Karry Phillips et al. v. Alcoholic Beverage Control Division et al.

ca05-137

ARKANSAS COURT OF APPEALS
NOT DESIGNATED FOR PUBLICATION

DIVISION IV

CA05-137

September 28, 2005

KARRY PHILLIPS, et al. AN APPEAL FROM INDEPENDENCE

COUNTY CIRCUIT COURT

APPELLANTS [CV-2004-58-4]

v.

HONORABLE TIMOTHY M. WEAVER

ALCOHOLIC BEVERAGE CIRCUIT JUDGE

CONTROL DIVISION, et al.

APPELLEES REVERSED and REMANDED

David M. Glover, Judge

Appellants1 have appealed from an order of the Independence County Circuit Court affirming a decision by the Alcoholic Beverage Control Division (Board) granting a private-club permit to Josie's at the Lockhouse in Batesville. For the reasons expressed below, we reverse the decisions of the circuit court and the Board and remand for further proceedings before the Board.

Appellee Zack Jennings (an intervenor below) applied for a private-club permit on behalf of Josie's on October 16, 2003. The application listed appellee Steve Carpenter (also an intervenor) as president of the corporation, Greg Griffin as vice president, and Jennings as secretary-treasurer, and it stated that the club would be open on Thursday, Friday, and Saturday nights and for special events on other days of the week. The stated purpose of the club was:

[T]o provide excellent food and beverage services for the citizens of Independence County. Our primary entrees are steak and seafood, with assorted appetizers. We plan to serve beer and wine only and do not plan to serve mixed drinks or have a "bar." We also plan to offer entertainment in terms of small bands, combos, and karaoke. The club's facility would be leased from the City of Batesville.

On December 18, 2003, Robert Moore, director of the Alcoholic Beverage Control Division, denied the application as not in the public interest because the agency had received objections from the Independence County Sheriff, the Independence County Prosecuting Attorney, and three Batesville city councilmen; because 765 area residents had written the agency opposing the permit; and because the club did not have a telephone or the approval of the health department.

Jennings appealed the director's decision to the Board, which held a lengthy hearing on January 21, 2004. Counsel for intervenors, H.T. Moore, stated that approval from the health department and a phone number had been obtained and offered copies of a list of 2203 applications for membership, as well as numerous letters and newspaper articles in support of the permit. Appellee Carpenter; Jack Lassiter, interim chancellor for the University of Arkansas Community College in Batesville; Walley Roettger, president of Lyon College; Deborah Allen, former president and CEO of the Batesville Area Chamber of Commerce; Todd Bartholomew, mayor of Weiner; Leroy Blankenship, a Batesville lawyer; and Pat Jones, general manager and publisher of the newspaper in Batesville, testified on behalf of the private club.

Jay Shell, appellants' counsel, argued that, according to the Board's regulations, the stated purpose of the club was not proper. The Board's chairman, Ron Fuller, responded that a law had been passed during the previous legislative session that clarified this question. The Board's attorney, Donald Bennett, stated that Act 1813 of 2003 expanded the definition of "private club" in Ark. Code Ann. § 3-9-202(10)(a)(i) and that he had been informed by people who wrote the amendment that it was intended to "take care of" this court's recent decision in Chili's of Jonesboro, Inc. v. Arkansas Alcoholic Beverage Control Division, 75 Ark. App. 239, 57 S.W.3d 228 (2001).2 When Mr. Shell pointed out that no court decisions had yet interpreted the new language of the statute, Chairman Fuller responded: "[W]hen we think of community hospitality we think of eating you know, having a cup of coffee or drink or whatever ... I feel like it is ... proper what they're asking for. I think it fits under our definition ... under what the Legislature expanded it to."

Mr. Shell then made a second point, that there were certain requirements that a corporation must meet to qualify as a non-profit corporation under the statute. He inquired about the club's number of members, and Mr. Moore responded that, at the time of the application, there were over 100 members and that the Board's staff had determined that there were more than the requisite amount. Chairman Fuller said: "[W]e have to rely on our staff and if the staff says that they had the adequate number ... we usually ... don't feel like it would be before us if the administrative folks did not say it was okay." Mr. Shell stated that he raised this issue because the Board's regulation 5.18 provides that no person shall be considered a member of a club holding a permit under the Alcoholic Beverage Control laws unless such person has made application for and been elected to membership in the club, as provided in the regulations; that the minutes of meetings, which are required to be filed with the articles of incorporation and bylaws, did not include any election of members; that the minimum membership under Regulation 5.19 is 100 voting members who have the right to vote for the election of club directors and officers; that section 5.20 provides that every private club shall have a membership committee, which, when considering a membership application, shall keep written minutes showing the meeting date, the names of all committee members present, the name of any person admitted to membership, and the name of any person whose membership was terminated; and that none of the officers had been elected to their positions, according to the available minutes.

