Lindsay v. Sterling

ON MOTION FOR REHEARING

LEVY, Justice.

Upon appellee’s motion for rehearing and in consideration of the supplemental transcript now on file, demonstrating appellee’s compliance with section 16(e) of the Administrative Procedure Act, we withdraw our prior opinion in this cause and substitute the following:

This appeal is from an order of the District Court reversing a decision by the County Judge which denied the application of Dorothy K. Sterling, appellee, for renewal of her wine and beer license.

Pursuant to Sections 61.31 and 61.32 of the Texas Alcoholic Beverage Code (Vernon 1978), a hearing was held before Harris County Judge Jon Lindsay to consider appellee’s application for renewal of her “Wine and Beer Retailer’s Permit” and “Retail Dealer’s On-Premise Late Hours License”.

After hearing testimony from appellee, an agent of the Texas Alcoholic Beverage Commission, and area residents, Judge Lindsay denied appellee’s application and made these findings:

1. Applicant will conduct her business in a manner that is likely to result in jeopardy to the general welfare, health, peace, morals, safety and sense of decency of the people;

2. Applicant will conduct her business in a manner contrary to law and in a manner conducive to a violation of the law;

3. Applicant will conduct her business in a place, building, or premises which was operated, during the six months immediately preceding the filing of this application, in a manner which was contrary to the Alcoholic Beverage Code;

4. The applicant has violated or caused to be violated a provision of the Texas Alcoholic Beverage Code or a rule or regulation of the Texas Alcoholic Beverage Commission, for which a suspension was not imposed, during the 12 month period immediately preceding the filing of her application.

Section 11.67, T.A.B.C. (Vernon Supp. 1981), provides that an appeal from an order of the Commission or Administrator refusing, cancelling, or suspending a permit or license may be taken to the district court of the county in which the applicant or licensee resides. Pursuant to Section 11.67, appellant appealed the decision to the 189th District Court of Harris County, after filing a motion for rehearing before the County Judge, which was denied.

In her original petition filed with the District Court, appellee asked, inter alia, that the decision of the County Judge be reversed, that her application be granted, and that the County Judge transmit the original record of such proceedings to the District Court for its consideration. Rather than considering the record before the County Judge, the District Judge allowed both sides to present evidence — in essence, a trial de novo — and the Court found after considering same that there had not been substantial evidence before the County Judge to support the denial of the appel-lee’s renewal application. He decreed that the renewal application be granted.

County Judge Jon Lindsay, who had joined the suit as an intervenor, subsequently requested that the District Court file findings of fact and conclusions of law. These were filed as follows:

A. Findings of Fact.

1. The only objectors to the operation of the applicant were the married couple who live on the immediately adjacent land.

2. Within the last year, two employees of the applicant were each convicted of a misdemeanor.

3. The misdemeanors were different from each other, and each of those employees was promptly terminated.

4. There was no pattern of the applicant or third-parties on its premises violating the applicable regulatory or general criminal statutes.

5. The operation of the applicant did not have a deleterious effect on the community’s moral or physical well being.

6. The evidence in opposition to the applicant was insubstantial.

B. Conclusion of Law. The administrative determination by the County Judge was not supported by substantial evidence.

Appellants have appealed the District Court’s order to this Court, bringing two points of error for our consideration.

Appellants allege, in their first point of error, that the trial court erred as a matter of law in holding that the administrative determination made by Judge Jon Lindsay was not supported by substantial evidence. In their second point, they assert error in the trial court’s failure to grant appellants’ motion for an instructed verdict after ap-pellee had rested.

Under the “substantial evidence” rule, which is the standard of review for most administrative agencies’ orders, the issue to be decided, if all jurisdictional prerequisites are satisfied, is the reasonableness of the County Judge’s order. This is a question of law and an appellate court cannot render its decision based upon facts found by a trial court, because the legal test of the reasonableness of an order of the County Judge, acting in this matter as an administrative agency or commission, is whether it is reasonably supported by substantial evidence and not whether it is supported by a preponderance of the evidence. City of San Antonio v. Texas Water Commission, 407 S.W.2d 752 (Tex.1966). The Court in City of San Antonio v. Texas Water Commission, supra, also emphasized that it is the Commission’s fact finding that is before the trial and appellate courts; thus, a trial of fact issues by a judge or jury is avoided. Id. at 756.

Where the substantial evidence rule is applied in reviewing administrative actions, the action of the administrative body is presumed to be valid, City of San Antonio v. Flores, 619 S.W.2d 601 (Tex.Civ.App.-Houston [14th Dist.] 1981, writ ref’d n.r.e.); City of San Antonio v. Texas Water Commission, supra. The party seeking to set aside the administrative order has the burden of proving that the order is not reasonably supported by substantial evidence. City of San Antonio v. Flores, supra at 602; DeLeon v. Texas Employment Commission, 529 S.W.2d 268, 271 (Tex.Civ.App.-Corpus Christi 1975, writ ref’d n.r.e.). The test in determining whether an administrative decision finds reasonable support in substantial evidence is "... whether the evidence as a whole is such that reasonable minds could not have reached the conclusion that the agency must have reached in order to justify its action.” Hardy Street Investors v. Texas Water Commission, 536 S.W.2d 85, 87 (Tex.Civ.App.-Waco 1976, writ ref’d n.r.e.); United Savings Association of Texas v. Vandygriff 594 S.W.2d 163 (Tex.Civ.App.-Austin 1980, writ ref’d n.r.e.).

