Woodburn's Beverage, Inc. v. Board of License Commissioners

ZARNOCH, J. More than thirty-five years ago, a lawyer for Giant Food, Inc. told a Senate Committee: It is the desire of many Maryland residents to be able to purchase beer and wine at our supermarkets. This view is expressed continually by our customers, who ask ... why we don’t sell beer and wine in our stores. Few understand the legal complications and limitations that have been imposed onus.[ 1 ] ⁵⁴⁶ The General Assembly paid little heed to this plea, as it enacted tougher prohibitions on the transfer of alcoholic beverage licenses to “chain stores,” “supermarkets” and “discount houses.” Chapter 991, Laws of 1978. 2 The reach of those restrictions is the central issue in this appeal of a decision of the Circuit Court for Calvert County upholding the denial by appellee, Board of License Commissioners for Calvert County (“the Board”), of an application to transfer the location of a licensed establishment from that of appellant, Woodburn’s Beverage, Inc. (‘Woodburn’s”), to the Food Lion, LLC in Lusby. 3 FACTS AND PROCEEDINGS 1. Woodburn’s Licensing History Woodburn’s name, ownership, location and licensing classification have not remained static over the years.

As far as this controversy is concerned, Woodburn’s Food Market began life in 1945 as the successor to the Lusby Variety Store, a 20 x 80 foot premises, which had a Class B (on sale) beer license that ⁵⁴⁷ was transferred to Woodburn’s. Although the time line is a little unclear over the next few decades, Woodburn’s was granted a change from its Class B license to a Class A (off sale) 4 beer license, which was used at Woodburn’s Food Market in Solomons Island. 5 In 1988, the licensee applied to transfer the Class A license to a new location in Solomons Island, one containing 9,225 square feet in Patuxent Plaza on Route 2 and this transfer was approved by the Board. From 1945 to 1992, Woodburn’s Food Market was operated by Benjamin F. Woodburn or his family. However, in 1992 the business was sold to Thomas F. McKay, Elizabeth Johnson and Susan Jones and the license was transferred to Woodburn’s Beverage, Inc., an entity created by the three new owners.

The name of Woodburn’s Food Market was retained. In June of 2010, Woodburn’s applied for a Class B beer and wine license (on sale). 6 The application indicated that the food market had grown to 16,000 square feet. The Board granted the license change, however, with a restriction that did not permit the sale of wine “off sale.” Finally, on June 1, 2011, Woodburn’s applied for a Class A beer and wine license. The premises described in the application was that of the Food Lion in Lusby.

Thus, Woodburn’s ⁵⁴⁸ sought a transfer of the proposed license to the Food Lion premises. The proposed transfer was the subject of a hearing before the Board on June 23, 2011. 2. Proceeding Before the Board The principal issue before the Board was whether the transfer to the Food Lion premises ran afoul of the chain store/supermarket law. Woodburn’s counsel noted that it only sought to transfer the location of the licensee and that there was no change in ownership in Woodburn’s Beverage, Inc. “[A]ll we’re doing is moving from one supermarket to another supermarket.” At the time of the hearing, Woodburn’s Food Market had been forced to close.

Woodburn’s attorney observed that the closing was caused by “increased competition.” 7 McKay testified that when he acquired the food market in 1992, it was a “supermarket”: Yes, it was a supermarket. Many would describe it as a neighborhood supermarket. The Food Marketing Institute of the United States classifies food stores in, basically, three categories. A grocery store is either a supermarket, which are larger than grocery stores, that range from about 10,000 square feet all the way up to almost an unlimited number, and then the second, another classification, or smaller grocery stores, really are called produce markets.

And if you’re not a produce market, then you are considered a small grocery store where you sell snacks, and beverages and sandwiches, you are considered a convenience store. So, as defined by the Food Market Institute and certainly the standards of the industry at the time, Woodburn’s was a supermarket. As a matter of fact, at the time, most supermarkets were ranging in the size of 15,000 square feet in this country. Woodburn’s was just over 10,000 square feet ⁵⁴⁹ so it was certainly, at that time, considered a supermarket, and still is today.