Mr. Moore responded that it was his understanding that the club's corporate structure had already been approved as legally satisfactory. Chairman Fuller stated:

Mr. Shell, you know, our Board has to rely on our administrative department to determine whether the permit needs to come before our Board, okay. We don't get into the bog down of the corporate structure. We depend on these people. They have obviously ruled that this permit was administratively moved far enough up the line for us to hear it. Our job basically comes down to trying to determine the public convenience and advantage of the permit so you know in my considered opinion, our administrative section, our director, has ruled that this permit has a right to be here so if you want to put that into the record let's do that and then kind of move on.

Mr. Shell replied that he had a substantial amount of evidence that this corporation failed "miserably" to comply with Arkansas law and the Board's regulations and said: "It is my understanding that you as the governing body are in place to enforce your regulations. Now, are you telling me you're not here to ...?" Chairman Fuller deferred to Director Moore, who stated: "The ... Board ... must ... make the decision that it's qualified or not." Chairman Fuller said:

Go ahead if you will, fortunately I have two lawyers over here as well and go ahead and put those things in if you will and as the Director just said, I can kind of see our job like I said it's public convenience and advantage and ruling whether the permit and all of the evidence that comes in that we have to vote on stands the test....

Mr. Shell said that he had seen no minutes of any required members' meeting and stated the following:

[T]he law says that I am entitled to know that they had a meeting of the proper people, that the proper people were elected according to the procedure of the law and that when they have their meeting, at least with respect to naming of members, that they kept written minutes, they showed the meeting date, the names of the committee members present and the name of any person admitted to membership. We don't have that.

Mr. Bennett then said that the regulations do not require "every type of minute of every meeting" to be submitted with the application:

If they want to have a separate membership meeting and never submit proof of that with their application, that's fine with us cause that's not what we look for. The whole purpose of that 12 sets [sic] of monthly meetings ... is to simply show that somebody was out there doing something.

Mr. Shell then argued that Regulation 5.15(7) requires the application to provide a date on which the private club commenced operations, a description of the operations of the club from that date, and the minutes of all meetings held during the twelve-month period immediately preceding the date of application. Mr. Bennett again stated that the Board does not require all minutes of all meetings.

The hearing then turned to the merits of the application. Mr. Shell argued that there is an existing VFW club within one-half mile of the proposed club; that this would be the third beverage permit granted in the area; that Riverside Park, where children play, is adjacent to, and shares access with, the Lockhouse property; that the Lockhouse adjoins the municipal golf course; and that the park is open all of the time, including Josie's hours of operation. As for the suitability of the area, Mr. Shell presented the opposition testimony of Bob Davis, Batesville's retired fire chief; Karry Phillips, an Independence County justice of the peace; Terry Davis, pastor of the First Assembly of God in Batesville; Mark Evant, pastor of Jubilee Family Church in Batesville; Paul Queen, administrator of Batesville Baptist Academy; and Robert Ford, Tim Watkins, and Gerald Gaither, Batesville city councilmen. Mr. Shell said that, although they could not be present at the hearing, Independence County Sheriff Keith Bowers and Prosecuting Attorney Don McSpadden had opposed the permit in writing to the Board. He added that he had a box of 2437 signed letters from residents of voting age in Independence County expressing opposition to the permit.

At the conclusion of the hearing, the Board voted unanimously to overturn the director's decision and grant the permit. The Board issued its written decision on January 22, 2004, summarizing the testimony at the hearing and noting that Mr. Shell had "felt that there were a number of regulations that had not been complied with by the applicant. Responses to these issues were made by both the applicant's attorney and the staff attorney for the division." The Board stated:

After a review of all evidence offered and after a review of testimony offered the Board finds that the application is one that should be granted because it will serve the public interest as is required by law and that the application is qualified to be received by the agency.

