State Office of Administrative Hearings

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1 State Office of Administrative Hearings Lesli G. Ginn Chief Administrative Law Judge August 21, 2017 A Bentley Nettles Executive Director Texas Alcoholic Beverage Commission 5806 Mesa Drive Austin, Texas VIA REGULAR MAIL RE: SOAR Docket No ; Texas Alcoholic Beverage Commission vs. Fresnillo Inc. d/b/a El Presidente Dear Mr. Nettles: Please find enclosed a Proposal for Decision m this case. recommendation and underlying rationale. It contains my Exceptions and replies may be filed by any party in accordance with 1 TEX. ADMIN. CODE (c), a SOAH rule which may be found at Sinccn:ly,.- :i(,j'v-. <--~ '~- -~--\-sjv.;:_ RnsHl rkda- ATc~Hf~fr)'K ADMTNISTR.-\TIVC LAW JllDGI: ST,Y! E OFHCE OJ AD:-..11?--:JSTRATJVE I IEA!UNGS RA/rnr Enclosure xc Sandra Patton, Texas Alcoholic Beverage Commission, 427 W h Street, Suite 600, Houston, TX VIA REGULAR MAIL Julie Allen, Interim General Counsel, Texas Alcoholic Beverage Commission, 5806 Mesa Drive, Austin, TX VIA REGULAR MAIL Dina Powell, General Counsel's Office, 5806 Mesa Drive, Suite 380, Austin, TX VIA REGULAR MAIL Clyde Burleson, Fresnillo Inc. d/b/a El Presidente, 1533 W. Alabama, Suite 100, Houston, TX VIA REGULAR MAIL 2020 North Loop West, Suite 111, Houston, Texas (Main) (Fax)

2 SOAH DOCKET NO (TABC CASE NO ) TEXAS ALCOHOLIC BEVERAGE COMMISSION Jurisdictional Petitioner CITY OF ROSENBERG Protestant v. RENEWAL APPLICATION OF FRESNILLO, INC. D/B/A EL PRESIDENTE PERMIT/LICENSE NO(s). MB626824, LB Respondent FORT BEND COUNTY, TEXAS BEFORE THE STATE OFFICE OF ADMINISTRATIVE HEARINGS PROPOSAL FOR DECISION Fresnillo Inc. d/b/a El Presidente (Respondent) filed an application with the Texas Alcoholic Beverage Commission (T ABC or Petitioner) to renew of its Mixed Beverage Permit and Mixed Beverage Late Hours Permit (late hours permit) for the premises known as El Presidente, located at 1503 Highway 529 'A', Rosenberg, Fort Bend County, Texas. The City of Rosenberg (Protestant or City) filed a protest against the renewal of the late hours permit.' Petitioner took a neutral position. Protestant asserts that refusal of the late hours permit is warranted by Texas Alcoholic Beverage Code (Code) l l.46(a)(io) and (c), because the premises covered by the permit is in an incorporated area and the sale of alcoholic beverages during late hours is prohibited by city ordinance and unlawful under the Code. After a review of the evidence and applicable law, the Administrative Law Judge (ALJ) recommends that Respondent's renewal 1 Respondent's Mixed Beverage Late Hours Permit is the sole permit under protest.

3 SOAH DOCKET NO PROPOSAL FOR DECISION PAGE2 application for the mixed beverage permit be granted, but the renewal of its mixed beverage late hours permit be denied. The sale of alcohol during the extended late hours between midnight and 2:00 a.111. would be in violation of the Code. I. JURISDICTION, NOTICE, AND PROCEDURAL HISTORY No contested issues of notice, jurisdiction, or venue were raised in this proceeding. Therefore, these matters are set out in the findings of fact and conclusions of law without further discussion here. The hearing convened on June 23, 2017, before ALJ Roshunda Atchison at the State Office of Administrative Hearings (SOAH) located at 2020 North Loop West, Ste. 111, Houston, Hanis County, Texas. Petitioner's staff (Staff) was represented by attorney Sandra K. Patton. Protestant was represented by attorney Scott Tschirhart. Respondent appeared through its president, Victor Villarreal, and was represented by attorney Clyde Burleson. The record closed at the conclusion of the hearing. II. DISCUSSION A. Applicable Law Pursuant to Code l l.46(a)(l 0), the TABC may refuse to issue a renewal permit if it has reasonable grounds to believe and finds that "the applicant will sell liquor unlawfully in a dry area or in a manner contrary to law or will knowingly permit an agent, servant, or employee to do so[.]" Code estal:ilishes the hours of sale for mixed beverages. In pertinent part, the statute reads as follows: (c) In a city or county having a population of 800,000 or more, according to the last preceding federal census, or 500,000 or more, according to the 22"d Decennial Census of the United States, as released by the Bureau of the Census on

