NO. 88-370 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1988 

FRASCELI, INC., d/b/a MAMA CASSIE'S 

PASTA SHOP & DELI, a Montana corporation, 

Petitioner and Respondent, 

-vsSTATE OF MONTANA, DEPARTMENT OF REVENUE, 

LIQUOR DIVISION, and DEBRA S. BATTLESON, 

d/b/a CHI CHI'S MEXICAN AMERICAN RESTAURANT, 

L:. .,,as ...t ..- ..\ iiJb-:& ..'( Rqmden&s and -Resp ndenks . 

APPEAL FROM: District Court of the Eighth Judicial. District, 

In and for the County of Cascade, 

The Honorable Thomas McKittrick, Judge presiding. 

COUNSEL OF RECORD: 

For Appellant: 

West Law Firm; Candace F. West, Helena, Montana 

For Respondent: 

Leaphart Law Firm; W. William Leaphart, Helena, 

Montana 

Alexander & Baucus; Gary Deschenes, Great Falls, 

Montana 

Eric J. Fehlig, Dept. of Revenue, Helena, Montana 

Filed: 

Submitted on Briefs: Mov. 3, 1988 

Decided: December 13, 1988 

Clerk 
Mr. Chief Justice J. A. Turnage delivered the Opinion of the 

Court. 

Debra Battleson, d/b/a Chi Chi's Mexican American 

Restaurant (Chi Chi's), appeals an order entered by the 

Eighth Judicial District Court regarding the final ownership 

of one beer and wine license for the Great Falls area. The 

order, which overruled the agency decision made by the Director of t-he Department of Revenue (DOR), instructed the Department to reinstate the proposed order of the hearing 

examiner. 

The issues on appeal are: 

1. Whether the conduct of the Director of the DOR 

constituted reversible error; 

2. Whether the District Court abused its discretion by 

ordering the hearing examiner's proposal to be adopted. 

We reverse in part and affirm in part. 

In the fall of 1986, one new retail beer and wine 

license became available, based on the quota system, for the 

Great Falls area. Based on the notice published by the 

Department of Revenue, which oversees and issues these Ticenses, there were seven applicants. 

An evidentiary hearing was held on April 20, 1987, by a 

hearing examiner to determine who among these seven applicants would receive the license. A proposed order, alona 

with findings of fact, conclusions of law was issued on May 

23, 1987, by the examiner. That proposal awarded the license 

to Frascell, Inc., d/b/a Mama Cassie's Pasta Shop and Deli 

(Mama Cassie's) . Chi Chi's was the only unsuccessful applicant to file exception to the proposed order and further 

requested oral argument before the Director of DOR, which was 

the official making the final agency decision pursuant. to the 

Montana Administrative Procedure Act (MAPA). 
The Director heard oral argument on July 31, 1987, and 

issued a final agency decision on September 29, 1987, awarding the license to Chi Chi's. The agency decision stated 

that the proposed findings regarding Chi Chi's were insufficient and drafted additional findings of fact in favor of Chi 

Chi's. 

Mama Cassie's appealed this final agency decision and 

order to the District Court which heard oral argument. At 

that hearing, the parties stipulated that the Director of DOR 

conducted a personal, unannounced visit to both Mama Cassie's 

and Chi Chi's after he took oral argument on the MAPA appeal 

but before he issued his final order reversing the hearing 

examiner. It is that conduct, the unnoticed, on-site visit 

of both establishments, that Mama Cassie's contests. 

The District Court found that conduct to be improper. 

In its order, the District Court found that "[tlhese visits 

were made without any prior notice to the parties and the 

visits were not reflected in the record or evidence as to why 

the Director made these visits, it is apparent that he would 

not have made the visits unless he felt there was some necessity to supplement the 'record' that was before him at final 

arguments." The District Court concluded that the "offthe-record" visits by the Director irrevocably denied the 

parties of (1) the right to prior notice of the intent to 

visit; (2) the right to object to such visits; (3) the opportunity to be present during the visits; (4) the right to 

respond and present evidence and argument on all issues 

involved under S 2-4-612 (I), MCA; and, (5) the right to 

conduct cross-examination required for a full and true d-isclosure of the facts as required by § 2-4-612(5), MCA. 

Accordingly, the District Court reversed the decision 

of the Director because it violated the parties' right to 

procedural due process contrary to $ 2-4-704 (2) (a), MCA, it 
was made upon unlawful procedure contrary to 5 2-4-704(2) (c), 

MCA, and it was characterized as an abuse of discretion 

contrary to 5 2-4-704 (2) (f) , MCA. 

Lastly, the District Court remanded to the Department 

of Revenue with instructions to enter the final decision 

adopting the recommendation of the hearing examiner awarding 

the license to Mama Cassie's as first proposed. Chi Chi's 

appealed. 

Chi Chi's contends that the hearing examiner's proposed 

findings are deficient as a matter of law and must be overturned; that the agency decision can stand on its own, regardless of the visits, because it is based on substantial 

evidence; and, finally that the visits conducted by the 

Director are not reversible error for various reasons. 

We do not reach the issues of whether the hearing 

examiner's findings are deficient as a matter of law to 

support an award of the license or whether the Director's 

order is sufficient as a matter of law to support his award 

of the license. We conclude his decision to be based on 

unlawful procedure constituting reversible error. We affirm 

the District Court's conclusion that the manner in which the 

Director conducted his off-the-record visits prejudiced 

substantial rights of the appellant for the reasons below. 

