Osburn v. Va. Dep't of Alcoholic Beverage Control , 295 Va. 10 ( 2018 )

PRESENT: All the Justices
NATHAN OSBURN
OPINION BY
v. Record No. 161777 CHIEF JUSTICE DONALD W. LEMONS
February 22, 2018
VIRGINIA DEPARTMENT OF ALCOHOLIC BEVERAGE CONTROL
FROM THE COURT OF APPEALS OF VIRGINIA
In this appeal from a state employee grievance proceeding, we consider whether a
hearing officer’s decision upholding the termination of a special agent with the Virginia
Department of Alcoholic Beverage Control (“ABC”) was contrary to law.
I. Facts and Proceedings
Linda K. Swim (“Swim”) submitted an application to ABC requesting a retail alcohol
license for a restaurant known as the Bent Mountain Bistro (“Bistro”). ABC special agent David
C. Scott (“Scott”) was assigned to review and investigate the application, and special agent
Nathan L. Osburn (“Osburn”) assisted Scott.
Upon review of the application, Scott and Osburn developed questions regarding
ownership of the Bistro. Although the application stated that Swim was the sole owner, Scott
and Osburn were concerned that a man named Benjamin Ward (“Ward”) was an undisclosed co-
owner. This concern merited further investigation because, if true, Ward’s undisclosed
ownership was a potential ground for ABC to deny the pending application. *
Scott scheduled a meeting with Swim and a site visit of the Bistro for August 9, 2013. At
that time, ABC’s Operations Manual 03 (“operations manual”) instructed ABC agents to
*
Pursuant to Code § 4.1-222, “[ABC] may refuse to grant any license if it has reasonable
cause to believe that . . . [any] shareholder owning 10 percent or more of [a corporate
applicant’s] capital stock . . . [h]as misrepresented a material fact in applying to [ABC] for a
license.” Code § 4.1-222(A)(1)(l).
“conduct a site visit to ensure sufficient inventory of qualifying items” before issuing a license.
Va. Dep’t of Alcoholic Beverage Control, Operations Manual 03, § III(A)(19)(2009).
When they arrived for the scheduled site visit, Scott and Osburn entered the Bistro
through the front door. Scott then remained in the dining area and spoke with Swim while
Osburn proceeded to the kitchen. There, Osburn conducted an inspection to ensure that the
Bistro was a functional and fully stocked restaurant, as required by ABC regulations.
After inspecting the kitchen, Osburn walked through an open door into a business office
in the back of the Bistro. Once inside, Osburn searched the office. He opened desk drawers and
a filing cabinet, and photographed various documents uncovered in the process. One of those
documents indicated that Ward was the owner of the Bistro. Osburn did not ask for permission
to enter the office, and he did not encounter anyone while conducting his search.
Swim’s application was not approved and, in October 2013, she sent complaints to the
Office of the Governor and various members of the General Assembly. Swim’s complaints
asserted that Osburn and Scott engaged in “professional misconduct” during the site visit.
Among other things, Swim alleged that Osburn “rummage[ed] through [her] business records
with deliberate indifference to [her] rights” and “seiz[ed] evidence in violation of [her Fourth
Amendment] rights.”
ABC conducted an internal investigation and, on April 3, 2014, issued a “Group III”
Written Notice (“Notice”) terminating Osburn’s employment. The Notice stated that Osburn’s
conduct during the site visit was “contrary to general order/policy” and “constitute[d] an
egregious violation of [Swim’s] Fourth Amendment [rights].”
Osburn filed a grievance challenging his termination and, pursuant to Code § 2.2-3000 et
seq., requested a hearing before a hearing officer appointed by the Virginia Department of
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Human Resources Management (“DHRM”). A two-day hearing ensued, where Osburn argued
that the office search was permissible under the highly regulated industry exception to the
warrant requirement because it was authorized by Code § 4.1-204(F), which states that ABC
agents “shall be allowed free access” to certain places within the Commonwealth. Alternatively,
Osburn argued that he had consent, express or implied, to conduct the search.
During the hearing, ABC countered that “[Osburn’s] entry into the office as part of an
applicant investigation . . . [was] not covered under the general inspection provisions as it would
be for a [licensee].” ABC asserted that “a site visit of [an applicant] . . . has never risen to the
level of an inspection of a licensed premise for which there is statutory and regulatory authority.”
