Bd. of Liquor License Comm'rs for Balt. City v. Kougl

• Decision Date: 17 February 2017
• Docket Number: No. 43, Sept. Term, 2016,43, Sept. Term, 2016
• Citation: 451 Md. 507,154 A.3d 640
• Parties: The BOARD OF LIQUOR LICENSE COMMISSIONERS FOR BALTIMORE CITY v. Steven KOUGL, et al.
• Court: Court of Special Appeals of Maryland

451 Md. 507

154 A.3d 640

The BOARD OF LIQUOR LICENSE COMMISSIONERS FOR BALTIMORE CITY

v.Steven KOUGL, et al.

No. 43, Sept. Term, 2016

Court of Appeals of Maryland.

February 17, 2017

Michael J. Salem, Asst. Atty. Gen. (Brian E. Frosh, Atty. Gen. of Maryland of Annapolis, MD), on brief, for Petitioner.

Peter A. Prevas (Prevas and Prevas of Baltimore, MD), on brief, for Respondents.

Barbera, C.J., Greene, Adkins, McDonald, Hotten, Getty, Irma S. Raker (Senior Judge, Specially Assigned), JJ.

Adkins, J.

The Board of Liquor License Commissioners for Baltimore City ("the Liquor Board") charged Respondent Steven Kougl and his company, Kougl, Inc., with violating provisions of the Rules and Regulations for the Board of Liquor License Commissioners for Baltimore City ("the Liquor Board Rules" or "the Rules") that regulate sexual conduct and prohibit illegal activity on a licensee's premises. The Liquor Board found that Kougl violated these Rules and ordered a 30–day suspension of his liquor license. Kougl argues that the Rules require actual or constructive knowledge on the part of the licensee, and, therefore, he did not violate them when his employee solicited prostitution and exposed her breasts without his knowledge. We hold that the Liquor Board Rules at issue impose strict liability on licensees for prohibited conduct that occurs on their premises.

FACTS AND LEGAL PROCEEDINGS

In April 2013, Detective Fletcher Jackson of the Baltimore City Police Department's Special Enforcement Section, Vice Division, conducted an undercover investigation at Club Harem ("the Club"), an adult entertainment establishment¹ owned by Respondent Steven Kougl.² During his investigation, one of the Club's employees, Jamaica Brickhouse, approached Detective Jackson and engaged him in conversation. After introducing herself, Brickhouse exposed her breasts to Detective Jackson and invited him to touch them. He complied. Detective Jackson then asked Brickhouse if her breasts "tast[ed] as good as they look[ed]." At this point, Brickhouse proposed a lap dance or going to "the VIP" where they could "do whatever" so he could "find out." Detective Jackson asked if "whatever" meant sexual intercourse, and Brickhouse confirmed that it did. She also clarified that it would cost $170 for the VIP room plus a tip for her services. Detective Jackson offered a $100 tip, and Brickhouse accepted. But no money was exchanged because Brickhouse went on stage to perform and Detective Jackson left the Club. She was charged with prostitution about eight months later.³

In July 2014, approximately 15 months after the incident, the Liquor Board charged Kougl with violations of three Liquor Board Rules. Specifically, it charged him with violations of: (1) Rule 4.17(a), which prohibits the solicitation of prostitution on a licensee's premises; (2) Rule 4.17(b), which prohibits indecent exposure on a licensee's premises; and (3) Rule 4.18, which prohibits the violation of federal, state, and local laws on a licensee's premises.⁴ After a hearing on July 17, 2014, the Liquor Board found that Kougl violated all three Rules and imposed a 30–day suspension of his liquor license.⁵ Kougl petitioned for judicial review of the decision in the Circuit Court for Baltimore City. The Circuit Court affirmed.

Kougl appealed to the Court of Special Appeals. He argued that because he had no knowledge of Brickhouse's prohibited activity, he had not violated Rules 4.17(a), 4.17(b), or 4.18.⁶ He claimed that the Rules do not impose strict liability. In a published opinion, the court reversed. It held that the plain meaning of the words "suffer," "permit," and "allow," as used in Rules 4.17 and 4.18 "necessarily require that some level of knowledge by the licensee must be established by the evidence." Kougl v. Bd. of Liquor License Comm'rs for Balt. City , 228 Md.App. 314, 330, 137 A.3d 1062 (2016) (citation and internal quotation marks omitted). The court further held that this knowledge requirement may be satisfied by evidence of actual or constructive knowledge. Id. at 331, 137 A.3d 1062. In defining actual knowledge, the intermediate appellate court explained that there are two types: (1) "actual awareness or an actual belief that a fact exists" and (2) "deliberate ignorance" or "willful blindness." Id. (citation omitted). Because there was no evidence of Kougl's actual or constructive knowledge of Brickhouse's conduct, the court concluded that the Liquor Board erred in finding him guilty of violating the Rules at issue.

