Domusimplicis, LLC v. Pa. Liquor Control Bd. ( 2019 )

IN THE COMMONWEALTH COURT OF PENNSYLVANIA
Domusimplicis, LLC :
:
v. : No. 1930 C.D. 2017
: Argued: November 13, 2018
Pennsylvania Liquor Control Board, :
Appellant :
BEFORE: HONORABLE ROBERT SIMPSON, Judge
HONORABLE ELLEN CEISLER, Judge
HONORABLE DAN PELLEGRINI, Senior Judge1
OPINION
BY JUDGE SIMPSON FILED: January 14, 2019
Before us is the appeal filed by the Pennsylvania Liquor Control Board
(PLCB) to the order of the Court of Common Pleas of Chester County (trial court),2
reversing the decision of the PLCB denying an Economic Development (ED)
Restaurant Liquor License (ED License) to Domusimplicis, LLC (Licensee) for its
restaurant in West Chester Borough (Borough). The PLCB argues issuance of the ED
License violates the county quota scheme under Section 461(b.1) of the Liquor Code,3
47 P.S. §4-461(b.1), because Licensee did not satisfy criteria for the ED exception set
forth in its regulations. The PLCB also asserts the trial court erred in failing to defer
to its narrow interpretation of the regulatory criteria. Upon review, we affirm.
I. Background
Licensee applied for an ED License for its restaurant iPasta, located at
134 E. Gay Street in the Borough in Chester County (Premises). iPasta is a fine-
This case was decided before Senior Judge Pellegrini’s service on the court ended on
1
December 31, 2018.
2
The Honorable Ronald C. Nagle, Senior Judge, presided.
3
Act of April 12, 1951, P.L. 90, as amended, 47 P.S. §§1-101–10-1001. Section 461(b.1)
of the Liquor Code was added by Section 9 of the Act of December 20, 2000, P.L. 992.
dining restaurant seating 34 patrons serving home-cooked Italian cuisine in a
principally commercial area. Licensee sought an ED License to increase its income
and to add economic benefit to the community with increased clientele.
Following a notice and public hearing, the Borough Council adopted
Resolution 12-2015 conditionally approving4 Licensee’s application for an ED
License. Reproduced Record (R.R.) at 142a-44a. Resolution 12-2015 evinced
Council’s conclusion that its approval would promote economic development in the
Borough by “provid[ing] employment and attract[ing] customers and patrons to other
restaurants in the Borough.” Id. at 143a. Having satisfied the municipal approval
prerequisite for an ED license under 40 Pa. Code §3.101(a)(3), Licensee filed its
application with the PLCB on November 2, 2015, and paid the licensing fees.
Initially, the PLCB raised 10 objections to the application.5 Pursuant to
Section 464 of the Liquor Code,6 47 P.S. §4-464, the PLCB’s Bureau of Licensing
ordered a hearing on the objections.
4
The conditions were: no carry-out beer; close by midnight; at least one Responsible Alcohol
Management Program certified employee; and availability of food for sale while serving alcohol.
5
The 10 objections are summarized as follows:
1) Premises is located within 200 feet of other licensees.
2) Exhaustion of reasonable means to find a suitable license in the quota scheme.
3) Question as to applicant’s financial responsibility.
4) Failure to provide source of funds.
5) Failure to submit financial disclosure affidavit.
6) Failure to provide composition of property owner.
7) Failure to submit application addendum.
8) Failure to submit photographs of proposed members and manager.
9) Failure to submit interior/exterior photographs of Premises.
10) Question as to adverse effect on neighborhood.
6
Act of April 12, 1951, P.L. 90, as amended, 47 P.S. §§1-101–10-1001.
2
The PLCB hearing examiner conducted two hearings. The second
hearing was necessary because the PLCB added an objection to the application as to
whether Licensee exhausted reasonable means to find a suitable license “in
accordance with Section 3.105 of the [PLCB’s] regulations.” Hr’g Tr., 9/29/16, Ex.
B-8. Counsel for Licensee, a liquor license attorney who served as Licensee’s
agent in attempting to procure a license (Agent), testified at both hearings. iPasta’s
owner (Owner), for whom English is a second language, also testified at both
hearings. The hearing examiner recommended issuing the ED License. Nonetheless,
the PLCB refused the application and denied the ED License.
On June 23, 2017, the PLCB issued an opinion supporting its denial.
The PLCB noted that half of the objections raised were moot because Licensee
submitted the requisite information. Bd. Op., 6/23/17, at 16. Specifically, it noted
Licensee submitted the requisite information as to financial resources and
disclosures, owner composition and the addendum to the license application.
