Citizens For Free Enterprise v. Department of Revenue, State of Colo.

• Decision Date: 09 August 1982
• Docket Number: No. 81SA82,81SA82
• Parties: CITIZENS FOR FREE ENTERPRISE, a Colorado non-profit corporation; Palace, Inc., a Colorado corporation; the Chroma Corporation, a Colorado corporation; Harold L. Popiel, d/b/a The Gaslite Room; Sid King, d/b/a Crazy Horse Bar; Debi Scheufler; Vivian Cooke; Barney Frank, Inc., a Colorado corporation, d/b/a Tipsy Tiger; and Richard L. Bebo, d/b/a Bebo's Lounge, Plaintiffs-Appellees, v. DEPARTMENT OF REVENUE, STATE OF COLORADO; Alan N. Charnes, Executive Director, Liquor Control Division; and Marvin Eller, Director, Defendants-Appellants.
• Court: Colorado Supreme Court

Page 1054

649 P.2d 1054

CITIZENS FOR FREE ENTERPRISE, a Colorado non-profit

corporation; Palace, Inc., a Colorado corporation; the

Chroma Corporation, a Colorado corporation; Harold L.

Popiel, d/b/a The Gaslite Room; Sid King, d/b/a Crazy Horse

Bar; Debi Scheufler; Vivian Cooke; Barney Frank, Inc., a

Colorado corporation, d/b/a Tipsy Tiger; and Richard L.

Bebo, d/b/a Bebo's Lounge, Plaintiffs-Appellees, v. DEPARTMENT OF REVENUE, STATE OF COLORADO; Alan N. Charnes,

Executive Director, Liquor Control Division; and

Marvin Eller, Director, Defendants-Appellants.

No. 81SA82.

Supreme Court of Colorado, En Banc.

Aug. 9, 1982.

Rehearing Denied Aug. 30, 1982.

Law Offices of Bernard D. Morley, P. C., Bernard D. Morley, Denver, for plaintiffs-appellees: Citizens for Free Enterprise, Palace, Inc., Chroma Corp., Debi Scheufler, Vivian Cooke.

No appearance for Harold L. Popiel, d/b/a The Gaslite Room and Barney Frank, Inc. d/b/a Tipsy Tiger.

J. D. MacFarlane, Atty. Gen., Richard F. Hennessey, Deputy Atty. Gen., Mary J. Mullarkey, Sol. Gen., Richard H. Forman, Asst. Atty. Gen., Denver, for defendants-appellants.

LOHR, Justice.

This is an appeal from a judgment of the Denver District Court invalidating two regulations promulgated by the Colorado Department of Revenue (department) for the purpose of governing activities in establishments with liquor licenses. The appellants are the department, the Executive Director of its liquor control division, and the Director of that division, all of whom were the defendants in the trial court. We conclude that the court was correct in ruling that the regulation prohibiting activities "unduly designed to increase the consumption of alcoholic beverages" is unconstitutionally vague, but that it erred in striking down the rule prescribing standards for minimum employee attire and prohibiting certain sexually-oriented entertainment and conduct on liquor-licensed premises. Therefore, we affirm the judgment of the trial court in part and reverse it in part.

I.

On October 31, 1978, the department gave notice of a public hearing to be held for the purpose of considering proposed amendments to certain department regulations, including regulations 47-105.1 and 47-105.3. Following public hearings on December 1 and 21, 1978, at which interested persons presented oral and written statements, final regulations 47-105.1 and 47-105.3 were adopted on August 24, 1979, effective October 1, 1979.

Regulation 47-105.1, also referred to as the "conduct regulation," governs certain activities on the premises of establishments licensed to sell alcoholic beverages. The regulation includes general requirements for the orderly and inoffensive conduct of a liquor-licensed establishment, specific standards governing minimum clothing to be worn by hostesses and persons engaged in the sale or service of alcoholic beverages, proscription of specified sexually-oriented physical contact and of devices simulating particular parts of the human body, and prohibition of live entertainment or visual reproductions involving certain sexual acts or displays, actual or simulated. ¹

The department's statement of basis and purpose accompanying Regulation 47-105.1 reflects that this regulation is based on the authority granted to the Executive Director of the department, as the state licensing authority, under the Colorado Liquor Code, section 12-47-101 et seq., C.R.S.1973 (1978 Repl.Vol. 5 and 1981 Supp.), which specifically authorizes rules and regulations governing "standards of cleanliness, orderliness, and decency." Section 12-47-105(2)(a), C.R.S.1973 (1978 Repl.Vol. 5). The statement of purpose further provides that the necessity for this regulation was evidenced by the testimony of local law enforcement officers at the public hearings held in December. It notes that the testimony revealed a direct association between increased law enforcement problems and licensed premises permitting the kinds of activity prohibited by the conduct regulation. These problems included prostitution and offers of prostitution, assaults, sales of narcotics, sales of alcoholic beverages to minors, and solicitation of drinks.

