El Duranguense Fort Worth Inc. D/B/A El Duranguense v. Texas Alcoholic Beverage Commission

In the
Court of Appeals
Second Appellate District of Texas
at Fort Worth
___________________________
No. 02-19-00219-CV
___________________________
EL DURANGUENSE FORT WORTH INC. D/B/A EL DURANGUENSE,
Appellant
V.
TEXAS ALCOHOLIC BEVERAGE COMMISSION
On Appeal from the 352nd District Court
Tarrant County, Texas
Trial Court No. 352-307859-19
Before Kerr, Bassel, and Womack, JJ.
Memorandum Opinion by Justice Bassel
MEMORANDUM OPINION
The Texas Alcoholic Beverage Commission (TABC) cancelled El Duranguense
Fort Worth, Inc.’s (El Duranguense) alcoholic-beverage permits, the trial court’s
judgment affirmed the TABC’s order, and El Duranguense now appeals from the trial
court’s judgment. El Duranguense raises seven issues challenging the factual and legal
bases of the order cancelling its permits. The standards that we apply on appeal to an
agency ruling narrowly constrain our review. El Duranguense’s challenges to the
findings and conclusions of the administrative law judge, adopted by the TABC, that
provide the basis for cancelling the permits fail for the following reasons:
(1) the TABC did not violate El Duranguense’s due-process rights, act arbitrarily
or capriciously, or make an error of law when it did not request employment
records or rely upon other traditional terms of employment to find that women
working at the bar as ficheras were employees of the bar;
(2) substantial evidence supports the findings that the persons who committed the
acts that prompted cancellation of the permits were employees, agents, or
servants of El Duranguense for purposes of establishing a violation of the
Texas Alcoholic Beverage Code (Code);
(3) substantial evidence supports the finding that El Duranguense permitted the
possession and distribution of narcotics on the premises;
(4) res judicata did not bar the TABC from bringing this separate enforcement
action based on acts taking place in 2014 and 2015 after it had concluded an
enforcement action based on acts taking place in 2016;
(5) the TABC did not violate the law or act arbitrarily or capriciously by not
revealing its investigation to El Duranguense before seeking cancellation of its
permits; and
(6) the TABC committed no constitutional violation and did not act arbitrarily or
capriciously when it sought cancellation of El Duranguense’s permits based on
2
multiple Code violations without having provided El Duranguense with an
opportunity to voluntarily comply with the Code after the first violation.
Accordingly, we will affirm.
BACKGROUND
In September 2017, following an investigation by the Special Investigations
Unit (SIU) of the TABC, the TABC brought an enforcement action against
El Duranguense. Specifically, the TABC asserted that on or about November 6,
2014, December 20, 2014, and January 30, 2015, an agent, servant, or employee of
El Duranguense (1) “solicited or permitted the solicitation of any person to buy
drinks for consumption” by El Duranguense or any of its employees in violation of
Sections 104.01(4) and 11.61(b)(2) of the Code; and (2) “possessed or sold, or
permitted others to possess or sell a narcotic on the licensed premises” in violation of
Sections 104.01(a)(9) and 11.61(b)(7) of the Code and Chapter 16, Section 35.31 of
the Texas Administrative Code.
An administrative law judge (ALJ) conducted a hearing at the State Office of
Administrative Hearings concerning the alleged violations. At the conclusion of the
evidence and argument, the ALJ found in the TABC’s favor, issued a Proposal for
Decision containing findings of fact and conclusions of law, and recommended that
El Duranguense’s permits be cancelled. The TABC adopted the ALJ’s findings and
conclusions and issued a final order cancelling El Duranguense’s permits.
3
El Duranguense filed a motion for rehearing, which the TABC overruled.
El Duranguense then sought judicial review in district court. The district court
conducted a hearing, reviewed the administrative record, and affirmed the TABC’s
order. El Duranguense now appeals.
STANDARD OF REVIEW
We review administrative decisions by the TABC under the
substantial-evidence rule codified in the Administrative Procedures Act (APA). Tex.
Alco. Bev. Code Ann. § 11.67(b); Tex. Gov’t Code Ann. §§ 2001.172, .174; see also
Bavarian Props., Inc. v. Tex. Alcoholic Beverage Comm’n, 870 S.W.2d 686, 688 (Tex. App.—
Fort Worth 1994, writ denied). Under this rule, a court “shall reverse or remand” a
case for further proceedings if substantial rights of the appellant have been prejudiced
because the administrative findings, inferences, conclusions, or decisions are, as
applicable to this case: (1) “in violation of a constitutional or statutory provision”; (2)
“affected by [an] error of law”; (3) “not reasonably supported by substantial
evidence”; or (4) “arbitrary or capricious.” Tex. Gov’t Code Ann. §§ 2001.174(2)(A),
(D), (E), (F); see also Tex. Dep’t of Pub. Safety v. Cantu, 944 S.W.2d 493, 495 (Tex.
App.—Houston [14th Dist.] 1997, no writ) (“[T]o reverse an agency decision, the
reviewing court must conclude (1) that the agency’s decision was erroneous for one of
the reasons enumerated in [Section 2001.174(2) of the Texas Government Code], and
(2) that substantial rights of the appellant have thereby been prejudiced.”).
4
The test under the substantial-evidence rule is whether the evidence as a whole
is such that reasonable minds could have reached the conclusion that the agency must
have reached in order to justify its action. See Bavarian Props., 870 S.W.2d at 688
(citing Tex. Alcoholic Beverage Comm’n v. Sierra, 784 S.W.2d 359, 360 (Tex. 1990)). The
reviewing court is concerned only with the reasonableness of the administrative order,
not with its correctness. Id.; see also Villatoro v. Tex. Alcoholic Beverage Comm’n,
No. 05-12-00444-CV, 2013 WL 2423994, at *1 (Tex. App.—Dallas June 3, 2013, no
pet.) (mem. op.) (citing Melmat, Inc. v. Tex. Alcoholic Beverage Comm’n, 362 S.W.3d 211,
215 (Tex. App.—Dallas 2012, no pet.)). “The crux of a substantial evidence analysis
is whether the agency’s factual findings are reasonable in light of the evidence from
which they were purportedly inferred.” Hinkley v. Tex. State Bd. of Med. Exam’rs, 140
S.W.3d 737, 743 (Tex. App.—Austin 2004, pet. denied) (quotation marks omitted).
Whether there is substantial evidence to support an administrative decision is a
question of law. Tex. Dep’t of Pub. Safety v. Alford, 209 S.W.3d 101, 103 (Tex. 2006). In
our review, we look at the underlying findings of fact made in support of the agency’s
ultimate findings of fact on which the agency based its decision and determine
whether the agency’s findings are supported by substantial evidence. Tex. Health
Facilities Comm’n v. Charter Med.–Dall., Inc., 665 S.W.2d 446, 453 (Tex. 1984).
Substantial evidence does not mean “a large or considerable amount of evidence”;
rather, it refers to “such relevant evidence as a reasonable mind might accept as
adequate to support a conclusion of fact.” Hinkley, 140 S.W.3d at 743 (quotation
5
marks omitted). Although substantial evidence is more than a mere scintilla, the
evidence in the record may actually preponderate against the agency’s decisions and
still amount to substantial evidence. Bavarian Props., 870 S.W.2d at 688 (citing Charter
Med.–Dall., 665 S.W.2d at 452). Administrative decisions are presumed to be
supported by substantial evidence, and the burden is on the complaining party to
demonstrate otherwise. See I Gotcha, Inc. v. Tex. Alcoholic Beverage Comm’n,
No. 2-07-150-CV, 2008 WL 2930614, at *2 (Tex. App.—Fort Worth July 31, 2008, no
pet.) (mem. op.) (per curiam) (citing Imperial Am. Res. Fund, Inc. v. R.R. Comm’n of Tex.,
557 S.W.2d 280, 286 (Tex. 1977)); see also Melmat, 362 S.W.3d at 214. A reviewing
court is not bound by the reasons given by an agency in its order, provided that there
is a valid basis for the action taken by the agency; but this rule does not permit the
court to find violations not initiated previously by the agency. See Pretzer v. Motor
Vehicle Bd., 138 S.W.3d 908, 914 (Tex. 2004) (op. on reh’g) (citing Charter Med.–Dall.,
665 S.W.2d at 452).
Under the substantial-evidence standard of review, a court may not substitute
its judgment for the agency on the weight of the evidence on questions committed to
agency discretion. See Tex. Gov’t Code Ann. § 2001.174. A court also may not
invade the fact-finding authority of an administrative agency. Melmat, 362 S.W.3d at
215. The ALJ is the sole judge of witness credibility in a contested case hearing.
I Gotcha, 2008 WL 2930614, at *4; Granek v. Tex. State Bd. of Med. Exam’rs, 172 S.W.3d
761, 778–79 (Tex. App.—Austin 2005, no pet.) (op. on reh’g). A reviewing court
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must resolve any evidentiary ambiguities in favor of the administrative order by
concluding that substantial evidence supports the ALJ’s decision. Villatoro, 2013 WL
2423994, at *2; I Gotcha, 2008 WL 2930614, at *4. If the evidence would support
either affirmative or negative findings on a specific matter, the reviewing court must
uphold the agency’s decision. Scally v. Tex. State Bd. of Med. Exam’rs, 351 S.W.3d 434,
441 (Tex. App.—Austin 2011, pet. denied) (citing Charter Med.–Dall., 665 S.W.2d at
453).
