Holiday Alaska, Inc. v. State, Division of Corporations, Business and Professional Licensing, 121510 AKTOB, 08-0245-TOB
|Docket Nº:||OAH 08-0245-TOB, 08-0313-TOB, 08-0314-TOB, 08-0420-TOB, 08-0621-TOB, 09-0238-TOB|
|Opinion Judge:||Patrick J. McKay Judge.|
|Party Name:||HOLIDAY ALASKA, INC., d/b/a HOLIDAY ALASKA, Appellant, v. STATE OF ALASKA, DIVISION OF CORPORATIONS, BUSINESS, AND PROFESSIONAL LICENSING, Appellee. No. 3AN-09-10689 CI|
|Case Date:||December 15, 2010|
|Court:||Superior Court of Alaska|
DECISION ON APPEAL
This is a constitutional challenge to the administrative adjudication process that applies to retail outlets accused of selling tobacco products to minors. Six employees at various Holiday retail outlets in the Anchorage area were convicted of violating AS 11.76.100(a)(1), which prohibits individuals from negligently furnishing tobacco products to minors.1 Convictions under this statute trigger AS 43.70.075, which allows the Division of Corporations, Business and Professional Licensing ("the Division, " or "Department, " as it is referred to in the statute) to impose a civil fine and suspend the tobacco endorsement of the business license held by the retail outlet that employs the offender. Under this statute, the employee's criminal conviction creates a rebuttable presumption in the administrative hearing that the licensee violated the terms of its tobacco endorsement. Holiday argues that this legislative scheme deprives the licensee of due process because the licensee's never gets a fair opportunity to show that it was not itself negligent.
FACTS AND PROCEEDINGS
The facts of this case are not in dispute. At all times relevant to this incident, Holiday Alaska operated twenty-six convenience stores within the state and held tobacco business license endorsements for all of these stores.2 Between March 25, 2006 and March 10, 2009, six employees at five Holiday retail outlets were cited for violating AS 11.76.100. Two of the employees went to trial and were convicted (Cook and Rodriguez), 3 one was found guilty by default after failing to appear (Oliver, though her attorney was present), and three pled guilty (Hapoff, Mikel, and Odden).4 Five of the six were represented by counsel provided by Holiday.5 The convictions carry a $300 fine against each employee.
Each conviction also triggered separate administrative actions against the employer licensee under AS 43.70.075, which provides that if either the endorsement holder or his employee "has been convicted of violating AS 11.76.100…the department shall impose a civil penalty as set out in this subsection."6 Upon receiving notice of the convictions, the Division notified each retail outlet that its tobacco endorsement would be suspended for twenty days and a civil fine of $300 imposed. Holiday indicated it would defend itself and requested hearings in each case, which were granted, consolidated, and conducted by an Administrative Law Judge (ALJ). During the proceedings, Holiday attempted to assert various constitutional challenges through summary judgment motions, which the ALJ denied because he could not "rule on a constitutional challenge that seeks to nullify a statute" in a disciplinary hearing.7However, Holiday was allowed to present evidence relevant to its constitutional challenges in order to construct a factual record upon which to base an appeal.8
At the hearing, Holiday did not dispute the factual circumstances underlying any of the convictions, nor the fact that the employees had been convicted of selling tobacco to a minor. This is important because, under the current statutory scheme Holiday challenges here, an employee's conviction under AS 11.76.100 creates a rebuttable presumption of negligence—and therefore liability—in the licensee's administrative hearing.9 Thus, Holiday began its hearing with a presumption of liability to overcome in each case. Under sections (m)(5) and (w), however, Holiday had the opportunity to present "clear and convincing evidence" to "overcome the rebuttable presumption established" by the conviction.10 Whether this evidence can be used for the purposes of exculpating the licensee entirely or only as a mitigating factor to reduce any penalty is one of the issues in this case.