In addition, ABC presented testimony that “it has not instructed, trained, or permitted its agents
to conduct warrantless, non-consensual searches of license applicants or their facilities.”
After considering the arguments and evidence, the hearing officer upheld Osburn’s
termination. The hearing officer determined that the warrantless search was not permissible
under the highly regulated industry exception because “[t]here is no statutory or regulatory
provision that an applicant automatically forfeits [F]ourth [A]mendment rights by merely
applying for a license.” In addition, the hearing officer found that there was “insufficient
evidence that [Swim] or anyone else gave consent, expressed or implied, [for] [Osburn’s] search
of the office.” Accordingly, the hearing officer concluded that “termination was warranted and
appropriate under the circumstances” because Osburn’s “failure to follow instructions and/or
policy” during the site visit resulted in the violation of Swim’s constitutional rights.
Osburn appealed the hearing officer’s decision to both DHRM and the Department of
Employee Dispute Resolution (“EDR”). EDR initially remanded the case to the hearing officer
for consideration of mitigating factors, but the hearing officer once again upheld Osburn’s
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termination. Osburn then appealed that decision to DHRM and EDR, but neither department
disturbed the hearing officer’s second determination.
Osburn filed an appeal in the Circuit Court for the City of Roanoke (“circuit court”),
arguing that the hearing officer’s determination that he violated the Fourth Amendment was
contrary to law. Osburn maintained that the office search was permissible under the highly
regulated industry exception because the search was authorized by Code § 4.1-204(F). The
circuit court rejected Osburn’s argument and held that Code § 4.1-204(F) only authorizes ABC
agents to inspect the premises of licensed businesses, and not applicants.
Osburn appealed the circuit court’s judgment to the Court of Appeals, again arguing that
he did not violate the Fourth Amendment because the office search was authorized by
Code § 4.1-204(F). ABC responded, consistent with the circuit court’s ruling, that the search
was unlawful because Code § 4.1-204(F) only authorizes ABC agents to inspect the premises of
licensees. The Court of Appeals rejected both arguments, holding:
Contrary to the arguments of both Osburn and ABC, Code § 4.1-
204(F) does not provide ABC agents with “free access” at all, but
rather the statute places the burden on both licensees and
applicants for a license to provide such access. The statute states
that ABC “agents shall be allowed free access,” indicating that it is
the applicant or licensee who must allow the agent access, not the
other way around. Therefore, in order to obtain or retain an ABC
license, [Code § 4.1-204(F)] directs a license applicant to allow
ABC agents “free access” to his or her premises, essentially
requiring a case-by-case waiver of his or her Fourth Amendment
rights in order to become licensed or to retain a license.
Osburn v. Virginia Dept. of Alcoholic Bev. Contr., 67 Va. App. 1, 13, 792 S.E.2d 276, 282
(2016) (emphasis in original). Based on this interpretation, the Court of Appeals held that the
statute applies to applicants as well as licensees and that Osburn’s search of the Bistro office did
not fall within the highly regulated industry exception because the evidence supported the
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hearing officer’s finding that he lacked consent. Id. at 15-18, 792 S.E. 2d at 283-85.
Accordingly, the Court of Appeals affirmed the circuit court’s determination that Osburn
violated the Fourth Amendment. Id. at 20, 792 S.E.2d at 286.
Osburn appealed to this Court, and we awarded an appeal on the following assignment of
error:
The Court of Appeals erred by affirming the trial court’s ruling
upholding Nathan Osburn’s termination from employment with
Defendant Virginia Department of Alcoholic Beverage Control
(“ABC”) on the ground that Osburn’s conduct as an ABC special
agent violated the Fourth Amendment.
a. The Court of Appeals misinterpreted the controlling statute,
Virginia Code § 4.1-204(F).
b. Under the Court of Appeals’ interpretation of Virginia
Code § 4.1-204(F), ABC applicants and licensees would have
the same status. ABC conceded to the hearing officer and in
the trial court that if licensees and applicants had the same
status under the statute, then Osburn’s conduct did not violate
the Fourth Amendment.
c. The Court of Appeals erroneously held that Osburn’s conduct
did not fall within the “highly regulated industry” exception to
the Fourth Amendment’s warrant requirement.
