STATE OF IOWA BEFORE THE DEPARTMENT OF COMMERCE ALCOHOLIC BEVERAGES DIVISION DOCKET NO. D DIA NO. 09DOCBL013

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1 STATE OF IOWA BEFORE THE DEPARTMENT OF COMMERCE ALCOHOLIC BEVERAGES DIVISION IN RE: Woody s Bar & Grill, LLC d/b/a Woody s Bar & Grill th St. Northwest Fort Atkinson, Iowa Liquor License No. LC DOCKET NO. D DIA NO. 09DOCBL013 PROPOSED DECISION On January 30, 2009, the Iowa Department of Public Safety 1 (DPS) filed an administrative hearing complaint against Woody s Bar & Grill, LLC d/b/a Woody s Bar & Grill (licensee) with the Iowa Department of Commerce-Alcoholic Beverages Division (ABD). The hearing complaint alleges that the licensee s open and continuing failure to comply with all applicable provisions of the Smokefree Air Act constitutes a violation of Iowa Code section (2) and 185 IAC 4.2(1) and is sufficient grounds for the suspension and/or revocation of the liquor license. The hearing complaint further alleges that the licensee s open and continuing failure to comply with all applicable provisions of Iowa Code chapter 123 and Iowa Code chapter 142D sufficiently draws the licensee s good moral character into question to justify the suspension and/or revocation of the licensee s liquor license. The hearing was held before Administrative Law Judge Margaret LaMarche on March 24, 2009 at 10:30 a.m. at the office of the Iowa Department of Commerce, Alcoholic Beverages Division, 1918 S.E. Hulsizer, Ankeny, Iowa. Assistant Attorney General John Lundquist represented the DPS. The licensee was selfrepresented by one of its owners, Kevin Karnik. THE RECORD The record includes the Hearing Complaint; the Notice of Hearing; the testimony of the witnesses; and the following exhibits: DPS Exhibit 1: Iowa Smokefree Air Act Complaint & Compliance Summary, Iowa Department of Public Health 1 The Iowa Department of Public Safety is the primary beer, wine, and liquor law enforcement authority for the state. Iowa Code section (1)(2007).

2 Page 2 DPS Exhibit 2: First Notice of Potential Violation, 11/19/08 DPS Exhibit 3: Second Notice of Potential Violation, 12/9/08 DPS Exhibit 4: Third Notice of Potential Violation, 1/8/09 DPS Exhibit 5: Iowa Smokefree Air Act Complaint Report, 11/18/08 DPS Exhibit 6: Iowa Smokefree Air Act Complaint Report, 12/15/08 DPS Exhibit 7: Iowa Smokefree Air Act Complaint Report, 12/28/08 DPS Exhibit 8: Iowa Smokefree Air Act Complaint Report, 1/17/09 DPS Exhibit 9: Licensing Information FINDINGS OF FACT 1. Woody s Bar & Grill, LLC d/b/a Woody s Bar & Grill(licensee) is located at th St. Northwest in Fort Atkinson, Iowa and holds Class C Liquor License LC Brian Karnik and Kevin Karnik are each 50% owners of Woody s Bar & Grill. Kevin Karnik is its manager. The licensed premises includes a first floor bar as well as a fully equipped bar in the basement, which is sometimes used for bands or private parties. The licensed premises also has an outdoor service area. (Testimony of Kevin Karnik; Steve Nemmers; DPS Exhibit 9) 2. The Iowa Smokefree Air Act (Iowa Code Chapter 142D) became effective on July 1, The Act prohibits smoking in most establishments that are open to the public. (Testimony of Brent Saron) 3. IDPH employs Brent Saron to manage the Smokefree Air Act Enforcement and Educational Process. Citizens can file complaints concerning violations of the Smokefree Air Act either on-line through the IDPH website or by calling a toll free number. IDPH staff contacts each complainant by or telephone to verify the information they provided. IDPH sends the subject of the complaint a Notice of Potential Violation by certified mail after the complaint is verified. The purpose of the Notice of Potential Violation is to educate not punish. IDPH also asks its local Tobacco Partnership Agency to make an educational site visit to the business. The IDPH creates a business account to track all verified Smokefree Air Act complaints against a particular business. The business account for Woody s Bar & Grill documents that IDPH has received 6 verified complaints of smoking at Woody s since October 4, (Testimony of Brent Saron; DPS Exhibit 1) Iowa Acts ch (H.F. 2212, approved April 15, 2008)

