ALJDEC decisions subject to certification as final

24A-001113-SLB-LIQ · Liquor Licenses and Control · 2024-05-08

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

In the matter of Denial of Application of BYOB Exemption

Kandies Cabaret Private Gentlemen’s Club

Robert Wallace, Agent

Wallace Group, LLC

3790 Grand Avenue

Phoenix, Arizona 85019,

Appellant.

No. 24A-001113-SLB-LIQ

ADMINISTRATIVE LAW JUDGE

DECISION

HEARING: December 6, 2023, with Further Hearing on March 12, 2024; the record closed on April 26, 2024

APPEARANCES: Assistant Attorney General Linda Bergevin represented the Department of Liquor Licenses and Control. Kimberly Eckert represented Kandies Cabaret Private Gentlemen’s Club. Robert Wallace appeared on behalf of Kandies Cabaret Private Gentlemen’s Club.

Witnesses: Special Agent Luis Samudio, Detective Mario Trevizo, Director Ben Henry, Quacy Manning

ADMINISTRATIVE LAW JUDGE: Sondra J. Vanella

EXHIBITS ADMITTED INTO EVIDENCE: Department of Liquor Licenses and Control’s Exhibits 1-16, 19; Kandies Cabaret Private Gentlemen’s Club’s Exhibits A-F

FINDINGS OF FACT

Kandies Cabaret Private Gentlemen’s Club (“Kandies”) does not possess a liquor license. Kandies had previously submitted an application to the Department of Liquor Licenses and Control (“DLLC”) for a Person and Location Transfer Application for a Bar Liquor License. The application was denied by the Arizona State Liquor Board (the “Board”) on July 13, 2020.

Kandies requested a rehearing on the denial of the application for a Person and Location Transfer Application for a Bar Liquor License. On November 6, 2020, the Board issued an Order Denying Applicant’s Request for Rehearing.

On May 8, 2023, Robert Wallace, on behalf of Kandies, submitted an application for a BYOB exemption, known as a “Request for a BYOB exemption.”

This was Kandies’ third application for an exemption. The previous two had been granted. The second exemption expired on July 22, 2023. The actual document granting the BYOB exemption contains the wording, “Alcoholic Beverage License BYOB License BYO070019432.”

On August 17, 2023, DLLC issued a denial of Kandies’ May 2023 application for a BYOB exemption which set forth, in pertinent part, as follows:

You were previously granted a BYOB exemption pursuant to A.R.S. § 4-244.05 and A.A.C. R19-1-324. As indicated on the exemption application this exemption is only valid for twelve months, and therefore expired on July 22, 2023. Furthermore, this exemption is not a license and cannot be extended or renewed; a new application for exemption is required.

On May 8, 2023, you filed a new application for a BYOB exemption. On June 16, 2023, the Chief of Investigations provided you a preliminary notification this application was denied. I am now providing you with a final notice that your application for a BYOB exemption has been denied. The basis of this denial is the multiple violations of A.R.S. § 4-244.05 and A.A.C. R19-1-324(A)(3) that were observed by agents of this Department on May 19, 2023, and are fully documented in Departmental case number 23-001113.

. . . .

Finally, Department records indicate that your establishment has never been issued a liquor license of any series or type. The filing of an appeal of this denial does not grant a stay of the pre-determined expiration of your previously issued exemption, which expired on July 22, 2023.

Special Agent Luis Samudio’s and Detective Mario Trevizo’s Testimony

Mr. Wallace submitted Kandies’ first application for a BYOB exemption on or about June 7, 2021. The BYOB Exemption Application stated: “This application, if approved, is valid for 12 months (1 year) from the date of approval. A new application for exemption must be submitted each year.” The application fee was $50.00.

On the June 7, 2021 application for a BYOB exemption, Mr. Wallace indicated that he had “read Arizona statute A.R.S. §4-244.05 and regulation A.A.C. R19-1-324” pertaining to BYOB exemptions. Mr. Wallace also avowed that Kandies qualified for an exemption under A.A.C. R19-1-324, as an “Association/Business Hosting a Private Function (does not exceed 300 members/patrons), allowing alcohol consumption between 4:00 p.m.-2:00 a.m. and [Kandies] shall not allow a patron to possess or consume more than forty ounces of beer, 750 ml of wine or four ounces of distilled spirits per visit.”