Holiday presented substantial evidence on its "zero-tolerance" polices regarding underage tobacco sales, which include education programs for new employees, incentives for passing government sting operations, and immediate termination of any employees who fail such tests. It presented very little or no specific evidence on the factual circumstances of the individual sales that triggered each administrative action.11
The ALJ considered Holiday's internal procedures as evidence justifying a mitigation of the penalty, 12 but did not consider these policies as evidence that rebutted liability entirely. Accordingly, he concluded that Holiday had not overcome the presumption of negligence regarding the sales themselves, and was liable for six violations of AS 43.70.075.13 He recommended suspension in each case, but recommended a reduction from twenty to thirteen days in three of the six instances based on the evidence regarding internal efforts at compliance. The Commissioner adopted the recommendations, and Holiday appealed to this court. Though Holiday raised several other challenges to the statutory scheme during the adjudication, 14 the due process argument is the sole point still remaining on appeal.
The issue in these consolidated appeals is whether the Division of Commerce adjudication procedure for licensees accused of selling tobacco products to minors violates the licensee's right to procedural due process. Holiday argues that the statutory scheme established in AS 43.70.075: (1) fails the United States Supreme Court's Matthews v. Eldridge15 test for administrative due process; (2) fails the Alaska Supreme Court's test in Scott v. Robertson16 that establishes when previous criminal convictions can be used to prove facts in subsequent proceedings; and (3) violates the right to a meaningful hearing protected by the due process clause.
The court reviews this constitutional challenge de novo, adopting the rule of law that is most persuasive in light of precedent, reason, and policy.17 We use the "substitution of judgment" standard to analyze legal questions that involve statutory interpretation.18 "Application of this standard permits a reviewing court to substitute its own judgment for that of the agency even if the agency's decision had a reasonable basis in law."19
I. Holiday's Argument on Appeal
The crux of this appeal is whether the statutory scheme gives a licensee enough opportunity to prove that it should not be held liable for an employee's illegal sale to a minor. Holiday has argued primarily that a citation against an employee for a negligent sale operates as a de facto finding of liability against the store. According to the licensee, a cited employee "has no motivation to defend against an alleged violation of AS 11.76.100(a), "20 so they frequently plead guilty or no contest, or receive a default judgment by failing to appear.21 Even when employees have a defense available, Holiday asserts that they have difficulty successfully defending themselves pro per, and licensees cannot intervene to assist.
Licensee argues that these deficiencies essentially relieve the State of its burden of proving that a negligent sale actually occurred for which the licensee should be held accountable. Rather, the State simply obtains a conviction by default or plea that is subsequently used to prove the licensee's negligence. The licensee is then saddled with the difficult task of overcoming by clear and convincing evidence a presumption of liability for the sale in question. Holiday argues that this violates the Matthews v. Eldridge test for due process in administrative proceedings, deprives it of a full and fair hearing under Alaska law, and fails to adhere to the Scott standard that governs admissibility of convictions in subsequent proceedings.
II. The Statutory Scheme
First, we note that the current version of .075 went into effect on October 16, 2007. These consolidated cases are the first to be decided after a contested hearing under the new law, 22 so it is important that we establish the correct parameters of the new scheme, particularly since we disagree with the ALJ's interpretation of some of its key aspects. A business may not sell tobacco products at a retail location unless it has a business license endorsement for such sales at that location.23 If an agent or employee of the retailer, acting within the scope of employment, is convicted of the crime of negligently selling a tobacco product to a person under 19 years of age, the Division of Commerce, Community, and Economic Development "shall impose a civil penalty as set out in this subsection [.075(d)]."24 The presumptive civil penalties increase if there have been multiple violations within 24 months.25
The licensee may request a hearing to contest liability and/or argue for mitigation of the penalty.26 This hearing is statutorily limited to the questions listed in section (m).27 The first two questions—which allow evidence of the conviction (Question 1) or other offense (Question 2)28 underlying the citation—relate to whether there is any liability at all. Question 3 allows evidence of the licensee's other violations (if any) for the purposes of establishing the presumptive penalty.29 Questions 4 and 6 provide the basis for adjusting sentences based on the licensee's internal compliance program (as described in subsection [t]) and repeat offenses.30
Question 5 asks the question at the heart of this challenge: "(5) did the [licensee] overcome the rebuttable presumption established [by the employee's conviction]…."31In response to this question...
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