I. "Off-the-Record" Visits 

A. Standard of Review 

The standard of review is found in the MAPA at 

S 2-4-704, MCA, which authorizes the District Court to modify 

or reverse an agency decision which prejudices substantial 

rights of the appellant in any one of seven ways. That 

statute provides in pertinent part: 

The [district] court may reverse or 

modify the decision if substantial 
rights of the appellant have been prejudiced because the administrative findings, inferences, conclusions or 

decision are: 

(a) in violation of constitutional or 

statutory provisions; 

(b) in excess of the statutory authority 

of the agency; 

(c) made upon unlawful procedure; 

(dl affected by other error of law; 

(el clearly erroneous in view of the 

reliable, probative, and substantial 

evidence on the whole record; 

(f) arbitrary or capricious or characterized by an abuse of discretion or 

clearly unwarranted exercise of discretion; or 

(g) because findings of fact, upon 

issues essential to the decision, were 

not made, although requested. 

A finding based on any one of these seven reasons is sufficient for the District Court to modify or reverse. As was 

noted earlier, the District Court in the case at bar gave 

three reasons to reverse based on subsections (2) (a), (c) and 

(f). 

B. Due Process Rights 

Chi Chi's argues that due process could not have been 

denied to Mama Cassiels by the Director's inspections because 

Chi Chi's was likewise uninformed about the date of the 

visits and opportunity to be present. Thus, argues Chi 

Chi's, they were equal in the end. 

However, the language of 5 2-4-704(2) specifically 

refers to any "prejudice done to substantial rights of the 
appellant." Mama Cassie's, as petitioner below, was the 

appellant to which this statute refers. Due process interests certainly are substantial rights, as contemplated by the 

statute. Thus, we clearly have an issue controlled by 

§ 2-4-704(2) and whether the conduct prejudiced Chi Chi's and 

Mama Cassie's equally is irrelevant. 

The agency order must be vacated because it was founded 

on unlawful procedure which violated Mama Cassie's due process interests. In Highbarger and Bohannon v. Thornock 

(1972), 92 Id. 829, 498 P.2d 1302, the Idaho Supreme Court 

found the trial judge's viewing of an accident site without 

prior notice to the parties was improper. We find the reasoning in that case persuasive and hold MAPA officials rendering decisions to the same standard of conduct. 

Highbarger was a wrongful death case arising out of a 

single-car accident. The trial judge was considering a 

formal motion for involuntary dismissal and in aid of his 

determination viewed the scene of the accident. The Idaho 

Court found: 

A judge trying a case without a jury may 

not properly view premises without 

notice to the parties or use the result 

of his inspection in weighing the testimony of a witness. Citing Jones on 

Evidence, § 462, at 857 (5th Ed.). 

Prior notice to the parties was the focus in 

Highbarger. It insures that parties know of the viewing in 

order to object to it if they deem it inappropriate under the 

circumstances, and notice further allows the parties to be 

present to assure that the court does not view the incorrect 

object or premises. As pointed out by the appellants in 

Highbarger, they had absolutely no way of knowing whether the 

trial judge actually found the accident site. 
We find that prior notice for a viewing is the general 

rule. See, 18 A.L.R.2d 552, § 4 at 562: 

Regarding administrative decision or 

finding based on evidence secured outside of the hearing and. without the 

presence of interested party or counsel: 

"Even though an administrative authority 

has the statutory power to make independent investigations, it is improper for 

it to base a decision upon findings or 

facts so obtained, unless such evidence 

is introduced at a hearing or otherwise 

brought to the knowledge of the interested parties prior to decision, with 

opportunity to explain and rebut." 

Chi Chi's owner argues that she had no way of knowing that 

the Director based his reversal and additional findings on 

facts or data obtained through his viewing. More importantly 

to the Court, we have no way to be certain that he did not. 

We cannot comprehend the extent or the impact of the 

Director's inspection because there is no record of it. Lack 

of prior notice coupled with lack of any documentation is 

fatal to an ordinarily permissible inspection. When this 

type of conduct occurs under a MAPA proceeding, it violates 

certain other safeguards built in by statute: the right to 

respond and present evidence and argument on all relevant 

issues (S 2-4-612(1), MCA), and the right to conduct a 

cross-examination sufficient for the full and true disclosure 

of facts (S 2-4-612 (5), MCA) . We agree with the trial court's reasoning and rulings 

on these issues. 

11. Reinstatement of the Proposed Order 

Chi Chi's argues that, even if the reversal of the 

Director's order is proper, it was an abuse of discretion for 

the trial judge to ord-er reinstatement of the proposed order. 
We agree. Ordering the adoption of the hearing examiner's 

proposal simply is not an alternative authorized by statute. 

Thus, we remand to the agency on this issue for a final 

determination. The agency will have an objective and detached officer review the record, disregarding the Director's 

viewings. If the officer finds it necessary to supplement 

the record, the officer may take additional testimony or 

conduct a proper viewing with prior notice and a full record. 

We affirm the District Court order insofar as it vacates the final agency decision and remand to the DOR for 

proceedings consistent with this opinion. 

We concur: 

A 

hief Justice