3 Page 3 4. On November 18, 2008, Cerro Gordo County Health Inspector Merri Cross visited the licensed premises and noticed a very strong smell of smoke in the bar, although no one was actively smoking at the time. Ms. Cross observed Kevin Karnik take ashtrays from behind the bar and put them in a safe. She did not see any no smoking signs posted at the bar s entrances. Mr. Karnik told Ms. Cross that his customers kept removing the signs. (Testimony of Merri Cross; DPS Exhibit 5) 5. On November 19, 2008, the IDPH sent the licensee a First Notice of Potential Violation, which stated that a complainant observed patrons smoking inside the premises and ashtrays on the bar on October 4th. It also stated that bar staff was aware of the smoking and did not ask the patrons to stop and that the required signs were not posted. The notice summarized the Smokefree Air Act, including the provisions requiring an employer, owner, operator, manager, or person having custody or control of the business to enforce the no smoking prohibition, to remove all ashtrays, and to post no smoking signs in and at every entrance. The notice warned the licensee that if a second valid complaint was filed against the establishment within the next 12 months, a Second Notice of Violation may be issued and this notice would be forwarded to a local law enforcement agency for further action. Finally, the November 19 th notice states: Further action may result in civil penalties of not more than $100 for a first violation or not more than $500 for subsequent violations. In addition, as stipulated in the Smokefree Air Act on page 13, line 5: violation of this chapter by a person who owns, operates, manages, or who otherwise has custody or control of a public place, place of employment, area declared a nonsmoking place or outdoor area regulated under this chapter may result in the suspension or revocation of any permit or license issued to the person for the premises on which the violation occurred. (emphasis original)(testimony of Brent Saron; DPS Exhibit 2) 6. On December 9, 2008, IDPH sent the licensee a Second Notice of Potential Violation summarizing Ms. Cross observations and stating that the notice would be forwarded to a local law enforcement agency for further action. (Testimony of Brent Saron; DPS Exhibit 3) 7. IDPH notifies the Alcoholic Beverages Division (ABD) after issuing a second Notice of Potential Violation. IDPH and ABD have a 28E 3 Agreement for ABD to coordinate the law enforcement site visits for the Smokefree Air Act. 3 Iowa Code chapter 28E enables state and local governments in Iowa to make efficient use of their powers, in part by allowing them to enter into agreements with one or more public or private agencies for joint or cooperative action. See Iowa Code section 28E.4(2007).

4 Page 4 ABD either conducts the visit themselves or they coordinate with a local law enforcement agency to conduct the site visit. IDPH pays the local law enforcement agency $100 for each site visit initiated by IDPH through the ABD, regardless of the outcome. (Testimony of Brent Saron) 8. On December 15, 2008, ABD Investigator Steve Nemmers made a law enforcement site visit to the licensed premises. He did not observe any evidence of smoking, but there were not any no smoking signs posted at the entrance or inside the bar. Kevin Karnik reported that he had been taping paper signs to the door but patrons kept ripping them off. Kevin Karnik showed Investigator Nemmers the envelope that he had just received containing permanent no smoking signs and assured him that the signs would be posted immediately. (Testimony of Steve Nemmers; DPS Exhibit 6) 9. On December 28, 2008, Winneshiek County Deputy Sheriff Steve Nesvik and Deputy Marx responded to an anonymous complaint of smoking and underage drinking at the licensed premises. Deputy Nesvik saw a female patron smoking a cigarette when he entered the bar. He also observed a full ashtray of cigarette butts that had been spilled on the floor under a table. Kevin Karnik told the officers that he was too busy to watch everyone in the bar, but Deputy Nesvik estimated that the bar had fewer than 15 customers at the time. (Testimony of Steve Nesvik; DPS Exhibit 7) 10. On January 8, 2009, IDPH issued a Third Notice of Violation to the licensee based on Deputy Nesvik s observations inside the premises on December 28th. The third notice was forwarded to local law enforcement for further action. (Testimony of Brent Saron; DPS Exhibit 4) 11. On January 17, 2009, ABD Investigators Steve Nemmers and Steve Henson returned to the licensed premises for a law enforcement site visit after another smoking complaint was filed with IDPH. Kevin Karnik denied that he was allowing smoking in the bar. While Investigator Nemmers was speaking to Mr. Karnik, Investigator Henson found a dozen ashtrays in the basement area, including one partially filled with cigarette butts. The basement bar was filled with stale tobacco smoke. The investigators had not been aware of the basement bar at the time of their prior visit. Mr. Karnik told the investigators that the area was sometimes used for special parties, but had no explanation for the ashtrays or the smoke smell. (Testimony of Steve Nemmers; DPS Exhibit 8) 12. Kevin Karnik admits that he did not initially strictly enforce the Iowa Smokefree Air Act because a large majority of his customers are smokers. Mr. Karnik had read that a first violation was punishable by a $100 fine and decided to continue to permit smoking since this was a nominal amount. After receiving the Second Notice of Potential Violation, Mr. Karnik no longer allowed smoking during the day when he served food. Mr. Karnik claimed that after Deputy Nesvik s visit to the premises in late December, he eliminated all smoking from the bar, including the basement bar area. He testified that he was only storing

