LaRussa's Italian Café, LLC v. PLCB

IN THE COMMONWEALTH COURT OF PENNSYLVANIA

LaRussa’s Italian Café, LLC, : Appellant : : v. : No. 778 C.D. 2017 : Argued: April 12, 2018 Commonwealth of Pennsylvania, : Pennsylvania Liquor Control Board :

BEFORE: HONORABLE RENÉE COHN JUBELIRER, Judge HONORABLE ELLEN CEISLER, Judge HONORABLE DAN PELLEGRINI, Senior Judge

OPINION NOT REPORTED

MEMORANDUM OPINION BY JUDGE COHN JUBELIRER FILED: May 8, 2018

LaRussa’s Italian Café, LLC (Licensee) appeals from an Order of the Court of Common Pleas of Lackawanna County (trial court), dated May 3, 2017, denying Licensee’s appeal and affirming an Order of the Pennsylvania Liquor Control Board (Board), which refused to renew Licensee’s Restaurant Liquor License No. R- 15389. Licensee contends that it was deprived of due process because the Board’s Bureau of Licensing (Bureau) refused to act on Licensee’s application to replace its Board-approved manager1 prior to the Board adjudicating Licensee’s application to

1 Section 23.1 of Title 37 of the Pennsylvania Administrative Code, 37 Pa. Code § 23.1, defines a board-approved manager as “[a] person appointed or designated by the licensee and

renew its liquor license. Licensee also contends that substantial evidence does not support the trial court’s determination that Licensee failed to take timely substantial remedial measures, and, therefore, its application to renew its liquor license should have been granted. After review, we affirm.

I. Background A. Licensee’s Application to Renew its Liquor License Licensee operates a restaurant, commonly known as the Clock Tower, located at 590 Burke Bypass, Olyphant, Lackawanna County, Pennsylvania (the property), and was the holder of Restaurant Liquor License No. R-15389. On or about June 28, 2015, Licensee filed an application to renew its liquor license for the period beginning October 1, 2015, and ending September 30, 2017. Ashley Walsh (Walsh) filed the renewal application on behalf of Licensee. Section 11 of the renewal application asked Licensee to “[l]ist all felony and misdemeanor convictions of the licensee, co-licensee, members, new and current officers, directors . . . employees and the manager occurring since the last notice of change of officers or application was filed.” (Reproduced Record (R.R.) at 2a.) Licensee responded that there were “[n]o such convictions.” (Id.)

B. Guilty Plea of Licensee’s Board-Approved Manager However, on February 10, 2014, David Klem (Mr. Klem), Licensee’s Board- approved manager, pleaded guilty in the Court of Common Pleas of Lackawanna

approved by the [Board] under 40 Pa. Code § 5.16, § 5.17 or [§] 5.23 (relating to appointment of managers, distributor or importing distributor licensees: appointment of manager; and appointment of managers).”

County (common pleas), to violating Section 911(b)(3) of the Crimes Code, 18 Pa. C.S. § 911(b)(3) (corrupt organizations), and Section 13(a)(30) of The Controlled Substance, Drug, Device and Cosmetic Act (Drug Act), 35 P.S. § 780-113(a)(30)2 (manufacture, delivery, or possession with intent to manufacture or deliver, a controlled substance (PWID)). During Mr. Klem’s plea colloquy, the assistant district attorney described the facts as follows:

[B]etween January 7, 2007, and October 23, 2012, the defendant, David P. Klem, headed up an organization . . . that imported cocaine from Philadelphia into Lackawanna County into the Olyphant area. That during that period of time he imported a large amount of cocaine in the amount of a kilo . . . [and] distributed cocaine. It was a structured organization. There were many other individuals in it . . . Eric Gruzesky . . . and during that time he had stored the cocaine . . . primarily . . . inside Larussa’s Clock Tower Restaurant [and] distributed the cocaine out of that location as well as other locations at times.

(R.R. at 46a-47a.) Common pleas asked Mr. Klem if, after hearing that description of the facts, he agreed it was true and accurate and if he accepted responsibility for his conduct. (Id. at 47a.) Mr. Klem responded in the affirmative. On May 28, 2014, Mr. Klem was sentenced to concurrent terms of imprisonment of 16 to 48 months on the conviction for corrupt organizations and 30 to 72 months on the conviction for PWID.3 (Id. at 40a.)

