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Thormac, LLC v. Department of Alcoholic Beverage Control

Court of Appeals of Virginia

November 28, 2017

THORMAC, LLC, d/b/a McCORMACK'S WHISKY GRILL AND SMOKEHOUSE
v.
DEPARTMENT OF ALCOHOLIC BEVERAGE CONTROL AND VIRGINIA ALCOHOLIC BEVERAGE CONTROL BOARD

         FROM THE CIRCUIT COURT OF THE CITY OF RICHMOND Joi J. Taylor, Judge

          Cameron W. Gilbert for appellant.

          James M. Flaherty, Assistant Attorney General (Mark R. Herring, Attorney General; John W. Daniel, II, Deputy Attorney General; Heather Hays Lockerman, Senior Assistant Attorney General & Section Chief, on brief), for appellees.

          Present: Judges Humphreys, Beales and Alston Argued at Richmond, Virginia

          OPINION

          RANDOLPH A. BEALES, JUDGE.

         Thormac, LLC, d/b/a McCormack's Whisky Grill and Smokehouse ("appellant") appeals from the January 6, 2017 decision of the Circuit Court of the City of Richmond. The circuit court in its opinion upholds the decision of the Virginia Alcoholic Beverage Control Board ("the ABC Board") suspending appellant's alcoholic beverage license for seven days and imposing a $500 fine on appellant for its failure to comply with Code § 4.1-210, which requires that food sales be at least forty-five percent of the combined gross receipts from the sale of mixed beverages and food (the "food-beverage ratio"). Appellant assigns seven assignments of error to the circuit court's decision. Appellant claims the circuit court erred in: (1) "issuing a boilerplate decision and order that failed to address the contentions briefed and argued by the parties"; (2) "finding that Appellees did not abuse their discretion where the majority of the Appellee Board misapprehended that the Board lacks the discretion to find no violation or excuse any violation under the facts and circumstances of this matter"; (3) "in failing to find that the doctrine of substantial compliance applies to this matter"; (4) "in failing to find that Appellant substantially complied with the subject statute on the facts and circumstances of this case"; (5) "in finding that [Appellees] did not act arbitrarily and capriciously in finding a violation of Va. Code § 4.1-210 in this matter"; (6) "in failing to find that [Appellees'] finding a violation of Va. Code § 4.1-210 and imposing a penalty in this matter bears no rational relationship to the stated purpose of the applicable statutes"; and (7) "in upholding [Appellees'] interpretation of Va. Code § 4.1-210 that leads to a patently absurd result." On each of appellant's assignments of error, we affirm the decision of the circuit court.

         I. Background

         The facts of this case are undisputed. On August 10, 2015, the Virginia Department of Alcoholic Beverage Control ("ABC") charged appellant, a restaurant located at 204 N. Robinson Street in Richmond, Virginia, with the failure to comply with the food-beverage ratio. Specifically, the charge against appellant stated that "[d]uring the preceding license year, March 1, 2014 through February 28, 2015, the gross receipts from the sale of food and nonalcoholic beverages at the licensed establishment were less than forty-five percent of the gross receipts from the sale of mixed beverages and food, in violation of Sections 4.1-210, 4.1-114, and 4.1-225 1.b of the Code of Virginia."

         Appellant prides itself on offering a variety of premium distilled spirits and craft cocktails. The restaurant serves large quantities of food, with its entrees costing an average of $22 to $24 each. The price of a shot of liquor there ranges from $7.25 to approximately $2, 000. For the license year March 1, 2014 through February 28, 2015, appellant's total sales for food and nonalcoholic beverages were $159, 651 and its total sales for mixed beverages were $245, 306. Thus, 39.42% of the restaurant's total sales were derived from food and nonalcoholic beverages while 60.58% of the sales were derived from the sale of mixed beverages.

         A hearing on the charge was held on September 8, 2015 before Administrative Hearing Officer Sara Gilliam ("Gilliam"). At the hearing, ABC Special Agent Kristopher Burnette testified that he had visited the restaurant and found that it had a large food inventory and that it sells a significant amount of food. William McCormack (Mr. McCormack), the owner, testified that although the restaurant sells more food than liquor, it has difficulty meeting the food-beverage ratio because the restaurant offers expensive, premium liquors and the ratio is based on sales, not volume. For example, if a customer purchases an appetizer, steak, and salad for approximately $60 the cost of the sale of the food will be offset if the customer purchases a single shot of premium whiskey for $350. Mr. McCormack claimed that the restaurant could not remedy the violation by increasing the price of food because its entrees would exceed the market price for food and result in customers going elsewhere. Appellant had also received written warnings from ABC for failing to meet the food-beverage ratio in 2011 and 2014.

         Following the hearing, Gilliam issued an opinion finding that the charge against appellant for violating the food-beverage ratio was substantiated (the "Initial Decision"). Relying on the ABC Board's guidelines (the "Guidelines"), which were issued pursuant to a directive from the Virginia General Assembly in Chapter 661, 2013 Acts of the General Assembly (SB 1349), Gilliam assessed a thirty-day suspension of appellant's mixed-beverage license. As dictated by the Guidelines, the suspension would be reduced to fifteen days upon the payment of a $1, 000 civil penalty.

         Appellant appealed from the Initial Decision, and the appeal was heard by the Virginia Alcoholic Beverage Control Board on February 23, 2016. After the hearing, on April 5, 2016, the ABC Board issued a 2-1 decision and special notice of modification reducing appellant's suspension to seven days, or the payment of a $500 fine (the "Final Decision"). In support of its decision to modify the penalty, the ABC Board included a brief history on the food-beverage ratio and the Guidelines.[1] The Final Decision also acknowledged that, although appellant was unable to comply with the food-beverage ratio, appellant's "conduct is not contrary to the statutory purpose of ensuring that restaurants sell sufficient amounts of food alongside mixed beverages." The Final Decision further explained that, although departure from Guidelines was necessary in this case, "the Board cannot ignore that the legislature continues to require mixed beverage restaurants to maintain a certain food-beverage ratio, and the Board must be mindful of its statutory obligation to annually review such ratio pursuant to Section 4.1-114 of the Code."

         Appellant appealed to the Circuit Court of the City of Richmond, which affirmed the Final Decision. Appellant timely ...


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