5 Page 5 the ashtrays in the basement when the investigators returned on January 17 th and did not understand that the ashtrays had to be completely removed from the premises. This testimony was not credible because one of the ashtrays found in the basement still had cigarette butts in it, and the basement area was filled with stale cigarette smoke. (Testimony of Kevin Karnik; DPS Exhibit 8) CONCLUSIONS OF LAW I. Iowa Smokefree Air Act Prohibitions The Iowa Smokefree Air Act (Iowa Code chapter 142D) became effective July 1, The general assembly specifically found that environmental tobacco smoke causes and exacerbates disease in nonsmoking adults and children and that these findings are sufficient to warrant measures that regulate smoking in public places, places of employment, and outdoor areas in order to protect the public health and the health of employees. 5 The purpose of the Act is to improve the public health of Iowans by reducing their exposure to environmental tobacco smoke. 6 The Smokefree Air Act prohibits smoking in most 7 public places and places of employment including the interior spaces of restaurants and bars. 8 The owner, operator, manager, or other person having custody or control of a public place or place of employment shall clearly and conspicuously post no smoking signs or the international no smoking symbol in and at every entrance to the public place or place of employment. All signs shall contain the telephone number for reporting complaints and the internet site of IDPH. 9 The owner, operator, manager, or other person having custody or control of a public place or place of employment shall remove all ashtrays from these locations. 10 An owner, operator, manager, or other person having custody or control of a public place or place of employment shall inform persons violating the Smokefree Air Act of its provisions. 11 The Iowa Smokefree Air Act provides that it shall be enforced by the department of public health or the department s designee. The department of public health is required to adopt rules to administer the Act, including rules regarding enforcement. Judicial magistrates shall hear and determine violations of the Iowa Smokefree Air Act See 2008 Iowa Acts ch (H.F. 2212, approved April 15, 2008) 5 Iowa Code section 142D.1(2). 6 Iowa Code section 142D.1(3). 7 The Act does exempt some public places from the smoking prohibition, including but not limited to the gaming floor of premises licensed pursuant to chapter 99F. See Iowa Code section 142D.4. 8 Iowa Code sections 142D.3(1); 142D.2(16). 9 Iowa Code section 142D.6(3). 10 Iowa Code section 142D.6(4). 11 Iowa Code section 142D.8(3). 12 Iowa Code section 142D.8(1).

6 Page 6 With respect to civil penalties, the Iowa Smokefree Air Act provides, in relevant part: 2. A person who owns, operates, manages, or otherwise has custody or control of a public place, place of employment,...or outdoor area regulated under the chapter and who fails to comply with this chapter shall pay a civil penalty as follows: a. For a first violation, a monetary penalty not to exceed one hundred dollars. b. For a second violation within one year, a monetary penalty not to exceed two hundred dollars. c. For each violation in excess of a second violation within one year, a monetary penalty not to exceed five hundred dollars for each additional violation In addition to the penalties established in this section, violation of this chapter by a person who owns, operates, manages, or otherwise has custody or control of a public place, place of employment,...or outdoor area regulated under the chapter may result in the suspension or revocation of any permit or license issued to the person for the premises on which the violation occurred. 13 (emphasis added) IDPH has adopted rules for the implementation and enforcement of the Iowa Smokefree Air Act at 641 IAC chapter 153. The rules provide, in part, that an owner, operator, manager, or other person having custody or control of a public place where smoking is prohibited shall not permit smoking within that public place and shall inform any individual smoking that they are violating the Act and request the individual to stop immediately. 14 With respect to complaints and enforcement, the rules provide that IDPH shall maintain a system for receiving and investigating complaints against persons who own, operate, manage, or otherwise have custody or control of a place where smoking is prohibited and who fail to comply with the Iowa Smokefree Air Act. 15 The IDPH may designate one or more public agencies through a 28E agreement or other written contract to assist with the enforcement of the Act Iowa Code section 142D.9(2) and (4) IAC 153.5(1)(a); 153.5(4) IAC 153.8(1) IAC 153.8(1)(a).