APPLICABLE LAW
As a matter of public policy, the Code “is an exercise of the police power of the
state for the protection of the welfare, health, peace, temperance, and safety of the
people of the state.” Tex. Alco. Bev. Code Ann. § 1.03. The Code allows the TABC
to cancel a permit, if it is found, after notice and hearing, that “the permittee has
violated a provision of [the] [C]ode or a rule of the commission.” Id. § 11.61(b)(2).
The Code provides that “[n]o person authorized to sell beer at retail, nor the
person’s 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 (1) “solicitation of any person to buy drinks for consumption by the retailer
or any of the retailer’s employees”; or (2) “possession of a narcotic . . . or any
equipment used or designed for the administering of a narcotic . . . or permitting a
person on the licensed premises to do so.” Id. §§ 104.01(a)(4), (9). “Narcotic” is
defined as “[a]ny substance defined in the Texas Controlled Substances Act,
7
§§ 481.002(5), (6), (7), or (26).” 16 Tex. Admin. Code § 35.41 (2019) (Tex. Alcoholic
Beverage Comm’n, Enforcement). Cocaine is a controlled substance. See Tex. Health
& Safety Code Ann. §§ 481.002(5), (6), .102(3)(D).
Additionally, the Code allows the TABC to cancel a permit if it is found, after
notice and hearing, that “the place or manner in which the permittee conducts the
permittee’s 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.” Tex. Alco. Bev. Code Ann. § 11.61(b)(7). “Permittee” includes “a
person who is the holder of a permit . . . or an agent, servant, or employee of that
person.” Id. § 1.04(11). A permittee violates Section 11.61(b)(7) if it “kn[o]w[s] or, in
the exercise of reasonable care, should [know] of the offense [e.g., a person’s knowing
or intentional possession of cocaine on the premises] or the likelihood of its
occurrence and fail[s] to take reasonable steps to prevent the offense.” 16 Tex.
Admin. Code § 35.31(b); see also Tex. Health & Safety Code Ann. §§ 481.032,
.102(3)(D), .115(a).
THE EVIDENCE1
A. The SIU investigation
The SIU is an investigative arm of the TABC that conducts “long-term and
complex” investigations into “narcotics trafficking, human trafficking, alcohol
Our discussion of the evidence is limited to facts necessary to give context to
1
El Duranguense’s arguments. Our discussion of El Duranguense’s issues will set
forth any additional facts.
8
beverage counterfeiting, tax stamp fraud, cargo theft, carrier related crimes, alcohol
beverage theft, organized crime, and other violations.” The SIU conducted an
undercover investigation into El Duranguense to investigate a complaint regarding,
among other things, prostitution, money laundering, human trafficking, organized
criminal activity, and narcotics sales. SIU agents Agent Ernie Prieto and Agent David
Garcia, under the supervision of Case Agent Kenneth Sherman and Lieutenant Joe
Garcia, engaged in undercover operations at El Duranguense on November 6, 2014,
December 20, 2014, and January 30, 2015.
B. Agent Prieto’s testimony
Agent Prieto testified that on November 6, 2014, a woman named Veronica
solicited him to buy her drinks. When Agent Prieto agreed, Veronica motioned to the
bartender who then brought her a beer, which cost fifteen dollars, and the bartender
gave Veronica a red ticket. Veronica told Agent Prieto that the red tickets were the
way she makes money; at the end of the night, she sells the tickets back to the bar for
ten dollars each. Any time Veronica motioned to the bartender, the bartender would
bring Veronica a beer and a ticket. Veronica’s drinks were always fifteen dollars. The
evidence in the record reflected that the regular price of drinks was three to five
dollars.
Agent Prieto asked Veronica if she knew where he could get cocaine. Veronica
told him that she could get the drugs from “Rodolfo.” She took the agent’s money,
went outside to where the bartender told her Rodolfo was located, and then returned
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to the agent and told him to stay at the bar. The agent observed a man whom he
recognized as the parking attendant walk into the bar. Veronica went with the
parking attendant around a wall out of the agent’s sight; a few minutes later Veronica
returned and asked the agent to accompany her to the bathroom where she delivered
to him two baggies (or bindles) of cocaine.2
In the second operation on December 20, 2014, according to Agent Prieto’s
testimony, Veronica again solicited him to buy her drinks; she received a ticket from
the bartender each time. At some point, Veronica started ordering two beers at a time
(both for her), stating that she did not want to keep bothering the bartender. Agent
Prieto also asked Veronica if she could hook him up with five bindles of cocaine. He
gave her money, and then she left the table and came back and delivered five bindles
to him. He did not know from whom she obtained the drugs on this occasion.
As to the third operation on January 30, 2015, Agent Prieto testified that
Veronica again solicited him to buy her drinks, and each time she again received a
ticket. At one point, Veronica introduced the agent to the bartender as her sister, and
then Veronica asked the agent to buy the bartender a beer. The agent agreed and paid
thirty-five dollars (fifteen dollars each for Veronica’s and the bartender’s drinks and
five dollars for his drink). The bartender gave herself and Veronica each a ticket
during this transaction. Agent Prieto again asked Veronica if she could hook him up.
2
The record reflects that all substances purchased by the undercover agents
during the three operations later tested positive for cocaine. For simplicity, we will
simply refer to the substances as being cocaine.
10
After he gave her money, Veronica spoke to a man going by the name “Joe” at the
bar whom the agent recognized as being Dario Villegas, the bar owner and permit
holder. The agent observed Veronica and Dario speaking together and then walking
outside the bar where the agent could still see Veronica. When they came back in,
Dario went to the bar and Veronica delivered five bindles of cocaine to the agent.
According to Agent Prieto, on all three occasions, when he bought Veronica
drinks, she would remain with him throughout the night until he left. She received a
ticket, token, or some type of marker from the bar every time he bought her a beer
that she had solicited.
C. Agent Garcia’s testimony
The TABC also presented the testimony of Agent Garcia.3 He testified that
during the first operation on November 6, 2014, a woman named Amanda solicited
him to purchase drinks for her. Each drink cost fifteen dollars, and in each
transaction, Amanda received in return an undisclosed amount of money from the
bartender. Agent Garcia also purchased two bindles of cocaine from Amanda. The
agent observed Amanda obtain the narcotics from Rodolfo, whom he described as
the doorman, in a hand-to-hand exchange.
According to Agent Garcia’s testimony, during the December 20, 2014
operation, an employee named Reila solicited him for drinks. Each drink cost fifteen
By the time of the hearing, this agent was working for a different law-
3
enforcement agency. For simplicity, we will refer to this former SIU agent as “Agent
Garcia.”
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dollars and she received something from the bartender during each transaction.
Agent Garcia asked Reila if she could get him two bindles of cocaine. She said that
she could, and then she contacted an unknown individual on the other side of the bar
outside the agent’s view. Reila came back and handed him two bindles of cocaine,
and he handed her the money.
As to the third operation on January 30, 2015, Agent Garcia testified that he
called or texted Amanda to meet him at the bar. After he entered the bar, he met
Amanda and a patron named Roger; they sat at a table together directly in front of the
bar. Shortly thereafter, Roger pulled out a small plastic bindle containing a white,
powdery substance and snorted some of the substance in front of the agent, Amanda,
and the bartender (Stephanie). Roger then gave the bindle to Amanda who snorted
some of the substance. According to the agent, the bartender had a full view of the
activities occurring at the table. Roger told the agent that “it was okay to consume
narcotics in plain view, that the owner knew about it[,] and he was okay with it.”
During this third operation, Amanda asked Agent Garcia if he wanted some cocaine.
He asked for two baggies. He then observed Amanda go to the bartender who
handed Amanda two bindles of cocaine, and then Amanda gave the bindles to the
agent. Amanda also asked Agent Garcia if he would buy her a drink, and he said yes.
Amanda obtained drinks for herself, for Roger, and for the agent, and she told the
agent that her drink cost fifteen dollars.
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D. Dario Villegas’s testimony
When Dario testified, he acknowledged that he owned El Duranguense. He
denied knowing a “Rodolfo,” denied having any parking attendant at the time of these
operations, and denied having been aware that Rodolfo was outside the bar directing
traffic in the parking lot. He further denied that Rodolfo, Veronica, Amanda, or Reila
were his employees; that he supervised them; or that he had any type of employment
agreement with them. Dario testified that he identifies only three bar employees to
the Texas Workforce Commission: himself and two bartenders. But he also has two
to three waitresses who he does not report to the TWC, and his wife works as an
assistant manager at the bar almost daily.