Based on the remaining objections, the PLCB denied the ED License.
It emphasized that five other licensed establishments are located within 200 feet of
the Premises, and that Licensee failed to exhaust reasonable means to find a suitable
license within the quota scheme as required by 40 Pa. Code §3.105. The PLCB also
concluded the approval of the ED License would adversely affect the community.
The trial court accepted the record of the administrative proceedings,
and it conducted a de novo trial where Owner and Agent testified on July 11, 2017.
Notably, Agent did not represent Licensee during the de novo trial.
3
Agent described his efforts to secure a restaurant license. He testified
regarding his attempts to discern whether any non-active licenses were available for
purchase, and whether licenses placed on the safekeeping and storage lists were
available. Agent explained his familiarity with the process of obtaining a liquor
license and his placement of other Borough licenses in safekeeping, which were not
for sale. He testified about his contacts with licensees by telephone and letter
inquiring as to the availability of a license. He contacted approximately 170 out of
192 licensees by letter or telephone, or both. He acknowledged he did not extend any
offers to purchase a license on Licensee’s behalf. He also testified as to the costs of
obtaining a non-ED license, that ranged from $375,000 (outside the Borough) to about
$500,000 in the Borough. Tr. Ct., Slip Op., 11/16/17, Finding of Fact (F.F.) No. 7.
He explained the Borough was not allowing transfers of restaurant “R” licenses from
outside the Borough given the large number of currently licensed restaurants and bars.
Owner testified the costs of non-ED licenses rendered that option
infeasible. He also testified as to the financial benefit for iPasta and the community.
Ultimately, the trial court sustained Licensee’s appeal, directing issuance
of the ED License. The trial court found Licensee submitted the requisite photographs
to the PLCB three times. Thus, it discerned no merit in the PLCB’s objections based
on their non-submission. The trial court also found there was no evidence supporting
the PLCB’s conclusion that issuing the ED License would adversely affect the
community. As to the two remaining objections (location within 200 feet of other
licensees, and failure to exhaust reasonable means to find a license under the quota
scheme), the trial court found Licensee met the criteria for an ED License. The trial
4
court credited Agent’s testimony about his efforts to find an available license. It
found “financial inability” motivated Licensee’s efforts to procure an ED License.
F.F. No. 8. Issuing the license would increase iPasta’s income, allow employment
expansion, and benefit the community with increased clientele. F.F. No. 14.
The PLCB appealed the trial court’s order to this Court. In its Pa.
R.A.P. 1925(a) opinion, the trial court noted the PLCB assigned three errors: (1) an
error of law or abuse of discretion that Licensee exhausted reasonable means to
acquire a license within the county quota scheme; (2) an error in requiring the PLCB
to show that granting the license adversely affects the neighborhood; and (3) an error
of law in not deferring to its narrow interpretation of the ED exception as “limited
to those areas suffering economic hardship.” Certified Record (C.R.), Item No. 16.
As to the third issue, the trial court advised that the PLCB opinion did not refer to an
economic hardship criterion, and that no argument was raised during the hearing or in
post-trial briefs placing such a limitation on the ED exception, resulting in waiver.
After briefing and argument, this matter is ready for disposition.
II. Discussion
On appeal,7 the PLCB argues that the trial court erred in determining
Licensee exhausted reasonable means of finding a suitable license within the quota
scheme. It also asserts the trial court erred by requiring the PLCB to prove that the
7
Where a trial court heard a liquor license matter de novo, our review is limited to
determining whether there is substantial evidence to support the trial court’s findings or whether
the trial court committed an error of law or abused its discretion. K & K Enters., Inc. v. Pa. Liquor
Control Bd., 602 A.2d 476 (Pa. Cmwlth. 1992).
5
granting of a license adversely affected the neighborhood when it refused the license
based on proximity to other licensees. In addition, the PLCB contended the trial
court owed deference to its interpretation of the ED exception as limited “to those
areas suffering economic hardship.” Appellant’s Br. at 4.
Licensee responds that the trial court’s findings are supported by
substantial evidence. It argues the trial court did not abuse its discretion when it
determined Licensee met the criteria for an ED License, including showing an
exhaustion of reasonable efforts to obtain a non-ED license. It emphasizes that the
trial court did not err in applying the ED criteria because the PLCB did not raise the
issue of economic hardship before filing its Rule 1925(b) Statement, resulting in
waiver.
A. Legal Framework
Section 461(a) of the Liquor Code, 47 P.S. §4-461(a), restricts the
number of permitted licenses based on a municipality’s population. The quota of
licenses in Chester County is 166; the County exceeds its license quota in that there
are 192 restaurant liquor licenses and 9 malt beverage licenses that count against this
quota.