4 SOAH DOCKET NO PROPOSAL FOR DECISION PAGE3 March 12, 2001, a holder of a mixed beverage late hours permit may also sell and offer for sale mixed beverages between midnight and 2 a.m. on any day. (d) In a city or county other than a city or county described by Subsection (c), the extended hours prescribed in Subsection ( c) of this section are effective for the sale of mixed beverages and the offer to sell them by a holder of a mixed beverage late hours permit: (2) in an incorporated city or town if the extended hours are adopted by an ordinance of the governing body of the city or town. (e) A violation of a city ordinance or order of a commissioner's court adopted pursuant to Subsection (d) of this section is a violation of this code. Ordinance states in pertinent parts,: Whereas, the City Council of the City of Rosenberg has investigated the present provisions of the Code of Ordinances of the City of Rosenberg relating to the rules, regulations and procedures for permits allowing extended hours for the sale, possession, delivery, and consumption of alcoholic beverages, and has carefully evaluated the effect of such ordinance in relation to public safety, protection of the use and enjoyment of the people in their homes, elimination of traffic dangers, hazards, nuisance, and related activities all of which significantly impact the health, safety, and well-being of residents, citizens and inhabitants; and Whereas, the City Council finds and determines that it is necessary, proper and in the best interest of the citizens of the City to repeal, delete and rescind for all purposes the current provisions of Section 3-12, 3-13, 3-14 and 3-15 of Chapter 3 of the Code of Ordinances, relating to the allowance of extended hours for the sale, delivery, possession, and consumption of alcoholic beverages, 111 order to protect the general health, safety, and welfare of the public; B. Evidence The material facts in this case are undisputed. Respondent operates an event hall that is used for parties and concerts. The events at the business may last after midnight, requiring Respondent to have a late hours permit for the sale of alcohol between midnight and 2:00 a.m.

5 SOAH DOCKET NO PROPOSAL FOR DECISION PAGE4 On May 2, 2006, Respondent was issued its original Mixed Beverage Permit and Mixed Beverage Late Hours Permit. At the time of issuance, the business was in an unincorporated area of Fort Bend County and was permitted to sell alcohol between midnight and 2:00 a.m. pursuant to its late hours permit issued by T ABC. On November 15, 2011, the City annexed land within Fort Bend County, which included the land where Respondent's business is located. In 2002, prior to the annexation, the City had adopted City Ordinance The ordinance essentially prohibits the sale of alcohol after midnight in the City. With the annexation, Respondent was subject to the ordinance and its restrictions against the sale of alcohol after midnight. However, Respondent and the City reached an agreement that allowed Respondent to sell alcohol after midnight with its late hours permit.' At the hearing, Respondent and the City stipulated that the agreement granted by the previous administrators of the City allowed Respondent to continue sell alcohol after midnight to ensure that Respondent was not financially harmed by the annexation. In fact, subsequent to the annexation in 2011, Respondent's TABC permits were renewed twice without protest by the City. Nevertheless, Respondent and the City stipulated that the agreement was illegal because it violated the Code, and the City had no authority to enter into such an agreement. On January 25, 2017, the City filed a protest in anticipation of Respondent's renewal application. On March 14, 2017, Respondent filed the renewal applications with TABC, requesting renewal of its permits. The Protestant offered four exhibits into evidence and restated the arguments presented in Protestant's Motion for Summary Disposition that was filed on May 24, Respondent offered two exhibits into evidence and restated the argument presented in Respondent's Response to Protestant's Motion for Summary Disposition.3 Additionally, Respondent presented the testimony of Victor Villarreal. Mr. Villarreal testified that the City 2 No agreement was offered into evidence to show the date or exact terms, but Respondent and the City stipulated/agreed to the terms of the agreement. 3 The Motion for Summary Disposition was denied by ALJ Order I, issued on June 13, 2017.