Dario testified as to his description of the role played by a woman acting as a
“fichera” (a term that we discuss in more detail below); he claimed that these are
women “who come[] and offer[] services to the clients.” A fichera “comes to the
client and asks them if they want to buy beer. So then they pay her[,] and she goes
and pays for the beer and keeps the change.” Dario testified that ficheras are
common in Hispanic bars, that they are not bar employees, and that they are paid with
the client’s money and not by the bar. He distinguished his “employees from
customers or ficheras” in that “[t]he majority of [his] employees wear a uniform, a
shirt with a logo of the company.” Dario testified that a bar owner does not supervise
ficheras, nobody tells ficheras what to do, and it is not a fichera’s job to open or close
13
the business or to clean tables. But he also testified that the ficheras at his bar called
him “[t]he boss, Jose, [or] Joselitio.”
Dario denied selling narcotics on January 30, 2015 (but, as the ALJ noted, he
was not asked whether he possessed cocaine that evening). According to Dario, he
was unaware that someone was selling narcotics on the premises; he would have run
them off if he had known about it because he has security guards. At the same time,
when he was asked whether he allowed ficheras in his bar, he responded, “We don’t
have control over that because we don’t know.”
E. The ALJ’s findings and conclusions
In his Proposal for Decision, the ALJ found, among other things, that
Veronica, Amanda, and Reila were agents, servants, or employees for purposes of
establishing a violation under Section 104.01(a)(4) of the Code and that each woman
solicited drinks for her own consumption. The ALJ further found, among other
things, that (1) Dario, the bartender (Stephanie), Veronica, Amanda, and Reila each
possessed cocaine on the premises on one or more dates of the investigation and
(2) El Duranguense knew, or in the exercise of reasonable care should have known,
that Dario, Stephanie, Veronica, Amanda, and Reila possessed cocaine on its premises
and failed to take reasonable steps to prevent cocaine possession on the premises.
The ALJ concluded, among other things, that on all three dates of the
investigation, El Duranguense violated the drink-solicitation and narcotic-possession
14
prohibitions of the Code. See Tex. Alco. Bev. Code Ann. §§ 11.61(b)(7), 104.01(a)(4),
(9); 16 Tex. Admin. Code § 35.31(b).4
EMPLOYMENT STATUS
El Duranguense’s first three issues concern the ALJ’s findings, adopted by the
TABC, that Veronica, Amanda, and Reila were El Duranguense employees. The ALJ
found that the women were employees because:
a. Agents Prieto and Garcia were approached by [Veronica],
Amanda, and Reila who each asked . . . the respective agent to buy
her a drink.
b. [Veronica], Amanda, and Reila took the agents’ money, brought
the drink like a waitress would, and paid for the drink.
c. The agents were charged [by the bar] more than the normal price
for the drink when it was ordered by [Veronica], Amanda, or
Reila.
d. [Veronica] was not given change for the drink, but was given a red
ticket.
e. The purpose of the ticket was to allow [Veronica] to redeem a fee
later.
f. When Agent Prieto bought a drink for the bartender, she also
gave herself a red ticket.
g. [Veronica], Amanda, and Reila had access to areas of the bar that
were not open to the public.
h. Dario Villegas, the owner of [El Duranguense], knowingly allowed
[Veronica], Amanda, and Reila to solicit drinks in
El Duranguense.
Additionally, the ALJ concluded that because Veronica received a ticket to redeem a
fee later, the bartender and by extension El Duranguense exerted control over her
activities and that “[t]he evidence in this case . . . that El Duranguense asserted control
Each of these violations independently supports cancellation of
4
El Duranguense’s permits. See Tex. Alco. Bev. Code Ann. §§ 11.61(b)(2), (7),
104.01(a)(4), (9); 16 Tex. Admin. Code § 35.31(b).
15
over the activities of the ficheras through control of their funds and access to
El Duranguense’s customers, to [El Duranguense’s] benefit.” Because the bartender
also gave herself a ticket when the agent paid for her drink, the ALJ determined that
El Duranguense “had a scheme or plan to be followed with respect to ficheras.” The
ALJ added, Dario’s “pose of helplessness (‘We don’t have control over that because
we don’t know’) belies the fact that he was under a duty to maintain control over the
premises. His excuse that the women in question were not employees in the
traditional sense of the term falls short.”5
In El Duranguense’s first and second issues, El Duranguense argues that the
TABC applied the wrong standard (one based on the above-listed factual findings) to
determine that Veronica, Amanda, and Reila were El Duranguense employees, and
that by applying that standard—or by applying no standard—to find that these
women were employees, the TABC committed an error of law, acted arbitrarily and
capriciously, and violated El Duranguense’s due-process rights. El Duranguense
contends that proving an employment relationship requires proof established by
employment records, payment from the bar to each woman, an employment
agreement, and a right to control each woman (such as through supervision, training,
and scheduling). In its third issue, El Duranguense challenges whether substantial
evidence supports the ALJ’s findings adopted by the TABC that Veronica, Amanda,
On appeal, El Duranguense does not challenge the ALJ’s findings relating to
5
El Duranguense exertion of control over the ficheras.
16
and Reila were employees, agents, or servants of El Duranguense.6 We resolve all
three issues against El Duranguense.
A. The TABC did not commit an error of law, act arbitrarily or capriciously,
or violate El Duranguense’s due-process rights by determining that
Veronica, Amanda, and Reila were El Duranguense employees without
securing employment records or proving other traditional terms of
employment.
In support of its first and second issues, El Duranguense contends that the
TABC committed an error of law, acted arbitrarily and capriciously, and violated due
process because the TABC (1) did not secure employment records to establish the
existence of an employment relationship with each woman and (2) did not require an
employment agreement, payment from the bar, or control by the bar over a woman in
order to determine that each woman was an employee.
These issues turn on an interpretation of the undefined term “employee” in
Sections 104.01(a) and 1.04(11) of the Code. When we review agency decisions, we
review de novo pure questions of law, such as statutory interpretation. See Cadena
Comercial USA Corp. v. Tex. Alcoholic Beverage Comm’n, 518 S.W.3d 318, 325 (Tex. 2017).
Our goal when reading a statute “is to ascertain and give effect to the Legislature’s
intent.” Id. (citing Tex. Mut. Ins. Co. v. Ruttiger, 381 S.W.3d 430, 452 (Tex. 2012)). An
agency’s interpretation of a statute that it enforces “is entitled to ‘serious
6
El Duranguense also includes Roger and Rodolfo in the list of persons it
contends were not employees. But the TABC did not contend or find that Roger was
an employee, and the ALJ did not make findings about Rodolfo’s employment status.
Because the employment status of these persons is not a basis for the agency’s
findings or conclusions, we need not address it. See Tex. R. App. P. 47.1.
17
consideration,’ so long as the construction is reasonable and does not conflict with the
statute’s language.” Id. (quoting R.R. Comm’n of Tex. v. Tex. Citizens for a Safe Future &
Clean Water, 336 S.W.3d 619, 624 (Tex. 2011)).
In its first two issues, El Duranguense ignores on appeal what it had essentially
conceded when the ALJ made its findings and the TABC entered its final order:
Veronica, Amanda, and Reila were acting as ficheras. When Dario testified, he did
not dispute that these women were acting as ficheras or claim that he had never seen
them before. Instead, he tried to place ficheras in a category separate from both
employees and customers based on what clothes they wear, what duties they perform,
and who he contends pays and controls them. But in El Duranguense’s written
closing argument, although it claimed that ficheras are not “real” employees for
numerous reasons, it nonetheless admitted that ficheras “are given cash [by the bar] at
the time of the beer purchase or . . . a ticket that will be exchanged [with the bar] for
cash [at] a later time.” Dario himself also testified that the ficheras at his bar call him
“the boss.”
During the SOAH hearing, the TABC presented evidence explaining what the
SIU has uncovered about the role played by ficheras. Through the testimony of the
undercover agents and lieutenant, the TABC demonstrated that it construes
“employee” under the Code to include women like Veronica, Amanda, and Reila who
were acting as ficheras for the bar. Agent Prieto testified that ficheras “are bar
employees that solicit drinks at an inflated price for the bar”; “their job is to solicit
18
drinks and make beer sales for the bar.” In exchange, they receive a ticket, token, or
cash from the bar for each beer purchased at the inflated price. He stated that the
women at issue (Veronica, Amanda, Reila) were ficheras.
Similarly, Agent Garcia testified that one purpose of a fichera is to keep male
customers company and that they are paid through the presentation of alcoholic
beverages. He explained that, for example, if a beer costs three dollars, the bar
charges the customer fifteen dollars and some of the money goes to the bar and some
goes to the fichera; “[t]hey’re in partnership with the bar ownership.” Garcia
explained that the bar gets paid from the beer and also retains some of the money
from the fichera exchange with the customer. In other words, a fichera’s purpose is
to generate beverage sales from which the bar profits and the fichera receives
compensation by being given a portion of the inflated price of the fichera’s beverage.