2 Act of April 14, 1972, P.L. 233, as amended. 3 On May 16, 2014, Mr. Klem, represented by new counsel, moved to withdraw his guilty plea on the basis that he was misinformed as to his prior record score for purposes of sentencing, and that, in fact, he was not guilty. Following a hearing, common pleas denied the motion. (R.R. at 387a.) On that same date, Mr. Klem was sentenced. During sentencing, when asked to give a statement, Mr. Klem stated, among other things, “I have not sold drugs since 2009,” and, “[o]nce I found out about the investigation I clear-cut and stopped everything that I’ve done.” (Id. at 399a.)

In addition, on February 13, 2015, following the Commonwealth’s filing of a forfeiture petition and a lis pendens on the property, which is owned by Mr. Klem and his mother Elaine Klem (Ms. Klem), the parties stipulated that the Commonwealth would accept $10,000 in satisfaction of its claim and withdraw the lis pendens.4

C. Objections to Licensee’s Renewal Application On September 16, 2015, the Bureau objected to the renewal of Licensee’s liquor license, informing Licensee that a preliminary review of its history of operation and/or citation record may indicate an abuse of the licensing privilege. Licensee was informed that a hearing would be held to determine whether Licensee had engaged in egregious activity warranting non-renewal of Licensee’s liquor license, citing two violations of the Liquor Code5 (first objection), Mr. Klem’s conviction for corrupt organizations (third objection), Mr. Klem’s conviction for PWID (fourth objection), and Mr. Klem’s ill repute based on his convictions (fifth and sixth objections).6 Sometime in October 2015, Licensee submitted an application for the replacement of Mr. Klem with Ms. Klem as its Board-approved manager (the application to replace Mr. Klem). (Board Opinion (Op.), Findings of Fact (FOF) ¶ 19, July 27, 2016; Hr’g Tr., Jan. 20, 2016, at 31, R.R. at 202a.)

4 Mr. Klem, Ms. Klem, Stephen Klem, and Walsh filed a petition for return of property, which they withdrew pursuant to the stipulation. 5 Act of April 12, 1951, P.L. 90, as amended, 47 P.S. §§1-101-10-1001. 6 The Bureau’s objections are reorganized numerically to reflect how they appeared in the Bureau’s amended objection letter of December 30, 2015, and before the Board.

On December 30, 2015, the Bureau amended its objection letter, adding that Licensee had abused its licensing privilege in violating the laws of the Commonwealth by, from June 2007 to the present, conducting drug activity on and originating from the licensed premises (second objection).7

D. Administrative Hearing On January 20, 2016, a hearing was held before a hearing examiner. At the outset, Licensee’s Counsel noted that Licensee had filed the application to replace Mr. Klem, and that if the Board would simply approve that application, many of the Board’s objections would “go away.” (Hr’g Tr., Jan. 20, 2016, at 5, R.R. at 176a.) Counsel objected “to having to be here today” and suggested that the Board approve the application to replace Mr. Klem and let Licensee operate its business. (Id.) The hearing examiner overruled Licensee’s objection. Walsh testified that she is Mr. Klem’s girlfriend, they have two children and live together. She became the sole member of Licensee and, thus, the owner of the license on May 16, 2011. Walsh explained that in 2011, Mr. Klem’s father had become sick and wanted to transfer things into Mr. Klem’s name, so, “for liability reasons,” because Walsh does not own anything, she became the sole member of Licensee. (Hr’g Tr., Jan. 20, 2016, at 24, R.R. at 195a.) Prior to that time, beginning around 2009, Walsh worked at the restaurant, “side by side” with Mr. Klem. (Hr’g Tr., Jan. 20, 2016, at 33, R.R. at 204a.) However, she denied knowing that Mr. Klem was engaged in distributing controlled substances. The restaurant, Walsh noted, had closed in December 2013 for lack of business. It was not until July 2014 that Walsh

