### No. 93-340 

### IN THE SUPREME COURT OF THE STATE OF MONTANA 1994



### NANCY C. TOKUMOTO, d/b/a Kadena's Gourmet Take-Away, Petitioner and Appellant,

DEPARTMENTOF REVENUE OF THE STATE OF MONTANA and GREENLEAF RESTAURANT AND HOTELS CORPORATION, d/b/a Greenleaf Cafe and Delicatessen, Respondents and Respondents.

APPEAL FROM: District Court of the Fourth Judicial District, In and for the County of Missoula, The Honorable Douglas G. Harkin, Judgepresiding.

COUNSEL OF RECORD: For Appellant: Robert 

### J. Sullivan, Boone, Karlberg & 

### Haddon, Missoula, Montana For Respondents: David L. Nielson, Tax 

### Counsel, Office of Legal Affairs, Department of Revenue, Helena, Montana Milton Datsopoulos, Datsopoulos,MacDonald & 

### Lind,Missoula, Montana (Greenleaf)

Filed: Submitted on Briefs: February 3, 1994 

### Decided: February 24, 1994Justice William E. Hunt delivered the opinion of the Court. Petitioner/Appellant, Nancy C. Tokumoto, d/b/a Kadenals Gourmet Take-Away (Tokumoto), appeals from an order of the Fourth JudicialDistrict Court, Missoula County,affinning thedecision of the Department of Revenue which awarded a beer/wine license in the City of Missoula to respondent, Greenleaf Restaurant (Greenleaf). We affirm. Thedispositive issue iswhether theDistrict Court erred when it affirmed theDepartment of Revenue's findings that Greenleaf was qualified to receive an on-premises consumptionbeer/wine license. Inearly 1991, theCity ofMissoula annexed adjoiningproperty increasing the city's population. The Department of Revenue (DOR) found that this increase justified issuance of four new beer/wine licenses toMissoula businesses, pursuant to §S 16-4-203 and -502, MCA. Twenty-one Missoula businessesapplied forthe licenses. DOR held a hearing onOctober 22, 1991, 

### forpurposes 

### of considering the applications, pursuant to S 16-4-207(3), MCA. Seventeen applicants appeared, including Greenleaf's sole proprietor and stockholder, Mr. ~erhi, who testified that he was not a United States citizen. Many other applicants objected to his application based 

### on this admission because, they argued, residency and state voter registration requirements were conditions precedent to DORis consideration of a licensee application. On 

### December 24, 1991, the hearing officer sent notice of a proposed decision to all interested parties which stated that Greenleafwas tobe one of the successful applicants. The hearing

2examiner found that the citizenship requirement under 

### 5 16-4- 401(2)(a)(iii),MCA, could be satisfied at any timeprior toDOR's order for the issuance of the new licenses, and that Mr. Merhi's citizenship was not a condition precedent 

### far consideration of qualification or fitness for a license. In addition, the hearing examiner found that Tokumotowould be an alternate recipient in the event 

### any one of the 

### four successful applicants did not receive 

### a license. In January 1992, Tokumoto submitted written objections to the hearing examiner's proposed decision. On July 24, 1992, DOR adopted theproposed findingsof thehearing examiner that awarded Greenleaf a license. Tokumoto sought judicial review, pursuant to 5 16-4-411, MCA, in the Fourth Judicial District, Missoula County. She contested DORqsacceptance of Greenleaf's application on the basis that at the time of GreenleafFs application, 

### 5 16-4-405(3)(c), MCA, required Mr. Merhi to be a state registered voter, which first required him to be 

### a United States citizen. DOR contended that 16-4-401(2)

## ,MCA, requirestheapplicant tobe a registered voter onlyby the time DOR orders the issuance 

### of a license, and thatMr. Merhi could meet that requirement. Further, DOR expressed that it routinely grants liquor licenses for facilities not yet built, allowing businesses to bring premises up to a standard of suitability prior to 

### issuing 

### a license. 

### In a 

### similar manner, DUR argued that eligibility requirements for beer/wine licensee applicants could be cured prior to issuance of the license.The District Court, giving deference to DORisinterpretation of its own regulations, found that DOR correctly interpreted §§ 16-4-401 and -405, MCA, when 

### it issued its approval af the license to Greenleaf. On April 19, 1993, Tokumoto filed 

### a motion requesting the District Court to reconsider its order of April 9, 1993,which the court denied. On June 8, 1993, Tokumoto filed this appeal. Did the District Court errwhen 

### it affirmed the Department of Revenue's findings that Greenleaf was qualified to receive an on-premises consumption beer/wine license? The administration of liquor licenses is governed by the Montana Alcohalic Beverage Code, which includes licensing criteria set forth 

### in 5 16-4-401 through -405, MCA. Section 16-4- 401(2)(a)(iii)

## ,MCA, provides: In the case 

### of a license that permits on-premises consumption, the department must find in every case 

### in which it makes an order for the issuanceof a new license or for the approval of the transfer of a license that:



# .... (iii) the applicant is 

### a resident of the state and is qualified to vote in a state election 

# . . . . [Emphasisadded]. Section 16-4-401 (2)(b)

### (i)

## ,MCA, requires: (b) in the case of a corporate applicant: 

### (i) the owners of at least 51% of the outstanding stock meet the requirements of subsection (2)(a)(iii) 

# ..*. Section 16-4-405(3)(c), MCA, provides: (3) 

### A license under this codemay not be issued if the department finds from the evidence at the hearinq held pursuant to 16-4-207 (3) that:

### (c) the applicant or the premises proposed for licensing fail to meet the eligibility or suitability criteria established by this code 

