SC Administrative Law Court Decisions

The South Carolina Department of Revenue (DOR) received notice that the State Law Enforcement Division (SLED) asserted Jeffrey L. Gore (Gore) no longer meets the requirements for a minibottle license and that Gore had violated 23 S.C. Code Ann. Regs. 7-7 (1976) by failing to keep adequate records. Based upon such information, DOR seeks to revoke both the minibottle license and the beer and wine permit of Gore. Gore has challenged DOR's action by seeking a contested case hearing. The hearing in this matter was held October 6, 1998 with jurisdiction vested in the Administrative Law Judge Division pursuant to S.C. Code Ann. §§ 61-2-260 (Supp. 1997), 1-23-600(B) and 1-23-310 (Supp. 1997). Based upon the evidence and the arguments presented by the parties, the minibottle license is revoked, but the beer and wine permit is not revoked.

1. Does Gore continue to meet the requirements for a minibottle license imposed by S.C. Code Ann. § 61-6-1820?

2. Did Gore violate the record keeping requirements of Regulation 7-7?

3. If Gore no longer meets the requirements for a minibottle license imposed by S.C. Code Ann. § 61-6-1820 or if Gore violated the record keeping requirements of Regulation 7-7, should both his minibottle license and his beer and wine permit be revoked?

1. Positions of Parties

DOR issued a Final Determination to Gore which asserts Gore is not in compliance with the "restaurant requirements" of 23 S.C. Code Ann. Regs. 7-19 (1976). In general, DOR asserts Gore operated without an adequate kitchen, did not provide menus, and did not prepare food on its premises. In short, DOR asserts Gore is not in compliance with the minibottle license requirements since he was not operating "a business bona fide engaged primarily and substantially in the preparation and serving of meals" as required by S.C. Code Ann. § 61-6-1820(1) (Supp. 1997).

Gore disagrees. He argues that his business has an adequate kitchen. He asserts the kitchen was in disrepair due to storm damage and the repair took approximately two years to complete. Further, he argues menus have been available. Finally, he asserts meals were primarily prepared on his premises since he used an independent catering service to provide meals at his location. Contrary to DOR's position, Gore argues he was operating "a business bona fide engaged primarily and substantially in the preparation and serving of meals" as required by S.C. Code Ann. § 61-6-1820(1) (Supp. 1997).

2. Findings of Fact

Based on the preponderance of the evidence, the following findings of fact are entered:

Gore holds a minibottle license which he utilizes at 407 30th Ave. South, North Myrtle Beach, South Carolina. SLED inspected Gore's location at least three times with each inspection revealing a violation due to Gore's failure to demonstrate he was operating "a business bona fide engaged primarily and substantially in the preparation and serving of meals" as required by S.C. Code Ann. § 61-6-1820(1) (Supp. 1997). On February 10, 1996, Gore had no food on the premises and no menus available for customers. Additionally, only twenty-eight chairs were at the location. On March 22, 1997, Gore lacked proper kitchen equipment, failed to have the required menus, and did not have the necessary food for a business seeking to be identified as a restaurant. Further, a Class A rating was not displayed on the premises.

While the February 10, 1996 and March 22, 1997 inspections resulted in warnings issued to Gore, an inspection on September 6, 1997 led DOR to seek revocation of Gore's minibottle license. On September 6, 1997, Gore's kitchen floor was littered with trash and was covered by portions of discarded booths, tables, and mopping equipment. The cooler was not clean and was only marginally functional. The grill was covered with rust and, without significant maintenance, was inoperable. On the whole, the kitchen was not suitable for the preparation of food.

Even if an acceptable kitchen were available, Gore's actual practice does not demonstrate that he provides meals to customers consistent with the requirements of a restaurant. In fact, Gore does not prepare meals for customers at all. Rather, from late 1996 until September of 1998, Gore contracted with a third party who prepared the meals, provided the cooking equipment, and sold the meals at Gore's location. No sharing of profits and losses occurred between Gore and the third party. In other words, the third party prepared, served and sold the meals. Gore merely sold minibottles and beer and wine.

In addition, even the catering of meals was not provided each day the location was open. Rather, the evidence confirms that meals are not routinely provided by the third party at the hours set by the business of near midnight until 3:00 a.m. or 4:00 a.m. For example, on May 22, 1997, an undercover SLED agent entered the location to purchase a meal between 11:00 p.m. and 11:45 p.m. Upon asking for a meal, the bartender responded no food was available. Again on May 25, 1997, an undercover agent entered the location in an attempt to purchase a meal at approximately 1:45 a.m. Again, the bartender responded no meals were available. Indeed, on every visit by any SLED Agent at any hour, no food or meals were being served, and no one was seen eating a meal.

