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| Montana Administrative Register Notice 42-1017 | No. 12 06/26/2020 | |
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BEFORE THE DEPARTMENT OF REVENUE OF THE STATE OF MONTANA
TO: All Concerned Persons
1. On March 13, 2020, the Department of Revenue published MAR Notice No. 42-1017 pertaining to the public hearing on the proposed amendment and repeal of the above-stated rules at page 462 of the 2020 Montana Administrative Register, Issue Number 5.
2. On March 27, 2020, the department published an Amended Notice of Public Hearing on Proposed Adoption for MAR Notice No. 42-1017 at page 566 of the 2020 Montana Administrative Register, Issue Number 6, which rescheduled the hearing, notice accommodation, and comment deadline dates in response to Governor Bullock's March 15, 2020 Executive Orders 2-2020 and 3-2020 (Orders) providing for measures to combat the spread of the COVID-19 Novel Coronavirus.
3. On April 30, 2020, the department published a Second Amended Notice of Public Hearing on Proposed Adoption for MAR Notice No. 42-1017 at page 772 of the 2020 Montana Administrative Register, Issue Number 8, which modified the hearing to a videoconference format in further compliance with Governor Bullock's Orders.
4. On May 6, 2020, a public hearing was held via videoconference to consider the proposed rulemaking. The following commenters were present and provided oral testimony: Joel Silverman, Silverman Law Office, PLLC; and Jessie Luther, Taylor Luther Group, PLLC, on behalf of the Hospitality and Development Association of Montana (HDAM). The following persons were present, but provided no oral testimony: John Iverson, on behalf of the Montana Tavern Association (MTA), and Jessica DeMarois, attorney, Goodrich & Reely, PLLC. The following persons provided formal written comments: Jessie Luther, Taylor Luther Group, PLLC, on behalf of HDAM; John Iverson, on behalf of the Montana Tavern Association (MTA); and Michael Lawlor, Lawlor & Company, PLLC.
5. The department has amended 42.12.106, 42.12.130, and 42.13.107, and repealed ARM 42.12.107 as proposed.
6. The department has amended the following rules as proposed, but with the following changes from the original proposal, new matter underlined, deleted matter interlined:
42.12.101 APPLICATION FOR LICENSE (1) through (3) remain as proposed. (4) At any time during the application process, an applicant must notify the department of any changes in the information and documents submitted under (3) and (5) through (9) remain as proposed.
AUTH: 16-1-303, MCA IMP: 16-4-105, 16-4-201, 16-4-204, 16-4-207, 16-4-210, 16-4-401, 16-4-402, 16-4-414, 16-4-417, 16-4-420, 16-4-501, 16-4-502, MCA
42.12.133 CONCESSION AGREEMENTS (1) remains as proposed. (2) All new concession agreements must be submitted to the department for review and approval prior to their execution or effective date and must include the following: (a) a completed concession agreement request form provided by the department and the one-time processing fee described in ARM 42.12.111; (b) a copy of the proposed floor plan; (c) any additional documentation the department deems reasonably necessary to approve the concession arrangement; and (d) a completed alteration request form if the concessionaire's area will change the licensee's current floor plan that is on file with the department. (3) The concession agreement must provide that licensee and concessionaire agree: (a) through (c) remain as proposed. (d) except for concessionaires who have been approved by the department as a location manager, alcoholic beverages may not be ordered, purchased, or received by the concessionaire; (e) through (6) remain as proposed.
IMP: 16-3-305, 16-3-311, 16-4-401, 16-4-402, MCA
42.12.209 TRANSFER OF A LICENSE TO ANOTHER PERSON (1) remains as proposed. (2) (3) through (11) remain as proposed.
AUTH: 16-1-303, MCA
42.13.101 COMPLIANCE WITH LAWS AND RULES (1) and (2) remain as proposed. (3) The department may use a range of progressive and proportional penalties for any combination of violations of any laws, ordinances, and rules. The progressive penalty schedule is not an exhaustive list of the grounds for administrative action. The schedule does not preclude the department's use of discretion to propose a penalty greater or less than those listed based upon aggravating or mitigating circumstances, non-exhaustive examples of which are described in (10) and (11). For purposes of determining penalties under the progressive penalty schedule, the department uses a three-year lookback. Proposed penalties are assessed based upon the date the violation occurs. For violations that occur over time, such as an undisclosed ownership interest, the violation date shall be the date the department issues its notice of proposed department action. The department may seek license revocation based upon a combination of any four violations during a three-year period.