Lieutenant Garcia’s testimony in particular explained how the TABC
understands the drink-solicitation prohibition to include women who work as
ficheras. He testified that the SIU considers ficheras employees for purposes of the
Code based on the way they operate; he stated, “all indications to us are that they are
employees.” He based this on the interactions that the women have with the bars,
that they may go behind the bar and handle money, and that they may go into areas
that are not open to customers. In this particular case, the women went to areas of
the bar not open to the public to get the drugs because “otherwise, our guys would
have followed them out there to see who they got the drugs from.”
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Lieutenant Garcia further testified,
Right now, one of the biggest trends in law enforcement is to combat
human trafficking and commercial sex slavery. One of the things that
we go into these cantinas, and especially when we investigate ficheras[,]
is we’re trying to see whether or not there’s any human trafficking
occurring. Basically, when you’ve got women who are actually forced
into that labor, forced into sex acts, things of that nature.
The drink solicitation situation is important to us because it’s a
precursor to human trafficking, to prostitution, to narcotic sales. More
often than not, when we go and conduct these undercover operations,
we end up spending time with a fichera. And then that’s our conduit to
get the drugs, that’s our conduit to get the prostitution violations and
other information . . . . It’s not just that some wom[a]n is asking our guy
to buy her a beer. That’s why it’s very important and that’s why the
legislature gave us a new statute, basically, that covers that drink
solicitation and more clearly defined it. . . .
As it relates to the fichera operations themselves, . . . we found at
this location . . . the common scheme that we [have] found throughout
the State. They’re compensated in one form or another. They either
have tick marks that they keep records of[,] . . . get cash[,] or they do the
tickets.
The ALJ also admitted into evidence a TABC self-evaluation report that
included additional information about ficheras and their employment relationship
with bar owners:
SIU is frequently involved in human trafficking investigations and has
noted during these Investigations that the females working in
TABC-licensed establishments are most often found to be
Undocumented Aliens (UDAs). These UDAs are brought into the USA
via a coyote who incurs the UDA’s debt, which is usually about
$3000-$5000. The coyote then sells the UDA to a person already inside
the US who has an establishment and can put the UDA to work; the
UDA can pay off the debt by working, usually forced labor. Most often
the young females are sold to bars and cantinas so that they can work as
ficheras, also known as drink solicitors or taxi girls. The females sell drinks
20
to customers at an inflated price; portions of the inflated price go to pay
off the debt from the coyote fees. These drinks are most often
un-invoiced . . . . The UDAs are typically encouraged to engage in
prostitution and narcotics sales with the proceeds split with the business
owner as a way to pay off their coyote fee more quickly.
The ALJ concluded that Veronica, Amanda, and Reila were El Duranguense’s
employees because El Duranguense exercised control over the ficheras for its own
benefit, and the TABC adopted this conclusion. The TABC’s interpretation of
“employee” under the Code targets this practice by TABC-licensed bar owners who
knowingly violate the Code by using a woman acting as a fichera while attempting to
insulate itself from Code violations by keeping the woman off the payroll, by keeping
the solicited drinks off the books, and by having the woman wear something other
than a uniform and not cleaning tables. See Villatoro, 2013 WL 2423994, at *5–9
(rejecting permittee’s argument that the TABC must prove a person was paid by a
permittee and subject to the permittee’s control to establish that the person is an
employee and concluding that substantial evidence existed to support finding that
fichera qualified as an employee).
El Duranguense asserts a number of hypothetical scenarios7 to explain why it
contends the agency reached an unreasonable result.8 But we find these arguments
7
For example, El Duranguense contends that under the standard applied to this
case, “[a]nyone can be an employee if they buy a drink for someone else, pay on
behalf [of] someone else, talk to someone else, and keep the change that someone else
gave to them.” Reliance upon such facts, according to El Duranguense, gives the
TABC “unbridled discretion to determine that someone is an employee anytime it
21
unpersuasive. El Duranguense again ignores the fact that this case involved ficheras.
The evidence was not simply that a woman received a ticket, or that a woman asked
someone else to buy her a drink, or that a woman kept the change after a drink was
purchased—here, the ALJ found that the bar owner “knowingly allowed [the women]
to act as ficheras in El Duranguense, when he could have easily excluded them.”
Each women solicited a person to purchase a drink at an inflated price set by the bar
for her to consume, and in exchange each woman received from the bar some form
of compensation in a “scheme or plan to be followed with respect to ficheras.” We
cannot conclude that the result in this case is unreasonable.
El Duranguense also cites Section 5.44(a) of the Code, which grants the TABC
the authority to request employment records, to argue that the TABC has to secure
employment records in order to establish an employment relationship. But this
statute does not establish any obligation to request such records in order to prove the
existence of an employment relationship in a contested case. See Tex. Alco. Bev.
desires”; “imposes strict liability upon permit-holders for anyone who happens to be
on the premises”; and “allows employment status to be established by speculation.”
8
An order supported by substantial evidence may nonetheless be arbitrary and
capricious if the agency (1) failed to consider a factor the legislature directed it to
consider, (2) considered an irrelevant factor, or (3) reached an unreasonable result.
City of El Paso v. Pub. Util. Comm’n of Tex., 883 S.W.2d 179, 184 (Tex. 1994); Tex.
Alcoholic Beverage Comm’n v. Hancock, 269 S.W.3d 685, 688 (Tex. App.—Beaumont
2008, no pet.); Tex. Alcoholic Beverage Comm’n v. Top of the Strip, 993 S.W.2d 242, 252
(Tex. App.—San Antonio 1999, pet. denied).
22
Code Ann. § 5.44(a)(6) (“The commission . . . may . . . compel the production of
pertinent books, accounts, records, documents, and testimony[.]” (emphasis added)).
By arguing that the TABC must resort to employment records and other
documentation (including employment agreements and records relating to payment,
training, and supervision) to prove that anyone is an “employee” under the Code,
El Duranguense is trying to create an impossible standard, knowing that such records
would not exist for women used illicitly as ficheras. El Duranguense has clear
motives for not maintaining formal employment records for ficheras. See Villatoro,
2013 WL 2423994, at *6 (relying, in part, upon agent’s testimony that “employment
records are very hard to find” for ficheras and that “most of the time, employment
records aren’t kept for them” because they are “mainly dealt with on a cash basis”
when concluding that a fichera was a bar employee). The lack of such documentation
is especially likely here because Dario testified that he employs two waitresses and that
his wife also works as an assistant manager at the bar; yet the only employees he
reports to the TWC are himself and two bartenders. And Dario denied employing the
three women at issue; he does not consider ficheras “real” employees. It is reasonable
for the TABC to find the existence of an employment relationship without reference
to traditional terms of employment because it prevents TABC-licensed establishments
from doing an end run around the Code by simply not maintaining employment
records for persons that a bar owner knowingly employs to engage in illegal activity
on the licensed premises, such as ficheras.
23
Accordingly, we conclude that the TABC’s interpretation of “employee” under
the Code as including women working as ficheras under the permittee’s control—
without reference to employment records, such as employment agreements and
payroll records—was reasonable, did not conflict with the statute’s language, was not
arbitrary or capricious, and did not violate due process. We overrule
El Duranguense’s first two issues.
B. Substantial evidence supports the TABC’s finding that Veronica,
Amanda, and Reila were employees, agents, or servants.
In arguing in its third issue that there is not substantial evidence to support the
finding that Veronica, Amanda, and Reila were employees, agents, or servants,
El Duranguense again ignores on appeal that it conceded in the SOAH proceedings
that Veronica, Amanda, and Reila were acting as ficheras.9 In addition to Dario’s
testimony described above, in El Duranguense’s written closing argument, it argued,
among other similar statements, that “there are significant differences between
Fischeras [sic] and real employees”; “Fischeras [sic] stay with customers the entire
time”; “Real employees wear uniforms [and] Fischeras [sic] do not”; “Fischeras [sic]
are not employed by the bar”; “Fischeras [sic] are paid by the customers, not the
permit holder”; and “Fischeras [sic] are paid by the customers; they are given cash at
9
To the extent El Duranguense’s brief could be construed as a challenge to the
ALJ’s findings that these women were ficheras (findings evidenced by the ALJ’s
labelling them as such in its Proposal for Decision), we conclude based on our review
of the record that substantial evidence supports those findings.
24
the time of the beer purchase or . . . a ticket that will be exchanged for cash at a later
time.” [Emphases added.]
Pointing to the same evidence it referenced in its closing argument,
El Duranguense argues on appeal that there was “substantial direct evidence that the
persons involved were not employees” and “circumstantial evidence to demonstrate
the alleged persons were not employees.” According to El Duranguense, the facts
relied upon by the ALJ to find that the women were employees constituted “meager
circumstantial evidence” that was legally insufficient to support a judgment and was
contradicted by “[c]onclusive evidence” demonstrating that they were not employees.
