Liquor Commission Subject to Judicial Review

E & J Operating Co. v. Liquor Comm'n of HNL (HSC July 29, 2008)

Background. E & J Lounge applied for a liquor license with the Liquor Commission in HNL. The Commission held a preliminary hearing and determined to schedule a public hearing for the application. Three of the five commissioners appeared at the first public hearing, where it received testimony and evidence from neighbors. All five were at the continued hearing, but a different three presided over the third and final hearing. The Commission denied the application. E & J sought appealed to the circuit court pursuant to the Hawai'i Administrative Procedures Act (HRS chapter 91) on the grounds that the Commission violated various provisions of HAPA, including HRS § 91-11, which requires members who did not preside over all of the contested case to review the record before rendering a decision. The circuit court ruled that the public hearing was a "contested case" and that it had judicial review. The ICA held that the public hearing was not a "contested case," but that there was judicial review.

Simply put, the Public Hearing IS a Contested Case. A contested case is an agency hearing that (1) is required by law and (2) determines the rights, duties, or privileges of specific parties. Pub. Access Shoreline Haw. v. Hawaii County Planning Comm'n, 79 Hawai'i 425, 431, 903 P.2d 1246, 1252 (1995); HRS § 91-1. Under the first prong, a hearing is "required by law" when there is a "statutory, rule-based, or constitutional mandate for [the] hearing[.]" Bush v. Hawaiian Homes Comm'n, 76 Hawai'i 128, 137, 870 P.2d 1272, 1281 (1994). The HSC agreed with the ICA that the first prong was met. HRS chapter 281 regulates all county liquor commissions and those statutes require a public hearing like the one here. The HSC, in applying the second prong, likened this case to Mahuiki v. Planning Comm'n, 65 Haw. 506, 654 P.2d 874 (1982), where the it held that a hearing pursuant to a public notice meets the second prong when the applicant seeks to have its legal rights, duties, or privileges "declared over the objectives of other landowners and residents[.]" Id. at 513, 654 P.2d at 879. A liquor license, according to the HSC, confers the licensee with various rights and privileges such as the right to make liquor and sell it wholesale, the right to import and sell, and sell liquor while aboard a ship. HRS § 281-31. A licensee is also saddled with various duties. HRS §§ 281-75 to -85. The HSC, therefore, found the public hearing that would determine a liquor license in step with Mahuiki and concluded that the second prong was met. Thus, a public hearing to hear testimony and receive evidence regarding an application for a liquor license is a "contested case" under HRS § 91-1. This invokes HAPA and judicial review under HRS § 91-14.

Just Apply the test; Express Labels, Property Interests, or Adversarial Proceedings Irrelevant. It appears that the only thing that determines a contested case is the application of the two-prong test. The HSC dismantled the reasoning behind the ICA's opinion. First, it concluded that a public hearing is the contested case. It disagreed with the ICA's conclusion that the contested case was something additionally required or something that needed to be expressly labeled a "contested case." It also rejected the ICA's distinction of Town v. Land Use Comm'n, 55 Haw. 538, 524 P.2d 84 (1974). According to the HSC, Town does not stand for the proposition that a property interest is a prerequisite for a contested case. Finally, the HSC pointed out that a "trial-like" setting with adversarial parties is not a determinant of a contested case.

But what about Conflicting Statutes? The HSC also rejected the ICA's approach to judicial review without applying the rest of HRS chapter 91. The HSC concluded that the most of the statutes in HRS chapter 91 and HRS chapter 281 do not conflict and, therefore, all must be given full effect. Richardson v. City and County of HNL, 76 Hawai'i 46, 55, 868 P.2d 1193, 1202 (1994) (repeal by implication is disfavored so statutes must be given effect). However, when there is a true conflict, the more specific one applies. HRS chapter 91, according to the HSC, is designed for this. For example, "[u]nless otherwise provided by law," all parties shall be given written notice of the hearing by mail at least fifteen days before the hearing. HRS § 91-9.5. This conflicts with HRS § 281-57, which requires the applicant to provide notice of the hearing to "not less than two-thirds" of the owners and lessees, registered voters and small businesses located within 500 feet of the premises. In this case, the more specific provision controls and HRS chapter 91 acts a gap-filler or default.

Most Statutes, However, do not Conflict. This means that because it was a "contested case" and because HRS chapter 91 is to be given full effect, the Commission violated HRS § 91-11. On the other hand, HRS chapter 281 also applies in full force. So that means when a sufficient number of neighbors appear at the public hearing to oppose the license, the application is denied. HRS § 281-59(a). It is unclear whether E & J properly served the number of neighbors as required under HRS chapter 281.

And the Remedy? The HSC noted that although the Commission violated HRS § 91-11, it still denied the permit and rendered a decision by denying the application. This meant that HRS § 91-13.5, which forces the agency to take action of some kind within 15 days of the hearing lest the license be deemed granted, did not apply. The HSC explained that "[t]he fact that the decision was legally ineffective does not mean that the Commission failed to act[.]" And so the HSC vacated the ICA's decision and remanded it back to the Commission. The Commission must now determine if E & J properly served notices to its neighbors pursuant to HRS § 281-57. If it did, then it must re-consider the application in accordance with HRS chapter 91. If it did not, then the application is "not [to] be considered"-- a most cryptic phrase. Is that akin to a dismissal without prejudice thereby allowing E & J to apply from scratch?

A new era of Judicial Review for Liquor Commissions? The HSC made it very clear that when the Commission holds a public hearing on an application for liquor license, it is holding a contested case and its decision is subject to judicial review. And given the application of the two-prong test in determining a contested case, it is arguable that the preliminary hearing pursuant to HRS § 281-57(a) is also a contested case. It need not be "trial-like" to be a contested case. So if the denial of an application is subject to judicial review and if the Commission is required to comply with those provisions in HRS chapter 91 that do not conflict with HRS chapter 281, what would the court on an agency appeal examine? In this case, it would not examine much. The only thing that would be the subject of the agency appeal would be whether a sufficient number of neighbors opposed the applicant. The Commission is in some cases required by law to deny the application. Only when the Commission exercises its discretion will the agency appeal become more important.


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