7 The Board’s amended objection letter mistakenly referred to Licensee’s “amusement permit.” (R.R. at 11a.)

submitted the license to the Board for “safekeeping,” not realizing that she was obligated to do so until that time.8 (Hr’g Tr., Jan. 20, 2016, at 34-35, R.R. at 205a- 06a.) The restaurant reopened a day before the administrative hearing. It operates from 4:30 p.m. until 10:00 or 11:00 p.m. Since Mr. Klem’s release from prison on July 13, 2015, he had been helping at the restaurant with repairs, cleaning, and painting. Going forward, Walsh anticipated that Mr. Klem would act as her “consultant,” showing employees what to do, preparing the food, and making deliveries. (Hr’g Tr., Jan. 20, 2016, at 34, R.R. at 205a.) Walsh would buy all alcoholic beverages for Licensee. Mr. Klem would not receive compensation for his work, although, Walsh acknowledged, Mr. Klem would benefit indirectly since Walsh and Mr. Klem live together and she would be paid if the restaurant turned a profit. Walsh, who works as a sterile technician at Regional Hospital of Scranton, noted that she works Monday through Thursday and every other Sunday from 8:30 a.m. to 2:30 p.m., and does not arrive at the restaurant until 4:00 p.m. In Walsh’s absence, either Ms. Klem or Mr. Klem would supervise the restaurant’s employees. Walsh stated that around November 2015, Licensee filed the application to replace Mr. Klem. (Hr’g Tr., Jan. 20, 2016, at 44-45, R.R. at 215a-16a.) Walsh was confident that Mr. Klem was now not engaged in distributing drugs. In fact, Walsh denied that Mr. Klem was ever involved in distributing drugs.9 She stated that Mr. Klem only pleaded guilty because he had received a good plea deal, he had recently

8 Section 4-474.1(a) of the Liquor Code, Act of April 12, 1951, P.L 90, added by Section 21 of the Act of December 9, 2002, as amended, 47 P.S. § 4-474.1(a), provides that “[a] restaurant . . . whose licensed establishment is not in operation for fifteen consecutive days shall return its license for safekeeping with the board no later than at the expiration of the fifteen-day period.” 9 Walsh testified that Licensee suspected its prior chef of taking pills while working, and Licensee fired him in October 2012. (Hr’g Tr., Jan. 20, 2016, at 50, 53, R.R. at 221a, 224a.) The prior chef was allegedly involved in distributing cocaine from the property. (R.R. at 29a, 47a, 265a.)

learned that Walsh was pregnant with their second child, his father was sick, and he was afraid of receiving a long prison term if he went to trial and was convicted. Ms. Klem testified that she applied to be the Board-approved manager for Licensee. Following the submission of the application to replace Mr. Klem, a Board investigator came to Ms. Klem’s home and stated that the application would be approved. (Hr’g Tr., Jan. 20, 2016, at 67-68, R.R. at 238a-39a.) The Board investigator added, according to Ms. Klem, that in about 30 days Licensee would receive a response about getting the license out of safekeeping. Ms. Klem stated that she would work about 20 to 25 hours a week at the restaurant, from 4:30 p.m. until 10:00 p.m., noting that the restaurant is closed on Sunday and Monday. If Ms. Klem was not at the restaurant, she testified, then Walsh would be in charge. Ms. Klem noted that Mr. Klem had hired the restaurant’s employees, and, if the renewal application was granted, Mr. Klem would continue working at the restaurant, including hiring and directing employees. Regarding ownership of the property, Ms. Klem testified that there is a mortgage on the property naming her and her husband as mortgagees, but that she and Mr. Klem have owned the property since they first purchased it in 2005. When Licensee pays rent – about $1,000, although the amount varies depending on the restaurant’s performance – payment is made to Ms. Klem and her husband.10 Ms. Klem agreed that Mr. Klem would have access to the property, including doing odd jobs as testified to by Walsh, if the renewal application was granted. Ms. Klem denied knowing of any illegal activity occurring at the property between 2007 and 2012.