Progressive Penalty Schedule
(4) through (9) remain as proposed. (10) Aggravating circumstances may result in the imposition of maximum monetary penalties, maximum suspension time, or revocation, and will not bind the department to the progressive penalty schedule.
(a) through (g) remain as proposed. (11) Mitigating circumstances may result in the adjustment of monetary penalties, amount of suspension time, or revocation, and will not bind the department to the progressive penalty schedule. Mitigating circumstances include, but are not limited to: (a) the admissions of either the licensee or concessionaire regarding violations of the code or a rule of the department prior to the department commencing administrative action against the licensee or concessionaire; or (b) those instances provided in 16-4-406, MCA. (12) remains as proposed.
AUTH: 16-1-303, 16-4-1009, MCA IMP: 16-1-302, 16-3-301, 16-4-406, 16-4-1004, 16-4-1008, 16-6-314, MCA
7. The department has thoroughly considered the comments and testimony received. A summary of the comments received, and the department's responses are as follows:
COMMENT 1: Mr. Silverman and Ms. Luther thanked the department for its efforts to put forward proposed rulemaking to implement House Bill 727 (2019)(HB 727) and for the department's recent efforts working with the alcoholic beverages industry related to the Covid-19 pandemic.
RESPONSE 1: The department appreciates the comments.
COMMENT 2: Mr. Silverman questioned what the department means in ARM 42.12.101(4) when it proposed the word "immediately" when referring to when an applicant must notify the department of any changes in information or documents and provide the department with any corrected or updated information or documents. What time frame is acceptable so an applicant may avoid a return or denial of application?
RESPONSE 2: The department has further amended ARM 42.12.101(4) to replace the word "immediately" with "promptly" to communicate the necessity for applicants to notify the department of changes to the information and documents previously submitted as part of their application. The department further amends the rule to clarify that the application will be tolled until the updated or corrected information is submitted to the department.
COMMENT 3: Regarding the department's proposed amendment to ARM 42.12.101(6), Mr. Lawlor comments that the mandatory use of "shall subject the license to revocation," is not consistent with statute, and he states that the department's rationale for the amendment does not comport with department practice or 2-4-305(2), MCA. Mr. Lawlor suggests that "may, following an opportunity for hearing under the contested case provisions of the Montana Administrative Procedure Act and ARM 42.12.108, subject the license to revocation" is more appropriate.
RESPONSE 3: The department disagrees with Mr. Lawlor's comment that the proposed rule amendment in ARM 42.12.101(6) is not consistent with statute, contrary to department practice or that it does not substantially comply with MAPA. The amendment acknowledges that 16-4-417, MCA, includes unambiguous mandatory conditions following issuance of a license without premises approval. The department contends that stating an outcome for a licensee's failure to fulfill the stated conditions is appropriate since a retail license issued under 16-4-417, MCA, is also subject to other mandatory licensing provisions.
Regarding Mr. Lawlor's text suggestion, the department has taken it under advisement, but believes the additional text is not necessary and adopts the rule amendment as proposed. Other administrative rules in ARM Title 42, chapters 12 and 13 describe that a license is "subject to revocation" or "subject to administrative action," and ARM 42.12.101(6) is consistent with this construction. The language in (6) does not imply or conclude that the revocation of a license under 16-4-417, MCA, is certain, only that a license is subject to revocation; and the rule does not disregard a licensee's due process rights afforded under MAPA and the department's administrative rules (see e.g., 2-4-631 and 16-4-406, MCA; ARM 42.12.108).
The department also directs Mr. Lawlor to Response #4, which may provide additional information regarding the department's intended procedural application of a licensee's failure to meet the license conditions stated in 16-4-417, MCA.