6 SOAH DOCKET NO PROPOSAL FOR DECISION PAGES allowed him to sell alcohol after midnight for 6 years after annexation without protest. He explained that he invested half of a million dollars into the business and land. Mr. Villarreal said that he intentionally established the business outside of the city limits because the nature of his business requires the sale of alcohol in the late hours because of the types of events that are booked at the establishment. Mr. Villarreal testified that denial of the renewal application will cause extreme financial hardship to his business. He explained that twenty-eight events had been booked for the remainder of the year that required the sale of alcohol during the late hours. Accordingly, he would be required to cancel each event, which will result in a significant economic impact to the business. C. Analysis The issue before the ALJ is whether the renewal of the late hours permit is proper under the Code. The evidence is clear that Respondent's establishment is located in an incorporated city that has adopted a city ordinance that does not permit alcohol to be sold pursuant to a late hours permit. Further, the City has a population under 800,000 residents according to the last preceding federal census. Staff did not protest the renewal application. However, Staff referred the ALJ to of the Code because it is the section that Staff considers when applying the Code in relation to Jaws adopted by other governmental entities. 1. Protestant's Argument Protestant presented two arguments and cited two sections of the Code as grounds to deny renewal of the late hours permit. Protestant argued that Respondent's permit should be denied because Respondent's business is located in the jurisdiction of a city that has adopted an 4 Code l09.57(a) states, governmental entities "may not impose stricter standards on premises or businesses required to have a license or pennit under this code than are imposed on similar premises or businesses that are not required to have such a license or permit." Further, Code (c) specifically states that , as a whole, and 1.06 of the Code do not affect the validity or invalidity of a zoning regulation that was formally enacted before June l l, 1987, that is otherwise valid.

7 SOAH DOCKET NO PROPOSAL FOR DECISION PAGE6 ordinance that prohibits the sale of alcohol after midnight. Further, Protestant argued that Respondent's permit should be denied because it is in violation Code (d). First, the ALJ considered Protestant's argument pursuant to Code l 1.46(a)(l 0). City Ordinance clearly does not allow for late hour permits. According to Code , governmental entities are not allowed to impose stricter standards on premises or businesses required to have a license or permit under the Code than are imposed on similar premises or businesses that are not required to have such a license or permit. Specifically, Code!09.57(c) states that and 1.06 of the Code do not affect the validity or invalidity of a zoning regulation that was formally enacted before June 11, 1987, that is otherwise valid. The City's ordinance was adopted after June 11, 1987; therefore, application of Code is proper. The ALJ considered whether the city ordinance imposes a stricter standard on Respondent's business. Clearly, the Code regulates and preempts an ordinance that regulates where of which alcoholic beverages are sold under most circumstances. 5 Based on the evidence presented, there is no indication that the ordinance is stricter on T ABC licensed entities than other business entities not required to be licensed. Nevertheless, in this situation, the Code preempts the city ordinance. Accordingly, the time and manner in which the alcoholic beverage may be sold is solely governed by the Code. Second, the ALJ considered whether Code is a basis of denial of Respondent's renewal application for the late hours permit. It is undisputed that the City is an incorporated city with a population under 800,000 residents. Under these circumstances, the sale of alcohol by Respondent pursuant to the late hours permit is only allowed with the existence of an ordinance that adopts the extended hours. Cleary, the City has not adopted an ordinance that adopts the extended hours for the sale of alcoholic beverages. As stated previously, the time and maimer in which an alcoholic beverage may be sold is solely regulated by the TABC and governed by the Code. The Code contains no exceptions that are applicable in Respondent's ' Code I09.57(b) provides that the Code "shall exclusively govern the regulation of alcoholic beverages in this state, and that except as permitted by this code, a governmental entity of this state may not discriminate against a business holder of a license or pennit under this code."