The Board is mindful of the testimony of those persons in opposition. The Board is impressed by the fact that this application is for beer and wine products only. In addition, the Board is convinced that based upon his prior record that Mr. Carpenter, President of the organization, is a good applicant and that he has shown and demonstrated that he can already operate a good business, such as the one in Waldenburg, and that the operation of the business in Batesville will be good for the community. The Board is also mindful that Mr. Carpenter has not received any violations at his present operation and it appears that there will be adequate parking available for club members and guests. It also appears that the operation will be operating on limited hours of approximately 4:00 p.m. in the afternoon until 12:00 midnight and that primary service to the general membership and their guests will occur only on Thursday, Friday and Saturday nights. According to Mr. Carpenter no alcoholic beverages will be served on Sunday. Further, there will be limited functions on Monday, Tuesday and Wednesday, by prior arrangement or by reservation, with only beer and wine being served. Some entertainment will be offered and the Board is mindful of the support statements offered by Mr. Jack Lassiter, Mr. Roettger and Ms. Deborah Allen, formerly associated with the Chamber of Commerce, who indicated that a large number of persons surveyed in the Chamber membership support the application. As far as the application is concerned the Board finds that the paperwork is in line with agency requirements and practice and that based on all of the above evidence that the application is in the overall public interest as is required by ACA 3-9-222(f).

Appellants appealed this decision to the Independence County Circuit Court, which affirmed the Board's decision. This appeal followed.

Our standard of review is set forth in Ark. Code Ann. § 25-15-212 (Repl. 2002), which is part of the Arkansas Administrative Procedure Act and which provides for judicial review of administrative decisions as follows:

(h) The court may affirm the decision of the agency or remand the case for further proceedings. It may reverse or modify the decision if the substantial rights of the petitioner have been prejudiced because the administrative findings, inferences, conclusions, or decisions are:

(1) In violation of constitutional or statutory provisions;

(2) In excess of the agency's statutory authority;

(3) Made upon unlawful procedure;

(4) Affected by other error or law;

(5) Not supported by substantial evidence of record; or

(6) Arbitrary, capricious, or characterized by abuse of discretion.

Although appellants have couched some of their arguments in terms of error by the circuit court, when reviewing a case under the Administrative Procedure Act, we do not review the circuit court's decision, but review the decision of the administrative agency. H.T. Hackney Co. v. Davis, 353 Ark. 797, 120 S.W.3d 79 (2003); Moore v. King, 328 Ark. 639, 945 S.W.2d 358 (1997). The Board's decision should be upheld if it is supported by substantial evidence and is not arbitrary, capricious, or characterized by an abuse of discretion. Id. Substantial evidence is defined as valid, legal, and persuasive evidence or such relevant evidence as a reasonable mind might accept as adequate to support a conclusion. Id. To establish an absence of substantial evidence, it must be demonstrated that the proof before the administrative tribunal was so nearly undisputed that fair-minded persons could not reach its conclusions. Id. An administrative decision should be reversed as arbitrary and capricious only when it is not supportable on any rational basis, not simply because the reviewing court would have acted differently. Id. Determining whether the Board's decision was arbitrary or capricious involves a limited inquiry into whether it acted with willful and unreasoning disregard of the facts and circumstances of the case. Fontana v. Gunter, 11 Ark. App. 214, 669 S.W.2d 487 (1984). Something more than mere error is necessary to meet the test. Ramsey v. Dep't of Human Servs., 301 Ark. 285, 783 S.W.2d 361 (1990).

On appeal, appellants challenge the Board's construction of Ark. Code Ann. §§ 3-9-202(10)(A)(i) and 3-9-221(a)(2) (Supp. 2003), and its finding that the permit is in the public interest. We do not, however, address those issues because, as explained below, it is necessary that this case be remanded so that the Board can make further findings.