10 While the restaurant was closed, Mr. Klem and Ms. Klem did not accept rent from Licensee.

Mr. Klem testified that he never sold drugs out of the restaurant, that he did not have drugs delivered in pizza boxes from the restaurant, and that he never stored cocaine at the restaurant. Mr. Klem explained that when he accepted the plea offer, he let his family decide for him, noting that Walsh was pregnant, the plea offer was favorable, his father had cancer, he was facing a lengthy sentence if he was convicted after trial, and he was concerned that any jury picked would be biased because he lived in a small area and the case was publicized. Thus, Mr. Klem stated on cross examination, he lied when he pleaded guilty. (Hr’g Tr., Jan. 20, 2016, at 85, R.R. at 256a.) Regarding his duties at the restaurant, Mr. Klem stated that he is “basically consulting” so as to help the restaurant get “off the ground,” and that he works for another restaurant. (Hr’g Tr., Jan. 20, 2016, at 100-01, R.R. at 271a-72a.) Entered into evidence at the hearing, inter alia, was Licensee’s citation history, noting violations for using a loudspeaker that amplified sound beyond Licensee’s property line and for having eight bottles of liquor contaminated with fruit flies. (R.R. at 64a, 68a.) The hearing examiner issued a 58-page opinion recommending that Licensee’s renewal application be denied. The Board issued its opinion, dated July 27, 2016, agreeing with the hearing examiner. (Board Op., July 27, 2016, at 27.) The Board concluded that the evidence presented at the administrative hearing showed that the objections of the Bureau were warranted, and it would be contrary to the public interest to renew Licensee’s license. (Id. at 19.) Regarding objections two, three, and four, Mr. Klem admitted, by pleading guilty, “to engaging in a criminal enterprise involving the distribution of large quantities of cocaine using the licensed establishment for storage and delivery.” (Id. at 20.) These facts were “extremely troubling.” (Id.) Upon Mr. Klem’s release from prison, he “returned to

having a significant role at the licensed premises.” (Id. at 23.) As Walsh, Mr. Klem, and Ms. Klem all testified, “Mr. Klem would continue to be actively involved in Licensee’s operations.” (Id. at 24.) Despite the fact that Licensee’s Board-approved manager, as well as other short-term employees, were distributing and storing cocaine on the property, Licensee offered no evidence of corrective measures other than terminating its former chef for taking pills while working. (Id.) In fact, the Board noted, Mr. Klem, Ms. Klem, and Walsh all denied that Mr. Klem was involved with distributing drugs, and this was so even though Mr. Klem had pleaded guilty. The Board stated, “[t]he failure by Licensee to address the criminal activity which took place at the [property] by Mr. Klem is extremely troubling, and his continued involvement in Licensee’s operations is unacceptable.” (Id.) Therefore, the Board found that Mr. Klem’s crimes were a clear abuse of the licensing privilege, and, given Licensee’s failure to institute remedial measures, the Bureau’s second, third, and fourth objections clearly warranted non-renewal of Licensee’s license. (Id. at 24-25.) As for the first objection, the Board found that while the primary basis for its decision was Mr. Klem’s criminal convictions, Licensee’s citation history was an “additional factor weighing against renewal.” (Id. at 20.) Regarding the fifth and sixth objections, given Mr. Klem’s two felony convictions, he is no longer a reputable person, the Board concluded. (Id. at 26.) Further, given Licensee’s “substantial involvement of a person of ill repute, the Board simply has no confidence in Licensee’s fitness to be entrusted with the licensing privilege.” (Id.) Accordingly, the Board refused to renew Licensee’s license effective October 1, 2015. (Board Op., July 27, 2016, Conclusions of Law ¶ 9.)