He went on to note that both Woodburn’s and Food Lion were supermarkets: We sell basically the same product and that is a breakdown of what Woodburn’s percentage of those products are and that’s a breakdown of what Food Lion’s percentage of those products are. And you can see they are generally the same. Food Lion sells more groceries than we do, dry groceries, but they probably sell more dry groceries than any supermarket because they give a lot of credit on prices for groceries, dry groceries, but not so much credit for price on the other items. And you can see that their percentage of sale for deli and bakery and produce is either better or as good as Food Lion because a lot of customers buy staple groceries at Food Lion and would come to us for produce or meat or deli and bakery products.

But both the Food Lion store and the Woodburn’s stores are comparable in size, overall size. Woodburn’s is approximately twenty thousand square feet and Food Lion is thirty nine thousand square feet. McKay testified that Woodburn’s was leasing space in the Food Lion. His counsel described the arrangement between Food Lion and Woodburn’s as to checkouts. ...

Food Lion is going to be handling the transactions, running it through their computer system. They are going to be actually handling the day to day sales, under the oversight of Woodburn’s. So you’ll be checking out through the Food Lion register and it will be tracked through the computer what is alcohol and what is not alcohol. Woodburn’s counsel argued that there was no legal prohibition to the transfer because the chain store/supermarket law “does not apply to or affect ... any business established already holding such a license.

That’s where we are.” The transfer request was opposed by some witnesses. One, the daughter of the original owners of Woodburn’s Food ⁵⁵⁰ Market; a representative of the Calvert County Chamber of Commerce; and Patuxent Wine and Spirits. Patuxent’s representative said: [Ljet’s say it was the same license for the entire period, the question is not just is it grandfathered, but is it being transferred to a similar establishment. I’ve listened to everything I’ve heard tonight and I don’t think it could be more dissimilar.

You are taking a local license, owned by a local licensee for a long period of time in an independent store and, in effect, you are handing it to the management of a nationwide, at least regional, chain store. 1300 stores according to their website. I don’t think it could be more dissimilar. The operation of the Food Lion is, I mean it’s a shell, you’re moving the shell entity of Woodburn’s into the Food Lion. You’ve got Food Lion running it, Food Lion stocking the shelves, Food Lion checking it out.

The Board did not rule on the transfer until August 25, 2011, after some Board membership had changed. At that hearing, Board member Swoap stated: I move that this Board find that according to Section 9-102 of Article 2B there is a general prohibition against having liquor licenses associated with so called supermarkets, discount houses and chain stores. Specifically, Section 9-102(al) prevents a Class A, B, or D license from being transferred or issued to, or for use in conjunction with, or upon the premises of chain stores, discount houses or supermarkets. Further, Section 9-102(al) provides for an exemption from this general prohibition for any such license already in existence at the time of enactment of this statute in 1962.

I move that the Board find that the Lusby Food Lion is in fact a supermarket and/or chain store as defined within Article 2B. I move that the Board find that the license subject to this transfer request is a Class B, Beer and Wine on sale license issued by this Board to Thomas F. McKay, Elizabeth Johnson and Susan Jones by way of conversion of class of license on or about July 22, 2010 thereby making it subject to the general prohibitions con ⁵⁵¹ tained within Section 9-102(a). For the preceding findings I move that the request by Thomas F. McKay, Elizabeth Johnson and Susan Jones to transfer location of its license to the Lusby Food Lion be denied. After the Board adopted these findings, Woodburn’s sought review of this decision in the circuit court. 3.

Proceedings in the Circuit Court Woodburn’s petitioned for review in the circuit court. The court took additional evidence and subsequently issued a written opinion and order upholding the Board’s action. The opinion authored by Judge James Lombardi noted: Overriding this case is the applicability of a statute that provides a grandfather clause contained in Article 2B Section 9-102(a-l). For purposes of this case, this clause provides that a Class A license may not be granted or transferred to any supermarket unless the business establishment seeking the transfer is “already holding such a license or the possibility of such licensee having the license transferred to a similar type of business establishment.” Therefore, two conditions must be met in order to avail the Petitioner of the protection of the grandfather clause.