Appellants argue that the club failed to comply with the following sections of the Arkansas Non-Profit Corporation Act of 1993: Ark. Code Ann. §§ 4-33-129, 4-33-205, 4-33-501, 4-33-611, 4-33-701, 4-33-705, 4-33-804, 4-33-805, 4-33-1002, and 4-33-1003 (Repl. 2001). Appellants acknowledge that their counsel did not specify these particular statutes before the Board; however, they argue, he did not do so because he believed the Board would not consider them. Appellants assert that their citation to the applicable regulations of the Board and their discussion of the merits of the corporate-law failings of the applicant were sufficient to preserve this question for appeal. In their brief, the Board and intervenors acknowledge that the Non-Profit Corporation Act was at issue because the Board's regulations require an applicant to be a qualified non-profit corporation. In our view, it is clear that appellants attempted to obtain a ruling from the Board and that the Board intended its finding that the paperwork for the application was in order to be a finding on this issue. We therefore hold that appellants adequately preserved this issue for appeal.

Appellants contend that Josie's is not a qualified non-profit corporation within the meaning of Ark. Code Ann. § 3-9-202(10) and the Board's Regulations 5.14, 5.15(13), 5.18 through 5.21 (which deal with membership), 5.23 (election of officers), and 5.26 (notice of meetings). Regulation 5.14 states:

"Private Club" means a non-profit corporation organized and existing under the laws of the State of Arkansas, no part of the net revenues of which shall inure directly or indirectly to the benefit of any of its members or any other individual, except for the payment of bona fide expenses of the club's operation, having not less than 100 members, conducted for some common recreational, social, patriotic, political, national, benevolent, athletic, community hospitality, professional association, entertainment, or other non-profit objective or purpose other than the consumption of alcoholic beverages, owning or leasing a building or space therein for the reasonable comfort and accommodation of its members and their families and guests and restricting the use of the club facilities to such persons, and which shall have been in existence for a period of not less than one (1) year before application for permit. No organization holding a private club permit shall market, sell, or otherwise furnish the name of its members, or any other information pertaining to its members, to any other public or private entity, except as is authorized in ACA § 3-9-232(a).

Regulation 5.15(13) provides:

Private club mixed drink permit not to be issued to any unqualified non-profit corporation. Pursuant to the authority of ACA § 3-9-205, the definition of "Private Club" as stated in ACA § 3-9-202(10) henceforth will be interpreted by the ABC Division as follows:

A. Non-profit corporation must have been existence for a period of one (1) year upon the date of application for a private club mixed drink permit, as evidenced by an Order of approval signed by a State Circuit Court Judge [when required] and filing with the office of the Secretary of State;

B. At the date of filing for a private club permit, the non-profit corporation must have one hundred (100) or more members. Copies of membership applications may be required to be furnished with the application;

C. Non-profit corporation must have a non-profit objective or purpose, as set out by the Arkansas Code, other than the consumption of alcoholic beverages;

D. Non-profit corporation must have met regularly (at least once a month) for a period of one (1) year preceding the date of application, as evidenced by minutes of such meetings.

Referring to the Non-Profit Corporation Act statutes set forth above, appellants argue that the application reflects no minutes of any meeting of the members; no members of the board of directors were approved by the members at a meeting; no record of those present was stated; no notices of meetings were mentioned as having been given; the board apparently elected itself and, without corporate authority to do so, changed the corporate name.

In its decision, the Board expressly found that, "as far as the application is concerned, the Board finds that the paperwork is in line with Agency requirements...." However, the application itself was not in question - the real issue was whether the club was a non-profit corporation properly organized and existing under Arkansas law, especially Regulations 5.14 and 5.15(13) and Ark. Code Ann. § 3-9-202(10). Even though the Board relied on its staff to investigate this issue, the Board itself has not addressed it.

The Administrative Procedure Act requires the Board to make specific findings of fact to support its decision. Arkansas Code Annotated section 25-15-210(b)(2) (Repl. 2002) states:

A final decision shall include findings of fact and conclusions of law, separately stated. Findings of fact, if set forth in statutory language, shall be accompanied by a concise and explicit statement of the underlying facts supporting the findings. If, in accordance with agency rules, a party submitted proposed findings of fact, the decision shall include a ruling upon each proposed finding.

