STATE OF IOWA BEFORE THE DEPARTMENT OF COMMERCE ALCOHOLIC BEVERAGES DIVISION

Transcription

1 STATE OF IOWA BEFORE THE DEPARTMENT OF COMMERCE ALCOHOLIC BEVERAGES DIVISION IN RE: ) ) Docket No. A Brianne Wells ) DIA No. 09DOCBL128 d/b/a Bootlegger s Cajun Restaurant & Lounge ) 701 Main Street ) Hamburg, Iowa ) PROPOSED DECISION ) New License Application ) On September 15, 2009, the Hamburg City Council (local authority) denied the initial liquor license application filed by Brianne Wells d/b/a Bootlegger s Cajun Restaurant & Lounge (applicant) for the premises located at 701 Main Street in Hamburg, Iowa. The applicant appealed the denial to the Alcoholic Beverages Division (Division). A hearing was held before Administrative Law Judge Margaret LaMarche on October 16, 2009 at 1:00 p.m. at the Iowa Alcoholic Beverages Division in Ankeny, Iowa. City Attorney T. J. Pattermann represented the local authority. Attorney Michael J. Murphy represented the applicant. THE RECORD The record includes the electronic license renewal application, Notice of Appeal, Acknowledgment, Notice of Hearing, testimony of the witnesses, and the following exhibits: Local Authority Exhibit 1: Deposition of Linda Burdick Local Authority Exhibit 2: Hamburg City Code Chapter 48 Local Authority Exhibit 3: Lease for premises Local Authority Exhibit 4: Audio Tapes of Local Authority Meeting (9/14/09) Local Authority Exhibit 5: excluded Local Authority Exhibit 6: Personal Banking Information for Applicant Local Authority Exhibit 7: Property Tax Statement for 701 Main Street Local Authority Exhibit 8: Property Tax Statement for 601 Main Street Applicant Exhibit A: Premises Sketch

2 DIA No. 09DOCBL128 Page 2 Applicant Exhibit B: Applicant Exhibit C: Applicant Exhibit D: Applicant Exhibit E: Applicant Exhibits F-H: Business Banking Information for Applicant Information from Fire Chief Website Photographs of Bootlegger s Written Statement of Mike and Caleb Hammons excluded ISSUES Whether the local authority properly denied the application for a new class C Liquor License filed by Brianne Wells due to concerns about: the impact of a liquor license at this location on its enforcement of its City Ordinance chapter 48; issues related to the interior doorway between the proposed premises and its neighboring adult entertainment establishment; applicant s failure to produce the signature card for her business account and her unfamiliarity with the responsibilities associated with the liquor license; concerns over whether the applicant is actually a resident of Iowa; and the relationships between the applicant and the owners of the neighboring adult entertainment establishment and questions about the actual ownership of Bootlegger s. FINDINGS OF FACT 1. On or about June 29, 2009, Brianne Wells, d/b/a Bootlegger s Cajun Restaurant (Bootleggers) filed an initial application for a new class C liquor license, with outdoor service and Sunday sales privileges, for the premises located at 701 Main Street in Hamburg, Iowa. A class C liquor license authorizes the sale of liquors, wine and beer to patrons by the individual drink for consumption on the premises only but also permits sales of beer for consumption off the premises. 1 Brianne Wells applied for the liquor license as a sole proprietor and as the 100% owner of the business. She provided a home address of 601 Main Street, Apt. 1, in Hamburg. (Testimony of Brianne Wells; Warren Aistrope; Electronic License Application) 1 See Iowa Code section (3)(c)(2009).