Petitioner contends that the history of the Board’s actions in granting his business a freedom of interchanges between Class A and B licenses places him squarely within the contemplation of the statute and the exemption set forth in the grandfather clause. In short the Petitioner argues that it is immaterial as to whether his current license was Class B or Class A. The Board disagreed and held that holding a Class A license was a prerequisite to its approval; that the only license that the statute grandfathered was, in his case, a Class A license; and that since he held a Class B license he was required to apply for a completely different class of license. The second condition of the grandfather clause is that the license had to be transferred to a similar type of business establishment. Although the evidence before the Liquor Board showed that the transferor was a small foodmarket ⁵⁵² and the prospective transferee a large supermarket, the Petitioner contends that the Board never addressed this condition.

Similarly, neither the Board nor the other opponent to the transfer addressed this condition. Accordingly, the Petitioner contends that neither should the Court in its judicial review. The court’s opinion went on to conclude: The Liquor Board did address the “similar business type” condition. Perhaps not artfully, but as the Court reads the Board’s (short) motion disapproving the transfer, the Board made two distinct findings of fact: “I move that the Board find that the Lusby Food Lion is in fact a supermarket as defined within Article 2B.

I move that [sic] Board find that the license subject to this transfer request is a Class B Beer and Wine on sale license ... thereby making it subject to the general prohibitions contained within section 9-102(a-D.” Accordingly, the Court need not address the Petitioner’s (and apparently, the opposition’s) principal argument as to the differences, vel non, between a Class A and Class B license because the Court finds substantial evidence that the Board denied the license because it found that the transferee was a supermarket and therefore outside of at least one condition of the grandfather clause. Woodburn’s appealed the June 15, 2012 order of the circuit court. QUESTIONS PRESENTED Woodburn’s poses the following questions for our review: 1. Did the Calvert County Board of License Commissioners err in determining that the conversion of the original license owned by Woodburn’s Beverage issued in 1945 to Class B, Beer and Wine in 2010 effectively terminated the original license and created a new license for Woodburn’s Beverage? 2.

Did the circuit court err in failing to address the finding that the Calvert County Liquor Board erred in its inter ⁵⁵³ pretation of Annotated Code of Maryland Article 2(B) Section 9-102(a)(l)? The Board and Patuxent have a different formulation of the issues: 1. Was the Board of License Commissioners for Calvert County correct in denying the application for a Class A (off-sale) beer and wine license that the appellant Wood-burn’s Beverages proposed to use in conjunction with and on the premises of a Food Lion supermarket, based on a finding that Food Lion is a “chain store” and “supermarket” of the type included within the prohibition set forth in section 9-102(a-l) of Article 2B, when the facts of record showed that the “grandfathering” exception in section 9-102(a-l) was not applicable? 2. Was the Board of License Commissioners correct in concluding that even if the appellant could otherwise take advantage of the “grandfathering” exception in section 9-102(a-l), the exception does not apply if there is a change in the classification of the alcoholic beverage license? 3.

In affirming the Board’s denial of the appellant’s application, did the Circuit Court correctly conclude that the issue relating to a change in the classification of the alcoholic beverage license did not need to be considered, because, quite apart from that issue, the evidence before the Board showed that the prerequisite for avoiding the prohibitions in section 9-102(a-l) were not met? For the following reasons, we side with the Board and uphold its decision to reject Woodburn’s application to transfer its license to the Food Lion. DISCUSSION 1. Standard of Review In liquor board cases, as in other judicial reviews of administrative agencies, we examine the decision of the board, not the circuit court.

Dakrish, LLC v. Raich, 209 Md.App. ⁵⁵⁴ 119, 141, 58 A.3d 482 (2012). Our role is limited to determining whether there was substantial evidence to support the agency’s findings and to assessing whether the administrative decision was premised upon an erroneous conclusion of law. Id. at 141-42, 58 A.3d 482 . We review the board’s decision in the light most favorable to the agency since its actions are prima facie correct and presumptively valid.

Id. at 142, 58 A.3d 482 . However, questions of law, such as the interpretation of a statute, are reviewed de novo. Finally, the Court will review the Board’s “decision solely on the grounds relied upon by the agency.” Department of Health & Mental Hygiene v. Campbell, 364 Md. 108, 123 , 771 A.2d 1051 (2001). 2. Basis for the Board’s Decision The parties disagree sharply over the grounds for the Board’s decision.

Woodburn’s argues it was confined to the purely legal issue of whether the grandfather clause of § 9-102(a-l) of