7 Page 7 The rules further provide that a first credible complaint against a public place or place of employment shall result in a written notice of violation 17 that includes educational materials about the Act and how to comply. 18 For all subsequent complaints within one year, the IDPH shall issue another notice of violation and may authorize one or more public agencies to conduct a compliance check of the location. In addition, the IDPH may pursue the civil penalties provided for in 2008 Iowa Acts, House File 2212, section 9, subsection 2 (Iowa Code section 142D.9(2)); may refer the complaint to the appropriate authority for the enforcement of the civil penalties provided for in 2008 Iowa Acts, House File 2212, section 9, subsection 2; or may pursue any other remedy authorized by 2008 Iowa Acts, House File (emphasis added) II. Statutory and Regulatory Authority of the Alcoholic Beverages Division To Sanction Liquor Licensees. The legislature has declared that the Iowa Alcoholic Beverage Control Act shall be deemed an exercise of the police power of the state, for the protection of the welfare, health, peace, morals, and safety of the people of this state, and all of its provisions shall be liberally construed for the accomplishment of that purpose. 20 It is unlawful to sell alcoholic beverages in Iowa except upon the terms, conditions, limitations, and restrictions enumerated in Iowa Code chapter The Iowa Alcoholic Beverages Division is vested by statute with broad authority to administer and enforce the state s laws regulating the sale of alcoholic beverages. 22 The administrator of the Alcoholic Beverages Division (ABD) is statutorily authorized to suspend or revoke a liquor control license or to impose a civil penalty not to exceed one thousand dollars for any violation of Iowa Code chapter 123. However, before imposing a revocation, suspension, or civil penalty, the licensee must be given written notice and an opportunity for an administrative hearing. The administrator may appoint a member of the division or may request an administrative law judge from the department of inspections and appeals to conduct the hearing and issue a proposed decision. 23 In addition, a license or permit issued under Iowa Code chapter 123 may be suspended or revoked, and a civil penalty may be imposed for any event that would have disqualified the licensee or permittee from receiving the license or permit when originally 17 Prior to January 7, 2009, 641 IAC 153.8(8) provided for the issuance of a Notice of Violation. Effective January 7, 2009, the rule was changed to refer to a Notice of Potential Violation. All of the other provisions of the rule remained the same IAC 153.8(8)(a) IAC 153.8(8) b and c. 20 Iowa Code section 123.1(2007) 21 Iowa Code section 123.2(2007). 22 Iowa Code sections 123.4; ; ; Auen v. Alcoholic Beverages Division, 679 N.W.2d 586, 590(Iowa 2004); City of Sioux City v. GME, Ltd., 584 N.W.2d 322, 325(Iowa 1998). 23 Iowa Code section (1)(a)(2007).

8 Page 8 issued. 24 A criminal conviction is not a prerequisite to suspension, revocation, or imposition of a civil penalty by the ABD. 25 The licensee apparently assumed that he would only be fined $100 for a violation of the Iowa Smokefree Air Act and would then have the opportunity to decide whether it was financially worthwhile to him to continue to disobey the law. However, the ABD clearly retains the authority to sanction liquor licensees for violations of Iowa Code chapter 123 irrespective of whether the licensee has been fined for violations of the Iowa Smokefree Air Act under Iowa Code section 142D.9(2). A. All Licensed Premises Are Required To Conform To Applicable Laws, Ordinances, Resolutions, Health and Fire Regulations. The Hearing Complaint alleged that the licensee s open and continuing failure to comply with all provisions of the Iowa Smokefree Air Act constitute violations of Iowa Code section (2) and 185 IAC 4.2(1). Iowa Code section (2) provides that no liquor license shall be issued for premises which do not conform to all applicable laws, ordinances, resolutions, and health and fire regulations. 185 IAC 4.2(1) provides that licensees and permittees shall at all times maintain their respective premises in compliance with the laws, orders, ordinances and rules of the state, county and city health and fire departments and the Iowa Department of Inspections and Appeals. The Iowa Alcoholic Beverages Division has been vested by the legislature with jurisdiction to hear and determine violations of Iowa Code section (2) and 185 IAC 4.2(1) and to impose sanctions for violations. The preponderance of the evidence established that the licensee failed to operate and maintain the licensed premises in conformance with the Iowa Smokefree Air Act, in violation of Iowa Code section (2) and 185 IAC 4.2(1). The licensee and/or the licensee s employees engaged in an ongoing pattern and practice of noncompliance with the requirements of the Iowa Smokefree Air Act through January 17, 2009, despite being given ample guidance and opportunity to comply. The violations included openly allowing smoking, keeping ashtrays on the premises, and failure to post the required no smoking signs. The licensee reports that he is now in full compliance with the Iowa Smokefree Air Act. B. All Licensees Are Required To Have Good Moral Character. The Hearing Complaint further alleges that the open and continuing failure to comply with all applicable provisions of Iowa Code chapter 123 and Iowa Code 24 Iowa Code section (1)(b)(4)(2007). 25 Iowa code section (1)(c).