Also on the June 7, 2021 application for a BYOB exemption, Mr. Wallace checked the box next to the language, “I hereby agree to comply with Arizona statute A.R.S. §4-244.05 and regulation A.A.C.R19-1-324 while conducting business at this location.”

On or about July 21, 2021, the June 7, 2021 application for a BYOB exemption was approved by DLLC. Therefore, that exemption expired on July 22, 2022.

On or about July 30, 2021, DLLC received a complaint stating that Kandies’ employees were providing alcohol to underage employees and keeping distilled liquor on the premises for consumption.

As a result of this complaint, DLLC initiated a covert operation to investigate the allegations and any violation of law.

On August 7, 2021, Detective Mario Trevizo, a DLLC detective, acting in an undercover capacity, assisted Detective John Barchak in the covert investigation of the complaint. Detective Trevizo testified that a complaint had been called in to DLLC alleging that Kandies was allowing alcohol in excess of the BYOB exemption limit to be brought into the establishment, as well as allowing marijuana to be smoked inside the establishment.

Detective Trevizo testified regarding the undercover investigation and referenced his Supplemental Report during his testimony.

When Detective Trevizo approached the entrance to Kandies, he made contact with an individual named Wesley who identified himself as the manager of Kandies. Detective Trevizo showed Wesley a new, full 375 ml bottle of vodka. Although Wesley was aware of the quantity of alcohol Detective Trevizo possessed, he allowed Detective Trevizo to enter Kandies with the bottle, after asking him if “that was all he had.”

Wesley told Detective Trevizo that there was a $100.00 membership charge to enter and a $20.00 bottle charge. Detective Trevizo responded that he only had $50.00, to which Wesley replied that he would talk to the owner (Mr. Wallace) about allowing him to enter at a lower price. Wesley thereafter allowed Detective Trevizo to enter Kandies and instructed Detective Trevizo to pay the bartender the $20.00 cover fee and a $10.00 bottle charge. Detective Trevizo placed the bottle of vodka on the bar and paid the bartender as instructed by Wesley. The bartender asked Detective Trevizo what type of mixer he wanted and Detective Trevizo requested a Coke. The bartender placed a can of Coke and a red plastic cup with ice on the bar next to the bottle of vodka. Detective Trevizo had the ability to pour as much liquor as he chose into the red cup because he had full control over the bottle. Detective Trevizo poured almost half the bottle into the cup, which was in excess of the four ounce limit, and the bartender did not say anything or otherwise indicate that Detective Trevizo could not do so.

Detective Trevizo observed Mr. Wallace in Kandies during the covert investigation. The bottle of vodka was in plain sight while Mr. Wallace was behind the bar and Mr. Wallace did not approach him. Mr. Wallace did not stop the violations or instruct his employees to stop the violations.

Immediately following the covert operation, Detective Barchak engaged in a discussion with Mr. Wallace outside of Kandies. The discussion was recorded and the audio recording was played during the hearing. During that discussion, Detective Barchak advised Mr. Wallace that only four ounces of liquor per person per visit was allowed by law and that no one in Kandies instructed Detective Trevizo how much liquor he could pour. Detective Trevizo testified that during the conversation, the legal limits for alcohol under the BYOB exemption were clearly explained to Mr. Wallace and following the conversation, he believed Mr. Wallace understood the legal limits for alcohol under the exemption. Wesley was present for the conversation as well, and Detective Trevizo had “no doubt both [Mr.] Wallace and Wesley understood the lawful limits.”

Kandies submitted a second BYOB exemption request application on or about June 22, 2022. On the June 22, 2022 BYOB exemption request application, Mr. Wallace again indicated that he had read A.R.S. § 4-244.05 and A.A.C. R19-1-324. Further, Mr. Wallace avowed that his business qualified for an exemption under A.A.C. R19-1-324, as an “Association/Business Hosting a Private Function (does not exceed 300 members/patrons), allowing alcohol consumption between 4:00 p.m.-2:00 a.m. and shall not allow a patron to possess or consume more than 40 ounces of beer, 750 ml of wine or 4 ounces of distilled spirits per visit.”