3 DIA No. 09DOCBL128 Page 3 2. Hamburg is a small town with an approximate population of Bootlegger s is located within a strip mall owned by Clarence Judy. The only other business located in the strip mall with Bootlegger s is the Hamburg Theater for the Performing Arts ( Theater ), which is an adult entertainment business. The space occupied by the Theater was formerly occupied by a restaurant known as Shotgun Geneiz. The Theater is owned by Clarence Judy and Terry Rutledge. The Theater does not currently have a liquor license, but allows customers to bring their own alcoholic beverages onto the premises. On December 8, 2008, the local authority enacted Hamburg City Code Chapter 48, which prohibits the possession or consumption of any alcoholic beverage, wine, or beer on the premises of any sexually oriented business. However, the city is not currently enforcing this ordinance due to a pending lawsuit filed by Clarence Judy. (Testimony of Mayor Cathy Crain; Local Authority Exhibits 1, 2; Applicant Exhibit A) 3. Bootlegger s has a separate outside entrance on Main Street and its own parking lot. The outside entrance to the Theater is around the corner from Bootlegger s on A Street. However, the two businesses share a common wall. (Testimony of Brianne Wells; Applicant Exhibit A) When the liquor license application was filed, there was an interior double door connecting Bootlegger s to the Theater. (Testimony of Cathy Crain; Brianne Wells; Sheriff Warren Aistrope; Local Authority Exhibit 4) Law enforcement and the local authority were concerned that the Theater s patrons and employees could use this common door to gain access to alcoholic beverages from Bootleggers. There had previously been another business with a liquor license (DJ s) located in the same space now occupied by Bootlegger s. When DJ s was in business, the local authority had received complaints of alcoholic beverages and adult entertainers passing between the two business through the interior door. Law enforcement asked Brianne Wells to seal off the interior double doors, but this raised concerns with the local authority because the fire department had initially determined that the interior door provided a necessary emergency exit for Bootlegger s in the case of fire. Although this issue was raised as a concern by the local authority, on October 1, 2009, the fire department and the sheriff s department agreed that the double door could be sealed off, and the fire department approved an alternative secondary fire egress. As of the date of the hearing before the division, the interior doors had been completely sealed off with a new interior wall. (Testimony of Mayor Cathy Crain; Brianne Wells; Applicant Exhibit C)

4 DIA No. 09DOCBL128 Page 4 4. The local authority also raised concerns about the multiple relationships between Brianne Wells and Clarence Judy and questioned whether Clarence Judy was personally and financially involved in opening Bootlegger s. a. Ms. Wells has worked as a dancer at the Theater/Shotgun Geneiz over the past three or four years. The Theater s dancers are all independent contractors and dance solely for tips. Ms. Wells estimated that her income from dancing was $12,000- $18,000 in 2008 and between $500 and $1500 a month from January to August Ms. Wells believes that she is not legally required to pay income taxes on her tip income. (Testimony of Brianne Wells) b. Ms. Wells has also been working for Hamburg Auto, which is also owned by Clarence Judy. Ms. Wells characterized this employment as a learning experience. She has sold cars solely on commission and volunteered to do paperwork for Mr. Judy at a time when the business was not making a profit. (Testimony of Brianne Wells) c. On her liquor license application, Brianne Wells stated that her Iowa residential address is 601 Main Street, Apt. 1, in Hamburg. The apartment is in the same building that houses Hamburg Auto. Ms. Wells testified that she pays Clarence Judge $300 in monthly rent for the apartment. She further testified that before renting this apartment, she rented another apartment from Mr. Judy where she would sleep on the nights that she was too tired to return to her home in Talmadge, Nebraska. (Electronic Liquor License Application; Testimony of Brianne Wells; Local Authority Exhibit 8) d. Brianne Wells is represented on this appeal by the same attorney who represents Clarence Judy in his lawsuit concerning Hamburg City Code chapter 48. (Testimony of Brianne Wells; Local Authority Exhibit 1) e. On August 1, 2009, Brianne Wells and Clarence Judy entered into a lease that consists solely of two paragraphs. The leased property is described as the front sixty feet of the building located at 701 Main, Hamburg, IA, equipment and fixtures need to operate the restaurant are included in lease. The lease further states that Lease begins on 9/1/09 and is renewed each year. $1, per month will be paid on the 1 st of each month. The lease does not specify what portion of the $1,000 is for equipment and fixtures and what portion is solely for the use of the space. The lease

5 DIA No. 09DOCBL128 Page 5 does not specify who is responsible for leasehold improvements or payment of utilities. Ms. Wells testified that she pays the utilities for Bootlegger s and splits the water bill for the building with Mr. Judy because the restaurant does not have a separate water meter. There are no terms for either party to terminate the lease. (Testimony of Cathy Crain; Brianne Wells; Local Authority Exhibit 3) f. According to Ms. Wells, Clarence Judy paid for the custom bar, the booths, and the chairs for Bootlegger s. He allowed her to scavenge what she could of the kitchen equipment left from the prior tenant. Ms. Wells claimed that she paid for the flat screen televisions that are at each booth, the custom lighting, and the initial inventory of food and non-alcoholic beverages out of her own personal savings. Ms. Wells estimates that she invested $40,000 to $50,000 of her personal savings in the business. She testified that she initially paid these expenses out of her personal bank account at the Great Western Bank in Hamburg, which she opened on April 3, (Local Authority Exhibit 6) g. Brianne Wells testified that she also has a personal verbal agreement with Clarence Judy to repay him for the bar, equipment, furniture, and fixtures. She provided a confusing description of their verbal agreement. She could not say how much she currently owes Mr. Judy for his contributions to her business and stated that the full amount has not been established because they continue to make improvements. Ms. Wells testified that she will make additional payments to Mr. Judy as her business makes money and she is able to do so. For example, she testified that if her business is doing well in a particular month she may pay him more than the $1000 rent and may pay him $2,000, $3,000, or even $4000. If the business is not doing well she expects that Mr. Judy would allow her to pay him less than $ If the business should close, she expects that she would take what she had paid for, and Mr. Judy would keep what he paid for. Ms. Wells admitted that Clarence Judy travelled with her to the hearing in Ankeny, but Mr. Judy did not attend the hearing, and she did not call him as a witness to clarify their business relationship. (Testimony of Brianne Wells) 5. The local authority asked Brianne Wells to provide copies of the signature card for her business banking account for Bootleggers. On the day that the local authority met to consider the license application (September 14, 2009) Brianne Wells opened a Bootlegger s business account at Great Western Bank. (Applicant Exhibit B) However, she did not have the signature card with her when she appeared before the local authority. (Local Authority Exhibit 4a) She did submit the signature card for her