However, relevant here, Section 461(b.1) of the Liquor Code allows an
exception to the quota for restaurants, in the interest of economic development.8
This is conditioned upon an applicant showing that it exhausted reasonable means
for obtaining a suitable license in the county in which the municipality is located.
8
An economic development license is not transferable to another licensee.
6
Pursuant to Section 464 of the Liquor Code, 47 P.S. §4-464, a trial court
conducts de novo review. Becker’s Café, Inc. v. Pa. Liquor Control Bd., 67 A.3d
885 (Pa. Cmwlth. 2013). As such, it may “‘sustain or over-rule the action of the
[PLCB] and either order or deny the issuance of a new license ....’” Id. at 894
(citation omitted). “A de novo review ‘contemplates an independent evaluation of
the evidence.’” Irem Temple AAONMS v. Pa. Liquor Control Bd., 87 A.3d 983,
996 n.6 (Pa. Cmwlth. 2014) (citations omitted). “In conducting a de novo review,
however, the trial court is not restricted to reviewing the established record and may
hear new evidence and make independent findings of fact and conclusions of law.”
Id.
Regardless of whether substantial evidence supports the PLCB’s
findings, the trial court may reverse a PLCB decision to deny a license provided its
own findings are supported by substantial evidence in the record as a whole.
I.B.P.O.E. of W. Mount Vernon Lodge 151 v. Pa. Liquor Control Bd., 969 A.2d 642
(Pa. Cmwlth. 2009). Indeed, in exercising its statutory discretion, the trial court may
reverse the PLCB based on identical findings and even when the evidence it hears is
substantially the same as the evidence presented to the PLCB. Pa. Liquor Control
Bd. v. Craft Am. Home, 718 A.2d 276 (Pa. 1998).
B. Objections
The PLCB raised three substantive objections to issuance of the ED
License on appeal: (1) location of the Premises within 200 feet of other licensees;
(2) failure to show reasonable efforts to obtain a license within the quota scheme;
and (3) adverse effects on the neighborhood.
7
1. 200-foot Proximity
There is no dispute that the Premises are located within 200 feet of five
other licensees. Section 404 of the Liquor Code gives the PLCB the discretion to
refuse a new license application for an establishment that is within 200 feet of any
other licensed premises. However, and relevant here, an application is not
automatically disqualified based on its proximity to other licensees. Chadds Ford
Tavern, Inc. v. Pa. Liquor Control Bd., 736 A.2d 70 (Pa. Cmwlth. 1999) (granting
license despite location within 200 feet of other licensees). It is a matter of
discretion.
Notably, the PLCB does not explain how the trial court abused its
discretion when it issued the ED License here. Accordingly, this Court discerns no
abuse of discretion by the trial court in refusing to deny the ED License based on its
proximity to other licensees.
2. Exhaustion of Reasonable Means
Licensee was required to exhaust its options for obtaining a restaurant
“R” license within the existing county quota before applying for an ED license.
Section 3.105 of the PLCB’s regulations sets forth the mandatory criteria for an ED
license, specifying evidence that establishes the exhaustion of reasonable means
requirement. 40 Pa. Code §3.105.
Section 3.105(e) provides that an applicant “shall provide evidence at
the administrative hearing” to establish the exhaustion requirement, including the
number of contacts with existing licensees about the availability of licenses for
8
purchase. Specifically, an applicant must show that it contacted equal to or greater
than 50% of the existing suitable licensees. 40 Pa. Code §3.105(e)(1)(ii). An
applicant must also show it offered to purchase licenses that are in safekeeping at
the time the application is filed, including offered and requested amounts. In
addition, an applicant must provide evidence as to why it is not economically
feasible to purchase an existing license, including its financial resources.
Relevant here, the regulation states that evidence of the exhaustion
criterion “includes … [a] written estimation, with supporting documentation, of the
expected economic benefits to the municipality if the application is granted.” 40 Pa.
Code §3.105(e)(4) (emphasis added).
The PLCB maintains the regulation requires an ED License applicant
to submit the written estimate of the benefit of the application at the administrative
hearing. The only documentary evidence that Licensee submitted during the
administrative hearing regarding the expected economic benefits to the Borough was
Resolution 12-2015 of Borough Council approving its request for an ED License.
However, Licensee presented a written estimate of the economic benefits of issuing
an ED License to the trial court. Because Licensee did not present the economic
impact document to the PLCB’s hearing examiner during the administrative
proceedings, the PLCB asserts Licensee did not meet this regulatory requirement.
