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

• Decision Date: 02 June 2016
• Docket Number: No. 935,935
• Parties: STEVEN KOUGL, ET AL. v. THE BOARD OF LIQUOR LICENSE COMMISSIONERS FOR BALTIMORE CITY
• Court: Court of Special Appeals of Maryland

STEVEN KOUGL, ET AL. v. THE BOARD OF LIQUOR LICENSE COMMISSIONERS FOR BALTIMORE CITY

No. 935

COURT OF SPECIAL APPEALS OF MARYLAND

September Term, 2015

June 2, 2016

ADMINISTRATIVE LAW - RULES OF THE BOARD OF LIQUOR LICENSE COMMISSIONERS - USE OF TERMS "SUFFER," "PERMIT," OR "ALLOW" DOES NOT IMPOSE STRICT LIABILITY ON LICENSEES - PROOF OF KNOWLEDGE REQUIRED

Facts: Appellant, Steven Kougl, owns Club Harem, a Baltimore tavern and adult entertainment business, and holds a liquor license for that location issued by appellee, the Board of Liquor License Commissioners for Baltimore City ("the Liquor Board"). The Liquor Board charged Kougl with violating three Liquor Board Rules related to solicitation of prostitution, indecent exposure, and violation of public morals, all occurring at Club Harem, when an employee exposed herself to an undercover police officer and then solicited sexual intercourse from the same officer. The Liquor Board found Kougl guilty of all three violations and ordered that his liquor license be suspended for one month. Kougl filed for judicial review in the Circuit Court for Baltimore City, which affirmed the decision of the Liquor Board.

Held: Reversed and remanded.

The Liquor Board found that Kougl violated (1) Rule 4.17(a), which provides that no licensee shall "permit or suffer any employee . . . to solicit any person for prostitution," (2) Rule 4.17(b), which provides that "[n]o licensee shall permit or suffer any person to appear in any act or other performance with breasts or the lower torso uncovered," and (3) Rule 4.18, which provides that "[n]o licensee shall commit or allow the commission on his premises of any act which shall be . . . against the public . . . morals." The Liquor Board interpreted these Rules to impose a strict liability standard on licensees.

The Court of Special Appeals held that the Liquor Board erred in interpreting the words "suffer," "permit," and "allow" in Rules 4.17 and 4.18 to impose a strict liability standard on licensees, because the plain meaning of the subject terms necessarily requires that some level of knowledge by the licensee must be established by the evidence.

The Court also held that the knowledge requirement implicit in the terms "suffer," "permit," and "allow" can be satisfied by proof of either actual or constructive knowledge on the part of the licensee. Actual knowledge is actual awareness of the prohibited activity, as well as "deliberate ignorance" or "willful blindness." Constructive knowledge, however, implies knowledge where a licensee should have known of the prohibited activity if reasonable care and diligence had been exercised. Here, there simply was no evidence of Kougl's actual or constructive knowledge of the violations.

REPORTED

Woodward, Graeff, Arthur, JJ.

Opinion by Woodward, J.

The eagle suffers little birds to sing, And is not careful what they mean thereby, Knowing that with the shadow of his wings He can at pleasure stint their melody[.]

—Tamora, Titus Andronicus, Act 4, Scene 4 (W. Shakespeare)

In the instant case, we are called upon to decipher the meaning of the word "suffer," and its analogs, "permit" and "allow." Specifically, we must decide whether these terms, when used in rules governing the conduct of holders of a liquor license in Baltimore City, require proof of knowledge on the part of such licensees.

Appellant, Steven Kougl, owns Club Harem, a Baltimore tavern and adult entertainment business, and holds a liquor license for that location issued by appellee, the Board of Liquor License Commissioners for Baltimore City ("the Liquor Board"). On July 2, 2014, the Liquor Board charged Kougl with violating three Liquor Board Rules related to solicitation of prostitution, indecent exposure, and violation of public morals, all occurring on April 25, 2013, at Club Harem, when an employee exposed herself to an undercover police officer and then solicited sexual intercourse from the same officer. The Liquor Board found Kougl guilty of all three violations and ordered that his liquor license be suspended for one month. Kougl filed for judicial review in the Circuit Court for Baltimore City, which affirmed the decision of the Liquor Board.

On appeal to this Court, Kougl raises four questions for our review, which we have condensed and rephrased as two questions:¹

1. Did the Liquor Board make sufficient findings of fact in support of the three charged violations of the Liquor Board Rules?

2. Did the Liquor Board err in concluding that Kougl was guilty of the three violations even though there was no evidence that Kougl had knowledge of his employee's behavior?