COMMENT 4: Mr. Silverman asked the department to clarify the meaning of ARM 42.12.101(6) which provides for the failure of the licensee to fulfill the requirements of 16-4-417, MCA. Mr. Silverman asks whether any accommodation can be made for circumstances that could not be foreseen by the licensee, such as the recent viral pandemic.
RESPONSE 4: The department understands and appreciates the concerns that Mr. Silverman raises. However, 16-4-417, MCA, and ARM 42.12.101(6) do not provide for any extension of deadlines or consideration of any unforeseen matters. The department believes that should any future event like the viral pandemic occur, any temporary abeyance of statutory compliance would require an emergency declaration and grant of authority extending from the Governor or the Montana Legislature.
The department also directs Mr. Silverman to Response #3, which may provide additional information regarding the department's intended procedural application of a licensee's failure to meet the license conditions stated in 16-4-417, MCA.
COMMENT 5: Regarding the department's removal of the definition of "conditional approval letter" from ARM 42.12.106(12), Mr. Silverman states that there are license applicants who are currently on conditional approval and he asks if the department intends to "grandfather" pending applicants as of a particular date. He suggests that some solution is required since department licensing specialists have allegedly indicated that conditional approval is no longer available to applicants.
RESPONSE 5: The department acknowledges that there are a limited number of license applicants who have received conditional approval and continue to rely on that conditional approval after the effective date of House Bill 727, which removed conditional approval from 16-4-402, MCA. But given the limited and actively diminishing number of applicants impacted, and the proximity in time to each applicant's deadline, the department has determined it is not necessary to include a "grandfather" provision in rule. All pending conditional approvals and their respective premises completion and approval deadlines remain in effect. This is consistent and concurrent with the effective date of department's removal of the definition for "conditional approval letter" from ARM 42.12.106.
COMMENT 6: Ms. Luther suggests that ARM 42.12.133 should contain a list of specific requirements related to the concession agreement request form referenced in (2)(a) of the rule.
RESPONSE 6: Listing the specific requirements that will be found on the concession agreement request form is unnecessary. The department directs Ms. Luther to ARM 42.12.133(3), which includes information required by the concession agreement. The concession agreement request form will primarily consist of the items listed in (a) through (g) of that section.
COMMENT 7: Mr. Silverman and Ms. Luther both asked the department to clarify whether the concession agreement fee referenced in ARM 42.12.133(2)(a) is the same processing fee that applicants pay when they submit the agreement to the department for approval.
Mr. Silverman also asked the department to clarify whether an applicant is required to pay an additional fee for processing a concession agreement when applying for the issuance or transfer of an alcoholic beverages license.
RESPONSE 7: The concession agreement fee referenced in ARM 42.12.133(2)(a) is not a new fee. This is the $100 processing fee that is currently provided for in ARM 42.12.111.
As to Mr. Silverman's question about whether a concession agreement processing fee is necessary when submitting an alcoholic beverages license application, the department acknowledges that the answer is somewhat fact-dependent. For example: if the seller of a license has a concession arrangement incorporated into the business transaction, the department will want a new concession agreement form to be submitted by the buyer to reflect that the buyer is agreeing to the terms on the form rather than assuming the seller's terms. In this case, the $100 fee is applicable. However, if shareholders in a corporate licensee sell and purchase shares between themselves, that would not require a new concession agreement form and fee.
COMMENT 8: Mr. Lawlor questioned in ARM 42.12.133(2)(b) whether the requirement for "a copy of the proposed floor plan" eliminates the need for an existing licensee to also provide an alteration request if the new concession agreement results in an expanded or changed premises. If so, additional clarification in the rule reflecting that part of the process is suggested.
RESPONSE 8: The alteration request form is required when an existing licensee proposes to enter into a concession agreement that would result in an expansion of the licensee's current floor plan that is on file and approved by the department. The department has further amended ARM 42.12.133(2) to clarify this requirement.
COMMENT 9: Ms. Luther comments that the amendment proposed as ARM 42.12.133(2)(c) is overbroad in its request of information.
RESPONSE 9: While the department understands Ms. Luther's concerns about the potential scope of information and document requests, the department contends that concession agreement terms and permissible operational arrangements with non-licensees are often fact-dependent, and the rule cannot provide a detailed list of items of information or documents for reviewing and approving concession agreements. Notwithstanding, the department has amended (2)(c) to include the word "reasonably" before "necessary."