E. De Novo Hearing Licensee then appealed to the trial court, which held a de novo hearing. Licensee again presented testimony from Walsh and Mr. Klem. At the conclusion of the hearing, Licensee’s Counsel argued that if the Board would act on Licensee’s application to replace Mr. Klem, then “we wouldn’t be here today.” (Hr’g Tr., Dec. 15, 2016, at 96, R.R. at 165a.) Counsel noted that four of the Board’s six objections had to do with Mr. Klem being the manager, but Mr. Klem wanted to be removed as the manager. Counsel also pointed out that Licensee was subject to citation if Mr. Klem, as the Board-approved manager, was not at the property, and, yet, at the same time, the Board did not want him at the property at all. Counsel asserted that the Board was “holding the application [to replace Mr. Klem] hostage.” (Hr’g Tr., Dec. 15, 2016, at 97, R.R. at 166a.) The Board’s Counsel responded that the Board first had to act on whether Licensee’s license should be renewed because, if the license is not renewed, then there would not be a need to approve a new manager. Licensee’s application to replace Mr. Klem was a “last minute pass,” but the substitution does not negate the fact that there was drug activity occurring at the property for several years “[a]nd that’s a problem . . . for the license[e] itself.” (Hr’g Tr., Dec. 15, 2016, at 97-98, R.R. at 166a-67a.) It was “not as simple [as] just approve that application [to replace Mr. Klem] and it goes away. No, that would not resolve it at all[,]” Board’s Counsel added. (Hr’g Tr., Dec. 15, 2016, at 99, R.R. at 168a.) Subsequently, the trial court issued an opinion and order sustaining the Board’s denial of Licensee’s renewal application. (Trial Ct. Op. at 8.) The trial court concluded that while Licensee’s citation history was minimal in severity and

not likely to support a denial of Licensee’s renewal application, it was Mr. Klem’s “criminal activity coupled with the lack of timely remedial measures, which is troubling, persuasive, and controlling.” (Id.) The trial court highlighted that, by Mr. Klem’s own admission, his “criminal activity was not only pervasive in size but also in time.” (Id.) Although, the trial court noted, Mr. Klem now asserted his innocence, he admitted his guilt during his guilty plea, in a written plea colloquy and when he forfeited $10,000. (Id. at 8-10.) Specifically, the trial court recounted, Mr. Klem admitted that for over five years, he headed an organization that imported large amounts of cocaine from Philadelphia to be distributed in Lackawanna County. (Id. at 8.) Mr. Klem also admitted that he used the property to store and distribute cocaine. (Id. at 8-9.) The trial court found “it difficult to believe that the Licensee did not know of this activity.” (Id. at 9.) At the very least, the trial court stated, Licensee should have known of the drug activity at the property and taken measures either to prevent or abate it. (Id.) However, even now, Licensee has not taken substantial remedial measures. (Id.) Mr. Klem, the trial court noted, is still acting as a manager of the restaurant, albeit in a limited role. (Id.) Licensee should have taken remedial measures at the time it knew or should have known of the drug activity at the property. (Id.) Summing up, the trial court stated that “the credible evidence in this case supports the Board’s Refusal based on [Section 470(a.1) of the Liquor Code,] 47 P.S. § 4-470(a.1)(1),[11] regarding Mr. Klem’s violation of the ‘laws of this Commonwealth.’” (Id.) Moreover, the trial court continued, given Mr. Klem’s criminal convictions, he is not a person of good reputation. (Id.) The trial court rejected Mr. Klem’s

11 Added by Section 17 of the Act of December 21, 1998, P.L. 1202.

contention that he was, in fact, innocent, given his guilty plea and his forfeiture of $10,000. (Id. at 10.)

II. Discussion A. Due Process/Bias On appeal,12 Licensee argues that the Bureau manipulated the administrative process, resulting in the denial of due process, when it objected to Licensee’s renewal application and then delayed in acting on Licensee’s application to replace Mr. Klem, which would have eliminated four of the Bureau’s six objections.13 In other words, Licensee argues that this “commingling of functions” by the Bureau, in not acting on the application to replace Mr. Klem while instituting the adjudicatory process against Licensee, potentially results in bias and suggests non-objectivity. (Licensee’s Brief (Br.) at 13.) Licensee adds that a de novo hearing before the trial court does not remove the taint because the trial court did not have the authority to approve or deny Licensee’s application to replace Mr. Klem. The Board responds that Licensee’s argument is waived. In any event, even if not waived, Licensee’s argument lacks merit. There is no commingling of functions, the Board contends. The Bureau acts as the prosecutor at license renewal hearings, while the Board acts as an adjudicator. Nor was there any bias. The Board highlights that the Bureau’s objections to Licensee’s renewal application were first