9 Page 9 chapter 142D sufficiently draws the licensee s good moral character into question to justify the suspension and/or revocation of the licensee s liquor license. All liquor licensees must meet the statutory good moral character requirements. 26 Iowa Code chapter 123 defines person of good moral character and provides, in part, that the person must have such financial standing and good reputation as will satisfy the administrator that the person will comply with this chapter and all laws, ordinances, and regulations applicable to the person's operations under this chapter. 27 (emphasis supplied). ABD s rules provide further guidance for determining good moral character. In relevant part, the rules provide that in evaluating an applicant's "good reputation," the local authority or the administrator may consider a pattern and practice by the licensee or permittee or the licensee's or permittee's agents or employees, of violating alcoholic beverages laws and regulations for which corrective action has been taken since the previous license or permit was issued. 28 The licensee s pattern of violations of the Iowa Smokefree Air Act certainly diminishes the licensee s good reputation, which is one of the elements of good moral character as that term is defined in Iowa Code chapter 123. If the licensee does not have the requisite good moral character to hold a liquor license, then the license must be revoked or its renewal denied. However, since the licensee has now come into compliance with the Iowa Smokefree Air Act, the violations should be addressed through a definite period of suspension. III. Sanction The case involves ongoing open violations of the Iowa Smokefree Air Act by the licensee. The latest violations were observed by ABD investigators on January 17, 2009, more than six months after the Iowa Smokefree Air Act took effect. The licensee was provided multiple Notices of Potential Violation and opportunities to come into compliance. In a Final Order issued on April 8, 2009, ABD s Administrator determined that the appropriate sanction for a general violation of the Iowa Smokefree Air Act is 30 days, even if the licensee has brought the premises into compliance prior to the hearing. 29 The licensee failed to offer evidence of any significant mitigating circumstances to distinguish this case. DECISION AND ORDER IT IS THEREFORE ORDERED that Liquor License No. LC issued to Woody s Bar & Grill, LLC, d/b/a Woody s Bar & Grill, is hereby SUSPENDED for a period of thirty (30) days for its failure to comply with all state laws and rules 26 Iowa Code section (1)(a)(2007, 2009). 27 Iowa Code section 123.3(26)(a)(2007, 2009) IAC 4.2(4) b 29 Administrator s Final Order, Docket No. D

10 Page 10 governing the licensed premises, in violation of Iowa Code section (2) and 185 IAC 4.2(1). The 30-day suspension shall begin on Monday, June 1, 2009 at 6:00 a.m. and shall continue until Wednesday, July 1, 2009 at 6:00 a.m. IT IS FURTHER ORDERED that no alcoholic liquor, wine, or beer may be sold, dispensed or consumed on the premises during the period of suspension. Appeal Rights Pursuant to the administrative rules of the division, any adversely affected party may appeal a proposed decision to the Administrator of the Alcoholic Beverages Division within thirty (30) days after issuance of the proposed decision. In addition, the Administrator may initiate review of a proposed decision on the Administrator's own motion at any time within thirty (30) days following the issuance of a proposed decision. 185 IAC 10.27(1) and (2). Requests for review shall be sent to the Administrator of the Alcoholic Beverages Division, 1918 S.E. Hulsizer, Ankeny, IA Unless otherwise ordered, each appealing party may file exceptions and briefs within thirty (30) days of the notice of appeal or order for review. Within thirty (30) days thereafter, any party may file a responsive brief. The Administrator may shorten or extend the briefing period as appropriate. The Administrator may resolve the appeal on the briefs or provide an opportunity for oral argument. 185 IAC 10.27(6). The administrator may affirm, reverse or modify the proposed decision. A party who is adversely affected by the proposed decision shall not be deemed to have exhausted administrative remedies unless the adversely affected party files a request for review of the proposed decision within the time provided and the Administrator has reviewed the proposed decision and has affirmed, reversed, or modified the proposed decision. Dated this 23rd day of April, Margaret LaMarche Administrative Law Judge Department of Inspections and Appeals 3rd Floor, Wallace State Office Building Des Moines, IA CC: See Attached Mailing List

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