On the June 22, 2022 BYOB exemption request application, Mr. Wallace checked the box next to the language “I hereby agree to comply with Arizona statute A.R.S. §4-244.05 and regulation A.A.C.R19-1-324 while conducting business at this location.”

In or about January 2023, DLLC Investigators received an anonymous complaint that liquor was being sold at Kandies during business hours and that two free joints of marijuana were given to customers during “Two Joint Tuesdays.”

DLLC Detective Luis Samudio met with Mr. Wallace to discuss the complaint. That meeting occurred at Kandies on or about February 27, 2023, at approximately 12:00 p.m., before Kandies opened for the day’s business. Mr. Wallace included his promoter, Michael Ochoa, at that meeting.

During the informal meeting, Detective Samudio informed Mr. Wallace of the allegations in the complaint and reminded Mr. Wallace of the law concerning BYOB exemptions. Mr. Wallace denied the allegations and stated that he was controlling alcohol consumption by taking bottles from patrons and placing them behind the bar, however, he did not provide Detective Samudio information as to how the bartenders kept track as to whom the bottles belong.

Detective Samudio asked Mr. Wallace for Kandies’ membership roll and Mr. Wallace responded that it was “nothing formal” and that he “knows who the members are.”

Detective Samudio did not cite Mr. Wallace at that time and after the meeting believed that Mr. Wallace understood the law as it pertained to Kandies’ BYOB exemption.

On May 19, 2023, a covert operation was conducted at Kandies in conjunction with the Phoenix Police Department. This was a result of a complaint received by DLLC on May 18, 2023, concerning Kandies allowing alcohol over the BYOB exemption limitations, as well as allowing marijuana to be smoked inside the establishment.

Detective Samudio referenced his report during his testimony. The three Phoenix Police Department detectives were allowed to enter Kandies without a membership and one of the detectives brought a 1.75 liter bottle of vodka into Kandies. One of the detectives handed a Kandies’ employee a $20.00 bill and the bottle of vodka. However, the employee returned the $20.00 bill and instructed the detective to give the money to another employee for “bottle service.” An employee of Kandies told the detectives that she would hold the bottle behind the bar and she would pour the drinks. The detectives were provided three red solo cups.

According to Detective Samudio’s report, one of the undercover detectives asked the bartender, “What happens when we leave, do we leave the bottle or does it go with us?” The bartender responded that they “could drink from the bottle until 2:00 am at which time she could either pour the rest out of the bottle in their cups or they could take the bottle out.” If they chose to take the bottle out, it would be escorted out by an employee and the bottle would be placed in their vehicle.

One of the undercover detectives ordered a triple shot of vodka with a splash of Red Bull and handed the bartender the Red Bull from his pocket, and also ordered double shots of vodka and Diet Coke for the other two detectives. Detective Samudio could not confirm the exact amount of alcohol that was actually poured into the red solo cups by the bartender. Approximately twenty minutes later, the bartender approached and made two additional drinks for each of them.

Upon leaving Kandies, an employee carried the bottle of vodka to the vehicle and the detective placed it in the back of the vehicle.

DLLC had also received a complaint on or about January 28, 2023, that there was a sexual abuse incident on a party bus that had arrived at Kandies. There were also over thirty (30) calls for police service at Kandies between 2022 and April 2023, including for an assault in the parking lot and for shots fired.

Director Ben Henry’s Testimony

Ben Henry, the Director of DLLC, testified regarding the differences between licenses and exemptions. Exemptions are for social clubs, have to be renewed yearly, and have limits pertaining to the amount of alcohol that can enter the establishment, as well as the number of patrons. Director Henry referenced A.A.C. R19-1-324. The application process for licensure, as compared with a BYOB exemption, is rigorous in that a full background check is conducted of the owner/agent, fingerprints are required, as well as a site inspection, the local governing board weighs in, and there are higher application fees.

Although the document that was generated granting the BYOB exemption to Kandies contains the word, “License,” the document is not a license and such wording does not transform it into a license. Because it is expensive to change DLLC’s documents, this particular form was not changed, however, the wording does not change the nature of the privilege granted to Kandies, namely a BYOB exemption. Further, the credible, probative and substantial evidence of record established that Kandies knew it was applying for an exemption, not a license.

DLLC has received complaints from local law enforcement and the public regarding dealings inside and outside of Kandies that relate to public safety issues, including allowing liquor in excess of the maximum allowable limits, marijuana, and assaultive behaviors.