The long-standing rule is that, when an administrative agency fails to make findings upon issues of fact, the courts do not decide the questions in the first instance; the cause is remanded to the agency so that findings can be made on those issues. Alcoholic Beverage Control Bd. v. Hicks, 19 Ark. App. 212, 718 S.W.2d 488 (1986). Whether sufficient findings of fact have been made is a threshold question in an appeal from an administrative board. Vallaroutto v. Alcoholic Beverage Control Bd., 81 Ark. App. 318, 101 S.W.3d 836 (2003). In Green House, Inc. v. Arkansas Alcoholic Beverage Control Division, 29 Ark. App. 229, 232-33, 780 S.W.2d 347, 349-50 (1989), we explained:

Because the Board has merely recited the testimony rather than translating that testimony into findings of fact, we are unable to determine the Board's view of the facts, or the theory of law on which the denial of the permit was based. We addressed a similar situation in Wright v. American Transportation, 18 Ark. App. 18, 709 S.W.2d 107 (1986), where we quoted the following language from Whispering Pines Home for Senior Citizens v. Nicalek, 48 Ind. Dec. 568, 333 N.E.2d 324 (1975):

Once again, therefore, we attempt to tell the Board what a satisfactory specific finding of fact is.

It is a simple, straightforward statement of what happened. A statement of what the Board finds has happened; not a statement that a witness, or witnesses, testified thus and so. It is stated in sufficient relevant detail to make it mentally graphic, i.e., it enables the reader to picture in his mind's eye what happened. And when the reader is a reviewing court the statement must contain all the specific facts relevant to the contested issue or issues so that the court may determine whether the Board has resolved those issues in conformity with the law.

(Emphasis in the original). The observations of the Board in the case at bar do not rise to the level of findings of fact. Reviewing courts may not supply findings by weighing the evidence themselves, because that function is the responsibility of the administrative agency, which sees the witnesses as they testify. Arkansas Savings and Loan Ass'n Board v. Central Arkansas Savings & Loan Ass'n, 256 Ark. 846, 510 S.W.2d 872 (1974).

The findings are insufficient because there was a failure to incorporate therein a proper and acceptable finding of the basic or underlying facts drawn from the evidence. The Board's decision only amounts to the statement `We have heard the evidence. The evidence does not meet the requirements of the law.' This is not enough.

Central Arkansas Savings & Loan Ass'n, supra, quoting Oklahoma Insp. Bur. v. State Bd. for Prop. & Cas. Rates, 406 P.2d 453 (Okla. 1965). We remand to the Board for further proceedings consistent with this opinion.

Because the Board failed to make sufficient findings on all of the issues properly raised at the hearing, we have no choice but to reverse the decisions of the Board and the circuit court and to remand this case to the Board for adequate findings on the question of Josie's status as a non-profit corporation organized and existing according to Arkansas law.

Reversed and remanded.

Pittman, C.J., and Gladwin, J., agree.

1 Karry Phillips, Rick Caudel, Pam Caudel, Jayme Shell, Jessica Shell, Cathy Shell, Scott Souther, Kay Souther, Paul Queen, Susan Queen, Jerry Carpenter, Lisa Costilow, Theresa Larson, Gerry Dugger, Cyndy Dugger, Leann Foss, Wily Stacy, Linda Stacy, Barbara Scherimsher, Scott Bullard, Wendy Bullard, Ronnie Barns, Amy Barns, Jon Norris, Terry Norris, and Bryan Tuggle.

2 In Chili's of Jonesboro, Inc. v. Arkansas Alcohol Beverage Control Division, 75 Ark. App. 239, 57 S.W.3d 228 (2001), we affirmed the Board's decision denying private-club permits to Chili's of Jonesboro, Inc., and Outback Steakhouse of Jonesboro, Inc., partially on the ground that the restaurants would not be operated for a private-club purpose according to the applicable statute. We said that the threshold question that must be considered by the Board is whether the private-club applicant will be "qualified," i.e., meet the definition of a private club according to Ark. Code Ann. § 3-9-202(10). The version of that statute then in effect provided that, in order to qualify as a private club, a non-profit corporation must be established for a recreational, social, patriotic, political, national, benevolent, athletic, or other non-profit purpose other than the consumption of alcoholic beverages. In that case, there was testimony that the common purpose of the Outback private-club members would be "[s]ocial eatery, ... enjoying food, and camaraderie." 75 Ark. App. at 243, 57 S.W.3d at 231. The Board found, and we agreed, that providing a social eatery, where the clubs' members could enjoy food and camaraderie, did not comply with the private-club purpose set forth in Ark. Code Ann. § 3-9-202(10).