El Duranguense further contends that “direct” and “circumstantial” evidence
demonstrated that the women were not employees. It points to Dario’s testimony
claiming that the women were not employees for various reasons (e.g., they do not
wear uniforms, he did not supervise them) and to testimony from the agents that
El Duranguense contends shows, among other things, that the agents did not obtain
employment records; that the agents did not observe the bar supervising or training
the women; and that the women stayed with the agents the entire evening.
El Duranguense’s arguments are inapposite because they ignore the test applied
under the substantial-evidence rule.10 Our review concerns whether the evidence as a
whole is such that reasonable minds could have reached the conclusion that the
10
Further, the evidence that El Duranguense points to does not contradict the
ALJ’s finding that El Duranguense exercised control over the ficheras for its own
benefit, and substantial evidence supports that finding.
25
agency must have reached in order to justify its action. See Bavarian Props., 870 S.W.2d
at 688. The ALJ was the sole judge of the credibility of Dario’s testimony and was
free to reject his testimony. See Villatoro, 2013 WL 2423994, at *2; I Gotcha, 2008 WL
2930614, at *4; Granek, 172 S.W.3d at 778–79. It is also the agency’s function to
resolve factual conflicts and ambiguities, and the purpose of the substantial-evidence
review is to protect that function.11 Scally, 351 S.W.3d at 452.
Like in its first two issues, El Duranguense’s arguments also focus on whether
these women satisfy a legal definition of employee. But “our focus here is not on
whether [Veronica, Amanda, and Reila] fit the ‘legal definition’ of an employee . . . ,
but rather whether there was substantial evidence to support the determination that
[they were each] an employee, agent, or servant for purposes of establishing a
violation” of the Code. See Villatoro, 2013 WL 2423994, at *8; see also Melmat, 362
S.W.3d at 216 n.1 (rejecting a permittee’s argument that Ackley v. State, 592 S.W.2d
606 (Tex. Crim. App. [Panel Op.] 1980), requires the TABC to provide evidence
meeting the “legal definition” of “employee,” “agent,” and “servant” because Ackley
addressed “the different meanings of the terms” and “did not address the types of
evidence that would be sufficient to prove a person was, in fact, an employee, agent,
or servant” for purposes of establishing a violation of the Code); I Gotcha, 2008 WL
11
For the same reasons, the fact that Agent Garcia testified that on January 30,
2015, he asked Amanda to meet him at El Duranguense does mean that there is not
substantial evidence to support the finding that Amanda was an El Duranguense
employee, agent, or servant. See Bavarian Props., 870 S.W.2d at 688; Scally, 351 S.W.3d
at 452.
26
2930614, at *3 (noting that the term “employee” is not defined in the Code and
stating that, as a result, “we apply its ordinary meaning in our analysis”).
Accordingly, after testing each material finding, inference, and conclusion for
evidentiary support, reasonable minds could have concluded that Veronica, Amanda,
and Reila were El Duranguense’s employees, agents, or servants on the nights in
question. See Villatoro, 2013 WL 2423994, at *5–9 (concluding that substantial
evidence supported ALJ’s finding that a woman who was acting as a fichera was an
employee, agent, or servant of permit holder when she solicited drinks); Top of the
Strip, 993 S.W.2d at 249–50 (concluding that there was substantial evidence to support
finding of a Code violation because “[r]easonable minds could have concluded that
[night club] authorized a minor to dance topless,” even though the club’s accountant
testified that she received no employment records for the dancer and the club’s owner
testified that “a disc jockey allowed the minor to dance and that she was not an
employee”).
Having concluded that substantial evidence supports the findings of the ALJ
adopted by the TABC that Veronica, Amanda, and Reila were El Duranguense’s
employees, agents, or servants, we overrule El Duranguense’s third issue. 12
12
In the Proposal for Decision, the ALJ determined that El Duranguense’s
violation of the drink-solicitation prohibitions of Section 104.01(a)(4) on the three
separate dates provided grounds for cancellation of the permits. See Tex. Alco. Bev.
Code Ann. §§ 11.61(b)(2), 104.01(a)(4). On appeal, El Duranguense does not
challenge the findings or conclusions regarding drink solicitation except for the
findings that Veronica, Amanda, and Reila were employees, agents, or servants. The
27
COCAINE POSSESSION
El Duranguense’s fourth issue challenges whether “substantial evidence
support[s] the finding that [it] permitted the possession and distribution of narcotics
on the premises.” El Duranguense points to Dario’s testimony disclaiming any
knowledge about someone else selling drugs at the bar and claiming that he would
have run them off had he known. El Duranguense then asserts a number of
evidentiary arguments13 regarding the testimony about certain events taking place on
January 30, 2015; these arguments relate to whether Dario (the bar owner) or
Stephanie (the bartender) permitted someone other than themselves to possess
cocaine on the premises.14 We resolve this issue against El Duranguense.
El Duranguense’s arguments ignore the fact that a permittee violates the Code
if an employee, agent, or servant of the permit holder violates the Code. See Tex.
Alco. Bev. Code Ann. §§ 1.04(11) (defining “permittee” as “a person who is the
only other basis on which El Duranguense challenges cancellation of the permits
based on drink-solicitation violations is its res judicata argument, which we address
below.
13
These arguments concerned whether the ALJ erred by admitting certain
testimony and whether other testimony was “legally sufficient” to support a judgment.
14
El Duranguense also argues that the ALJ abused its discretion by admitting
Lieutenant Garcia’s testimony that Dario was the source of the cocaine on
El Duranguense premises. But the ALJ expressly stated that he “makes no finding
with respect to that assertion” by Lieutenant Garcia. Even if the admission of
Lieutenant Garcia’s opinion testimony was an abuse of discretion, El Duranguense
failed to demonstrate that its substantial rights were affected by the admission of the
testimony when the ALJ did not rely upon Lieutenant Garcia’s opinion when
recommending cancellation of the permits. See Cantu, 944 S.W.2d at 495.
28
holder of a permit . . . or an agent, servant, or employee of that person”), 104.01(a)(9)
(prohibiting a “person authorized to sell [beer] at retail” and “the person’s agent,
servant, or employee” from possessing or permitting a person to possess a narcotic on
the licensed premises). The ALJ found that Veronica, Amanda, Reila, and Stephanie
were each in possession of cocaine on the licensed premises on one or more of the
dates at issue; and the TABC adopted those findings. None of El Duranguense’s
arguments includes any challenge to these findings on appeal.15 Although
El Duranguense appeals the finding that Veronica, Amanda, or Reila were employees,
we conclude above that this finding is reasonable. El Duranguense does not challenge
whether Stephanie was an employee.
Each woman’s cocaine possession provides independent grounds for
cancellation of the permits. See Tex. Alco. Bev. Code Ann. §§ 11.61(b)(2),
104.01(a)(9). Thus, we need not consider El Duranguense’s evidentiary arguments—
all of which relate to whether Dario or Stephanie permitted persons other than
themselves to possess cocaine on the premises—because it is not necessary for the
disposition of this appeal.16 See Tex. R. App. P. 47.1. Stated differently, even if the
15
To the extent El Duranguense’s fourth issue could be construed as a
challenge to the findings that Veronica (on all three dates), Amanda (on November 6,
2014, and January 30, 2015), Reila (on December 20, 2014), and Stephanie (on
January 30, 2015) possessed cocaine on the licensed premises, we conclude based on
our review of the record that substantial evidence supports these findings.
16
Additionally, El Duranguense does not address on appeal the fact that when
the district court heard this case, El Duranguense conceded that Dario was present
29
ALJ’s evidentiary rulings raised in El Duranguense’s brief were an abuse of discretion,
El Duranguense failed to demonstrate that its substantial rights were affected by such
rulings when other grounds independently support cancellation of the permits. See
Cantu, 944 S.W.2d at 495.
Based on our review of the record, we conclude that substantial evidence
supports the ALJ’s findings adopted by the TABC that El Duranguense permitted the
possession of cocaine on the premises on all three dates and that El Duranguense
knew, or in the exercise of reasonable care should have known, that persons
possessed cocaine in its licensed premises on each of the dates at issue and failed to
take reasonable steps to prevent the offense. We overrule El Duranguense’s fourth
issue.
RES JUDICATA
In its fifth issue, El Duranguense contends that the TABC’s allegations in this
case were barred by res judicata because they could have been brought in a prior
action (described below). According to El Duranguense, the TABC committed an
error of law, acted arbitrarily or capriciously, and violated El Duranguense’s
for the transfer of cocaine on the licensed premises and that such presence provided
grounds for cancellation of the permits unless res judicata applied. See Tex. Alco. Bev.
Code Ann. §§ 11.61(b)(2), (7), 104.01(a)(9); 16 Tex. Admin. Code 35.31(b); see also
M.J.R.’s Fare of Dall., Inc. v. Permit & License Appeal Bd. of Dall., 823 S.W.2d 327, 330
(Tex. App.—Dallas 1991, writ denied) (concluding that an appellant waived
arguments on appeal that implicated an administrative agency’s fact-finding process
when it conceded in district court that it had no grounds for a substantial-evidence
review). We address El Duranguense’s res judicata argument below.