In support, the PLCB cites Allison v. Pennsylvania Liquor Control
Board, 131 A.3d 1075 (Pa. Cmwlth. 2016). There, the PLCB opposed renewal of a
license based on criminal incidents and citations. During a de novo trial, the court
9
accepted testimony regarding events that transpired after the administrative hearing,
as well as subsequent remedial measures the licensee undertook in response to the
citations. The lower court reversed the PLCB, and it renewed the license. This Court
remanded to the lower court because it was not clear how the subsequent remedial
measures and testimony regarding reduced noise affected the trial court’s disposition.
Because the nonrenewal was based on certain citations and measures, evidence of
continuing improvements could not form the basis for the trial court’s decision.
This case is distinguishable because it involves the application process.
The evidence the trial court considered regarding the economic impact buttressed
earlier testimony before the PLCB during the administrative proceeding, and the
determination by the Borough that the ED License would benefit the community.
The evidence did not concern events that transpired after the hearing as in Allison.
Significantly, a trial court is not limited to the record created before the
PLCB, and may accept additional evidence. Irem Temple AAONMS. The trial
court accepted additional evidence documenting revenue and expenses, as well as
economic projections of the impact on the Borough.
The regulation does not require monetary estimates of the economic
impact on the community. Resolution 12-2015 memorializes the Borough’s
estimation that issuing the ED License to Licensee would economically benefit the
community.
10
The PLCB also contends the trial court’s determination that Licensee
met the exhaustion requirement is not supported by substantial evidence because
Agent’s testimony about his efforts was vague and undocumented. We disagree.
Unlike the PLCB, the trial court credited Agent’s testimony regarding
his numerous telephone calls and more than 100 form letters sent to existing
licensees inquiring about the availability of their licenses for sale. Specifically,
Agent testified as to his personal knowledge of the Borough non-ED licenses kept
in safekeeping,9 and that the licenses were not available for sale. Based on Agent’s
testimony, the trial court found that non-ED licenses in safekeeping were not
available for sale. Tr. Ct., Slip Op., 11/16/17, F.F. No. 5. In these unique
circumstances, an offer was unnecessary as Agent, who placed two licenses in
safekeeping, knew the licenses were not available for sale to Licensee regardless of
price.
Agent also testified as to the going rate for such licenses based on his
experience as a liquor license attorney. He advised Licensee of the approximate cost
of licenses in the Borough and outside the Borough. Indeed, the PLCB found that
licenses in the Borough cost an average of $500,000, and this finding is undisputed.
F.F. No. 7. Agent also contacted a liquor license company regarding availability of
licenses for sale. Because Agent received no replies to his inquiries of interest as to
licenses for sale outside the Borough, there was no reason to specify the price
Licensee was willing to offer. F.F. No. 9. The trial court determined these efforts
met the exhaustion of reasonable means criterion.
9
Licenses in safekeeping are held for the benefit of the licensees that cease operations for
15 consecutive days or more, and are available when operations resume. See 40 Pa. Code §7.31.
11
The regulation does not require written documentation of the efforts an
applicant or its agent undertook in assessing availability of licenses for sale, or
approximate fees charged for such licenses. It requires evidence. Agent’s credited
testimony, supported by the admission of his form letter to licensees inquiring as to
availability of licenses for sale, is sufficient evidence here. R.R. at 89a, 188a-99a.
3. Evidence of Adverse Effects
Next, we consider whether the trial court erred in determining the
record lacked evidence to prove that the granting of the ED License would adversely
affect the health, welfare, peace and morals of the community. The PLCB contends
the trial court erred because it placed the burden of proof on the PLCB.
However, the PLCB’s license refusal grounds must be supported by
substantial evidence. “Substantial evidence is such relevant evidence as a reasonable
mind might accept as adequate to support a conclusion.” In re License Renewal
Application of Quippan Club License #C-4110 LID #1889, 806 A.2d 491, 495 n.5
(Pa. Cmwlth. 2002).
Here, the record is devoid of any evidence as to alleged adverse effects
on the community. As a consequence, that basis for refusing the ED License was
unsupported, and the trial court was correct in rejecting it. See, e.g., VRAJ, Inc. v.
Pa. Liquor Control Bd. (Pa. Cmwlth., No. 2592 C.D. 2015, filed November 30,
2016), 2016 WL 6994969 (unreported) (reversing trial court because substantial
evidence did not establish adverse effects on community); In re 23rd St., Inc., 517
A.2d 581 (Pa. Cmwlth. 1986) (same).
12
Further, the PLCB did not make any findings as to the adverse effects
issuing an ED License to iPasta would have on the community. Instead, the PLCB
assumed an adverse effect because the makeup of the neighborhood is 50%
residential, and it is already served by five other licensees in the area. However, the
mere presence of a licensee “is not ordinarily detrimental to the welfare, health and
morals of the inhabitants of the neighborhood.” 23rd St., 517 A.2d at 582.