6 DIA No. 09DOCBL128 Page 6 business account at the hearing before the division. Ms. Wells reports that she is currently paying her payroll and some expenses from this account. Ms. Wells reports she also pays some of her business expenses in cash. (Testimony of Brianne Wells) Ms. Wells did not provide any documentation of her personal investment in Bootlegger s or her business expenditures. 6. The local authority also raised concerns about Brianne Wells close relationship with Terry Rutledge, who is one of the owners of the Theater, and the extent of his personal involvement in Bootlegger s. The local authority also expressed concerns that Brianne Wells may not actually be a resident of Iowa, as required to hold a liquor license as a sole proprietor, but may continue to reside in Nebraska with Mr. Rutledge. a. The local authority asked Fremont County Sheriff Warren Aistrope to conduct an investigation concerning Ms. Wells legal residence and criminal background. Sheriff Aistrope determined that Ms. Wells has no criminal record. He further determined that on May 28, 2009, Ms. Wells turned in a Nebraska driver s license and obtained an Iowa driver s license with her Hamburg address. Ms. Wells former Nebraska driver s license listed her residence as 501 Cedar in Talmadge, Nebraska. This is also Terry Rutledge s address. Ms. Wells told Sheriff Aistrope that Terry Rutledge was her boyfriend but denied having any partners in her restaurant business. At the hearing before the division, Ms. Wells denied that Terry Rutledge was her boyfriend and claimed that she rented the finished basement of Mr. Rutledge s house, which has a separate entrance. Ms. Wells denial of a close personal relationship with Mr. Rutledge was not credible in light of her prior admission to Sheriff Aistrope and the other evidence in this record. (Testimony of Cathy Crain; Sheriff Warren Aistrope; Brianne Wells) b. Sheriff Aistrope reviewed records showing that on April 23, 2005, Ms. Wells and Mr. Rutledge were both victims of an assault and both of them provided the 501 Cedar address in Talmadge as their home address. On February 8, 2007, Ms. Wells reported a car accident and provided the 501 Cedar address as her residence. Ms. Wells was driving one of Mr. Rutledge s vehicles at the time of the accident. (Testimony of Sheriff Warren Aistrope) c. Brianne Wells had previously described herself as partnering with Terry Rutledge. At the hearing before the division, Brianne Wells testified that Terry Rutledge has experience as a cook and advised her on her menu and provided some

7 DIA No. 09DOCBL128 Page 7 training to her cook(s). Ms. Wells did not pay Mr. Rutledge for these services. (Testimony of Brianne Wells) 7. Bootlegger s opened in September 2009 and has an approximate capacity of 60 persons. According to its website, it is currently open Monday-Friday from 11:00 a.m. to 9:00 p.m. and Friday and Saturdays, 11:00 a.m. to 5:00 p.m. The restaurant offers a full menu and currently has six employees: two cooks, two waitresses, and two on-call waitresses. Brianne Wells testified that the business has done well and has generated enough income to cover her expenses. However, business would be better if she could offer alcoholic beverages to her customers. A large party from Lincoln, Nebraska recently cancelled its dinner reservation after learning that the restaurant did not have a liquor license. (Testimony of Brianne Wells; Applicant Exhibit D) CONCLUSIONS OF LAW The Iowa Alcoholic Beverages Control Act (Iowa Code chapter 123) is an exercise of the police power of the state, for the protection of the welfare, health, peace, morals, and safety of the people of the state, and all its provisions shall be liberally construed for the accomplishment of that purpose. It is declared to be public policy that the traffic in alcoholic liquors is so affected with a public interest that it should be regulated to the extent of prohibiting all traffic in them, except as provided in chapter Iowa Code section (2009). Local authorities may adopt ordinances or regulations for the location of the premises of retail wine or beer and liquor control licensed establishments. 3 The division s rules provide that counties, cities and towns are free to adopt more restrictive ordinances or regulations governing licensed liquor establishments within their jurisdiction. 4 I. Burden of Proof. Iowa Code section (6)(2009) provides: 6. Appeal to administrator. An applicant for a liquor control license, wine permit, or beer permit may appeal from the local authority's 2 Iowa Code section (2009). 3 Iowa Code section (2)(2009) IAC 4.3.