# . . 

# . . [Emphasis added]

# . We have held that the standard forreviewingan administrative agency's conclusions of law iswhether the agency's interpretation of law is correct. Steer, Inc. v. Department of Revenue (1990), 245 Mont. 470, 474-75, 803 P.2d 601, 603. Tokumoto claims that DOREsaward of the beer/wine license to Greenleaf resulted in substantialprejudice toher. Sheemphasizes that theparties do

### not dispute that at the time of application, at the hearing, and at the issuance of the preliminary findings and proposed order, Greenleaf's owner, Mr. Merhi, was not a United States citizen. Tokumoto argues that 5 16-4-401(2) (a)(iii), MCA, clearly sets forth the criteria that must be met in every case in which DOR makes an order, but that the statute 

### is silent as to when the evidence of qualifications must be presented. Tokumoto asserts that DORFsinterpretation of the statute, that an applicant could qualify any timebefare DORmakes a finalorder for the issuanceof

a new license, is incorrect because it requires insertion of language not 

### in the statute. Tokumoto contends that, on the contrary, theplain language of S 16-4-405 (3)(c)

## ,MCA, clearly and unambiguously dictates that an applicant be eligible as determined by evidence produced at the hearing. The hearing examiner found: It has been long-standing, past practice of the Department to permit applicants to cure defects in anapplication prior to actual issuance of a license, the specific and unequivocal term used in the statute. Therefore, citizenship is not used as a criteria in looking 

### to the applicants before this hearing. DOR asserted that Tokumotols interpretation of the statutes employed too narrow a reading. It reasoned: Just as the Department allows thepremises to be brought to a standard of suitability after submission of the [liquor license] application, so should an [beer/wine licensee] applicant be permitted to complete attainable eligibilitycriteria after submissionof theapplication. The District Court gave deference to DORgsinterpretation of its 

### own regulations, The court found that from the plain language of 55 16-4-401 and -405, MCA, "DOR cannot issue a license 

### if the evidence at the hearing reveals that the applicant failed tomeet the eligibility criteria

# ..

# .. [and]DOR cannot issue a license if the applicant is not a resident of the state 

# .

# ..

# ." The court

was persuaded by DORIS long-standing past practice 

### to 

### permit applicants to cure defects 

### in an application prior to actual issuance of 

### a license. We have held that "[tlhis court shows great deference to an interpretation given a statute by the agency charged with its administration." Norfolk Holdings, Inc. v. Montana Dept. of Revenue (lggl), 249 Mont. 40, 44, 813 P.2d 460, 462 (citations omitted). 

### We agree with DOR and the District 

### Court. Although Mr. Merhi was not 

### a citizen 

### at the time of the hearing, the record shows that he was taking affirmative steps to obtain United States citizenshiptobecome eligible by the time of issuance of the license. DOR historically has granted liquor

### licenses for premises that are not even constructed on the condition that the premises would be constructed according to the planspresented itand further contingentupon thepremisesmeeting applicablebuilding codes, sanitary inspections,and health codes. Not to do so would mean that an applicant who did not have the premises fully ready foruse couldneverbe granted a license,even if he acted in reliance of thepossibility of receiving a license. In the past, DOR 

### has allowed beer/wine license applicants to cure eligibility requirement defects for the same reason. Mr. Merhi's gamble, that he may not have become a United States citizenby the time 

### DOR ordered issuance of the four licenses, did not substantially prejudice Tokumoto, but affected him alone. If he had failedtoobtain citizenshipin time,Tokumoto apparentlywould have been the beer/wine license recipient. We affirm the District Court.

Justice

### Justice Karla M. Gray, dissenting.

I respectfully dissent from the opinion of the Court. It is not disputed that the hearing held in this matter was required by 5 16-4-207(3), 

### MCA, because written protests had been filed. It also is not disputed that, at the time of the hearing, Greenleaf's owner did not meet the eligibility criteria contained in § 16-4-401(2) 

### (a)(iii)

## ,MCA. These undisputed facts lead inexorably to § 16-4-405, 

### MCA. That statuteprohibits the issuance of a 

### retail alcoholic beverage license if the Department finds from the evidence at the hearinq that the applicant fails to meet the eligibility or suitability criteria provided by statute. There is no mystery here; the statutory language is plain, clear and unambiguous. If evidence produced at thehearing establishesthat an applicant does notmeet the eligibility criteria, the Departmentmust so find. Having so found, the license cannot be issued to the applicant. The hearing examiner, the District Court and this Court rely

on the Department's past practices in giving "deference" to the Department's interpretation of the statutes at issue here. Such reliance is totallyunwarranted where, as here, thepast practices are clearly at odds with the plain statutory language. Our standard of review is whether the agency and the District Court correctly interpreted the law. It is clear that they did not. Agencies are not free to act in a manner which contravenes laws enactedby the legislature;nor are they entitled todeferencein their interpretation of the law when that interpretation is based on actions and practices which do not comply with the law. The fact is that the statute at issue here does not say what the District Court said it says. Section 16-4-405, MCA, does not say that the Department cannot issue a license if the applicant fails to meet the statutory eligibility criteria by the time the license is issued. Section 16-4-405, MCA, states clearly that a licensecannotbe issued if theDepartment finds, from the evidence at thehearinq, that the applicantdoesnotmeet the criteria. The Court's opinion ignoresthe clear statutory language. In sodoing, the Court violates its most fundamental obligation with regard to statutory interpretation: to declare what a statute says,without omitting what is contained therein. Section 1-2-101, MCA. Moreover, theportionsof theCourt'sdecision relating to the Department's practices with regard to premises suitability and prejudice to Tokumoto are entirely irrelevant. The fact that the Department has acted contrary to the statute with regard to 

### both premises suitability

### and applicant eligibilityhardly bolsters the legalpropriety of its actions. Nor does any statute at issue here require Tokumoto to show prejudice. 

### I would reverse the District Court.