3. Conclusions of Law

Based on the foregoing Findings of Fact, I conclude the following as a matter of law:

DOR contends Gore no longer meets the requirements for holding a minibottle license. Under the facts of this case, I agree.

A. Preparation and Serving of Meals

A basic requirement for holding a minibottle license is that the licensee must operate a bona fide nonprofit organization or "a business bona fide engaged primarily and substantially in the preparation and serving of meals or furnishing of lodging." S.C. Code Ann. § 61-6-1820(1) (Supp. 1997). In this case, no dispute exists that Gore does not operate a nonprofit organization and does not furnish lodging. Rather, the only issue is whether Gore is bona fide engaged primarily and substantially in the preparation and serving of meals.

In determining compliance with the statutory demands of being bona fide engaged primarily and substantially in the preparation and serving of meals, two inquiries are made. First, is the business operation a bona fide meal preparation and service business; and second, is the business engaged primarily and substantially in meal preparation and service. S.C. Code Ann. § 61-6-1820(1) (Supp. 1997). See Brunswick Capitol Lanes v. South Carolina Alcoholic Beverage Control Commission, 273 S.C. 782, 260 S.E.2d 452 (1979).

1. Bona Fide

The preparation and service of meals must be a bona fide business. In deciding whether the business of meal preparation and service is bona fide, criteria are imposed by statute (S.C. Code Ann. § 61-6-20(2) (Supp. 1997) and by regulation (23 S.C. Code Ann. Regs. 7-19).

a. Threshold Statutory Criteria

A threshold test is imposed by statute. Does the restaurant hold a Class A restaurant license and does the location provide facilities for seating not less than forty persons simultaneously at tables for the service of meals? S.C. Code Ann. § 61-6-20(2) (Supp. 1997).

In this case, the evidence is not sufficient to establish a lack of seating or a lack of an A license. Rather, the only evidence on the threshold test is that on February 10, 1996, an inspection by SLED found only twenty-eight chairs at the location and on March 22, 1997, a Class A rating was not displayed on the premises. However, in both instances, Gore was given a written warning that he was in violation of the law and told to correct the deficiencies. No evidence establishes that Gore failed to correct the lack of an A license or the lack of sufficient seating.⁽¹⁾ Thus, a violation of the threshold criteria has not been shown.

b. Regulatory Criteria

However, the threshold test is not the only criteria for establishing whether the preparation and service of meals is a bona fide business. Even if that test is met, the business must still be something more than a mere subterfuge to sell liquor. For example, to assure that the business is a bona fide meal preparation and service business, regulations impose a duty that the license holder operate a business "equipped with a kitchen that is utilized for the cooking, preparation, and serving of meals." 23 S.C. Code Ann. Regs. 7-19(A)(1). Further, a kitchen is defined as "a separate and distinct area of the business establishment that is used solely for the preparation, serving and disposal of solid foods that make up meals [and which is] . . . adequately equipped for the cooking and serving of solid foods, and the storage of same." 7-19(B)(2).

In this case, Gore failed to maintain a kitchen and thus does not operate a business bona fide engaged in preparing and serving meals. Here, Gore's alleged kitchen was not "adequately equipped for the cooking and serving of solid foods, and the storage of same" and was not "equipped with a kitchen that is utilized for the cooking, preparation, and serving of meals." 23 S.C. Code Ann. Regs. 7-19(B)(2) and 7-19(A)(1). In fact, at the time of inspection in September of 1997 the kitchen area was unusable.

The kitchen floor was littered with trash and was covered by portions of discarded booths, tables, and mopping equipment. The cooler was not clean and was only moderately functional. The grill was covered with rust and, without significant maintenance, was inoperable. Further, Gore testified the kitchen was not suitable for the preparation of food and that he would not eat any food that had been prepared in such a kitchen. Accordingly, Gore does not satisfy the requirement of 23 S.C. Code Ann. Regs. 7-19(A)(1) and 7-19(B)(2) and he is not operating a bona fide business for preparation and service of meals.

2. Primary and Substantial

While I have determined that the operation conducted by Gore is not a bona fide business for preparing and serving meals, a second inquiry is also not met by Gore. The second inquiry is whether the activities which support preparation and serving of meals demonstrate the license holder is engaged primarily and substantially in the preparation and serving of meals. Existing case law provides some guidance for this inquiry.