The Liquor Board noted a timely appeal. We granted certiorari to consider the following question:

Did the Liquor Board correctly interpret its [R]ules to impose upon licensees strict liability for sexual display, performance, or illegal activity conducted on licensed premises, where the pertinent portions of the [R]ules contain no language limiting a licensee's responsibility to situations where the licensee has actual or constructive knowledge of the offending conduct?

Because we answer this question in the affirmative, we shall reverse the judgment of the Court of Special Appeals.

STANDARD OF REVIEW

By statute, the General Assembly authorized local liquor boards to promulgate regulations advancing Maryland Code (1957, 2016 Repl. Vol.), § 1–201 of the Alcoholic Beverages Article ("AB"), which aims "[t]o obtain respect and obedience to law and to foster and promote temperance" in furtherance of "the protection, health, welfare, and safety of the people of the State." AB § 1–201(a)(1)(i)–(ii), (a)(3). The statute specifically authorizes the Liquor Board to "adopt regulations to carry out this article." Md. Code (1957, 2016 Repl. Vol.), AB § 12–210(a). In 1998, the Liquor Board promulgated revised Liquor Board Rules. We are tasked with reviewing its interpretation of these regulations.

In Maryland, judicial review of an administrative agency action "is limited to determining if there is substantial evidence in the record as a whole to support the agency's findings and conclusions, and to determine if the administrative decision is premised upon an erroneous conclusion of law." United Parcel Serv., Inc. v. People's Counsel for Balt. Cty. , 336 Md. 569, 577, 650 A.2d 226 (1994). Although judicial review of an agency's factual findings is "quite narrow," "it is always within our prerogative to determine whether an agency's conclusions of law are correct." Adventist Health Care, Inc. v. Md. Health Care Comm'n , 392 Md. 103, 120–21, 896 A.2d 320 (2006) (citations and internal quotation marks omitted). If an agency's conclusion is based on an error of law, it will not be upheld. Hoyle v. Bd. of Liquor License Comm'rs for Balt. City , 115 Md.App. 124, 129, 692 A.2d 1 (1997).

But "[e]ven with regard to some legal issues, a degree of deference should often be accorded the position of the administrative agency." Finucan v. Md. Bd. of Physician Quality Assurance , 380 Md. 577, 590, 846 A.2d 377 (2004) (citation omitted). Appellate courts should ordinarily give "considerable weight" to "an administrative agency's interpretation and application of the statute which the agency administers." Md. Aviation Admin. v. Noland , 386 Md. 556, 572, 873 A.2d 1145 (2005). In this regard, "the expertise of the agency in its own field of endeavor is entitled to judicial respect." Finucan , 380 Md. at 590, 846 A.2d 377 (citations omitted). An agency is granted further deference when it interprets a regulation it promulgated, rather than a statute enacted by the Legislature. Md. Comm'n on Human Relations v. Bethlehem Steel Corp. , 295 Md. 586, 593, 457 A.2d 1146 (1983).

"Because an agency is best able to discern its intent in promulgating a regulation, the agency's expertise is more pertinent to the interpretation of an agency's rule than to the interpretation of its governing statute." Id.

DISCUSSION

The Liquor Board argues that Liquor Board Rules 4.17(a), 4.17(b), and 4.18 impose strict liability on licensees for violations that occur on licensed premises. Therefore, it maintains, Kougl violated the Rules regardless of whether he had actual or constructive knowledge of his employee's conduct. The Liquor Board contends that the plain language meaning of "permit," "suffer," and "allow" do not require knowledge. Furthermore, the Liquor Board argues that the use of "knowingly" in only one provision of the Rules shows that it did not intend to impose a knowledge requirement in the other provisions.

Lastly, the Liquor Board urges us to apply the three-factor test from Dawkins v. State , 313 Md. 638, 547 A.2d 1041 (1988), to conclude that because the Liquor Board did not designate a mental state requirement in the language of the Rules, they impose strict liability.

Kougl contends that a licensee must have actual or constructive knowledge of the conduct at issue to violate the Rules. In other words, he maintains that the Rules require the Liquor Board to show that the licensee either knew or reasonably should have known about the goings-on to breach the regulations. He argues that the words "permit," "suffer," and "allow" require a licensee to have knowledge of the offending conduct. Thus, he contends, the Liquor Board was required to show that he knew or should have known about his employee's actions to find a violation of the Rules and suspend his liquor license.⁷

Plain Language Meaning

Although we accord an agency considerable deference in interpreting its own regulations, we review its conclusions of law for error by applying our well-settled principles of statutory interpretation. Hranicka v. Chesapeake Surgical, Ltd. , 443 Md. 289, 297–98, 116 A.3d 507 (2015) (citation omitted). Therefore, we begin by analyzing whether the plain language of the Rules supports imposing strict liability. Like a statute, a regulation's plain language is "the best evidence of its own meaning." Total Audio–Visual Sys., Inc. v. Dep't of Labor, Licensing & Regulation , 360 Md. 387, 395, 758 A.2d 124 (2000) (citations omitted). When...