8 SOAH DOCKET NO PROPOSAL FOR DECISION PAGE? case. Therefore, the sale of alcohol during the extended hours pursuant to a late hours pennit would violate the Code. 2. Respondent's Argument Respondent argued that Local Government Code is the applicable law in this matter because the City annexed the land within Fort Bend County in which Respondent's business is located and Respondent has continuously operated with a late hours permit since May 2, Respondent contends that its land use was legal prior to annexation and has been consistent since the annexation. Further, denial of the renewal application for the late hours petmit would affect and hinder Respondent's use of the land. Local Government Code imposes restrictions on municipalities. The TABC is not a municipality. So, the section is not applicable to the T ABC permitting decision that is at issue in this case. III. RECOMMENDATIONS For all of the reasons stated above, the ALJ recommends that Respondent's renewal application for a mixed beverage permit be granted, but the renewal of its mixed beverage late hours permit be denied. IV. PROPOSED FINDINGS OF FACT I. Fresnillo Inc. d/b/a El Presidente (Respondent) holds a Mix Beverage Permit and a Mixed Beverage Late Hours Permit issued by the Texas Alcoholic Beverage Commission (Petitioner or TABC) for the premises located at 1503 Highway 529 'A', Rosenberg, Fort Bend County, Texas. 6 Chapter 43 of the Local Government Code sets out the laws governing municipal annexation. The Legislature passed to resolve any conflicts when a newly-annexed territory may contain a business or a property with an existing use that was legal prior to annexation, but illegal under the annexing authority's municipal ordinances. Specifically, (a) states, "a municipality may not, after annexing an area, prohibit a person from: (1) continuing to use land in the area in the manner in which the land was being used on the date the annexation proceedings were instituted ifthe land use was legal at that time."

9 SOAH DOCKET NO PROPOSAL FOR DECISION PAGES 2. Respondent was granted its original Mixed Beverage Permit and Mixed Beverage Late Hours Permit on May 2, In 2002, the City of Rosenberg (Protestant/City) adopted City Ordinance The ordinance prohibits the sale of alcohol after midnight. 4. On November 15, 2011, the City annexed land within Fort Bend County 111 which Respondent's business is located. 5. Following annexation, Respondent was allowed to operate pursuant to the late hours permit due to an agreement between Respondent and the City that was contrary to and unlawful under the Code. 6. Respondent's current renewal applications were filed with TABC on March 14, Protestant anticipated the renewal applications and filed a protest to Respondent's Mixed Beverage Late Hours Permit on January 25, Prior to the renewal applications filed on March 14, 2017, Respondent's permits were previously renewed on two occasions without protest. 9. Protestant is an incorporated city with a population under 800,000 residents according to the last preceding federal census. 10. The governing body of the City has not passed an ordinance that adopts the extended hours for the sale of alcoholic beverages. 11. On June 23, 2017, a hearing convened before State Office of Administrative Hearings (SOAH) Administrative Law Judge Roshunda Atchison at the SOAH field office located at 2020 North Loop West, Ste. 111, Houston, Harris County, Texas. The record closed at the conclusion of the hearing. 12. On April 25, 2017, Petitioner sent a notice of hearing to Respondent. The notice of hearing contained a statement of the time, place, and nature of the hearing; a statement of the legal authority and jurisdiction under which the hearing was to be held; a reference to the particular sections of the statutes and rules involved; and a short, plain statement of the factual matters asserted. 13. The staff (Staff) of TABC was represented at the hearing by its attorney, Sandra K. Patton. Protestant was represented by attorney Scott Tschirhaii. Respondent appeared through its president, Victor Villarreal, and was represented by Clyde Burleson.

10 SOAH DOCKET NO PROPOSAL FOR DECISION PAGE9 V. PROPOSED CONCLUSIONS OF LAW I. TABC has jurisdiction 111 this case pursuant to Texas Government Code ch. 5 and SOAH has jurisdiction over all matters related to conducting a hearing in this proceeding, including the preparation of a proposal for decision with proposed findings of fact and conclusions of Jaw, pursuant to Texas Alcoholic Beverage Code 5.43 and Texas Government Code chs and Respondent was provided timely, proper notice of the hearing. Texas Gov'! Code Respondent's application for renewal of its Mixed Beverage Permit is proper and should be granted. 5. Respondent is allowed to sell alcoholic beverages pursuant to a late hours permit if the governing body of the City has passed an ordinance adopting the extended hours for the sale of alcoholic beverages pursuant to Texas Alcoholic Beverage Code I05.03(d)(2) 6. Respondent's application for renewal of its Mixed Beverage Late Hours should be denied pursuant to Texas Alcoholic Beverage Code l l.46(a)(l 0) and I SIGNED August 21, \( /\r:-- ~ ~\ \v\,: ROS!llll\DA A TCIIISO;( AllMl1'1S'J'RAllVE Li\ W JCllUE STATE OFFICF OF AllMl\l!SlRATIVE HE,\RINGS

