GC Brothers Entertainment v. Alcoholic Beverage Control etc. ( 2022 )

Filed 11/1/22
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION ONE
GC BROTHERS ENTERTAINMENT B316346
LLC,
Petitioner,
v.
ALCOHOLIC BEVERAGE
CONTROL APPEALS BOARD,
Respondent,
DEPARTMENT OF ALCOHOLIC
BEVERAGE CONTROL,
Real Party in Interest.
ORIGINAL PROCEEDING; review of Order No. 48-485515
of the Alcoholic Beverage Control Appeals Board of the State of
California. Writ granted.
Blake & Ayaz, Rick A. Blake; Roger Jon Diamond for
Petitioner.
Rob Bonta, Attorney General, Chris A. Knudsen, Assistant
Attorney General, Gabrielle H. Brumbach and Mark Schreiber,
Deputy Attorneys General, for Real Party in Interest.
No appearance for Respondent.
___________________________________
The Department of Alcoholic Beverage Control
(Department) revoked a nightclub’s liquor license after the club’s
owner, GC Brothers Entertainment LLC dba The Palms
(Petitioner), failed to respond to an accusation alleging several
violations of California statutes and regulations. Petitioner
appealed the Department’s decision to the Alcoholic Beverage
Control Appeals Board (Appeals Board), which affirmed it, and
now seeks a writ of mandate directing the Department to vacate
its decision. We grant the writ.
BACKGROUND
We take the facts from an accusation the Department filed
against Petitioner, accepting them as true for purposes of this
proceeding. (Code Civ. Proc., § 431.20, subd. (a) [material
allegations not controverted by an answer taken as true for
purposes of the action].)
The Palms, a nightclub, holds an on sale general public
premises license issued to Petitioner which authorizes the sale of
beer, wine and distilled spirits for consumption on the premises.
In September 2019, undercover Department personnel discovered
several illicit activities taking place at The Palms, and on
January 30, 2020, the Department issued a misdemeanor citation
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to George Cataloiu, Petitioner’s president, demanding that he
appear before the superior court by June 15, 2020.
On September 11, 2020, the Department instituted a
40-count accusation against Petitioner, alleging it exceeded its
license privileges by knowingly permitting the illegal sale,
possession and consumption of alcohol and controlled substances
on its licensed premises, and permitting several of its employees
to violate the Health and Safety Code, Business and Professions
Code, and California Code of Regulations by: consuming alcohol
in unlicensed areas; exposing their genitalia and performing
simulated sex acts; furnishing cocaine and drug paraphernalia to
club patrons; soliciting the purchase of alcohol for their own
consumption; and smoking or ingesting cannabis on the premises.
On September 11, 2020, the Department served the
accusation on Petitioner by certified mail to The Palms’ address
pursuant to California Code of Regulations section 145 (Rule
145), which prescribes that notices will be mailed to the premises
for which a license is issued unless the licensee requests
otherwise. United States Postal Service (USPS) tracking
information showed the accusation was delivered to the licensed
premises on September 14, 2020, at 10:05 a.m.
Along with the accusation, the Department served
Petitioner notification that it could either settle the controversy
and submit to possible revocation of its alcohol license or dispute
the violations by requesting a hearing before an administrative
law judge (ALJ). The Department further notified Petitioner that
if it took no action within 15 days all charges in the accusation
would be sustained and found proven, an administrative default
3
judgment would be entered, and the Department would impose
penalties commensurate with the charges.
Petitioner failed to respond.
On November 23, 2020, the Department adopted a
“Decision Following Default,” finding Petitioner was properly
served with the Accusation but made no timely response, the
allegations of the accusation were true, and the Department was
authorized to suspend or revoke Petitioner’s license. The
Department found that continuance of Petitioner’s license would
be “contrary to public welfare and morals,” and ordered that the
license be revoked effective immediately.
The Department served the decision on Petitioner by
certified mail to The Palms’ address, USPS tracking information
showing it was delivered to the licensed premises on November
28, 2020, at 9:51 a.m.
On December 2, 2020, Petitioner filed a one-page motion
with the Department, unsupported by any evidence, to vacate the
default, arguing that Petitioner never received the September 11
1
accusation.
The Department opposed the motion, arguing no good
cause existed to vacate the default because the accusation was
1
Petitioner’s motion read in its entirety as follows: “GC
Brothers Entertainment, LLC dba Palms hereby moves the ABC
to set aside and vacate its default judgment. George Cataloiu did
not receive notice of any proceeding. He did not receive any
Accusation or any other document regarding revocation.