COMMENT 10: Messrs. Silverman and Iverson, and Ms. Luther, all commented with concerns regarding the department's wording in proposed ARM 42.12.133(3)(d). The commenters contend that the rule text does not acknowledge when a concessionaire also functions as the manager of licensee. The commenters suggest additional revisions are necessary to clarify that a non-licensed entity manager, such as a concessionaire, would continue to be permitted to order, purchase, or receive alcoholic beverages.
RESPONSE 10: The department has amended ARM 42.12.133(3)(d), upon adoption, to clarify that individuals who have been department-approved as a location manager of the license may order, purchase, and receive alcoholic beverages.
COMMENT 11: Mr. Lawlor comments that the department's proposal to strike the wording "to a new owner" from ARM 42.12.209(2) would make this rule incorrect and inconsistent with ARM 42.12.118(2). Further, he states that the department is mistaken in its assertion that, "[t]he required application to transfer ownership is applicable not only to new ownership but also when existing owners are changing ownership percentages." The MABC does not require preapproval for all changes of ownership percentages among existing approved owners, and ARM 42.12.118(2) expressly allows transfers among existing owners without department preapproval in certain circumstances. The wording "to a new owner" should remain in ARM 42.12.209(2).
RESPONSE 11: Based on Mr. Lawlor's comment, the department has amended ARM 42.12.209 to reference the exception for the allowable license modifications found in ARM 42.12.118(2).
COMMENT 12: Mr. Silverman commented to the department's proposed amendments to ARM 42.13.101 which implement HB 727. Mr. Silverman questions what due process rights will be extended to concessionaires found to be in violation of the alcoholic beverage code. Mr. Silverman analogizes to department actions against a licensee that provide due process and a right to have violations heard before an impartial hearings examiner.
As an extension of this comment, Mr. Silverman questions how the revocation of the concession agreement would work.
RESPONSE 12: Pursuant to 16-4-406(2), MCA, concessionaires who are facing a proposed department action for a violation of the Montana Alcoholic Beverage Code or a rule of the department, are awarded an opportunity to a hearing under the Montana Administrative Procedure Act. This is also the case if the department proposes to revoke a concession agreement.
COMMENT 13: Mr. Silverman comments that ARM 42.13.101(11) references aggravating circumstances, but does not mention the counterpart, mitigating circumstances. Mr. Silverman suggests that mitigating circumstances should be added to the rule, as it is in 16-4-406, MCA.
RESPONSE 13: The department agrees with Mr. Silverman that 16-4-406, MCA, contains references and examples of both aggravating and mitigating circumstances for the department to consider in violation matters. However, Mr. Silverman is incorrect that ARM 42.13.101 does not acknowledge mitigating circumstances at all, as current (3) provides that the department may weigh mitigating circumstances as well as aggravating circumstances against the penalties stated in the progressive penalty schedule. As recent as October 2014, ARM 42.13.101 contained mitigating circumstances language. However, the department adopted rule amendments to ARM 42.13.101, under MAR Notice No. 42-2-921, which included the removal of text determined to be redundant to statute in light of the department's statutory mandate to consider aggravating and mitigating circumstances for all violations. Notwithstanding the justification for the department's 2014 amendments to ARM 42.13.101, the department agrees to amend (3), (10), and (11) upon adoption of this rulemaking, for increased clarity and transparency, and to add a complementing reference to 16-4-406, MCA, and mitigating circumstances language.
COMMENT 14: Ms. Luther requests clarification under ARM 42.13.101 when certain enforcement actions would be taken against the licensee, the concessionaire, or both, or who the responsible party ultimately is.
RESPONSE 14: Because each proposed violation is unique, the department cannot generally assign responsibility without first conducting a thorough investigation and review of the facts surrounding the proposed violation. That information will determine whether administrative action will be pursued against the licensee, the concessionaire, or both.
/s/ Todd Olson /s/ Gene Walborn Todd Olson Gene Walborn Rule Reviewer Director of Revenue
Certified to the Secretary of State June 16, 2020. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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