I Gotcha, Inc., D/B/A Illusions v. Texas Alcoholic Beverage Commission ( 2008 )

COURT OF APPEALS
SECOND DISTRICT OF TEXAS
FORT WORTH
NO. 2-07-150-CV
I GOTCHA, INC., APPELLANT
D/B/A ILLUSIONS
V.
TEXAS ALCOHOLIC APPELLEE
BEVERAGE COMMISSION
------------
FROM THE 342ND DISTRICT COURT OF TARRANT COUNTY
------------
MEMORANDUM OPINION 1
------------
I. Introduction
In two issues, appellant I Gotcha, Inc. d/b/a Illusions (Illusions) appeals
from the trial court’s final judgment affirming appellee Texas Alcoholic Beverage
Commission’s (TABC) imposition of a $13,500 civil penalty for violations of the
Texas Alcoholic Beverage Code (the “Code”). We affirm.
1
… T EX. R. A PP. P. 47.4.
II. Background
Illusions, a topless bar in Fort Worth, is the holder of a mixed beverage
permit and a mixed beverage late hours permit issued by TABC. These permits
were originally issued by TABC on December 16, 1983, and have been
continually renewed.
On February 12, 2005, Taquisha Lawson was working as a dancer at
Illusions under the stage name “Sassy.” On that date, at about 9:00 p.m.,
TABC agents Brian Miers and Ralph May entered the premises in an undercover
capacity and sat at a table in an open area of the club near the stage.
While seated, Miers and May were approached by Lawson, who joined
them at the table and inquired as to why Miers and May were at Illusions that
night. Miers responded that they were “looking for some kind of an after
party.” Lawson and Miers then engaged in a conversation wherein Lawson told
Miers that she was getting off work at 2:00 a.m, Miers told Lawson that he
and May had a hotel room in town, and Miers invited Lawson to their hotel
room after she got off work. Lawson told Miers it would cost him $400 an
hour for both Miers and May, but that she would “give them all the . . . they
could handle.” 2 In Lawson’s presence, Miers leaned over to May and relayed
2
… In order not to offend the reader, we have left out the explicit
language Lawson allegedly used.
2
the details of the conversation; all three nodded their heads in agreement.
Thereafter, Miers told Lawson that he and May were leaving to meet up with
some friends, but that someone would be back to pick her up. Lawson told the
agents that if they did not return to pick her up, they “would miss out on one
good [thing].”
Immediately thereafter, Miers and May left Illusions and contacted their
arrest team. Miers detailed the evidence supporting a prostitution charge
against Lawson and provided a description of Lawson’s appearance, including
skin color, hair style, clothing, and identifying jewelry. The arrest team entered
Illusions, obtained a digital photograph of Lawson, and returned to Miers to
confirm through picture identification that they had located the right individual.
The arrest team then arrested Lawson for solicitation.
On December 15, 2005, the TABC issued Illusions a notice of hearing
charging,
The place or manner in which [Illusions] conducts its business
warrants the cancellation or suspension of the permit and/or license
based on the general welfare, health, peace, morals and safety of
the people and on the public sense of decency in violation of
§§ 11.61(b)(7) and/or 61.71(a)(17) [of the Code].
The notice alleged that
On or about February 12, 2005, [Illusions] and/or its agent, servant,
employee, Taquisha Lawson, and/or some other person, on the
licensed premises, offered to engage or agreed to engage in sexual
3
conduct for a fee in violation of § 43.02(a)(1) of the Texas Penal
Code and/or § 104.01(7) of the Texas Alcoholic Beverage Code
and/or § 35.31(a)(b)(1)(c)(12) of the Texas Alcoholic Beverage
Commission Rules.
On May 8, 2006, an administrative law judge at the State Office of
Administrative Hearings (the “ALJ”) held a hearing at which Miers and Illusions’s
owner, Walt Duncan, testified. Lawson was not cited and did not appear at the
hearing. Documentary evidence of Illusions’s Code violation history and its
independent investigation into the incident was introduced.
Approximately two months later, on July 10, 2006, the ALJ issued a
proposal for decision, concluding in relevant part that “[Illusions’s] employee, on
the licensed premises, offered and agreed to engage in sexual conduct for a fee,
in violation of [sections 11.61(b)(7) and 104.01(7) of the Code].” The ALJ
recommended a sixty day suspension of Illusions’s permits or, in lieu of
suspension, a $13,500 civil penalty. Subsequently, on October 30, 2006,
TABC issued a final order adopting the ALJ’s July 10, 2006 proposal and
ordered Illusions’s permits suspended for a period of sixty days beginning on
January 3, 2007, unless Illusions paid a $13,500 civil penalty to TABC on or
before 12:01 a.m. on December 27, 2006.