Accordingly, GC Brothers Entertainment, LLC hereby
respectfully requests the ABC to set aside the decision following
default. Licensee never received any Accusation or notice of any
filing. [¶] Moving party needs additional time to supply more
evidence if that is necessary. The Club in Signal Hill has been
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sent to the address Petitioner had provided in its license
application, and by Petitioner’s own admission that The Palms
had been closed for months before service of the accusation,
Petitioner had been afforded plenty of time to update its address
pursuant to Rule 145 but chose not to do so.
On December 16, 2020, Petitioners belatedly filed a
declaration by Cataloiu to support its motion. In it, Cataloiu
argued that the accusation should not have been mailed to The
Palms in the first instance because Department staff knew the
club had been closed since March 2020 due to the Covid
pandemic. Instead, the accusation should have been sent to
Cataloiu or his attorney, both of whom were known to
Department staff as a result of the January 2020 misdemeanor
proceedings. Cataloiu implied but failed explicitly to state that
he never received the September 11 accusation. He complained it
was “unconscionable that a government agency such as the
Department of Alcoholic Beverage Control would act so unfairly
to try to take advantage of a miscue.”
On December 21, 2020, the Department filed a declaration
by Bradley Beach, the supervising agent in charge of the
Department’s Lakewood district office, who stated that when the
Department notified him that Petitioner failed to respond to the
accusation, he telephoned Petitioner at the two numbers the
closed since March 2020 because of the Covid 19 pandemic.
While closed no employees went by the club. [¶] The ABC knew
that attorney Roger Jon Diamond represented the
Establishment. No Accusation was sent to him either.”
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Department had on file. There was no answer at the first
number, and the mailbox for the second was full.
On June 7, 2021, the Department found that Petitioner’s
attorney’s allegation—in the motion to vacate the default—to the
effect that Petitioner failed to receive the accusation did not
constitute evidence of that fact. The Department therefore
denied Petitioner’s motion.
Petitioner appealed this decision to the Appeals Board. In
its briefs in support of the appeal, Petitioner challenged Beach’s
declaration about having attempted to telephone Petitioner,
denied that delivery of mail was possible at The Palms when it
was closed, and argued that an employee arriving at the club to
retrieve office items found no accusation there. Petitioner
requested that the Appeals Board order the Department to hold a
hearing concerning Petitioner’s nonreceipt of the accusation.
Petitioner further argued that the interests of leniency and
“[r]estoring the credibility of a governmental entity such as the
[Department]” constituted good cause to vacate the default
considering the chaos caused by the pandemic, especially given
that no prejudice would result because Petitioner moved to vacate
the default only a few days after it was issued.
After the appeal was fully briefed and submitted to the
Appeals Board, and two days prior to the hearing on the matter,
Petitioner submitted the declaration of Lambert Adouki, a
consultant Petitioner hired to investigate mail delivery to The
Palms, who stated he had been informed by Ayaz Brianna Flores,
a supervisor at the Signal Hill USPS station, that the mail
carrier who allegedly delivered the accusation to The Palms had
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informed Flores that the mail was not in fact delivered because
the business was closed.
On October 19, 2021, the Appeals Board affirmed the
Department’s order denying Petitioner’s motion to vacate the
default, and denied Petitioner’s request to remand the matter to
the Department for consideration of new evidence.
Petitioner timely seeks a writ of mandate directing the
Appeals Board and Department to reverse their decisions. In its
petition, Petitioner admits “there was no need for Petitioner to
update their mailing address as Petitioner regularly checked
their mail.”
DISCUSSION
Petitioner contends the Appeals Board erred in affirming
the Department’s order denying relief from default, and requests
that we either order the Appeals Board to vacate its order, vacate
the Department’s order denying relief from default, or vacate the
Department’s initial order finding petitioner to be in default.
A. Pertinent Law
The California Constitution grants the Department
“exclusive power” to license the sale of alcoholic beverages “in
accordance with laws enacted by the Legislature.” (Cal. Const.,
art. XX, § 22.) The Department may, “in its discretion, . . . deny,
suspend or revoke any specific alcoholic beverage license if it
shall determine for good cause that the granting or continuance
of such license would be contrary to public welfare or morals, or
that a person seeking or holding a license has violated any law
prohibiting conduct involving moral turpitude.” (Ibid.; see
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Rondon v. Alcoholic Beverage Control Appeals Bd. (2007) 151
Cal.App.4th 1274, 1281.)