For reasons set forth herein, we answer both questions in the affirmative, and thus reverse the judgment of the circuit court and remand the case to that court for entry of a judgment reversing the decision of the Liquor Board.

BACKGROUND

On April 25, 2013, Detective Fletcher Jackson, a Baltimore City police officer assigned to the Special Enforcement Section, entered Club Harem in plain clothes to conduct a prostitution investigation. Jamaica Brickhouse, a woman who worked at Club Harem, approached Det. Jackson at the bar and asked if she could join him. Det. Jackson said "sure," and bought Brickhouse a drink. After some initial conversation, Brickhouse exposed herbreasts to Det. Jackson. Brickhouse invited Det. Jackson to touch her breasts, which he did. Brickhouse then suggested a lap dance or a trip to "the VIP," where they could "do whatever up there." Det. Jackson asked how much it would cost him to have sex with Brickhouse; Brickhouse replied that it would cost $170 "for the room," plus a tip for her services. Det. Jackson said that he could tip $100, and Brickhouse agreed. Brickhouse returned to the stage to perform, and Det. Jackson notified other officers. Brickhouse, however, was not issued a criminal summons until December 10, 2013, almost eight months later.²

Fifteen months after the incident, on July 2, 2014, the Liquor Board charged Kougl with violating three Liquor Board Rules related to solicitation of prostitution in violation of Rule 4.17(a), indecent exposure in violation of Rule 4.17(b), and violation of public morals in violation of Rule 4.18. On July 17, 2014, the Liquor Board held a hearing on the charges against Kougl. Det. Jackson was the only witness for the prosecution; Kougl testified in his own defense. The Liquor Board voted 2-1 that Kougl was guilty of the three violations³ and suspended his liquor license for one month.

On July 18, 2014, Kougl filed a Petition for Judicial Review in the circuit court. On March 2, 2015, Kougl filed his Memorandum, in which he argued that (1) the Liquor Board's decision was not based on substantial evidence, because "[t]here [wa]s nothing in [Det.Jackson's] testimony to indicate that the [l]icensee knew, allowed or permitted this type of activity, which is needed to sustain the violations"; (2) its decision was unreasonable and arbitrary, because the Chairman of the Liquor Board stated that a licensee "would be responsible for actions of an employee" regardless of "whether the [l]icensee knew or did not know or allowed or did not allow or permitted or did not permit" the prohibited activity; and (3) the Liquor Board failed to make specific findings of fact and conclusions of law as required. On April 15, 2015, the Liquor Board filed its Response to Kougl's Memorandum, in which it contended that (1) its decision was based on substantial evidence; (2) its decision was reasonable; and (3) the Liquor Board made sufficient findings of fact and conclusions of law.

On May 22, 2015, the circuit court held oral argument and issued an oral ruling affirming the decision of the Liquor Board. On May 28, 2015, the court entered its order affirming the Liquor Board's decision. On June 22, 2015, Kougl filed a timely notice of appeal.

STANDARD OF REVIEW

Maryland law provides by statute that the action of a local liquor board is presumed to be proper and places the burden of proof upon the licensee to show that the decision complained of was arbitrary, fraudulent, unsupported by substantial evidence, illegal, or against the public interest. Md. Code (1957, 2011 Repl. Vol), Art. 2B, § 16-101(e)(1)(i). This Court has explained appellate review of a Liquor Board's decision as follows:

While the last sentence of § 16-101(e)(1)(i) expressly permits the trial court, under certain circumstances, to hear additional evidence, the court may hear such evidence only to ascertain the veracity of findings of fact and conclusions of law reached by the Board. As the section does not authorize appeals de novo, the trial court may not hear additional evidence on matters not addressed by the Board. This Court has consistently explained that judicial review of a decision by the Board is similar to review of decisions by most other administrative agencies. It is a cardinal rule of administrative appeals that a reviewing court . . . shall apply the substantial evidence test to final decisions of an administrative agency such as the Board, but it must not itself make independent findings of fact or substitute its judgment for that of the agency.

Judicial review of administrative action differs from appellate review of a trial court judgment. In the latter context the appellate court will search the record for evidence to support the judgment and will sustain the judgment for a reason plainly appearing on the record whether or not the reason was expressly relied upon by the trial court. However, in judicial review of agency action the court may not uphold the agency order unless it is sustainable on the agency's findings and for the reason stated by the agency.

Blackburn v. Bd. of Liquor License Comm'rs for Balt. City, 130 Md. App. 614, 623-24 (2000) (emphasis added) (citations and internal quotation marks omitted).

"Of course, the reviewing court may substitute its judgment for that of the [Liquor] Board on questions of law." Id. at 624. In deciding...