While other factors could be developed, one means of determining if a business is engaged primarily and substantially in the preparation and serving of meals is to examine the revenue generated from meals. See Brunswick Capitol Lanes v. South Carolina Alcoholic Beverage Control Commission, 273 S.C. 782, 260 S.E.2d 452 (1979) (even where the A rating and the seating were satisfied, a minibottle license was found improper since "the critical test is whether the business is engaged 'primarily and substantially in the preparation and serving of meals'" and a business with only ten per cent of its gross revenues from food preparation and sale does meet the "primary" and "substantial" requirements.). In this case, revenue generated by Gore from the sale of meals does not support his contention that he is in a business engaged primarily and substantially in the preparation and serving of meals.

Here, for over two years, Gore derived little or no revenue from the sale of meals. From late 1996 until September of 1998, Gore contracted with a third party who prepared the meals, provided the cooking equipment, and sold the meals at Gore's location. No sharing of profits and losses occurred between Gore and the third party. In other words, the third party had all the risks of loss and gain associated with the sale of the meals while Gore merely sold minibottles and beer and wine.

Accordingly, Gore, the license holder, conducted a business that sold only minibottles, beer, and wine, and only the third party conducted a business that sold meals. Further, the fact that the third party, as an independent operator, may have sold meals on the same premises is of no help to Gore. Rather, the license holder must conduct the meal preparation and service business. See S.C. Code Ann. § 61-6-1820(1) (Supp. 1997) (authority to sell minibottles requires that the "the applicant conducts a business bona fide engaged primarily and substantially in the preparation and serving of meals or furnishing of lodging."); see also Harem Corp. v. State Bd. of Equalization, 198 P.2d 48 (Cal.App. 1 Dist., 1948) (when the right to sell liquor for consumption on the premises is limited to a bona fide public eating place, the failure of the licensee to operate the restaurant, which restaurant was operated by another party outside the control of the licensee, presents a ground for suspension of the licensee's license). Thus, Gore's lack of revenue from the sale of meals demonstrates he is not engaged primarily and substantially in the preparation and serving of meals and does not meet the requirements for a minibottle license.

1. Positions of Parties

DOR issued a Final Determination to Gore which asserts Gore has violated Regs. 7-7. As a result, DOR seeks to revoke Gore's minibottle license. See S.C. Code Ann. § 61-6-1830(2) (Supp. 1997) (revocation proper if the license holder has violated a regulation). Gore argues no violation occurred since, in his view, the records were on the premises under lock and key when the inspection was made. Gore argues that the employee on duty at the time of the inspection had no key but the records were nonetheless available.

2. Findings of Fact

Based on the preponderance of the evidence, the following findings of fact are entered:

SLED inspected Gore's location on September 6, 1997. During that inspection, an employee at the location was asked to produce records of purchases of minibottles by Gore. The employee was unable to produce any records of significance. Rather, the employee produced only one record and that was an invoice for the most recent purchase of minibottles. No records were produced for other purchases.

The September 6, 1997 failure to maintain records was not the first time Gore neglected his record keeping duties. On February 10, 1996, and again on March 22, 1997, SLED had previously inspected the premises and inquired about records of Gore's minibottles purchases. On both occasions, the records were not available. In fact, the records were not on the premises, but were at the office of Gore's accountant. On both the February 10, 1996 and March 22, 1997 inspections, Gore was given a written citation as an official warning. However, Gore was not fined. On each occasion, Gore was warned that he must have the records of minibottle purchases on the premises and that the records must be available for inspection by SLED.

3. Conclusions of Law

Based on the foregoing Findings of Fact, I conclude the following as a matter of law:

DOR contends Gore failed to keep proper records of minibottle purchases as required by Regs. 7-7. Under the facts of this case and the applicable law, I agree.

The holder of a minibottle license must "keep and maintain upon the licensed premises adequate records of all of his purchases of alcoholic beverages sold in sealed containers of two (2) ounces or less" and those records must be open to inspection by SLED "at all times." Regs. 7-7. Here, the records were not produced when requested. Further, the violation continued even after Gore was warned on two prior occasions. One of those warnings was given less that six months earlier. Accordingly, Gore is without excuse for his failure to provide the required records on the September 6, 1997 inspection date. Thus, Gore violated Regs. 7-7 on September 6, 1997 by failing to maintain upon the licensed premises adequate records of all of his purchases of alcoholic beverages and failing to produce those records when requested.

1. Positions of Parties

DOR seeks to revoke both the minibottle license and the on-premises beer and wine permit held by Gore. DOR argues that the degree of violation by Gore requires a revocation of both the minibottle license and the beer and wine permit.

Gore suggests that if a minibottle license violation occurred, only a suspension should be imposed. Further, Gore argues that no beer and wine violation occurred. Thus no revocation or suspension of that permit should be imposed.