Any party aggrieved by the Department’s decision to revoke
a license may appeal that decision to the Appeals Board. (Cal.
2
Const., art. XX, § 22; Bus. & Prof. Code, §§ 23081, 23084.) The
Appeals Board’s scope of review is narrow: it “shall not receive
evidence in addition to that considered by the [D]epartment,” and
its review “shall be limited to the questions whether the
[D]epartment has proceeded without or in excess of its
jurisdiction, whether the [D]epartment has proceeded in the
manner required by law, whether the decision is supported by the
findings, and whether the findings are supported by substantial
evidence in the light of the whole record.” (Cal. Const., art. XX,
§ 22; § 23084; see Department of Alcoholic Beverage Control v.
Alcoholic Beverage Control Appeals Bd. (2002) 100 Cal.App.4th
1066, 1073 (Deleuze).) The Appeals Board may remand a matter
for reconsideration if it finds the Department either erroneously
refused to consider relevant evidence or failed to consider
evidence that could not have been produced despite the exercise
of reasonable diligence. (Deleuze, at p. 1073.)
Any party aggrieved by the Appeals Board’s final decision
may file a petition for writ of review with “the court of appeal for
the appellate district in which the proceeding arose.” (§ 23090;
see Deleuze, supra, 100 Cal.App.4th at p. 1071.) The appellate
court reviews the Department’s decision, not the Appeals Board’s
decision, and exercises the same limited review as does the
2
Undesignated statutory references will be to the Business
and Professions Code.
8
Appeals Board. (§ 23090.2; Kirby v. Alcoholic Bev. etc. Appeals
Bd. (1972) 7 Cal.3d 433 (Kirby); Deleuze, at p. 1072.)
Our review “is quite limited.” (Sepatis v. Alcoholic Bev. etc.
Appeals Bd. (1980) 110 Cal.App.3d 93, 102 (Sepatis).) “Neither
this court nor the [Appeals] Board may ‘ “disregard or overturn a
finding of fact of the Department . . . for the reason that it is
considered that a contrary finding would have been equally or
more reasonable.” ’ ” (Kirby, supra, 7 Cal.3d at p. 436; see
§ 23090.3 [“The findings and conclusions of the [D]epartment on
questions of fact are conclusive and final and are not subject to
review”].)
“Of course, the discretion exercised by the Department
under section 22 of article XX of our Constitution ‘ “is not
absolute but must be exercised in accordance with the law, and
the provision that it may revoke [or deny] a license ‘for good
cause’ necessarily implies that its decisions should be based on
sufficient evidence and that it should not act arbitrarily in
determining what is contrary to public welfare or morals.’ ”
[Citations.] Nevertheless, it is the Department, and not the
[Appeals] Board or the courts, which must determine whether
‘good cause’ exists for denying a license upon the ground that its
issuance would be contrary to public welfare or morals.” (Kirby,
supra, 7 Cal.3d at pp. 436-437.) “As long as there is substantial
evidence to support the Department’s determination, as long as
the decision is a reasonable one under the evidence, the decision
must be upheld as a valid exercise of the Department’s discretion
conferred by the Constitution.” (Department of Alcoholic Bev.
Control v. Alcoholic Bev. etc. Appeals Bd. (1982) 136 Cal.App.3d
315, 318 (Kolender); see also Department of Alcoholic Bev. Control
9
v. Alcoholic Bev. etc. Appeals Bd. (1982) 133 Cal.App.3d 814, 817;
Sepatis, supra, 110 Cal.App.3d at pp. 102-103.)
Where a licensee is required to file his or her address with
the licensing agency, service by mail shall be effective if a
certified letter containing the accusation and the accompanying
material is addressed and mailed to the party at the licensed
premises. (Gov. Code, § 8311; Cal. Code Regs., tit. 4, § 145.) The
act of mailing by certified mail effectuates service, and proof of
service in the form of a return receipt signed by party or other
acknowledgment of receipt by a party is not required. (Evans v.
Department of Motor Vehicles (1994) 21 Cal.App.4th 958, 970; see
Evid. Code, § 641 [a letter correctly addressed and properly
mailed is presumed to have been received in the ordinary course
of mail].) Only notice “reasonably calculated” to apprise the
licensee of impending action is required. (Evans, at p. 970; Jones
v. Flowers (2006) 547 U.S. 220, 226; Mullane v. Central Hanover
Bank & Trust Co. (1950) 339 U.S. 306, 319.)
