NO CV IN THE FIFTH DISTRICT COURT OF APPEALS AT DALLAS

Transcription

1 NO CV IN THE FIFTH DISTRICT COURT OF APPEALS AT DALLAS MELMAT, INC. D/B/A EL CUBO VS. TEXAS ALCOHOLIC BEVERAGE COMMISSION Appellant, Appellee. On Appeal from the 101st Judicial District Court, Dallas County, Texas The Honorable Martin Lowy, Presiding APPELLANT'S REPLY BRIEF Hilaree A. Casada Texas Bar Card No Richard Barrett-Cuetara Texas Bar Card No COWLES & THOMPSON, P.C. 901 Main Street, Suite 3900 Dallas, TX Telephone: (214) Facsimile: (214) ATTORNEYS FOR APPELLANT

2 TABLE OF CONTENTS Table of Contents... i Index of Authorities... ii Summary of the Argument... 1 Argument and Authorities... 1 I. The order should be vacated regardless of whether substantial evidence supports the order because the decision prejudices El Cubo s rights II. The TABC s review on rehearing is highly relevant and telling... 3 Conclusion... 5 Prayer... 5 Certificate of Service... 6 i

3 INDEX OF AUTHORITIES CASES Allen-Burch, Inc. d/b/a The Fare v. Tex. Alcoholic Beverage Commission, 104 S.W.3d 345 (Tex. App. Dallas 2003, no pet.)... 2 City of Arlington v. Centerfolds, Inc., 232 S.W.3d 238 (Tex. App. Fort Worth 2007, pet. denied)... 4 City of El Paso v. Public Util. Comm n, 883 S.W.2d 179 (Tex. 1994)... 2 Fay-Ray Corp. d/b/a Chequers v. Tex. Alcoholic Beverage Commission, 959 S.W.2d 362 (Tex. App. Austin 1998, no pet.)... 2 Lewis v. Metropolitan Sav. & Loan Ass n, 550 S.W.2d 11 (Tex. 1977)... 1, 4, 5 Potter v. Sun Oil Co., 189 S.W.2d 482 (Tex. 1945)... 3 Tex. Alcoholic Bev. Comm n v. Top of the Strip, Inc., 993 S.W.2d 242 (Tex. App. San Antonio 1999, pet. denied)... 2 STATUTES TEX. GOV T CODE (2)... 5 TEX. GOV T CODE (e)... 5 ii

4 SUMMARY OF THE ARGUMENT Although it is admittedly difficult to prevail under a substantial evidence review, El Cubo should prevail here because the TABC did not meet its burden of proof. El Cubo stands by the Statement of Facts and the arguments presented in its opening brief and will not repeat those arguments in this reply. Rather, this reply will discuss the TABC s failure to address the evidence presented establishing the arbitrary and capricious nature of the ruling as well as the issues raised regarding the rehearing process. ARGUMENT AND AUTHORITIES Over thirty years ago, the Texas Supreme Court succinctly summarized the scope and importance of this Court s review: Broadly speaking, the substantial evidence rule is a court review device to keep the courts out of the business of administering regulatory statutes enacted by the Legislature; but it remains the business of the courts to see that justice is administered to competing parties by governmental agencies. Lewis v. Metropolitan Sav. & Loan Ass n, 550 S.W.2d 11, 13 (Tex. 1977). Justice was not administered to El Cubo here. On the contrary, the cancellation of El Cubo s permits, which became a death penalty, was not supported by the evidence and was unreasonably harsh. I. The order should be vacated regardless of whether substantial evidence supports the order because the decision prejudices El Cubo s rights. Texas law is clear that an order supported by substantial evidence must still be reversed as arbitrary and capricious if the agency failed to consider a factor the legislature directed it to consider, considered an irrelevant factor, or reached an unreasonable result. 1

5 Tex. Alcoholic Bev. Comm n v. Top of the Strip, Inc., 993 S.W.2d 242, 252 (Tex. App. San Antonio 1999, pet. denied) (citing City of El Paso v. Public Util. Comm n, 883 S.W.2d 179, 184 (Tex. 1994)). El Cubo presented the Court with nine pages of argument addressing multiple reasons why the decision in this case must be reversed as arbitrary and capricious. (Appellant s Brief at 19-27). Instead of addressing the many undisputed facts and mitigating factors that undermine the cancellation order, the TABC responds simply that the penalty imposed falls within the TABC s discretion, and the ALJ had discretion to deny El Cubo s motion for continuance. (Appellee s Brief at 3, 17-19). That response illustrates a larger, institutional problem. Namely, that the TABC is more interested in cancelling licenses then educating its licensees so that they can become successful, compliant businesses. Appellant refers the Court to Appellant s opening brief at pages for a detailed discussion of the evidence and issues supporting a finding that the decision was arbitrary and capricious. Unlike the cases 1 relied on by the TABC, this case does not involve lewd conduct or the habitual failure to comply with the Code as characterized by the TABC. On the contrary, the after-hours violation was only the second alleged after-hours violation, and the solicitation violation was only the third alleged solicitation violation. (2 RR Ex. 2). Simply put, a business should not have been shut down based on such minor violations, especially when those alleged violations were issued following 1 Allen-Burch, Inc. d/b/a The Fare v. Tex. Alcoholic Beverage Commission, 104 S.W.3d 345, (Tex. App. Dallas 2003, no pet.); Fay-Ray Corp. d/b/a Chequers v. Tex. Alcoholic Beverage Commission, 959 S.W.2d 362, (Tex. App. Austin 1998, no pet.). 2