11 DocuSign Envelope ID: EA26-49EC-947F-507EE0F1585E DOCKET NO TEXAS ALCOHOLIC BEVERAGE COMMISSION, Jurisdictional Petitioner CITY OF ROSENBERG, Protestant VS. FRESNILLO, INC. D/B/A EL PRESIDENTE, PERMIT MB626824, LB FORT BEND COUNTY, TEXAS (SOAH DOCKET NO ) BEFORE THE TEXAS ALCOHOLIC BEVERAGE COMMISSION ORDER CAME ON FOR CONSIDERATION this the 6th day of April 2018, the above-styled and numbered cause. After proper notice was given, this case was heard by the State Office of Administrative Hearings (SOAH), with Administrative Law Judge Roshunda Atchison presiding. The hearing convened on June 23, 2017, and the SOAH record closed the same date. The Administrative Law Judge made and filed a Proposal for Decision containing Findings of Fact and Conclusions of Law on August 21, The Proposal for Decision was properly served on all parties, who were given an opportunity to file exceptions and replies as part of the record herein. No exceptions were filed. After review and due consideration of the Proposal for Decision, I adopt the Findings of Fact and Conclusions of Law of the Administrative Law Judge that are contained in the Proposal for Decision, and incorporate those Findings of Fact and Conclusions of Law into this Order as if such were fully set out and separately stated herein. All motions, requests for entry of Proposed Findings of Fact and Conclusions of Law, and any other requests for general or specific relief submitted by any party are denied unless specifically adopted herein. Page 1 of 3

12 DocuSign Envelope ID: EA26-49EC-947F-507EE0F1585E IT IS THEREFORE ORDERED that Respondent s renewal application for the above Mixed Beverage permit be GRANTED, and that Respondent s renewal application for the above Mixed Beverage Late Hours permit be DENIED. This Order will become final and enforceable on the 2nd day of May 2018, unless a Motion for Rehearing is filed by the 1st day of May SIGNED this the 6th day of April 2018 at Austin, Texas. Matthew Chaplin, LL.M. Deputy Executive Director Texas Alcoholic Beverage Commission CERTIFICATE OF SERVICE I certify that the persons listed below were served with a copy of this Order in the manner indicated below on this the 6th day of April Martin Wilson, LL.M. Assistant General Counsel Texas Alcoholic Beverage Commission Roshunda Atchison ADMINISTRATIVE LAW JUDGE State Office of Administrative Hearings 2020 North Loop West, Suite 111 Houston, TX VIA FACSIMILE: (512) Fresnillo, Inc. d/b/a El Presidente RESPONDENT 1503 Hwy. 529, Suite A Rosenberg, TX VIA FIRST CLASS MAIL, CMRRR # Page 2 of 3

13 DocuSign Envelope ID: EA26-49EC-947F-507EE0F1585E Clyde Burleson ATTORNEY FOR RESPONDENT 1533 W. Alabama, Suite 100 Houston, TX VIA FIRST CLASS MAIL, CMRRR # Sandra Patton ATTORNEY FOR PETITIONER TABC Legal Division VIA Page 3 of 3