2. Findings of Fact

Based on the preponderance of the evidence, the following findings of fact are entered:

Gore's location has been the subject of several inspections as well as undercover visits by SLED: February 10, 1996; March 22, 1997; May 22, 1997; May 25, 1997; and September 6, 1997. These inspections and undercover visits resulted in citations for violations of record keeping requirements for minibottles and requirements related to food preparation needed for a minibottle license. On each inspection, minibottle violations were noted by SLED and Gore was advised of the violations. Further, the violations continued even after the issuance of repeated warnings by SLED. In addition, Gore allowed his kitchen to remain unrepaired for approximately two years, leaving his kitchen in an inoperable state.

DOR's prior consistent practice is to seek revocation of a beer and wine permit utilized on any premises for which the revoked minibottle license was also used. However, in this case, the beer and wine permit compliance with the law is in sharp contrast to the minibottle license. Indeed, no citations and no warnings have ever been issued by SLED to Gore for any beer and wine violations at the North Myrtle Beach location here under review.

3. Conclusions of Law

Based on the foregoing Findings of Fact, I conclude the following as a matter of law:

A revocation or a suspension of a minibottle license may be imposed if the license holder no longer meets the requirements for a minibottle license or if the license holder has violated any regulation. S.C. Code Ann. § 61-6-1830(1) and (2) (Supp. 1997). In this case, Gore fails to meet the requirements for a minibottle license in that he does not operate a business bona fide engaged in the preparation and serving of meals, and further, he violated Regs. 7-7 for failing to maintain and provide records related to minibottle purchases. Thus, either a revocation or suspension is proper.

Under the facts of this case, a revocation rather than a suspension is proper. Gore's location has been the subject of five visits by SLED in either an inspection capacity or undercover capacity in less than a two year period (i.e., February 10, 1996 to September 6, 1997). During these visits, SLED issued two warnings which were not adequately heeded by Gore. Indeed, a third violation citation was issued for essentially the same offenses which gave rise to the warnings. Thus, Gore has had an adequate opportunity to correct the problem. Accordingly, a revocation is proper for the minibottle license.

The opposite conclusion, however, must be reached for the beer and wine permit: neither a revocation nor a suspension is warranted. Certainly, DOR may suspend or revoke all other licenses or permits held by the person whose license or permit has been suspended or revoked if the suspended or revoked premises is within close proximity to the other licensed or permitted locations. S.C. Code Ann. § 61-2-140 (Supp 1997). Equally as certain in this case, the beer and wine permit is utilized at the same location for which the minibottle license is utilized, satisfying the "close proximity" requirement. However, no persuasive reason exists to revoke the beer and wine permit.

The statute does not impose a mandatory revocation or suspension. See S.C. Code Ann. § 61-2-140 (Supp 1997). On the contrary, the statute allows a range of penalties from none, to suspension, to revocation. Where the General Assembly authorizes a range for an administratively imposed penalty, the administrative adjudicator sitting as the fact-finder may determine the penalty after a hearing on the dispute. Walker v. South Carolina ABC Comm'n, 305 S.C. 209, 407 S.E.2d 633 (1991). When the parties dispute the degree of penalty as a part of the factual issues for decision, the fact-finder must receive evidence and make a determination on all such factual disputes arising from the contested case. S.C. Code Ann.§ 1-23-350 (Rev. 1986).

Here, the evidence establishes that no violations of the beer and wine permit have ever been cited by SLED. In fact, the only citations issued to Gore have all related to minibottles, i.e., record keeping and restaurant requirements. No restaurant requirements exist for a beer and wine permit, and no analogous record keeping requirement exists for Gore to maintain beer and wine purchases. Accordingly, under the facts of this case, no suspension or revocation is warranted for Gore's beer and wine permit.

Based upon the Findings of Fact and Conclusions of Law, it is hereby ordered:

Jeffrey L Gore's minibottle license utilized at 407 30th Ave. South, North Myrtle Beach, South Carolina is revoked as of 12:01 a.m. of the eleventh day following the date of this order.

AND IT IS SO ORDERED.

RAY N. STEVENS

Administrative Law Judge

Dated: October 20, 1998

Columbia, South Carolina

1. The kitchen condition raises obvious questions of whether the location possessed an A license, and if it did, whether an A license was proper. However, on the violation date of September 6, 1997, SLED did not cite Gore for failure to have an A license and DOR has not attempted to prove Gore lacked an A license. Further, the evidence produced in this case does not establish that Gore lacked the required A license. Thus, the issue of whether the requirement of having an A license has been violated is not an issue presented in this dispute.