8 DIA NO. 09DOCBL128 Page 8 disapproval of an application for a license or permit to the administrator. In the appeal the applicant shall be allowed the opportunity to demonstrate in an evidentiary hearing conducted pursuant to chapter 17A that the applicant complies with all of the requirements for holding the license or permit... In this proceeding, the licensee has the burden of establishing that she complies with all of the requirements for holding a liquor license in the state of Iowa. II. State Statutes and Regulations Require Liquor Licensees To Have Good Moral Character and To Fully Disclose Ownership. Iowa Code section (3)(2009) requires verified applications for the original issuance or renewal of liquor control licenses to include the names and addresses of all persons having a financial interest, by way of loan, ownership, or otherwise, in the business. Iowa Code section (1)(a)(2009) provides that a liquor control license may only be issued to a person who is of good moral character as defined by this chapter. Iowa Code section 123.3(26)(2009) provides, in relevant part, the following definition of "person of good moral character": 26. "Person of good moral character" means any person who meets all of the following requirements: a. The person has such financial standing and good reputation as will satisfy the administrator that the person will comply with this chapter and all laws, ordinances, and regulations applicable to the person's operations under this chapter c. Notwithstanding paragraph e, the applicant is a citizen of the United States and a resident of this state, or licensed to do business in this state in the case of a corporation. e. The requirements of this subsection apply to the following:

9 DIA NO. 09DOCBL128 Page 9 (3) A person who directly or indirectly has an interest of ten percent or more in the ownership or profits of such person. Iowa Code section 123.3(26), subsection (a) is necessarily subjective and essentially asks if the person s financial standing and reputation indicate that they can be relied upon to comply with all laws, ordinances and regulations applicable to the highly regulated business of selling alcoholic beverages. However, 185 IAC 4.2(4) b provides further guidance for evaluating good reputation: 4.2(4) Financial standing and reputation. A local authority or the administrator may consider an applicant's financial standing and good reputation in addition to the other requirements and conditions for obtaining a liquor control license...and local authority or the administrator shall disapprove or deny an application for a liquor control license,... if the applicant fails to demonstrate that the applicant complies with the lawful requirements and conditions for holding the license... a. In evaluating an applicant s financial standing, the local authority or the administrator may consider the following: An applicant s financial standing may include, but is not limited to, verified sources(s) of financial support and adequate operating capital for the applicant s proposed establishment, a record of prompt payment of local or state taxes due, b. In evaluating an applicant's "good reputation," the local authority or the administrator may consider such factors as, but not limited to, the following:... pattern and practice by the licensee or permittee or the licensee's or permittee's agents or employees, of violating alcoholic beverages laws and regulations for which corrective action has been taken since the previous license or permit was issued... In addition, Iowa Code section (1)(b)(1) and (4) (2009) provide, in relevant part, that a liquor license or beer permit may be suspended or revoked, or a civil penalty may be imposed on the license or permit holder by the local authority or the administrator for any of the following causes: (1) Misrepresentation of any material fact in the application for the license or permit...