II. Analysis
A. Standard of Review
On appeal from a state employee grievance decision, courts are bound by the factual
findings of the hearing officer and may only reverse or modify the decision if it is “contradictory
to law.” Virginia Polytechnic Inst. & State Univ. v. Quesenberry, 277 Va. 420, 429, 674 S.E.2d
854, 858 (2009). “The appealing party must ‘identify [a] constitutional provision, statute,
regulation or judicial decision which the [hearing officer’s] decision contradicted.’” Id. (quoting
Tatum v. Virginia Dept. of Agric., 41 Va. App. 110, 122, 582 S.E.2d 452, 458 (2003)).
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Questions regarding whether a decision is contradictory to law, including the meaning of any
underlying statutes, are reviewed de novo. See id.; REVI, LLC v. Chicago Title Ins. Co., 290 Va.
203, 208, 776 S.E.2d 808, 810 (2015).
B. The Highly Regulated Industry Exception
“[T]he Fourth Amendment’s prohibition on unreasonable searches and seizures is
applicable to commercial premises, as well as to private homes.” New York v. Burger, 482 U.S.
691, 699 (1987). Warrantless searches, in either context, are presumptively unreasonable. City
of L.A. v. Patel, 135 S. Ct. 2443, 2452 (2015). There is an exception, however, for warrantless
inspections of businesses engaged in highly regulated industries. Id. at 2454-56; Burger, 482
U.S. at 702.
The highly regulated industry exception is premised upon the concept that “[c]ertain
industries have such a history of government oversight that no reasonable expectation of privacy
could exist for a proprietor over the stock of such an enterprise.” Marshall v. Barlow’s, Inc., 436
U.S. 307, 313 (1978) (internal citation omitted) (noting that liquor and firearms businesses are in
this category). Consequently, “when an entrepreneur embarks upon such a business, he []
voluntarily [chooses] to subject himself to a full arsenal of governmental regulation.” Id. In this
context, “where the privacy interests of the owner are weakened and the government interests in
regulating particular businesses are concomitantly heightened, a warrantless inspection of
commercial premises may well be reasonable within the meaning of the Fourth Amendment.”
Burger, 482 U.S. at 702.
To be “reasonable,” a warrantless inspection of a highly regulated business must be
authorized by statute. See United States v. Biswell, 406 U.S. 311, 315 (1972) (noting “the
legality of the search depends not on consent but on the authority of a valid statute”). Here, a
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preliminary issue is whether Osburn’s warrantless inspection of the Bistro office was authorized
by Code § 4.1-204(F). That statute states, in pertinent part:
[ABC] and its special agents shall be allowed free access during
reasonable hours to every place in the Commonwealth and to the
premises of both (i) every wine shipper licensee and beer shipper
licensee and (ii) every delivery permittee wherever located where
alcoholic beverages are manufactured, bottled, stored, offered for
sale or sold, for the purpose of examining and inspecting such
place and all records, invoices and accounts therein.
Code § 4.1-204(F).
C. Code § 4.1-204(F) does not extend to applicants
Osburn argues that his warrantless inspection of the Bistro office was permissible under
the highly regulated industry exception because Code § 4.1-204(F) authorizes ABC agents to
inspect the premises of both applicants and licensees. We disagree.
As written, Code § 4.1-204(F) extends only to licensees. The plain language of the
statute grants ABC agents the authority to inspect premises “where alcoholic beverages are
manufactured, bottled, stored, offered for sale or sold.” Code § 4.1-204(F). These activities
presuppose licensure, as only a licensee may lawfully manufacture, bottle, store, offer for sale or
sell alcoholic beverages. Therefore, prior to licensure, applicants seeking an ABC license are not
subject to the warrantless searches anticipated by Code § 4.1-204(F).
Code § 4.1-331 reinforces the limited scope of Code § 4.1-204(F). That statute states that
“[n]o licensee shall fail or refuse to . . . allow [his] records, invoices and accounts or his place of
business to be examined and inspected in accordance with [Code] § 4.1-204.” Code § 4.1-331
(emphasis added). To construe Code § 4.1-204(F) more broadly than Code § 4.1-331 would
create unnecessary tension between two related statutes. Our aim is instead to “construe ‘all
statutes in pari materia in such a manner as to reconcile, if possible, any discordant feature
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which may exist, and make the body of the laws harmonious.’” REVI, 290 Va. at 211, 776
S.E.2d at 812. Applied here, we conclude that the scope of Code § 4.1-204(F), like that of Code
§ 4.1-331, extends only to licensees.