B. Application
1. The Accusation was Properly Served
Here, it is undisputed that the Department sent its
accusation by certified mail to the address Petitioner had
registered with the Department. Petitioner offered no evidence
to rebut that the accusation was mailed to The Palms. Although
Petitioner’s attorney argued that Cataloiu failed to receive the
accusation, an attorney’s statement in a memorandum of points
and authorities does not constitute evidence. (In re Marriage of
Pasco (2019) 42 Cal.App.5th 585, 591.)
Cataloiu himself nowhere stated in his declaration that
mail containing the accusation was not received at The Palms,
and Petitioner admits that Cataloiu regularly checked the mail at
10
the club while it was closed. In any event, service by mail
satisfied due process even if the accusation was never received,
and supported the Department’s decision to find Petitioner to be
in default, and thereupon to revoke its license.
Petitioner argues that the Adouki declaration shows that
the accusation was never received at The Palms. But this
declaration was offered to the Appeals Board, not the
Department. Our review is only of the Department’s decision,
and considers only the evidence it had before it. (§ 23090.2;
Department of Alcoholic Beverage Control v. Alcoholic Beverage
Control Appeals Bd. (2005) 128 Cal.App.4th 1195, 1205.)
2. The ALJ Abused His Discretion by Denying a
Hearing
Once the Department issues an accusation against a
licensee, the licensee may file a notice of defense and request a
hearing, and “shall be entitled to a hearing on the merits . . . and
the notice shall be deemed a specific denial of all parts of the
accusation . . . not expressly admitted.” (Gov. Code, § 11506,
subd. (c).) “The notice of defense” “need not be verified or follow
any particular form.” (Id. at subd. (d).)
If the respondent either fails to file a notice of defense to an
accusation or to appear at the hearing, the Department may act
based upon its own evidence. (Gov. Code, § 11520, subd. (a).)
Notwithstanding the respondent’s default, the Department
or the ALJ, “before a proposed decision is issued, has discretion to
grant a hearing on reasonable notice to the parties.” (Gov. Code,
§ 11520, subd. (b).) The ALJ may order the respondent to pay the
Department’s reasonable expenses incurred “as a result of the
respondent’s failure to appear at the hearing.” (Ibid.)
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“Within seven days after service on the respondent of a
decision based on the respondent’s default, the respondent may
serve a written motion requesting that the decision be vacated
and stating the grounds relied on. The agency in its discretion
may vacate the decision and grant a hearing on a showing of good
cause. As used in this subdivision, good cause includes, but is not
limited to, any of the following: [¶] (1) Failure of the person to
receive notice served pursuant to Section 11505[; ¶] (2) Mistake,
inadvertence, surprise, or excusable neglect.” (Gov. Code,
§ 11520, subd. (c), italics added.)
There is longstanding public policy favoring the
adjudication of cases on the merits, and the law requires a
reviewing body to scrutinize more carefully an order denying
relief from default than an order granting relief and permitting a
case to go forward. (See Code Civ. Proc., § 583.130 [“Except as
otherwise provided by statute . . . the policy favoring trial or
other disposition of an action on the merits [is] generally to be
preferred over the policy that requires dismissal for failure to
proceed with reasonable diligence in the prosecution of an
action”]; see generally Elston v. City of Turlock (1985) 38 Cal.3d
227, 233; see also Denham v. Superior Court (1970) 2 Cal.3d 557,
566; Crown Coach Corp. v. Superior Court (1972) 8 Cal.3d 540,
548; McDonough Power Equipment Co. v. Superior Court (1972) 8
Cal.3d 527, 538 (dis. opn. of Peters, J.).)
This power includes the discretion to liberally construe an
unclear motion to set aside a default. (See Miller v. Dussault
(1972) 26 Cal.App.3d 311, 319.)
Here, the statutory scheme governing review in licensing
matters often requires no diligence at all on the part of the
licensee. For example, before the Department has issued a
12
decision on an accusation, subdivision (b) of Government Code
section 11520 authorizes the ALJ to grant a licensee relief even if
the licensee does not ask for it.
After the Department has issued a decision, subdivision (c)
of Government Code section 11520 authorizes the ALJ to grant
the licensee relief from default for the sole reason that the
licensee failed to receive notice of the accusation, whether or not
such failure resulted from the licensee’s lack of diligence.
In this manner the licensing scheme is more liberal than
that governing, for example, defaults (see Code of Civ. Proc.,
§ 473) and dismissals for lack of prosecution (see Code of Civ.
Proc., § 581).
