from the Superior Court No. 3AN-17-05294 CI of the State of
Alaska, Third Judicial District, Anchorage, William F. Morse,
Stibitz, Reeves Amodio LLC, Anchorage, for Appellant.
Harriet D. Milks, Assistant Attorney General, and Jahna
Lindemuth, Attorney General, Juneau, for Appellee.
Before: Bolger, Chief Justice, Winfree, Stowers, Maassen, and
an Anchorage strip club applied to have its liquor license
renewed the Alcohol and Beverage Control Board received
multiple objections to the renewal. Former employees, the
Department of Labor, and the Municipality of Anchorage each
alleged wage law violations, untrustworthy management, and
unsafe policies. After three hearings before the Board and
one before an administrative law judge, the Board denied
renewal because it was not in the public interest. The club
appealed to the superior court, which affirmed the
Board's decision. The club now appeals to us, arguing it
was unreasonable to find that renewal was not in the public
interest and that the club was denied due process in the
administrative proceeding. We affirm the superior court's
decision to uphold the Board's determination.
FACTS AND PROCEEDINGS
The Club's Management
on 5th Avenue, LLC is a "strip club business"
operating under various names since 1989. For most of the
time between 1989 and 2013 Kathy Hartman owned the club. In
July 2013 Hartman transferred 100% ownership of the club to
her son Travis Gravelle. This transfer occurred approximately
one year after a federal judgment was entered against Hartman
in a wage and hour lawsuit over the club's claim that its
dancers were "independent contractors." Gravelle
remains the sole owner of Fantasies.
testified that he received no income from his ownership, knew
nothing about the business's operation, had no control
over its finances or any of its bank accounts until after the
start of the administrative proceedings regarding the license
renewal, and was only physically present in the club a few
times in the past several years. A former employee testified
that Gravelle was not allowed to drink at the club or even be
on the premises.
Gravelle's ownership, evidence showed that Fantasies has
been run by Hartman's boyfriend, Eugene Greaves. Greaves
referred to himself as the general manager of Fantasies, but
testified that he received no income from the position. As
manager, Greaves classified the DJs, janitors, security, and
other workers as contractors rather than employees, denying
them employee benefits. He also required dancers to sign
agreements to be tenants of the club and pay hourly rent to
use the facilities for dancing.
paid no wages to its dancers; their income came solely from
tips. Moreover, they were required to pay rent to Fantasies
at the end of each shift from the tips they had received. If
dancers did not make enough to pay rent, they were required
to pay the remainder from the next shift's tips in
addition to paying that next shift's rent.
to the club's license renewal included allegations about
unsafe and illegal practices at the club including that
Fantasies did not allow workers to make 911 emergency calls
from the club. The Board noted two such incidents: no calls
were made when a dancer fell on her head from six feet above
the floor or when an intoxicated customer passed out and
suffered seizures. Another complaint noted that
Fantasies' contract with its manager provided a
"bonus" when the club made more than $2, 000 in one
night, apparently violating the licensing statute which
states that "[a] person other than a licensee may not
have a direct or indirect financial interest in the business
for which a license is issued."
The Current Liquor License
March 2014 through the denial of its liquor license in July
2016, Fantasies held liquor license number 1078. Gravelle was
Fantasies' sole owner when it obtained the license.
Despite Gravelle's ownership, Greaves worked with the
Board to obtain the license transfer. The Board staff member
who interacted with Greaves testified that she had not even
heard Gravelle's voice until the Board's February
2016 meeting. Greaves had obtained a power of attorney from
Gravelle and signed all the necessary paperwork on
Gravelle's behalf. The Board staff member testified that
this "raised red flags" and that she had never seen
that done in her five years of processing applications.
early November 2015 the Department of Labor and Workforce
Development's Wage and Hour Administration (DOL) notified
Fantasies of its intent to conduct a wage audit of the club
for the period between December 2013 and November 2015. The
wage investigation was ongoing when Fantasies applied to
renew its liquor license.
November 2015 Fantasies applied to renew its liquor license.
Board staff noticed an irregularity in the application and
contacted Gravelle for clarification. Although Gravelle had
signed the form, affirming that he had "examined this
application... and it [was] true, correct, and
complete," he responded that a friend had filled out the
form on his behalf while he was out of town. Board staff
considered his answer to be "a huge red flag"
because the applicable statutes and regulations require the
license owner to be personally responsible for its use, and
because there had been previous cases with other licensees
violating AS 04.11.450, prohibiting non-licensees from having
a financial interest in the business.
more thoroughly examining Fantasies' application, Board
staff grew "very concerned about prohibited financial
interest" and decided it was necessary for the
application to go before the Board. The Board scheduled a
hearing in February 2016 to consider the license renewal
application. Prior to the hearing the Board received
objections from DOL, the Municipality of Anchorage, and four
former Fantasies workers.
objected based on its investigation, which had revealed that
Fantasies' dancers should have been classified as
employees and that "thirty or more workers did not
receive minimum wage, or any wage, to which they were
entitled." The Municipality objected to renewing the
license until the wage and hour violations were resolved. And
four former workers filed objections alleging that (1)
non-licensees had financial interests, (2) wage and hour laws
continued to be broken, and (3) renewal was not in the best
interest of the public. At the hearing the DOL investigator,
the Municipality's attorney, and Fantasies' attorney
testified. Because DOL's investigation had not been
completed, the Board deferred its decision until its next
scheduled meeting in April.