On January 1, 1976, the Administrative Procedure and Texas Register Act, Article 6252-13a (Vernon 1976), referred to herein as the APA, became effective and, with a few stated exceptions, applies generally to administrative agencies of the State. Imperial American Resources Fund v. Railroad Commission of Texas, 557 S.W.2d 280 (Tex.1977).

Prior to the enactment of the APA, all of the case law specifically held that the reviewing court must look at the evidence presented in the District Court, not the evidence before the County Judge, to determine whether there was substantial evidence to support the County Judge’s order. See, e.g., Elliott v. Dawson, 473 S.W.2d 668 (Tex.Civ.App.-Houston [1st Dist.] 1971, no writ); In re Simonton Gin, Inc., 616 S.W.2d 274 (Tex.Civ.App.-Houston [1st Dist.] 1981, no writ); City of San Antonio v. Flores, 619 S.W.2d 601 (Tex.Civ.App.-Houston [14th Dist.] 1981, writ ref'd n.r.e.).

The Texas Supreme Court in Imperial American Resources Fund, supra, stated that judicial review of a Commission’s decision is now based on the record made before the administrative agency, except for procedural irregularities mentioned in Section 19(d)(3) of the APA. The Court then discussed the history of review of substantial evidence cases involving the Railroad Commission:

Prior to the effective date of the Administrative Procedure Act (January 1, 1976), judicial review of a Railroad Commission conservation order was by trial in the district court upon a new record of evidence developed in the court without regard to the evidence heard by the Commission. The Commission’s order was tested by the substantiality of the evidence adduced in the district court trial. The applicable substantial evidence rule was stated in Trapp v. Shell Oil Company, 145 Tex. 323, 198 S.W.2d 424 (1946), and refined in Hawkins v. Texas Company, 146 Tex. 511, 209 S.W.2d 338 (1948).

The inherent problems with this method of review and how the change has helped resolve some of the problems were then described:

This type of substantial evidence review of a newly developed record, which often was different from the evidence heard by the Commission, came under effective criticism. The Legislature first limited judicial review to the record made before an administrator in the Savings and Loan Act of 1963, Article 852a, Sec. 11.12(5)(b). The record under that Act is tested by the substantial evidence rule if an order of the Commissioner is contested. Lewis v. Jacksonville Building and Loan Ass’n, 540 S.W.2d 307 (Tex.1976); Gerst v. Nixon, 411 S.W.2d 350 (Tex.1966). Through enactment of the Administrative Procedure Act as to other agencies, the Legislature has made a far-reaching change in limiting judicial review under the substantial evidence rule to the records made before the administrative agencies. The result is that the agencies and the courts now consider the same evidence. Judicial review under the essential standards of the substantial evidence rule has been preserved, but the courts now test the substantiality of the evidence upon which an administrative agency made its decision. This furnishes more assurance of administrative due process and a surer means of determining whether an agency acted arbitrarily, capriciously, and without due regard to the evidence.

In Railroad Commission v. Graford Oil Corp., 557 S.W.2d 946 (Tex.1977), the Supreme Court stated:

[T]his Court’s duty in reviewing decisions on the state of the evidence is not to substitute our judgment for any particular tribunal but to insure that the initial decision was based on “substantial evidence” and that this decision has been given appropriate review. Article 6252-13a, sections 19(e)(3)(5). Therefore, under the new Administrative Procedure Act, we must test the substantiality of the evidence from the record upon which the Commission made its decision. Imperial American Resources Fund, Inc. v. Railroad Commission, 557 S.W.2d 280, 284-285 (Tex.1977); c.f. Hamilton and Jewett, “The Administrative Procedure and Texas Register Act: Contested Cases and Judicial Review,” 54 Tex.L. Rev. 285, 303-07 (1976).

In Rector v. Texas Alcoholic Beverage Commission, 599 S.W.2d 800 (Tex.1980), the Supreme Court confronted the problem of an applicant being denied a beer and wine license. The petitioner’s arguments were premised upon a claim that he was denied due process because of the manner in which the County Judge conducted the administrative hearing. .The Court of Appeals did not address this contention because it found that substantial evidence was introduced in the District Court to support the denial by the County Judge. The Supreme Court, after reviewing the record of the hearing before the County Judge, concluded that the petitioner’s due process rights had been violated and reversed the judgments of the courts below. The Court remanded the cause to the County Judge — not the District Court — for a new hearing on petitioner’s application for a license. In a footnote, the Supreme Court stated that this hearing should be conducted pursuant to the provisions of the APA.

From the foregoing Supreme Court decisions, it seems clear that the reviewing court must assess under the substantial evidence rule the same evidence that the administrative agency (in this case, the County Judge) considered and upon which it based its decision, pursuant to Art. 6252-13a, the Administrative Procedure Act.

The judgment of the district court is accordingly reversed and the cause is remanded with instructions that the court compel the production before it of the full record of the proceedings had before the County Judge in this cause, reduced to writing and duly certified, for the court’s review under the substantial evidence rule, and for further proceedings not inconsistent with this opinion.