After the Department issues its decision, the only
requirement for relief from default is that there be a “showing” of
good cause. (Gov. Code, § 11520, subd. (c).) But even the
requirement of a showing is more relaxed under the licensing law
than under the Code of Civil Procedure.
Although the licensee must serve a “written motion”
requesting that the decision be vacated, the only express
statutory requirement for the motion itself is that the licensee
“stat[e] the grounds relied on.” (Gov. Code, § 11520, subd. (c).)
There is no express requirement that the motion be accompanied
by any evidentiary showing. The ALJ’s discretion to vacate the
Department’s decision and grant a hearing could be satisfied, for
example, after issuance of an order to show cause (OSC) and
further proceedings.
Here, the ALJ and Board focused their decisions on
respondent’s lack of diligence—its failure to update its address,
failure to check its mail, and failure to support its motion for
relief with sufficient evidence to justify relief.
13
For example, the ALJ’s only finding was that respondent
failed to “assert[] that the accusation was not properly served at
the address on record with the Department.” Accordingly, the
ALJ found, “No good cause has been established to set aside the
Decision.”
But respondent need never make such a showing, because
good cause exists if the licensee merely failed to receive the
accusation; there is no requirement that the respondent show the
accusation was not properly served. (Gov. Code, § 11520, subd.
(c).)
Similarly, the Board found that “Appellant offered no
factual basis to support the existence of good cause in its Motion
to Vacate the Decision Following Default. Accordingly, it did not
constitute an abuse of discretion, nor was it arbitrary or
capricious, for the Department to deny that motion for the failure
to make the requisite showing of good cause. . . . [T]he
Department properly denied the request.”
Although the Board correctly identified the issue—whether
respondent showed good cause, i.e., showed lack of actual receipt
of the accusation—it confusingly (1) weighed the evidence—the
presumption that mail duly served is received versus
respondent’s contention (which the Board found “stretches
credulity”) that it was not received—itself; (2) found that
respondent “offered no factual basis” to support good cause; and
(3) found that the ALJ properly denied respondent’s motion for
failure to show good cause.
But first, it was not the Board’s province to weigh evidence
never considered or ruled upon by the ALJ. Second, respondent
did offer a factual basis supporting good cause—it contended it
failed to receive the accusation. And third, the ALJ did not deny
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respondent’s motion for failure to show good cause but for failure
to demonstrate the accusation was not properly served, which as
discussed above was an irrelevant issue.
Respondent at all times offered to show lack of actual
receipt, but the Department and the ALJ insisted, with no clear
statutory basis, that the showing be made immediately upon the
filing of the motion for relief.
Because such a motion must be filed very quickly, within
seven days after service of a decision based on a default, it is
unreasonable to require in every instance that the respondent
marshal its evidence in time for the motion, especially given that
the statute does not explicitly require that the evidence
accompany the motion. What if the respondent’s counsel or a
knowledgeable party is not immediately available, or if needed
evidence cannot be immediately obtained? We think the fairer
(and statutorily resonant and permissible) procedure would be for
the ALJ to treat a motion for relief from default like it treats an
initial notice of defense, i.e., as a general denial to be supported
by evidence later, for example upon the receipt of an order to
3
show cause.
We therefore hold that the licensing scheme and strong
state policy in favor of resolving cases on the merits grant an ALJ
discretion to issue an OSC when he or she receives even an
arguably deficient motion for relief from default. It thus runs
3
To be granted a hearing in the first instance, a licensee
need not state it has any defense to an accusation (much less
specify the defense), but need only file a “notice of defense,” which
will be construed as a denial. (Gov. Code, § 11506, subd. (a).)
“The notice of defense” “need not be verified or follow any
particular form.” (Id. at subd. (d).)
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contrary to the spirit of the licensing scheme to insist that a
licensee present its complete and best case for relief within seven
days of service of a notice of default.
Here, the ALJ not only apparently believed he had no
discretion to liberally construe respondent’s motion for relief, but
also found that respondent’s failure to establish an irrelevant
issue—proper service—constituted a failure to show good cause
for relief. The ALJ’s failure to appreciate the scope of his
discretion and application of an improper standard requires that
we remand the matter to afford the ALJ an opportunity to
exercise his discretion in the first instance and, applying the
proper standard, determine whether petitioner has shown good
cause for relief from default.
DISPOSITION
The writ is granted. The ALJ is directed to determine
whether Petitioner can show good cause for relief from default.
Each side is to bear its own costs.
CERTIFIED FOR PUBLICATION
CHANEY, J.
We concur:
ROTHSCHILD, P. J.
BENDIX, J.
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