When a liquor licensee’s former manager is convicted of conspiring to violate the federal Money Laundering Act, can the licensee be summarily stripped of its liquor license, based upon the criminal trial transcript, a stipulation of the parties, and brief arguments by counsel? In the closing days of its May term, a unanimous Illinois Supreme Court held that the answer was “yes,” rejecting the licensee’s due process challenge to revocation in WISAM 1, Inc. v. Illinois Liquor Control Commission. Our detailed summary of the underlying facts and lower court rulings in WISAM 1 is here. Our report on the oral argument is here.
The appellant in WISAM 1 operated a liquor store in Peoria pursuant to a liquor license granted by the City. The store was managed by two brothers of the president and owner of the business. In 2009, the managers were indicted on five counts of violating or conspiring to violate the Money Laundering Act through what is known as “structuring” or “smurfing” – deliberately structuring currency transactions to remain below the $10,000 threshold that triggers a bank’s automatic obligation to file a report with the Secretary of the Treasury. In 2010, one of the brothers was convicted of all five counts (the other having fled the country prior to trial).
Shortly after, the City charged the store with violating Section 3-28 of the Peoria Municipal Code, which prohibits any licensee or its agent or employee from engaging in any activity “in or about” the licensed premises that is prohibited by federal law. At the outset of the hearing, the City offered in evidence a stipulation, with the federal indictment attached. The stipulation provided that the convicted brother had been acting as a manager, employee or agent of the licensee at all dates and times set forth in the administrative charge, and that his criminal offenses were related to the financial and business operations of the store. In addition, the City offered the three volume transcript of the federal trial.
After the evidence was admitted over the licensee’s objections, both sides made what were called “opening statements.” Counsel for the store argued that the federal conviction should not be preclusive because the owner of the store had not been a defendant in that action, and he could prove a valid reason for the currency transactions (coverage limits on cash in the store). Counsel also argued that the indictment alleged that the transactions had occurred at the bank, not “in or about” the store, and was therefore insufficient to prove a violation of Section 3-28. Upon the City’s motion, the Commissioner made an initial finding of a violation of Section 3-28, but he then agreed to allow the licensee to introduce further evidence. The licensee offered various insurance policy declarations pages purporting to reflect the $10,000 coverage limits. The parties offered evidence in the subsequent penalty phase of the proceeding as well; the City offered a 2005 order finding that the store had sold liquor to a minor, while the licensee responded with the testimony of the business owner, and evidence that the store had had no subsequent violations respecting minors.
The Commissioner took the entire matter under advisement, and subsequently entered an order and findings of fact revoking the store’s liquor license. On appeal, the Illinois Liquor Control Commission affirmed the revocation. The licensee filed a complaint for administrative review in the circuit court, alleging that it had been deprived of procedural due process by the summary nature of the finding of violation, but the circuit court disagreed, and the Appellate Court affirmed.
In an opinion by Justice Mary Jane Theis, the Supreme Court affirmed the lower courts. The court began by finding that two issues raised by the licensee before the Court – the appropriateness of the penalty of revocation and the sufficiency of the evidence – had not been properly preserved for review. The sole live issue, the Court found, was the due process challenge.
The licensee’s due process challenge was in three parts: (1) the Commissioner should have allowed it to relitigate the criminal conviction; (2) the licensee was denied a meaningful opportunity to refute the City’s evidence; and (3) the Commissioner improperly admitted the transcripts of the trial.
The first point was easily disposed of, according to the Court. To allow the licensee to relitigate the facts relating to the manager’s conduct would render meaningless Section 10-3 of the Liquor Control Act, 235 ILCS 5/10-3, which holds licensees strictly liable for any violation committed by any officer, director, manager, agent or employee. The licensee could always challenge whether revocation was an appropriate penalty for the violation, but the licensee had no right to relitigate the fact of violation.
The licensee’s second point fared no better. Although the Commissioner had entered an initial finding of violation, he had then heard the licensee’s “opening statement,” which included various legal arguments and supporting authority. Thus, the licensee had had a “meaningful opportunity to test, explain, and refute the City’s evidence” by pointing out that the indictment alleged solely conduct at the bank, not “in or about” the store.
Finally, the court addressed the admission of the entire three-volume transcript from the criminal trial. The Court agreed that the Commissioner had improperly admitted the hearsay transcript without requiring the City to identify the purpose for which it sought to use the testimony, or the specific testimony it relied upon. Nevertheless, the error was not prejudicial, since sufficient evidence supported the finding of violation even without the transcript: the indictment combined with the parties’ stipulation, which provided that the manager was an agent of the licensee and had acted in relation to the business. Although the stipulation did not provide that misconduct had occurred at the store, the Court found that the Commissioner was entitled to make a reasonable inference of that fact from all the evidence in the record.
Image courtesy of Flickr by Joseph Novak.