week after the February Board hearing, Fantasies' lawyer
sent DOL a letter asking it to stop its investigation
"or Fantasies [would] take appropriate legal action
against [DOL] and [the assigned investigator]
personally." As a result, the DOL staff member
temporarily halted the investigation until directed to
continue despite Fantasies' threatened action.
the April meeting DOL asked the Board to "withhold any
transfer of the liquor license for [Gravelle] . . . pending
resolution of unpaid wages." DOL's continuing
investigation was still "in the process of auditing
records to determine wages due to workers" and
"estimate[d] a minimum amount of unpaid wages at $500,
000 plus liquidated damages, for failure to pay minimum
wage." The Board nevertheless held a continued hearing
in April. A former Fantasies dancer testified on behalf of
herself and three other former dancers, each of whom had
filed written objections with the Board. The Board once again
deferred its decision until its next scheduled meeting at the
request of the Municipality, which had not yet held a public
hearing on the protest.
DOL concluded its investigation into Fantasies' wage and
hour violations. It found that: workers' services were
misclassified as contract labor, no records of hours were
kept, dancers were not paid at all and instead forced to pay
rent as tenants, managers failed to maintain daily and weekly
records of hours worked, and the club either did not maintain
or destroyed certain records related to the hiring and firing
of workers. DOL acknowledged that it had not yet calculated
the amount of money Fantasies owed as a result of the
Board addressed Fantasies' license renewal for a third
and final time at its July meeting. Based on the objections
and testimony from all three hearings, the Board determined
renewal of Fantasies' license would not be in the public
interest. The Board informed Fantasies of its right
to a hearing as provided by AS 44.62.330-630.
filed a Notice of Defense and Request for a Hearing in
August. It disputed the Board's findings that
renewal was not in the public's best interests, that
non-licensees had direct or indirect financial interests in
the license, and that it had committed wage and hour
violations. The administrative hearing took place over three
days in 2016 before an administrative law judge (ALJ). A
former dancer, the DOL investigator, Greaves, Hartman,
Gravelle, and two Board staff members testified.
lawyer Brian Stibitz cross-examined the former dancer about
whether she had been given the choice to work as an employee
or an independent contractor. After she repeatedly denied
having a choice, he directed her to read a section of the
"Entertainer Lease" she had signed that stated she
would be liable for liquidated damages and attorney's
fees if she asserted in any court action that her
relationship with Fantasies was anything other than that of a
landlord and tenant. After she read the section he warned her
that it applied to the questions he was about to ask. The
Board's lawyer objected to its relevance, leading to an
extended colloquy between the court and counsel. The ALJ
addressed the Board's concern that Stibitz was badgering
the witness by noting that it, too, was "worr[ied] about
the ... intimidating effect of... waving [the document] in
[the witness's] face." The ALJ ordered Stibitz to
move on to a different topic.
three days of hearings, the ALJ affirmed the Board's
decision denying the renewal. The ALJ issued her decision in
November 2016, and the Board adopted it at its February 2017
meeting. The determination was based on:
[DOL]'s finding of ongoing wage-hour violations; public
safety concerns related to suppression of 911 calls; Mr.
Gravelle's complete lack of knowledge of or involvement
in the business; Mr. Greaves's role in
"running" the business and the license; an alleged
undisclosed financial interest by Mr. Greaves and Ms.
Hartman; and alleged undisclosed financial interests through
appealed to the superior court. The superior court upheld the
Board's decision in January 2018, finding it had a
rational basis for concluding that renewing Fantasies'
license was not in the public interest.
appeals, arguing that the superior court erred by affirming
the Board's decision because the Board violated its right
to due process and acted unreasonably by finding renewal
would not be in the public interest. Because there is
substantial evidence to support the Board's denial of the
renewal application and there was no deprivation of
Fantasies' right to due process, we affirm the superior
court's decision upholding the Board's determination.
STANDARD OF REVIEW
the superior court acts as an intermediate appellate court,
we independently review the merits of the underlying
administrative decision. The specific form our independent
review takes is de novo review: We adopt the rule of law that
is most persuasive in light of precedent, reason, and
reviewing administrative decisions we use the
"substantial evidence" test for questions of fact
and the "reasonable basis" test for questions of
law involving agency expertise. Review of the Board's factual
findings is limited to whether there was substantial evidence
in the record to support those findings. We do not
"weigh the quality of the evidence relied upon by the
[Board]; at issue for the purposes of our review is simply
whether substantial evidence exists." "Substantial
evidence is 'such relevant evidence as a reasonable mind
might accept as adequate to support a conclusion.'
reasonable basis test applies to the Board's exercise of
discretion in denying Fantasies' license renewal after
determining it was not in the public's best interest
under AS 04.11.330(a). When reviewing whether an
administrative decision was reasonable we ask "whether
there was a prejudicial abuse of discretion," which we
will find "if the agency has not proceeded in the manner
required by law, the order or decision is not supported by
the findings, or the findings are not supported by the
apply our independent judgment to questions of constitutional
law, such as due process.