Because Kandies could not obtain a liquor license, it obtained a BYOB exemption as a “work around.”

The decision to deny Kandies’ May 2023 application for a BYOB exemption was based on the totality of all circumstances and that it was a unanimous decision to issue the denial. Included in the totality of the circumstances considered were the following: i) the 2020 license transfer denial; ii) the 2021 violation; iii) the May 2023 violation; and iv) illegal activity in Kandies’ parking lot such as assaults, including sexual assault.

Quacy Manning’s Testimony

Quacy Manning testified on behalf of Kandies. Mr. Manning testified that he owns a Series 6 Liquor License and is currently in the process of obtaining a Series 12 Liquor License, and is familiar with Arizona’s liquor laws. However, Mr. Manning’s testimony in this regard was inconsistent.

Mr. Manning is also the owner and operator of Healing Hands Recovery Center.

Mr. Manning knew Mr. Wallace through the “night life industry” and Mr. Wallace asked him to assist Kandies as a consultant, and to put measures in place for compliance with the BYOB exemption. Mr. Wallace testified that he trained Kandies’ managers, door staff, regular staff, and bartenders in February and March 2023. Mr. Manning testified that he ensured that Kandies’ employees had Title 4 training classes and that the bartenders knew the proper procedures for serving alcohol. Mr. Manning testified that he also provides his services to other establishments and that his “experience in the industry” qualifies him to train. However, Mr. Manning admitted he has had no formal training, he is not approved by DLLC to conduct training, and he has never submitted any training certificates to DLLC on behalf of any trainees.

Mr. Manning testified that he developed Kandies’ current procedure for when a patron brought a bottle of liquor to the establishment which consisted of the following steps:

The bottle is checked in;

The bottle is brought to the bar;

The bottle is kept by the bartender with a sticky note containing the patron’s name;

When the patron leaves, the bottle is carried out to their vehicle by a Kandies’ employee.

Mr. Manning testified that Kandies utilizes a tally sheet to track alcohol consumption by patron, that a description of the patron is written on the tally sheet, that a tally mark equates to one ounce of alcohol, and that after four tally marks, the patron is cut off. However, none of these tally sheets were produced at hearing.

Mr. Manning testified that a triple equates to three ounces and that he trains individuals to pour a double when asked for a triple.

Mr. Manning provided testimony concerning his alleged investigation into other BYOB establishments. However, this testimony was inconsistent and not relevant to the instant matter.

Robert Wallace’s Testimony

Robert Wallace has been the owner and manager of Kandies since 2018. Mr. Wallace is engaged in the day-to-day operations of Kandies. Mr. Wallace described Kandies as a “social club” for birthday parties and public and private events, including bachelor parties. Mr. Wallace testified that Kandies is zoned for adult use.

A BYOB exemption is important to Kandies’ business model because it is a social club and patrons like to drink and socialize. Kandies’ business is dependent on patrons’ ability to have liquor and not having a BYOB exemption has had an impact on business as Mr. Wallace testified that Kandies’ business has declined due to not having a BYOB exemption. Mr. Wallace’s specific testimony in this regard was that his business is “dependent upon people having the ability to have liquor. People like liquor in bars.”

Mr. Wallace testified that the 2021 investigation was a “teaching moment” for him and that he made changes after that encounter. Mr. Wallace testified that he called several establishments with BYOB exemptions because he was still “confused” after his discussion with Detective Barchak.

Mr. Wallace testified that thereafter, Kandies stopped patrons at the door and took their liquor and placed it behind the bar in order to control it. Mr. Wallace testified that liquor was checked in by security personnel and given to the bartender.

Mr. Wallace testified that patrons could either pay for a regular membership or a one-day membership to Kandies.

Mr. Wallace testified that in May 2023, Kandies’ employees were trained in pouring procedures and that at that time, Kandies’ employees’ certifications were current. Mr. Wallace testified that Kandies’ employees utilized tally sheets to track how many ounces were poured per patron and the bartenders were trained not to pour more than four ounces of liquor. Mr. Wallace did not offer any examples of these tally sheets.

Mr. Wallace testified that from July 2022, through May 2023, Kandies did not have any issues or complaints and that Kandies ensured it was following the liquor laws.