10 DIA NO. 09DOCBL128 Page (4) An event which would have resulted in disqualification from receiving the license or permit when originally issued. III. Analysis As reflected in the recording of the September 14, 2009 meeting during which they considered this liquor license application (Local Authority 4a), the members of the local expressed concern that the location for Bootlegger s was chosen in order to provide easy access to alcoholic beverages for patrons of the Hamburg Theater for the Performing Arts, thereby circumventing and/or violating Hamburg City Code chapter 48. The local authority was also concerned that Clarence Judy and/or Terry Rutledge, who are the Theater s owners, also have an ownership interest in Bootlegger s that was not disclosed on the application. Some members of the local authority were skeptical of Ms. Wells claims of Iowa residency and some were dissatisfied with her explanations concerning the interior door between Bootlegger s and the Theater. Brianne Wells has failed to carry her burden to show that she meets the good moral character requirement of Iowa Code section (1)(a) and that she is qualified to hold a class C liquor license for this location. All applicants for liquor licenses in Iowa are required to have adequate financial standing and to disclose all direct or indirect ownership interests in excess of ten percent. Based on this record, the local authority and the division have ample grounds to reject Ms. Wells claim that she is the 100% owner of Bootlegger s and that Clarence Judy does not have an ownership interest in Bootlegger s. Ms. Wells, who is 24 years old, claims to have invested $40,000-$50,000 of her own money in Bootlegger s, but she provided no documentation of her expenditures and no documentation to identify the source(s) of this money. Ms. Wells estimate of her earned income as a dancer is not sufficient to explain the source of her business capital, and she admitted that she has not paid taxes on her tip income as a dancer. Brianne Wells description of Clarence Judy s financial involvement with Bootlegger s closely resembles a business partnership, and not the limited landlord-tenant relationship that she claims. The rudimentary lease agreement between Ms. Wells and Mr. Judy does not spell out any terms of a repayment agreement with respect to Mr. Judy s investments in the business. Moreover, Ms. Wells describes a purely verbal and essentially voluntary repayment agreement, which contradicts even the minimal terms

11 DIA NO. 09DOCBL128 Page 11 provided in the written lease. Repayment is dependent upon the profitability of her business. If profits are up, then Mr. Judy is repaid at a higher rate, if profits are down, he may not even receive the $1,000 monthly payment specified in the lease. Ms. Wells admitted that she pays no interest to Mr. Judy, and she could not provide an estimate of how much principal she currently owes. In addition, Ms. Wells provided no documentation to show that she has actually made rent payments to Mr. Judy for either her business lease or for her Iowa residence. Based on this record, the local authority and the division cannot conclude, by a preponderance of evidence, that Brianne Wells has truthfully disclosed all of the ownership interests in Bootlegger s, that she has the personal financial standing required to operate the business, or that she will comply with all of the statutes, rules and ordinances applicable to licensed liquor establishments. DECISION AND ORDER It is therefore ORDERED that the initial application for a class C liquor control license filed by Brianne Wells d/b/a Bootlegger s is hereby DENIED for failure to establish her 100% ownership, as she claimed on the application, and for failure to meet the good moral character requirement for holding a liquor license. Pursuant to the administrative rules of the division, a party to the appeal who is aggrieved by the proposed decision may file a request for review, in writing, within thirty days after issuance of the proposed decision. Requests for review shall be sent to the Administrator of the Alcoholic Beverages Division, 1918 S.E. Hulsizer, Ankeny, IA Upon receipt of the request for review, the administrator may request briefs and exceptions from the parties to the appeal on any and all issues raised in the evidentiary hearing. The administrator shall review the proposed decision on the record made at the evidentiary hearing and on the briefs and exceptions filed by the parties to the appeal. The administrator may affirm, reverse or modify the proposed decision. A party who is aggrieved by the proposed decision shall not be deemed to have exhausted administrative remedies unless the aggrieved party files a request for review of the proposed decision within the time provided and the administrator has reviewed the proposed decision and has affirmed, reversed, or modified the proposed decision.

12 DIA NO. 09DOCBL128 Page 12 Dated this 6 th day of November, Margaret LaMarche Administrative Law Judge Department of Inspections and Appeals Division of Administrative Hearings Wallace State Office Building-Third Floor Des Moines, Iowa cc: See Attached Mailing List

13 Copies to: Margaret LaMarche Administrative Law Judge Department of Inspections & Appeals Administrative Hearings Division Wallace State Office Bldg-3 rd Fl., 502 E 9 th Des Moines, Iowa John Lundquist Assistant Attorney General Department of Justice Hoover State Office Building Des Moines, Iowa Lt. Michael Miller ISP, District # Hunt Avenue Council Bluffs, Iowa John Henry Ellison, Chief Investigator Iowa Lottery 2323 Grand Avenue Des Moines, Iowa Gayle Collins Commissioner Iowa Alcoholic Beverages Division 1918 SE Hulsizer Ankeny, Iowa Beverly Zylstra Social Gaming Unit Lucas State Office Bldg. Des Moines, Iowa Karen Freund Iowa Alcoholic Beverages Division Licensing Supervisor 1918 SE Hulsizer Ankeny, Iowa Chief Nick Millsap Hamburg Police Department 1201 Main Street, PO Box 106 Hamburg, Iowa City Clerk City Hall PO Box 106, 1201 Main Hamburg, Iowa Brianne Wells Bootlegger s Cajun Restaurant & Lounge 701 Main Street Hamburg, Iowa 51640