immediate threat” might mean conviction for a criminal offense involving assault or battery. If that occurs the ABC licensee may defend him or herself at the hearing, or to arrange for the license to be transferred. In no cases could a plea of guilty to such an offense be considered an emergency.
(6) The licensee, or an employee or agent of the licensee, bribes, or attempts to bribe, a department employee or other public official;
Comment: Bribery of a public official is a serious offense but what bribery is, and how it occurs, is the subject of an entire body of criminal jurisprudence. Is offering a drink to a police officer, or the local Mayor bribery? How about a campaign contribution? The contribution might be a crime depending on the pre-existing relationship, the nature of what was offered, and the manner offered. This is not an emergency that justifies suspending due process rights.
(7) While a license is under suspension, or while an accusation for a violation is pending against a license, a violation of the ABC Act occurring based on conduct like that which is the basis of the suspension, or pending accusation, and is likely to continue or reoccur; and
Comment: This refers to successive violations for similar conduct; for example, successive sales to minor results in increasing discipline up to an including revocation for a third offense in 36 months. This typically results in sequential discipline but never is an emergency justifying abrogation of due process rights. This may also be conduct related to promotional activity that the ABC has determined is unlawful or the continuance of tied house violations that the licensee believes is permitted and the ABC does not. Having a license suspended while such policies and alleged offenses are being challenged is a complete deprivation of due process.
(8) The licensee or an employee or agent of the licensee acts in a manner in conflict with limits established by an order of a federal, state, or local official during a state of emergency to protect the public health, safety, and welfare.
Comment: This is a policy that should be enforced by the local police and state officials charged with responsibility for enforcing COVID 19 orders. The nature and scope of the orders are subject to much controversy throughout the state and the ABC is singularly unequipped to make such a determination.
(9) Any other conduct that has a similar impact on to the public health, safety, and welfare as the foregoing list.
Comment: Can there be a broader grant of unlimited authority to take whatever action that the ABC wants, without due process, than this?
CONCLUSION – Never Let a Good Crisis Go to Waste
What is occurring here is obvious. The ABC is using the COVIS 19 crisis as an excuse to implement an agenda of permanent “emergency” orders that would abrogate licensee rights to defend themselves and their licenses in administrative proceedings.
We urge the industry to comment; that this effort at “emergency rulemaking” is being launched with five days to respond is not necessary or proper and that should be expressed not only to the ABC but to state representatives and the Governor.
We urge you to comment to the ABC and the OAL at the addresses above and copy your local political representatives in Sacramento.