30
constitutional rights by bringing this action after completion of the prior action. We
conclude that this case is not barred by res judicata because pragmatically, the
violations in this case are not based on the same transaction or series of transactions
as the first proceeding.
A. Prior to bringing the instant case, the TABC brought an enforcement
proceeding against El Duranguense based on alleged violations taking
place in 2016.
In October 2016, the TABC brought an enforcement proceeding against El
Duranguense (Prior Proceeding), alleging that El Duranguense (1) sold and permitted
the consumption of alcoholic beverages during prohibited hours on or about May 14,
2016; (2) permitted the solicitation of drinks for consumption on or about May 14,
2016; and (3) failed to timely provide requested records on or about May 22, 2016.
Tex. Alcoholic Beverage Comm’n v. El Duranguense Fort Worth Inc., SOAH Docket
No. XXX-XX-XXXX (TABC Nos. 640236, 640241). An ALJ conducted a hearing on the
Prior Proceeding on January 6, 2017, and issued a Proposal for Decision wherein the
ALJ found that the violations had occurred, except for the alleged record-production
violation. On July 12, 2017, the TABC adopted the ALJ’s findings and conclusions
and suspended El Duranguense’s permits for twenty-eight days and assessed a civil
penalty.
Then, on September 1, 2017, the TABC initiated the instant proceedings
relating to the 2014 and 2015 violations. El Duranguense asserted the affirmative
defense of res judicata. In the Proposal for Decision, the ALJ concluded that res
31
judicata did not bar this proceeding because (1) the “TABC Enforcement unit and
staff attorneys were not aware of the SIU investigation until after the first El
Duranguense case had concluded” and, thus, “could not have brought the case [in the
first proceeding] because it was unaware it existed” and (2) the “two investigations
would not have formed a ‘convenient trial unit.’” The ALJ noted that the two cases
“are reasonably related in subject, time, and location,” but pragmatically “differ in
their origin and motivation”: the “May 2016 investigation was instigated by the TABC
Enforcement unit,” the “2014-2015 investigation was conducted by SIU,” and
Lieutenant Garcia explained that the SIU’s motive is to “discover and remove
organized criminal activities from the alcoholic beverage industry, not to correct
errant behavior and aid a permittee in rehabilitating his business.”
B. Generally, the doctrine of res judicata bars claims that are based on the
same transaction, or series of transactions, out of which the first action
arose.
Res judicata applies to administrative agency adjudications. See New Talk, Inc. v.
Sw. Bell Tel. Co., 520 S.W.3d 637, 648–49 (Tex. App.—Fort Worth 2017, no pet.).
“Res judicata, or claims preclusion, prevents the relitigation of a claim or cause of
action that has been finally adjudicated, as well as related matters that, with the use of
diligence, should have been litigated in the prior suit.” Barr v. Resolution Tr. Corp. ex rel.
Sunbelt Fed. Savs., 837 S.W.2d 627, 628 (Tex. 1992). Texas follows the “transactional”
approach to claims preclusion under which “a final judgment on an action
extinguishes the right to bring suit on the transaction, or a series of transactions, out
32
of which the action arose.” Id. at 631 (citing Restatement of Judgments § 24(1)).
According to the Supreme Court of Texas,
A “transaction” . . . is not equivalent to a sequence of events, however;
the determination is to be made pragmatically, “giving weight to such
considerations as whether the facts are related in time, space, origin, or
motivation, whether they form a convenient trial unit, and whether their
treatment as a trial unit conforms to the parties’ expectations or business
understandings or usage.”
Id. (quoting Restatement of Judgments § 24(2)). A judgment in an earlier suit
“precludes a second action by the parties and their privies not only on matters actually
litigated, but also on causes of action or defenses which arise out of the same subject
matter and which might have been litigated in the first suit.” Getty Oil Co. v. Ins. Co. of
N. Am., 845 S.W.2d 794, 798 (Tex. 1992).
On appeal, El Duranguense does not dispute that the record supports the
ALJ’s findings that underlie its conclusion that the case is not barred by res judicata.
Thus, the issue of whether res judicata applies is purely a legal determination—i.e.,
whether the facts found support the ALJ’s conclusion of law—which we review de
novo. See Tex. State Bd. of Dental Exam’rs v. Brown, 281 S.W.3d 692, 707–08 (Tex.
App.—Corpus Christi–Edinburg 2009, pet. denied).
C. The 2014 and 2015 violations in this case did not arise from the same
transaction or series of transactions as the 2016 violations in the Prior
Proceeding.
Rather than challenge the ALJ’s findings that provide the basis for the
conclusion that the 2014 and 2015 violations did not arise from the same transaction
33
or series of transactions as the 2016 violations,17 El Duranguense lodges a number of
reasons why the court should nonetheless conclude that this case is barred by res
judicata. We find El Duranguense’s arguments unpersuasive.
17
To the extent El Duranguense’s briefing could be construed as including a
substantial-evidence challenge, based on our review of the record, we conclude that
these findings are supported substantial evidence. The evidence was undisputed that
the SIU investigated the 2014 and 2015 violations and has the purpose of
“discover[ing] and remov[ing] organized criminal activities from the alcoholic
beverage industry” whereas the Enforcement Division investigated the 2016
violations and has a goal of “correct[ing] errant behavior and aid[ing] a permittee in
rehabilitat[ion].” The TABC presented evidence of the 2014 and 2015 violations
through six witnesses (two undercover agents, a case agent, a lieutenant, and two
scientists) who did not testify as to the 2016 violations in the Prior Proceeding; three
different agents and a different sergeant testified as to the 2016 violations. Although
both cases involved drink-solicitation, the instant case included multiple alleged
violations relating to cocaine that were not involved in the 2016 violations, and the
2016 violations included allegations about a record-request violation that was not at
issue in this case. Veronica and Dario were involved in both matters, but Amanda,
Reila, Rodolfo, and Stephanie were not identified as being involved in the 2016
violations. And the 2016 violations involved at least three different El Duranguense
employees. See Barr, 837 S.W.2d at 631.
The TABC did not get “two bites at the apple” because it did not “run the
same race again, hoping for a different outcome.” See Igal v. Brightstar Info. Tech. Grp.,
Inc., 250 S.W.3d 78, 92 (Tex. 2008), superseded by statute on other grounds, Tex. Lab. Code
Ann. § 61.051(c). Between this case and the Prior Proceeding, the TABC prosecuted
different violations involving a number of different employees occurring in different
years that were investigated by different divisions with different motivations. See
Amstadt v. U.S. Brass Corp., 919 S.W.2d 644, 653 (Tex. 1996) (“The purposes [of res
judicata] are to ensure that a defendant is not twice vexed for the same acts, and to
achieve judicial economy by precluding those who have had a fair trial from
relitigating claims.”). The two proceedings entailed two discrete sets of proof. See
Samuel v. Fed. Home Loan Mortg. Corp., 434 S.W.3d 230, 234 (Tex. App.—Houston [1st
Dist.] 2014, no pet.) (“The main concern [under the transaction approach to res
judicata] is whether the cases share the same nucleus of operative facts.”).
34
First, El Duranguense argues that because it had a “legal relationship” with the
TABC as a regulator and regulated entity, “all claims arising from that relationship will
arise from the same subject matter.” Essentially, El Duranguense contends that when
the TABC brings an enforcement action, it must litigate in that same proceeding all
violations that any division of the TABC is investigating, regardless of the status of
the investigation. We disagree.
El Duranguense essentially contends that an administrative agency with the
authority to issue a permit has a “legal relationship” (akin to a contract) with a permit
holder, and that all disputes between the parties relating to the subject matter of the
permit (such as a Code violation) must be litigated in a single proceeding. But the two
cases that El Duranguense cites do not stand for that proposition. See Sanders v.
Blockbuster, Inc., 127 S.W.3d 382, 386–87 (Tex. App.—Beaumont 2004, pet. denied)
(holding that trial court did not broaden or reinterpret settlement in class-action suit
when it determined that class members, defined as Blockbuster members who paid
extended viewing fees (EVFs) between January 1, 1992, and April 1, 2001, were
barred from asserting claims for EVFs paid after April 1, 2001, because the claims
were based on the same “nucleus of operative facts” [i.e., the assessment of EFCs
pursuant to the same EFV policies]; the policy had been adjudicated by the prior
settlement and “new incidents” were part of the same “transaction” for purposes of
res judicata); Weiman v. Addicks-Fairbanks Rd. Sand Co., 846 S.W.2d 414, 419 (Tex.
App.—Houston [14th Dist.] 1992, writ denied) (holding that in landlord–tenant case,
35
summary judgment proof showed that the “same factual circumstances” gave rise to
defendant’s counterclaims in prior suit as plaintiff’s claims in second suit and that the
competing claims “formed a convenient trial unit” in the first action that would have
achieved “a comprehensive conclusion to their business relationship” with regard to
an expired lease).