Thereafter, Illusions filed all necessary notices and requests for
reconsideration and a petition for judicial review. [AE x] The trial court
4
conducted a hearing on Illusions’s petition for review and on April 5, 2007,
signed an order affirming TABC’s October 30, 2006 final order. This appeal
followed.
III. Standard of Review
We review an administrative ruling of the TABC under the substantial
evidence rule.3 Generally speaking, a court reviewing an administrative action
under the substantial evidence rule is only concerned with the reasonableness
of the administrative order, not with its correctness.4 An administrative decision
is reasonably supported by substantial evidence if the evidence as a whole is
such that reasonable minds could have reached the same conclusion that the
agency reached. 5 The rule is designed to discourage courts from administering
regulatory statutes enacted by the legislature.6
3
… See T EX. A LCO. B EV. C ODE A NN. § 11.67(b)(Vernon 2007); T EX. G OV’T
C ODE A NN § 2001.175 (Vernon 2000); see also Tex. Alcoholic Beverage
Comm’n v. Wishnow, 704 S.W.2d 425, 427 (Tex. App.—Houston [14 th Dist.]
1985, no writ).
4
… See Tex. Health Facilities Comm’n v. Charter Med.-Dallas, Inc., 665
S.W.2d 446, 452 (Tex. 1984)(citing Gerst v. Nixon, 411 S.W.2d 350, 354
(Tex. 1966)); Cent. Power & Light v. Public Util. Comm’n, 36 S.W.3d 547, 561
(Tex. App.—Austin 2000, pet. denied).
5
… Tex. State Bd. of Med. Examiners v. Birenbaum, 891 S.W.2d 333,
337 (Tex. Civ. App.—Austin 1995, writ denied).
6
… Lewis v. Metropolitan S. & L. Ass’n, 550 S.W.2d 11, 13 (Tex. 1977).
5
A court may not invade the fact finding authority of an administrative
agency.7 Nor may a court substitute its judgment for the agency’s on the
weight of the evidence on questions committed to agency discretion.8 A
reviewing court may only determine whether the contested order is reasonably
supported by substantial evidence. 9
An agency’s action will be sustained if the evidence is such that
reasonable minds could have reached the conclusion the agency must have
reached in order to justify its action. 10
An agency’s findings and conclusions are presumed to be supported by
substantial evidence, and the burden is on the opponent to prove otherwise by
showing that no substantial evidence existed at the time of the hearing to
support the order.11 Finally, we must uphold the agency’s decision even if the
evidence actually preponderates against the agency’s finding so long as enough
7
… State Banking Bd. v. Allied Bank Marble Falls, 748 S.W.2d 447, 448
(Tex. 1988).
8
… See T EX. G OV’T C ODE A NN. § 2001.174 (Vernon 2000); see also Auto
Convoy Co. v. R.R. Comm’n of Tex., 507 S.W.2d 718, 722 (Tex. 1974).
9
… Auto Convoy Co., 507 S.W.2d at 722.
10
… Suburban Util. Corp. v. Pub. Util. Comm’n of Tex., 652 S.W.2d 358,
364 (Tex. 1983).
11
… Imperial Am. Res. Fund v. R.R. Comm’n of Tex., 557 S.W.2d 280,
286 (Tex. 1977).
6
evidence suggests the agency’s determination was within the bounds of
reasonableness.12
IV. Substantial Evidence
In its first issue, Illusions asserts that the trial court erred in sustaining the
ALJ’s finding that Illusions violated sections 11.61(b)(7) and 104.01(7) of the
Code. Specifically, Illusions contends that there was no substantial evidence to
support a finding that Lawson was an employee of Illusions, that Lawson
solicited Miers and May, or that the place or manner in which Illusions conducts
its business warranted suspension of its permits.
In order to prevail on its complaint, TABC had to establish by substantial
evidence that Illusions violated sections 11.61(b)(7) and 104.01(7) of the Code.
Those sections provide as follows:
§ 11.61. Cancellation or Suspension of Permit
....
(b) The commission or administrator may suspend for not
more than 60 days or cancel an original or renewal permit if
it is found, after notice and hearing, that any of the following
is true:
....
12
… Gerst v. Goldsbury, 434 S.W.2d 665, 667 (Tex. 1968); see also Sw.
Pub. Serv. v. Pub. Util. Comm’n of Tex., 962 S.W.2d 207, 215 (Tex.