6 incomplete and questionable sting operations. That result is contrary to the Commission s stated goals, is inequitable, and further supports reversal here. II. The TABC s review on rehearing is highly relevant and telling. The TABC understandably dislikes El Cubo s view of the order on rehearing and counsel s conclusion that there was, at a minimum, an appearance of impropriety here. However, the TABC s argument that these concerns are not reviewable because they are not present in the administrative record is illogical and, if followed, would provide the TABC with the ability to abuse its position and unilaterally violate the constitutional rights of permittees without any threat of negative repercussions or reversal. First, the tenor of the order on rehearing speaks for itself. A cold reading of the order alone shows that it was written in a prosecutorial manner. (CR 51-54). Moreover, the order contains alleged facts and evidence that are not supported by the record. (Appellant s Brief at 29-30). The TABC is required to treat parties fairly and impartially. Potter v. Sun Oil Co., 189 S.W.2d 482, 584 (Tex. 1945). The order on rehearing illustrates that did not occur here. This is important because it goes directly to whether El Cubo s due process rights were violated. For example, the Fort Worth Court of Appeals recently determined that the tenor of the fact-finders questions supported a finding that the club s procedural due process rights had been violated: The active, almost prosecutorial tone of the Board s comments, when combined with the inability to discern whether the Board impermissibly took into account public commentary that was not available for crossexamination, leaves the impression that the hearing was inherently unfair to 3

7 appellees. Therefore, appellees conclusively proved that the Board's decision could not be upheld because it is arbitrary and capricious. City of Arlington v. Centerfolds, Inc., 232 S.W.3d 238, 254 (Tex. App. Fort Worth 2007, pet. denied), citing Lewis v. Metro. Savings and Loan Assoc., 550 S.W.2d 11, 16 (Tex. 1977). The same is true here. The prosecutorial tone of the order, combined with the TABC s reliance on facts not within the administrative record, illustrate the arbitrary and capricious nature of the reasons for cancellation and the underlying proceedings. At a minimum, the rehearing process was flawed and resulted in a violation of procedural due process. Either way, the decision was arbitrary and capricious and should not be upheld. See Lewis, 550 S.W.2d at 16 ( There is arbitrariness where the treatment accorded parties in the administrative process denies them due process of law. ). The TABC s reliance on two cases from the El Paso Court of Appeals for the proposition that rehearings are not essential to due process is misplaced because they conflict with Lewis and Centerfolds, Inc., are not binding on this Court, and are factually distinguishable. Second, counsel s concerns that the TABC s prosecution division played an improper role in the Administrator s review of the case on rehearing is properly before the Court. The facts asserted on this issue are not wild factual allegations outside of the record. (Appellee s Brief at 19). Rather, these facts were verified by El Cubo s counsel in pleadings filed in the trial court. (CR 18-19, 34). The concerns relate to the Administrator s review on rehearing. As such, the facts that formed the basis of those concerns necessarily came to light after the administrative hearing and, thus, could not be part of the administrative record. Indeed, these concerns were properly presented in the 4

8 trial court as evidence of procedural irregularities not reflected in the record. TEX. GOV T CODE (e). This issue is properly before the Court. CONCLUSION The rulings appealed from are unreasonable, arbitrary, capricious, discriminatory, and without foundation. Moreover, the rulings and the TABC s administrative review of the rulings at the rehearing stage violated El Cubo s rights to due process. Cancelling El Cubo s permits and license has put the bar out of business and, thus, constitutes a death penalty. Such a harsh sanction was not warranted here. Indeed, the evidence relied on by the ALJ and the Commission is so weak that it does not support a finding that any violations occurred, let alone support the cancellation of El Cubo s permits. Moreover, if any action is warranted at all, several mitigating factors exist that call for the imposition of lesser sanctions. PRAYER El Cubo respectfully prays that the Court reverse the TABC s May 3, 2010 Order and remand to the TABC for determination of an award of El Cubo s reasonable and necessary attorneys fees. TEX. GOV T CODE (2). Alternatively, El Cubo prays that the Court reverse the TABC s May 3, 2010 Order and remand the case to the TABC for a determination of lesser sanctions that do not include any degree of cancellation or suspension of El Cubo s permits or certificate. See Lewis, 550 S.W.2d at 16 (reversing and remanding for further proceedings consistent with the opinion). In the further alternative, El Cubo prays that the Court remand the case to the TABC for an 5

9 unbiased review of the case on rehearing. El Cubo prays for such other and further relief to which it may be justly entitled. Respectfully submitted, By: Hilaree A. Casada Texas Bar No Richard Barrett-Cuetara Texas Bar No COWLES & THOMPSON, P.C. 901 Main Street, Suite 3900 Dallas, TX Telephone: (214) Facsimile: (214) ATTORNEYS FOR APPELLANT CERTIFICATE OF SERVICE The undersigned certifies that on the 4th day of January, 2011, a true and correct copy of Appellant s Reply Brief was delivered via Certified Mail Return Receipt Requested to the counsel of record listed below. Mr. Nick Canaday Office of the Attorney General Price Daniel Sr. Bldg. P.O. Box Austin, TX Hilaree A. Casada 6