Regulation 47-105.3, also referred to as the "consumption regulation," prohibits a manufacturer, wholesaler, importer, or retailer of alcoholic liquors from offering to any person a game of chance, lottery, contest, coupon or drawing, or any merchandise, whether free or otherwise, where the offer is "unduly designed to increase the consumption of alcoholic beverages." ²

The statement of basis and purpose accompanying this regulation provides that it was adopted pursuant to the Executive Director's authority under the Colorado Liquor Code to adopt regulations directed to "practices unduly designed to increase the consumption of alcoholic beverages," section 12-47-105(2)(a), C.R.S.1973 (1978 Repl.Vol. 5). The statement further declares that the purpose of the regulation is to narrow the scope of the previous regulation 47-105.3, which, when read literally, would prohibit legitimate business practices that are not unduly designed to increase the consumption of alcoholic beverages. The new regulation was considered more faithful to the language and intent of section 12-47-105(2)(a).

The appellees, who are holders of liquor licenses under the Colorado Liquor Code; dancers employed by such licensees; and a non-profit corporation, Citizens For Free Enterprise, whose members include owners, employees and customers of establishments subject to the department's regulations, filed a complaint in Denver District Court on September 27, 1979, and amended that complaint on October 2, 1979. They sought review of the two department regulations pursuant to the declaratory judgment provisions of C.R.C.P. 57 and section 13-51-101 et seq., C.R.S.1973 and 1981 Supp. and pursuant to section 24-4-106(4), C.R.S.1973 of the State Administrative Procedure Act (State APA).

The amended complaint alleged that the regulations were invalid because (1) they were not accompanied by statements of fiscal impact adequate to comply with section 24-4-103(8)(d), C.R.S.1973 (1978 Repl.Vol. 5) (1981 Supp.); (2) they were not based on the record made before the department as required by section 24-4-103(4), C.R.S.1973 (1978 Repl.Vol. 5) (1981 Supp.); and (3) the regulations exceeded the authority of the department. The amended complaint also alleged that the conduct regulation violated the free speech protections of Colo.Const. Art. II, § 10 and U.S.Const. amends. I and XIV, and that the consumption regulation was unconstitutionally vague. The appellees sought a declaratory judgment that the regulations are unconstitutional and were adopted in violation of the State APA, and requested an injunction prohibiting enforcement of those regulations.

Following oral argument, and based upon its review of the record made before the department in connection with the promulgation of the regulations, the trial court issued its findings, conclusions of law and order on May 15, 1980. It held that both regulations were issued without complying with the fiscal statement requirement of section 24-4-103(8)(d), C.R.S.1973 (1978 Repl.Vol. 5) (1981 Supp.), and that consequently they were void. It reasoned that the conclusory statements of the department concerning the fiscal impact of the regulations were insufficient to satisfy the requirement of this statute absent some evidence in the record to support those conclusions.

The court also concluded that the conduct regulation was invalid because it was not supported by substantial evidence in the record. It held that the substantial evidence requirement applies to department regulations by virtue of section 24-4-106(7), C.R.S.1973 of the State APA, and that the department's conclusion that increased crime results from the activities proscribed by the conduct regulation was not supported by such evidence. In this connection, the court ruled that the testimony of law enforcement officers at the public hearings did not constitute substantial evidence because it "amounts to nothing more than self-serving, unsupported testimony of interested parties."

The court further held that the conduct regulation was void either because it exceeded the scope of the department's rulemaking authority or because it was an unconstitutional exercise of the police power. The court reasoned that the Colorado Liquor Code authorizes regulations only where necessary for the protection of the health, safety or welfare of the people, and that, since there was no substantial evidence demonstrating that the conduct regulation served this purpose, it was not authorized by the Code. Similarly, it concluded that the absence of a demonstrated connection between the health, safety or welfare of the people and the conduct regulation rendered the regulation an improper exercise of the State's police power. Based on this reasoning the court also decided that the regulation was the product of an unconstitutional conclusive presumption that the proscribed activities are associated with crime, and held as well that the department had no authority to replace the legislative policy with respect to lewdness and obscenity set forth in Article 7 of Title 18, C.R.S.1973, with a more restrictive standard of its own.

Finally, the court found that the consumption regulation was unconstitutionally vague. The court concluded that the prohibition of conduct "unduly designed to increase the consumption of alcohol" failed to give fair warning of what conduct is proscribed and created a danger of arbitrary and capricious enforcement.

The appellants then brought this appeal. ³ We affirm the judgment of the district court invalidating the consumption regulation for vagueness. However, we reverse the judgment of the district court striking down the conduct regulation. We first address the objections to the regulations under the State APA and then turn to the constitutional...