App.—Austin 1998, pet. denied).
7
(7) the place or manner in which the permittee
conducts his business warrants the cancellation
or suspension of the permit based on the general
welfare, health, peace, morals, and safety of the
people and on the public sense of decency. 13
§ 104.01. Lewd, Immoral, Indecent Conduct
No person authorized to sell beer at retail, nor his agent,
servant, or employee, may engage in or permit conduct on the
premises of the retailer which is lewd, immoral, or offensive
to public decency, including, but not limited to, any of the
following acts:
...
(7) permitting solicitations of persons for immoral
or sexual purposes. 14
A. “Employee”
Illusions contends that the substantial evidence does not support a finding
that Lawson was an employee of Illusions. Illusions asserts that Lawson was
an independent contractor.
The primary distinction between an independent contractor and an
employee is that the independent contractor merely agrees to accomplish
results, whereas an employee yields control over his or her time and physical
13
… T EX. A LCO. B EV. C ODE A NN. § 11.61(b)(7) (Vernon 2007).
14
… Id. at § 104.01(7) (Vernon 2007).
8
activities to the employer. 15 The term “employee” is not defined in the Code.
Therefore, we apply its ordinary meaning in our analysis.16
Employees are ordinarily defined as a person in the service of another
under a contract of hire, express or implied, oral or written, whereby the
employer has the right to direct the means or details of the work and not merely
the result to be accomplished.17 While the employer’s “control” is the most
important feature of an employment relationship, Texas courts have found
several related factors to be helpful in distinguishing employees from
independent contractors, including (1) the independent nature of the worker’s
business; (2) the worker’s obligation to furnish necessary tools, supplies and
material; (3) the hiring party’s right to control the progress of the work; (4) the
length in time of the employment; and (5) the method of payment. 18
15
… 41 Am. Jur. 2d INDEPENDENT C ONTRACTORS §§ 1–23 (2008).
16
… See T EX. G OV’T C ODE A NN. § 312.002 (Vernon 2005).
17
… See Thompson v. Travelers Indem. Co., 789 S.W.2d 277, 279 (Tex.
1990); Farrell v. Greater Houston Transp. Co., 908 S.W.2d 1, 3 (Tex.
App.—Houston [1 st Dist.] 1995, writ denied); Travelers Ins. Co. v. Ray, 262
S.W.2d 801, 803 (Tex. Civ. App.—Eastland 1953, writ ref’d).
18
… Ross v. Tex. One P’ship, 796 S.W.2d 206, 210 (Tex. App.—Dallas
1990, no writ); Sherard v. Smith, 778 S.W.2d 546, 548 (Tex. App.—Corpus
Christi 1989, writ denied); Wasson v. Stracener, 786 S.W.2d 414, 420 (Tex.
App.—Texarkana 1990, writ denied).
9
At the hearing before the ALJ, the parties introduced the following
evidence: (1) dancers at Illusions must fill out paperwork and provide Illusions
with, among other things, their name, stage name, address, telephone number,
and social security number; (2) dancers are given a “rule book” that they must
read and sign; (3) dancers are briefed by Illusions’s management as to the club
rules that they are expected to follow; (4) Illusions does not provide weekly
work schedules—the dancers just “show up”; (5) some of the dancers are
transient and not around very long; (6) Illusions may “swap” dancers among its
clubs on any given night to ensure that there are enough dancers at each club;
(7) dancers sign in on a door sheet; (8) dancers are required to pay a $10 stage
fee each night they perform; (9) dancers request music from the disc jockey;
(10) Illusions directs how the dancers rotate around the stage and how many
songs the dancers perform at each pole on the stage; (11) Illusions’s “house
mom” provides assistance with hair and makeup, snacks, and clothing as
needed, and she guards the dancers’ money when they are not around; (12) the
only compensation dancers receive from Illusions is a commission for drinks sold
at the club, and their compensation is primarily derived from tips they receive
from customers; and (13) Illusions does not file tax statements on the dancers.
Reviewing this evidence in light of the factors listed above, we conclude
that there is substantial evidence to support the ALJ’s conclusion that Illusions
10
exercised sufficient control over Lawson’s dancing activities to make her an
employee of Illusions on the night in question.19
B. Interested Witness Testimony
Illusions further contends that the ALJ’s ruling is not supported by
substantial evidence because the only evidence that Lawson solicited Miers and
May is testimony from an interested witness. In order for the testimony of an
interested witness to establish a fact, as a matter of law, it must be “clear,
direct and positive,” with “no circumstances in evidence tending to discredit or
impeach such testimony.” 20
19
… See Vela v. State, 776 S.W.2d 721, 724–25 (Tex. App.—Corpus
Christi 1989, no pet.)(holding dancer was employee when dancer worked
nights, entered club through dressing room, and danced on stage several times);
Bruce v. State, 743 S.W.2d 314, 315–16 (Tex. App.—Houston [14 th Dist.]