Unlike the parties in Weiman and Sanders, there is no contract between the
TABC and El Duranguense. Rather, the TABC’s issuance of permits is an exercise of
its police power to regulate the alcoholic beverage industry. See Tex. Alco. Bev. Code
Ann. §§ 1.03 (“This code is an exercise of the police power of the state for the
protection of the welfare, health, peace, temperance, and safety of the people of the
state.”), 11.03 (“A permit issued under this code is a purely personal privilege and is
subject to revocation as provided by this code.”); Brazoria Cty. v. Basin Credit
Consultants, Inc., No. 07-01-00304-CV, 2002 WL 31084700, at *1 (Tex. App.—
Amarillo Sept. 18, 2002, no pet.) (not designated for publication) (“[A] permit[] is not
a contract . . . but rather a grant of authority to do that which would otherwise be
unlawful.”); Treviño & Gonzalez Co. v. R.F. Muller Co., 949 S.W.2d 39, 42 (Tex. App.—
San Antonio 1997, no writ) (holding that a construction permit did not constitute a
contract between the city and installer). Thus, El Duranguense’s “legal relationship”
argument has no application to this case.
Further, El Duranguense’s definition of “transaction” as including any matter
that involves the permits based on events taking place prior to the end of the first
36
enforcement proceeding is too broad. Even if there is an underlying “legal
relationship” between two parties, there remain circumstances when not all claims
with respect to that relationship must be brought in a single suit. See TRO-X, L.P. v.
Eagle Oil & Gas Co., No. 05-17-0052-CV, 2018 WL 4927214, at *7 (Tex. App.—
Dallas Aug. 31, 2018, pet. denied) (mem. op.) (noting that claims in a business
relationship should be combined when they involve “common core facts,” but claims
not accrued at the time of a previous suit are not barred by res judicata).
Second, El Duranguense argues that it “would not make sense to allow
‘previous violations’ to accumulate without adjudication or resolution” and that it
would “violate a permit-holder’s due process rights to consider an unresolved prior
violation as conclusive proof of an administrative violation.” But the ALJ expressly
stated that it did not consider the violations found in the Prior Proceeding when
determining what penalty to impose.18 Although El Duranguense cites
Section 11.641(a)(4) of the Code, it fails to explain how, if at all, that statute applies.
See Tex. Alco. Bev. Code Ann. § 11.641(a)(4) (stating that the amount of a civil
18
El Duranguense argues that because “the nature of a penalty under [the Code]
is dependent upon the permit-holder’s ‘previous violations,’” it “would not make
sense to allow ‘previous violations’ to accumulate without adjudication or other
resolution.” See 16 Tex. Admin. Code § 34.1(g). But here, the ALJ concluded that the
violations in the Prior Proceeding were “subsequent” to El Duranguense’s 2016
violations “only in the sense that they were brought to hearing after the 2016
violations.” As a result, the ALJ concluded “that the 2016 violations will have no
enhancing effect because of the plain language of the rule, and because giving the
2016 violations an enhancing effect would be fundamentally unfair.” Thus, the
existence of the violations at issue in the Prior Proceeding had no enhancing effect on
the penalty imposed in this case.
37
penalty under Section 11.64 must be appropriate for the nature and seriousness of the
violation, and the commission shall consider, among other things, a permittee’s
“previous violations”).
Third, citing Section 11.641(c) of the Code, El Duranguense contends that an
administrative violation may not be predicated upon a criminal case with a ruling
adverse to the state. But in addition to being inapplicable because the violations here
were not predicated upon the outcome of a criminal case, the proposition stated by
El Duranguense is incorrect—a criminal case and an enforcement proceeding may be
based on the same facts. See id. § 11.641(c) (“A civil penalty, including cancellation of
a permit, may not be imposed on the basis of a criminal prosecution in which the
defendant was found not guilty, the criminal charges were dismissed, or there has not
been final adjudication.”); Tex. Alcoholic Beverage Comm’n v. D. Houston, Inc.,
No. 03-13-00327-CV, 2017 WL 2333272, at *4 (Tex. App.—Austin May 25, 2017,
pet. denied) (mem. op.) (“Section 11.641 [of the Code] does not prohibit TABC from
imposing penalties on the ‘basis’ or foundation of common facts that underlie ‘a criminal
prosecution,’ but are not a ‘criminal prosecution’ itself.”).
Accordingly, the ALJ’s findings adopted by the TABC that the two cases did
not form a convenient trial unit and that they differed in origin and motivation were
reasonable. Because our ruling on whether the two cases arise from the same
transaction or series of transactions is dispositive, it is not necessary to address
El Duranguense’s arguments relating to whether, with diligence, the Enforcement
38
Division could have brought this case in the Prior Proceeding.19 See Tex. R. App. P.
47.1. Having rejected El Duranguense’s arguments as to why it contends res judicata
applies, we conclude that this action is not barred by res judicata and the TABC did
not commit an error of law, act arbitrarily or capriciously, or violate El Duranguense’s
due-process rights. We overrule El Duranguense’s fifth issue.
TABC POLICIES AND PROCEDURES
In its sixth issue, El Duranguense contends that the TABC committed an error
of law and acted arbitrarily or capriciously because it violated its own policies and
procedures.20 Specifically, El Duranguense argues that the TABC’s policies required
the TABC to conduct a settlement conference after it discovered a violation in order
to provide El Duranguense with an opportunity to voluntarily comply with the Code
before the TABC sought cancellation. It also cites Section 5.361(a) of the Code,
which states that the “commission shall develop a risk-based approach to conducting
its enforcement activities,” to support this argument. See Tex. Alco. Bev. Code Ann.
19
Specifically, El Duranguense does not challenge the finding that the
Enforcement Division was unaware this case existed when it initiated the Prior
Proceeding. Instead, El Duranguense asserts that this finding does not matter
because SIU’s knowledge of the allegations in this case were imputed to the entirety
of the TABC and that even if the Enforcement’s Division’s “ignorance” of the SIU
investigation was a valid excuse to not bring this case in the Prior Proceeding, SIU’s
“failure” to do so was not.
20
See Kawasaki Motors Corp. U.S.A. v. Tex. Motor Vehicle Comm’n, 855 S.W.2d 792,
795 (Tex. App.—Austin 1993, no writ) (op. on reh’g) (stating that for a finding
supported by substantial evidence to be arbitrary and capricious, “it must be based on
a violation of due process or some other unfair or unreasonable conduct that shocks
the conscience”).
39
§ 5.361(a). According to El Duranguense, the TABC exercised “a new and additional
power or one that contradicts [a] statute” when the SIU conducted a long-term
investigation, worked to cancel El Duranguense’s permits, and did not seek voluntary
compliance. See 16 Tex. Admin. Code §§ 35.31(b), (c)(16); Tex. Alco. Bev. Code Ann.
§§ 11.61(b)(2), (7), 104.01(a)(4), (9). We conclude that the TABC’s actions were
reasonable and did not violate the Code or any policy or procedure in this case.
First, El Duranguense does not explain how the TABC violated the mandate to
develop a risk-based approach to enforcement by not providing El Duranguense with
an opportunity for voluntary compliance. El Duranguense does not cite a statute or
TABC rule requiring the TABC to provide a litigant with an opportunity to prevent
future violations by giving it notice of a violation prior to seeking cancellation of its
permits. At most, it cites Section 2001.0058(b) of the Texas Government Code,
which provides that an ALJ conducting a hearing in a contested case “shall consider
applicable agency rules or policies in conducting the hearing.” See Tex. Gov’t Code Ann.
§ 2001.058(b) (emphasis added). But this statute says nothing about providing a
permittee with a settlement conference and an opportunity for voluntarily compliance
before the TABC seeks cancellation of a permit.
Moreover, the evidence that El Duranguense cites on appeal to prove the
existence of an applicable policy does not exist. El Duranguense refers to a portion
of Lieutenant Garcia’s testimony to argue that TABC policies “require a meeting with
the permit-holder to offer suggestions to prevent future violations, and to make
40
operational changes before conducting follow-up investigations.” But Lieutenant
Garcia actually testified in response to El Duranguense’s counsel’s questions, “You’re
asking me about things that [the] enforcement division does. We’re completely
different and we don’t have anything to do with [settlement conferences].”
Similarly, El Duranguense cites Lieutenant Garcia’s testimony to argue that in a
“normal situation,” a permit holder is invited to the TABC offices to meet with a
lieutenant to discuss the facts of the case, told the identity of the employee
committing the violation, and given an opportunity to terminate the employee and a
settlement proposal. But Lieutenant Garcia specifically testified in response to
questions asking him to confirm such policies exist, “Not SIU. SIU operates
completely differently than enforcement. Enforcement does have a policy . . . that
[after] a violation occurs, they issue a notice, and then they have the settlement
meetings,” but not the SIU. He further explained that the SIU is not “so much
interested in the bartender or the DJ slinging narcotics at a bar”; the SIU was formed
to “focus on cases involving organized criminal activity, human trafficking, narcotics
trafficking, money laundering” and “affiliations with gangs, with the cartels, [and] with
ownership involvement.” Due to the “very nature of the cases that [the SIU]
investigate[s], suspension is not even part of the equation. Basically, if [SIU] prove[s]
the allegations that [it’s] investigating, it’s a cancellation case.”