The PLCB argues the trial court nonetheless erred in granting the ED
License because the location of the Premises within 200 feet of other licensed
premises is alone sufficient grounds to refuse the license. However, as discussed
above, this proximity does not require refusal of a license. Chadds Ford Tavern.
Additionally, the PLCB’s regulations authorize the Borough to
determine the economic impact on the community at the outset. See 40 Pa. Code
§3.101(a)(3) (issuance of a license when municipality approved issuance for the
purpose of local economic development). Section 3.102 requires a municipality to
refuse a request for an ED license when approval “would adversely affect the
welfare, health, peace and morals of the municipality or its residents.” 40 Pa. Code
§3.102(b)(3). Here, the Borough Council held a hearing, after which it approved the
ED License by Resolution. Contrary to the PLCB’s contentions, this indicates that
there is no adverse effect upon the Borough.
In sum, based on the administrative record and the de novo trial, the
trial court found that Licensee met the “reasonable efforts” criterion. 40 Pa. Code
§3.105(e). It also found the record contained no evidence to support a denial based
13
on adverse effects on the community. Despite the proximity to other licensees, the
trial court exercised its discretion to grant the ED License.
C. Waiver/Economic Hardship
The PLCB maintains the trial court erred as a matter of law in failing
to defer to its narrow construction of the ED exception to the quota system. The
PLCB contends that its construction was squarely before the trial court, and the trial
court erred in rejecting that construction when it is entitled to administrative
deference as to its construction of the Liquor Code and the regulations thereunder.
It also asserts the economic hardship argument was sufficiently developed in the
administrative and trial court proceedings to enable appellate review. As a result,
the PLCB argues the trial court’s determination that it waived this argument must be
rejected, and its license denial must be reinstated.
Section 703(a) of the Administrative Agency Law states that a party
“may not raise upon appeal any other question not raised before the agency.” 2 Pa.
C.S. §703(a). Similarly, Pennsylvania Rule of Appellate Procedure 1551(a) states
that “[n]o question shall be heard or considered by the court which was not raised
before the government unit.” Pa. R.A.P. 1551(a). Accordingly, an issue not raised
before the PLCB will not be considered by this Court on appeal.
Relevant here, before filing its Rule 1925(b) Statement, the PLCB did
not use the term “economic hardship” in reference to the ED exception in this matter.
P.S. Hysong v. Lewicki, 931 A.2d 63 (Pa. Cmwlth. 2007) (issues not raised in post-
trial motions shall not be considered). The term does not appear in the Liquor Code
14
or in the regulation outlining the criteria for an ED license, 40 Pa. Code §3.105.
Further, there is no indication on the record that the PLCB was applying an “economic
hardship” criterion to ED licensees generally or to Licensee. Also, the PLCB’s
opinion makes no reference to the term “economic hardship.” See R.R. at 15a-42a.
This appears to be a new criterion developed by the PLCB after the de
novo trial and the trial court’s adverse decision. As a result, this argument is waived.
New Oxford Social & Athletic Club v. Pa. State Police, Bureau of Liquor Control
Enforcement, 151 A.3d 286, 290 (Pa. Cmwlth. 2016) (“[T]he trial court’s review is
de novo, but only as to those issues properly preserved by appeal.”); Manayunk Dev.
Corp. v. Pa. Liquor Control Bd., 699 A.2d 1373 (Pa. Cmwlth. 1997).
Regardless of waiver, this Court is unpersuaded that the PLCB may
engraft an “economic hardship” criterion onto the Liquor Code or its regulations. This
limitation amounts to a new requirement, not a construction of existing terms. As
such, the PLCB may not impose it on licensees or prospective licensees without notice
to enable prospective licensees to meet this criterion. Moreover, there is evidence that
the PLCB granted an ED license to a café located near iPasta just seven months before.
R.R. at 199a; 256a-57a. Agent shepherded that licensee through the process as well.
Thus, the PLCB did not apply the same criteria to other licensees.
III. Conclusion
For the foregoing reasons, we affirm the trial court’s order.
ROBERT SIMPSON, Judge
15
IN THE COMMONWEALTH COURT OF PENNSYLVANIA
Domusimplicis, LLC :
:
v. : No. 1930 C.D. 2017
:
Pennsylvania Liquor Control Board, :
Appellant :
ORDER
AND NOW, this 14th day of January, 2019, the order of the Court of
Common Pleas of Chester County is AFFIRMED.
ROBERT SIMPSON, Judge