Osburn urges a broader interpretation by relying on the definition of the term “place”
found in Code § 4.1-100. That statute defines “place” as
the real estate, together with any buildings or other improvements
thereon, designated in the application for a license as the place at
which the manufacture, bottling, distribution, use or sale of
alcoholic beverages shall be performed.
Code § 4.1-100. Because Code § 4.1-204(F) grants ABC agents “free access . . . to every place
in the Commonwealth” where certain activities occur, Osburn argues that Code §§ 4.1-100 and -
204(F) together authorize ABC agents to inspect any real estate designated in an application as
the place where alcohol will be sold. According to Osburn, this means that Code § 4.1-204(F)
authorizes ABC agents to inspect the premises of both applicants and licensees.
Osburn’s interpretation is flawed because the definition of “place” in Code § 4.1-100
does not expand the scope of Code § 4.1-204(F). On its face, Code § 4.1-204(F) applies only to
licensees. Code § 4.1-100 then defines where an inspection may take place, but not who may be
subject to the inspection. Therefore, read together, Code §§ 4.1-100 and -204(F) authorize
warrantless inspections of the premises of licensees, including any location “designated in the
application for a license as the place at which the . . . sale of alcoholic beverages shall be
performed.” But prior to licensure, Code § 4.1-204(F) does not authorize warrantless inspections
of the premises of applicants.
In reaching this conclusion, we are mindful of the constitutional concerns that a broader
interpretation of Code § 4.1-204(F) would inevitably produce. This case, however, does not
require us to consider whether the Fourth Amendment tolerates warrantless inspections of
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applicants seeking to enter a highly regulated industry. Because the plain language of
Code § 4.1-204(F) applies only to licensees, not applicants, our resolution avoids any potential
issues of constitutional infirmity. See Virginia Soc’y for Human Life v. Caldwell, 256 Va. 151,
157, 500 S.E.2d 814, 816 (1998) (“[A] statute will be construed in such a manner as to avoid a
constitutional question wherever this is possible.” (quoting Eaton v. Davis, 176 Va. 330, 339, 10
S.E.2d 893, 897 (1940))).
D. Swim did not consent to Osburn’s warrantless search of the Bistro office
Osburn alternatively argues that he did not violate Swim’s Fourth Amendment rights
because she consented to the warrantless search of the Bistro office by virtue of voluntarily
scheduling the site visit. We disagree.
Whether a person has consented to a warrantless search “is a factual question best
answered by the . . . factfinder.” Evans v. Commonwealth, 290 Va. 277, 283 n.4, 776 S.E.2d
760, 762 n.4 (2015) (citing Schneckloth v. Bustamonte, 412 U.S. 218, 227 (1973). Pursuant to
Virginia’s statutory grievance procedure, findings of fact are to be made by the hearing officer.
Code § 2.2-3005.1; see Quesenberry, 277 Va. at 430, 674 S.E.2d at 859. Those factual findings
are binding on appeal, where judicial review is limited to whether the grievance determination
itself is “contradictory to law.” Code § 2.2-3006(B); see Andrews v. Richmond Redevelopment
& Hous. Auth., 292 Va. 79, 88-89, 787 S.E.2d 96, 101-02 (2016).
The hearing officer in this case found, as a matter of fact, that “[t]here [was] insufficient
evidence that [Swim] . . . gave consent, expressed or implied, to [Osburn’s] search of the [Bistro]
office.” That factual finding is supported by the record, which indicates that Osburn neither
requested nor received permission to enter, much less search, the Bistro office. Indeed, after
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considering the record, the hearing officer determined that “there [was] no evidence [Swim] . . .
was even aware that [Osburn] had entered the office and/or was searching [it].”
III. Conclusion
For the reasons stated, we will affirm the Court of Appeals’ judgment upholding the
hearing officer’s determination that Osburn violated Swim’s constitutional rights, the effect of
which is to affirm the circuit court’s affirmance of the hearing officer’s decision to uphold
Osburn’s termination. However, we will vacate the opinion of the Court of Appeals.
Judgment affirmed, opinion vacated.
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