The TABC self-evaluation report admitted by the ALJ into evidence reflects
that the SIU followed its policies and procedures in this case when it did not tip off
41
El Duranguense as to the existence of the investigation before seeking cancellation of
the permits. According to the report, the focus of the SIU is Section 6.03(f) of the
Code, which emphasizes the importance of keeping the alcoholic beverage industry
free from organized crime, and cancellation is the most common sanction sought in
these types of cases. See Tex. Alco. Bev. Code Ann. § 6.03(f). It further provides that
the “SIU most frequently conducts multiple inspections prior to closing an
investigation. Multiple violations are witnessed to establish that the violations were
not a one-time incident or just a rogue employee.” Here, the SIU conducted three
operations while investigating criminal activity at El Duranguense in compliance with
SIU’s policies and procedures.
El Duranguense points out that the TABC self-evaluation report also includes
the sentence, the “TABC schedules a meeting with the permittee and discusses the
allegations and evidence” under the heading, “SIU: Concluding a Case.” But this
sentence does not evidence an SIU policy of providing settlement conferences and an
opportunity for compliance after finding an initial violation. Rather, the report makes
it clear that this meeting happens after the multiple-operation investigation has
concluded, not in between operations; and the report does not state that at this meeting,
the SIU provides the permit holder with an opportunity for voluntary compliance.
Instead, the very next sentence reads, “Because SIU investigates those who are
knowingly committing these violations and have multiple offenses, cancellation of the
permit is the most common administrative sanction sought[.]” [Emphasis added.]
42
Next, El Duranguense alters course and challenges whether the SIU’s practice
of conducting multiple investigations and seeking cancellation without notifying the
permit holder of the investigation reflects a “rational connection between the need to
investigate [organized criminal activity] and the need not to alert persons who are or
may be committing [such crimes] of the fact of that investigation until it is complete,”
as the ALJ found.21 According to El Duranguense, it is “arbitrary and capricious to
charge someone with permitting illegal activity without providing knowledge to the
person as required by statute and policy.” El Duranguense, however, cites no rule,
policy, or statute that required the SIU to notify El Duranguense of the investigation
into organized criminal activity allegedly occurring at the bar. As the TABC points
out, “[e]arlier notice of the first or second offense would have compromised law
21
In making this finding, the ALJ applied the standard set forth in a case cited
by El Duranguense: United States v. One 1985 Mercedes, 917 F.2d 415, 422 & n.3 (9th
Cir. 1990) (stating that a court may judge agency action to be arbitrary and capricious
when the agency either did not follow its own policies or neglected to formulate
necessary policies). The standard suggested is that an ALJ must enquire whether the
TABC “examined the relevant data and articulated a satisfactory explanation for its
action, ‘including a rational connection between the facts found and the choice
made.’” Id. at 422. We assume without deciding that the standard in One 1985
Mercedes applies. See Cities of Corpus Christi v. Pub. Util. Comm’n of Tex., No. 03-06-
00585-CV, 2008 WL 615417, at *13 (Tex. App.—Austin Mar. 5, 2008, no pet.) (mem.
op.) (“The Texas Supreme Court has recognized that administrative agencies are
entitled to considerable procedural flexibility, see City of Corpus Christi v. [Pub.] Util.
Comm’n [of Tex.], 51 S.W.3d 231, 262 (Tex. 2001), and that courts may interfere with
the procedures of an administrative agency only if they are arbitrary and capricious or
deny due process.”); Starr Cty. v. Starr Indus. Servs., Inc., 584 S.W.2d 352, 356 (Tex.
App.—Austin 1979, writ ref’d n.r.e.) (“The major factor that runs throughout
arbitrary[–]capricious review cases is that parties must be able to know what is
expected of them in the administrative process.”).
43
enforcement’s investigation as well as its ability to conduct contemporaneous or
future undercover operations at this or other establishments.” Again, the premise of
El Duranguense’s argument—a law-enforcement agency has an obligation to
jeopardize an ongoing investigation by disclosing that investigation to its target—is
specious. The ALJ found that El Duranguense’s own employees solicited drinks that
the bar charged at an inflated price, possessed cocaine, and sold cocaine to the agents
on the licensed premises. It was reasonable for the ALJ to conclude that
El Duranguense permitted such activity. The fact that the SIU did not inform
El Duranguense that it had uncovered such conduct in the course of its investigation
does not render the finding or the TABC’s actions arbitrary and capricious. See
Kawasaki Motors, 855 S.W.2d at 795.
Accordingly, we conclude that the TABC’s actions in not conducting a
settlement conference while the investigation was ongoing was not arbitrary and
capricious.
STACKING OF CHARGES
In its seventh issue, El Duranguense contends that the TABC committed an
error of law, violated its due-process and due-course-of-law rights, and acted
arbitrarily and capriciously by “stacking” offenses when it waited until it had three
violations before notifying El Duranguense of the violations.
The concept of “stacking” comes from Section 3.03 of the Texas Penal Code,
which provides that the sentences for convictions arising out of the “same criminal
44
episode” that are tried together must run concurrently unless the convictions are for
certain specified offenses. See Tex. Penal Code Ann. § 3.03(a)–(b). Thus, “stacking”
occurs when one violation is split into multiple smaller violations in order to make the
offense look worse than it is or to create more oppressive punishment.22
The TABC did not engaged in the “stacking of charges” by prosecuting
multiple, different violations committed by different persons on three different dates.
As the TABC points out, it imposes no criminal penalty and is statutorily required to
enforce regulations and to impose sanctions and penalties for violations that represent
a threat to public health, safety, or welfare. See Tex. Alco. Bev. Code Ann. §§ 1.03,
11.61(b)(2); 16 Tex. Admin. Code § 34.2 (2019) (Tex. Alco. Bev. Comm’n, Schedule
of Sanctions and Penalties for Health, Safety and Welfare Violations). By statute, the
TABC has the authority to cancel a permit based on a single violation of the
drink-solicitation or narcotics-related prohibitions of the Code at issue in this case.
See Tex. Alco. Bev. Code Ann. §§ 11.61(b)(2), 104.01(a)(4), (9); 16 Tex. Admin. Code
35.31(b).23 Thus, the TABC’s continued investigation into the bar did not necessarily
22
For example, the undercover agents purchased multiple bindles at one time.
If the agency had charged separate Code violations for each bindle, then that would
be an example of “stacking,” according to the TABC.
23
See also 16 Tex. Admin. Code §§ 34.1(j) (providing that the penalty matrix,
which provides for cancellation after a second violation, “does not apply to a
contested case” brought under the APA), 34.2 (penalty matrix for health, safety, and
welfare violations).
45
result in any additional or harsher penalty, but it did ensure that the first violation was
not a one-time incident or due to the actions of a rogue employee.
El Duranguense cites Patel v. Texas Department of Licensing and Regulation to argue
that the “actual, real-world effect (of Appellee’s actions towards Appellant) . . . could
not arguably be rationally related to, or is so burdensome as to be oppressive in light
of, [a] governmental interest.” See 469 S.W.3d 69, 87 (Tex. 2015). This argument is
confusing but appears to be a regurgitation of the same arguments that
El Duranguense makes in support of its other issues regarding the lack of
employment records and an opportunity for voluntary compliance. See id. We
disagree with El Duranguense’s position that the real-world effect of continuing an
investigation until a pattern of criminal activity is established is not rationally related
to the governmental interest of removing bad actors from the alcoholic beverage
industry, and El Duranguense fails to explain how the practice is not rationally related.
See id.
A TABC-licensed bar does not have a constitutional right to be notified when a
policing authority has determined that the bar has violated the Code in the course of
an investigation. Accordingly, we conclude the TABC did not impermissibly “stack”
charges against El Duranguense when it continued investigating the bar to establish a
pattern of criminal activity. We overrule El Duranguense’s seventh issue.24
In all seven issues that it asserts on appeal, El Duranguense makes the
24
boilerplate statement, “Appellant complains of Findings of Fact 3-27 and Conclusions
46
CONCLUSION
Having overruled all seven of El Duranguense’s issues on appeal, we affirm the
judgment of the district court affirming the final order of the TABC.
/s/ Dabney Bassel
Dabney Bassel
Justice
Delivered: March 26, 2020
of Law 4-7” from the Proposal for Decision. Except for those findings and
conclusions that we have addressed above, El Duranguense did not adequately brief
any legal or factual arguments, if any, applicable to each finding of fact or conclusion
of law that it included in these boilerplate statements. See Tex. R. App. P. 38.1(i).
47