14 DocuSign Envelope ID: EA26-49EC-947F-507EE0F1585E Order on Proposal for Decision OGC Legal Assistant Dina Powell

15 DocuSign Envelope ID: DE D48-A638700A35BC DOCKET NO TEXAS ALCOHOLIC BEVERAGE COMMISSION, Jurisdictional Petitioner CITY OF ROSENBERG, Protestant VS. FRESNILLO, INC. D/B/A EL PRESIDENTE, Respondent PERMIT MB626824, LB FORT BEND COUNTY, TEXAS (SOAH DOCKET NO ) BEFORE THE TEXAS ALCOHOLIC BEVERAGE COMMISSION ORDER OVERRULING MOTION FOR REHEARING CAME ON FOR CONSIDERATION this, the 31st day of May 2018, the above-styled and numbered cause. After proper notice was given, this case was heard by the State Office of Administrative Hearings ( SOAH ), with Administrative Law Judge, Roshunda Atchison, presiding. The hearing convened on June 23, 2017, and the SOAH record closed the same date. The Administrative Law Judge made and filed a Proposal for Decision containing Findings of Fact and Conclusions of Law on August 21, The Proposal for Decision was properly served on all parties, who were given an opportunity to file exceptions and replies as part of the record herein. No exceptions were filed. On April 6, 2018, an Order was issued adopting the Findings of Fact and Conclusions of Law contained in the Proposal for Decision, granting Respondent s renewal application for its Mixed Beverage Permit, and denying Respondent s renewal application for its Mixed Beverage Late Hours Permit. On May 1, 2018, Respondent filed a Motion for Rehearing asserting that Local Government Code applies to this situation. Respondent apparently contends that, for this reason, the City of Rosenberg does not need to actually adopt an ordinance, which is required by Alcoholic Beverage Code (d)(2), to allow extended hours for the sale of alcoholic Page 1 of 3

16 DocuSign Envelope ID: DE D48-A638700A35BC beverages by a mixed beverage permittee in an incorporated city in a county the size of Fort Bend County. Respondent further contends the City s protest is itself an attempt to circumvent its obligations under Local Government Code On May 9, 2018, the City of Rosenberg filed its reply to the Motion for Rehearing. The City contends that Local Government Code is a land use statute and that Respondent may continue to use the land as before (i.e., under its Mixed Beverage Permit). However, Respondent must comply with the Texas Alcoholic Beverage Code as regards extended hours of sale. The City cites a line of cases establishing that a permit to sell alcoholic beverages is a personal privilege and does not vest a property right. It is Alcoholic Beverage Code that allows the sale of alcoholic beverages during extended hours in a city such as Rosenberg only pursuant to an ordinance. Depriving Respondent of its late hours permit absent such an ordinance does not deprive it of property rights protected by Local Government Code Furthermore, the Local Government Code cannot be read in a manner that preempts the Alcoholic Beverage Code. Based on consideration of the arguments set forth in Respondent's Motion for Rehearing and Protestant s Reply, the Motion for Rehearing is OVERRULED. All motions, requests for entry of Proposed Findings of Fact and Conclusions of Law, and any other requests for general or specific relief submitted by any party are denied, unless specifically granted or adopted herein. IT IS THEREFORE ORDERED that Respondent s renewal application for the above Mixed Beverage permit be GRANTED, and that Respondent s renewal application for the above Mixed Beverage Late Hours permit be DENIED. Pursuant to Government Code (a)(2)(A), this Order Overruling Motion for Rehearing is effective on the date it is signed. SIGNED this, the 31st day of May 2018, at Austin, Texas. Matthew Chaplin, LL.M. Deputy Executive Director Texas Alcoholic Beverage Commission Page 2 of 3

17 DocuSign Envelope ID: DE D48-A638700A35BC CERTIFICATE OF SERVICE I certify that the persons listed below were served with a copy of this Order Overruling Motion for Rehearing in the manner indicated below on this, the 31st day of May Martin Wilson, LL.M. Assistant General Counsel Texas Alcoholic Beverage Commission Roshunda Atchison ADMINISTRATIVE LAW JUDGE State Office of Administrative Hearings 2020 North Loop West, Suite 111 Houston, TX VIA FACSIMILE: (512) Fresnillo, Inc. d/b/a El Presidente RESPONDENT 1503 Hwy. 529, Suite A Rosenberg, TX VIA FIRST CLASS MAIL, CMRRR # Clyde Burleson ATTORNEY FOR RESPONDENT 1533 W. Alabama, Suite 100 Houston, TX VIA FIRST CLASS MAIL, CMRRR # Scott M. Tschirhart ATTORNEY FOR PROTESTANT Denton Navarro Rocha Bernal & Zach, P.C W. William Cannon Drive, Suite 609 Austin, Texas VIA FIRST CLASS MAIL, CMRRR # Sandra Patton ATTORNEY FOR PETITIONER TABC Legal Division VIA Sandra.patton@tabc.texas.gov Page 3 of 3

18 DocuSign Envelope ID: DE D48-A638700A35BC Order on Proposal for Decision OGC Legal Assistant Dina Powell