1987, no pet.)(holding dancer employee when dancer filled out application and
had to get permission before performing, club’s disc jockey called dancer to
stage to perform, club provided dressing room closed off from club patrons, and
dancer received a commission from drinks sold at club); but cf. Reich v. Circle
C. Inv., Inc., 998 F.2d 324, 327 (5 th Cir. 1993)(focusing on the “economic
reality” and considering the degree of control exercised by the club, the extent
of the relative investments, the degree to which the dancer’s opportunity for
profit or loss was determined by the club, the skill and initiative required in
performing the job, and the permanency of the relationship).
20
… Swilley v. Hughes, 488 S.W.2d 64, 67 (Tex. 1972); see also Great
Am. Reserve Ins. Co. v. San Antonio Plumbing Supply Co., 391 S.W.2d 41, 47
(Tex. 1965); Cochran v. Wool Growers Cent. Storage Co., 140 Tex. 184, 191,
166 S.W.2d 904, 908 (Tex. 1942).
11
Meirs was the only witness to testify concerning the events forming the
basis of TABC’s complaint. He testified that Lawson voluntarily approached him
and May, talked directly to him, agreed to go to a hotel room with him and May
when she got off work at 2:00 a.m., and told him it would cost $400 an hour
for both him and May, that she would “give them all the . . . they could handle,”
and, that if they did not come back to get her, they “would miss out on one
good [thing].” Meirs further testified that he related this information to May in
Lawson’s presence and that the three of them nodded their heads in agreement.
In a contested case hearing, the administrative law judge, as the finder of
fact, is the sole judge of the witness’s credibility and is free to accept or reject
the testimony of any witness or even accept “part of the testimony of one
witness and disregard the remainder.”21 A reviewing court is not permitted to
substitute its judgment for the administrative law judge’s regarding the
credibility of witnesses and must resolve evidentiary ambiguities in favor of the
administrative order with a finding of substantial evidence to support the
administrative law judge’s decision.22
21
… S. Union Gas Co. v. R.R. Comm’n of Tex., 692 S.W.2d 137, 141–42
(Tex. App.—Austin 1985, writ ref’d n.r.e).
22
… Ford Motor Co., v. Tex. Dep’t of Transp., 936 S.W.2d 427, 429–30
(Tex. App.—Austin 1996, no writ).
12
Upon conducting a thorough review of the record, we find no evidence
tending to discredit Miers’s testimony concerning the events that took place
between Miers and May, and Lawson inside Illusions on the night of February
12, 2005. Miers’s testimony is clear, direct, and positive. Accordingly, the ALJ
could properly consider Miers’s testimony in finding that Lawson had solicited
Miers and May for sexual purposes.23
C. Place or Manner Violations
Illusions also contends that the one incident on which TABC’s claim is
based is insufficient to support a finding that the place or manner in which
Illusions operates its business jeopardizes the people’s general welfare, health,
peace, morals, or sense of public decency.24
Whether a permittee conducts its business so as to jeopardize the people’s
general welfare, health, peace, morals or sense of public decency cannot be
23
… See Great Am. Reserve, 391 S.W.2d at 47; Cochran, 166 S.W.2d at
908; see also Swilley, 488 S.W.2d at 67.
24
… Illusions asserts without argument or authority that sworn testimony
of a pattern must be established to support a place or manner violation. We
have found no authority—statutory, case law, or otherwise— requiring that a
pattern be established to support a place or manner violation. But see Tex.
Alcoholic Beverage Comm’n v. I Gotcha Inc., 2006 WL 2095449, at * 2, 4
(Tex. App.— Amarillo July 28, 2006, pet. denied)(memo op.)(finding substantial
evidence to support ALJ’s findings and conclusions of a “pattern of
inappropriate conduct”).