CONCLUSIONS OF LAW

DLLC was established to administer certain laws of the State of Arizona by protecting the public interest through the regulation of the spirituous liquor industry.

The Director of DLLC has the authority to grant or deny BYOB exemption requests pursuant to A.R.S. § 4-244.05(I) and A.A.C. R19-1-324.

Pursuant to A.R.S. § 41-1092.07(G)(1) and A.R.S. § 4-210.02(A), Kandies has the burden to establish by a preponderance of the evidence that DLLC’s decision to deny Kandies’ third BYOB exemption was:

1) Founded on or contained errors of law including errors of construction or application of relevant rules;

2) Unsupported by any competent evidence;

3) Materially affected by unlawful procedures;

4) Based on a violation of a constitutional right; or

5) Arbitrary or capricious

“A preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not.” A preponderance of the evidence is “[t]he greater weight of the evidence, not necessarily established by the greater number of witnesses testifying to a fact but by evidence that has the most convincing force; superior evidentiary weight that, though not sufficient to free the mind wholly from all reasonable doubt, is still sufficient to incline a fair and impartial mind to one side of the issue rather than the other.”

Pursuant to A.R.S. § 4-244.05(I), concerning unlicensed business establishment or premises:

The board or director may adopt rules authorizing and prescribing limitations for the possession or consumption of spirituous liquor at establishments or premises falling within the scope of subsections A and B of this section. Rules adopted pursuant to this subsection shall authorize the possession or consumption of spirituous liquor only at establishments or premises which permit the consumption or possession of minimal amounts of spirituous liquor and which meet both of the following criteria:

1. The possession or consumption of spirituous liquor is permitted only as an incidental convenience to the customers of the establishment or premises.

2. The possession or consumption of spirituous liquor is permitted only within the hours of lawful sale as prescribed in this title, and is limited to no more than ten hours per day.

A.A.C. R19-1-324 sets forth the standards for exemption of an unlicensed business in pertinent part as follows:

A. The owner of a small restaurant or business establishment, business premises, or association hosting a private social function may act under A.R.S. § 4-244.05 if the owner of the small restaurant or business establishment, business premises, or association hosting a private social function:

1. Submits a Request for Exemption form, which is available from the Department and on its web site;

2. Pays the inspection fee specified in R19-1-102(J); and

3. Ensures that:

a. Possession or consumption of spirituous liquor on the business premises is permitted only as an incidental convenience to customers;

. . . .

c. A customer is allowed to possess or consume no more than:

i. Forty ounces of beer,

ii. Seven hundred fifty milliliters of wine, or

iii. Four ounces of distilled spirits;

. . . .

C. This Section is authorized by A.R.S. § 4-244.05.

The credible and probative evidence of record established that the consumption of spirituous liquor at Kandies was not only “an incidental convenience to the customers of the establishment” as required by A.A.C. R19-1-324(A)(3). To the contrary, Mr. Wallace’s own testimony was that his business is “dependent upon people having the ability to have liquor. People like liquor in bars.” Therefore, Kandies’ operation is dependent on patrons’ ability to have liquor and not having a BYOB exemption has had an impact on business as Mr. Wallace testified that Kandies’ business has declined due to not having a BYOB exemption.

The credible, substantial, and probative evidence of record further established that Kandies’ violated A.A.C. R19-1-324(A)(3)(c)(iii) on May 19, 2023, by serving undercover detectives in excess of four ounces of distilled spirits.

Therefore, grounds exist to affirm DLLC’s denial of Kandies’ May 8, 2023 application, “Request for a BYOB Exemption,” pursuant to A.R.S. § 4-244.05 and A.A.C. R19-1-324(A)(3).

RECOMMENDED ORDER

Based on the foregoing, it is recommended that DLLC affirm its Decision to deny Kandies’ May 8, 2023 BYOB exemption request.

-54864001

001

-137160-45720000Done this day, May 8, 2024.

/s/ Sondra J. Vanella

Administrative Law Judge

Transmitted by either mail, e-mail, or facsimile to:

Denise M. Bale

Arizona Department of Liquor Licenses and Control

[email redacted]

Kimberly A. Eckert

[email redacted]

Linda Bergevin

[email redacted]

By: OAH Staff