13
determined by a set formula.25 The agency has great discretion in making this
determination, and we will not disturb it unless it is apparent that the agency
acted arbitrarily and unreasonably.26 We will uphold this conclusion of law if it
is supported by substantial evidence. 27
The substantial evidence shows that Lawson did solicit Miers and May for
sexual purposes in violation of sections 11.61(b)(7) and 104.01(7) of the
Code. 28 In addition, TABC introduced Illusions’s permit violation history that
demonstrated that Illusions had been cited four previous times for Code
violations. 29
25
… Four Stars Food Mart, Inc. v. Tex. Alcoholic Beverage Comm’n, 923
S.W.2d 266, 272 (Tex. App.—Fort Worth 1996, no writ); Ex parte Velasco,
225 S.W.2d 921, 923 (Tex. Civ. App.—Eastland 1949, no writ).
26
… Four Stars, 923 S.W.2d at 272; Velasco, 225 S.W.2d at 923.
27
… Four Stars, 923 S.W.2d at 272.
28
… See supra Part IV. B.
29
… One of the violations concerned a breach of the peace contrary to
Code sections 28.11 and 11.61(b)(2). The trial court reversed this violation
because it was not supported by substantial evidence. The charge in that
matter did not charge the club with a violation, but only the dancers involved.
The record does not reveal the nature of the remaining three violations. At the
time of the hearing, Illusions had accepted and paid the civil penalty on one, the
trial court had remanded one to TABC for further consideration, and one was
on appeal.
14
Applying the requisite deferential standard, we cannot say that the ALJ’s
conclusion that the place or manner in which Illusions conducted its business
was contrary to the people’s general welfare, health, peace, morals, safety and
sense of public decency was unreasonable.
Having concluded that there is substantial evidence to support the ALJ’s
finding that Illusions violated sections 11.61(b)(7) and 104.01(7) of the Code,
we overrule Illusions’s first issue.
V. Section 11.64(b)
Illusions next asserts that by imposing a civil penalty pursuant to section
11.64, the ALJ should have considered mitigating factors and applied section
11.64(b) of the Code to “relax” the penalty assessed.30
In determining the amount of a penalty assessed in lieu of suspension or
cancellation of a permit, the agency must consider the type of permit held, the
type of violation, any aggravating or ameliorating circumstances concerning the
violation, including those enumerated by statute, and the permittee’s previous
30
… See T EX. A LCO. B EV. C ODE § 11.64(b) (Vernon 2007) (providing that
under certain statutory circumstances set forth therein, there is discretion to
“relax any provision of the code relating to the suspension or cancellation of the
permit or license” and assess a just sanction, or reinstate the permit or license
during the suspension period upon payment of a fee of “not less than $75 nor
more than $500”).
15
violations. 31 The penalty cannot be based on the volume of alcoholic beverages
sold, the business receipts, taxes paid, or the financial condition of the
permittee.32 The penalty cannot be less than $150 or more than $25,000 for
each day the permit was to have been suspended. 33 An agency has broad
discretion in determining which sanction best serves the statutory policies
committed to the agency’s oversight.34 An agency’s decision in determining the
appropriate penalty will not be reversed unless an abuse of discretion is
shown. 35
Section 11.64(b) provides that the agency may relax any provision of the
Code relating to suspension of the permit if an employee of the permittee
violated the Code without the knowledge of the permittee, the permittee did not
31
… See id. § 11.641(a), (c) (Vernon 2007).
32
… Id. § 11.641(b).
33
… T EX. A LCO. B EV. C ODE A NN. § 11.64(a).
34
… Fay-Ray Corp. v. Tex. Alcoholic Beverage Comm’n, 959 S.W.2d 362,
369 (Tex. App.—Austin 1998, no pet.).
35
… Id.
16
knowingly violate the Code, or the violation could not reasonably have been
prevented.36 However, this provision is discretionary. 37
The penalty imposed by the ALJ was within the statutory guidelines. The
ALJ did not abuse her discretion in refusing to relax the penalty under section
11.64(b) of the Code. We overrule Illusions’s second issue.
VI. Conclusion
Having overruled Illusions’s two issues on appeal, we affirm the trial
court’s judgment affirming the TABC’s October 30, 2006 final order.
PER CURIAM
PANEL A: CAYCE, C.J.; HOLMAN and WALKER, JJ.
DELIVERED: July 31, 2008
36
… T EX. A LCO. B EV. C ODE § 11.64 (b)-(c).
37
… Allen-Burch, Inc. v. Tex. Alcoholic Beverage Comm’n, 104 S.W .3d
345, 352 (Tex. App.—Dallas 2003, no pet.) (recognizing provision
discretionary); Tex. Alcoholic Beverage Comm’n v. Top of the Strip, Inc., 993
S.W.2d 242, 252 (Tex. App.—Austin 1998, pet. denied)(“The operative phrase
is may relax the provisions of the code.”)(emphasis in original).
17