12 Our standard of review in a liquor license renewal case is limited to determining whether the trial court’s findings of fact are supported by substantial evidence, whether the trial court committed an error of law, or whether the trial court abused its discretion. In re License Renewal Application of the Quippan Club, 806 A.2d 491, 493 n.4 (Pa. Cmwlth. 2002). 13 Our review suggests that it is ultimately the Board that decides whether to approve a licensee’s application to appoint a new manager; however, Licensee continually refers to the Bureau. It appears that Licensee’s position is that the Bureau delayed in moving Licensee’s application to replace Mr. Klem along to the Board.

filed on September 16, 2015, and it was only thereafter, in either October or November of 2015, that Licensee filed the application to replace Mr. Klem. By then, Licensee’s license had expired, and, thus, “there was nothing for [the Bureau] to process.” (Board’s Br. at 12.) In any case, the Board cannot ignore Licensee’s prior violations of the Liquor Code simply because Licensee offered to change its manager. Moreover, Licensee was able to present evidence of the application to replace Mr. Klem at the administrative hearing, as well as at the de novo hearing before the trial court, which satisfied Licensee’s due process rights. In reply, Licensee argues that it did not waive this issue because Licensee raised the issue, in testimony and in argument, both at the administrative hearing and the de novo hearing. Initially, contrary to the Board’s contention, Licensee’s argument is not waived. Licensee raised this issue during both the administrative hearing and the de novo hearing. (Hr’g Tr., Jan. 20, 2016, at 5, R.R. at 176a; Hr’g Tr., Dec. 15, 2016, at 96-97, R.R. at 165a-66a.) Nevertheless, Licensee’s argument lacks merit. Although not cited by either party in their briefs, Section 5.23(e) of Title 40 of the Pennsylvania Administrative Code, 40 Pa. Code § 5.23(e), provides that the “[a]ppointment or approval, or both, by the Board of a manager will not exempt the licensee from the penalties provided by law and this title for violations committed in the licensed establishment or in the course of the operation of the licensed business.”14 Thus, just as the Board argued during the de novo hearing, even if the Board approved Licensee’s application to replace Mr. Klem, such did not necessarily warrant granting Licensee’s renewal application. Licensee was still subject to the non-renewal of its license based on Mr.

14 Although the Board did not cite to 40 Pa. Code § 5.23(e), it advanced this same argument during the de novo hearing.

Klem’s violation of the laws of this Commonwealth. Stated another way, contrary to Licensee’s contention, had the Board approved Licensee’s application to replace Mr. Klem, it would not have necessarily “remove[d] the objectionable situation supporting the refusal to renew the license.” (Licensee’s Br. at 10.) Therefore, contrary to Licensee’s contention, the fact that the Bureau refrained from acting on the application to replace Mr. Klem does not suggest bias, potentially reflect non- objectivity, or constitute a due process violation.15

B. Non-Renewal Licensee contends that it did take substantial corrective measures so that its license should have been renewed. Walsh testified that she was unaware of Mr. Klem’s illegal activities, and this is supported by the fact that the investigation of Mr. Klem did not involve any search warrants, wires, interviews of Mr. Klem, or his appearance before a grand jury. Notably, the hearing examiner found that Walsh was credible when she testified that she did not know of Mr. Klem’s drug activity,

15 Licensee recognizes that the alleged “impermissible mixing of roles” is “not the same type as in Lyness [v. State Bd. of Medicine, 605 A.2d 1204 (Pa. 1992),]” (Licensee’s Br. at 9), the case it primarily relies upon, but offers it as an analogy because the Bureau here both objected to the renewal of Licensee’s license and did not act on Licensee’s application to replace Mr. Klem. In Lyness, three members of the State Board of Medicine voted both to institute formal proceedings against the appellant and, following a hearing, to permanently revoke the appellant’s medical license. Id. at 1206. Our Supreme Court held that this “commingling [of] prosecutorial and adjudicatory functions[,]” “where the very entity or individuals involved in the decision to prosecute are ‘significantly involved’ in the adjudicatory phase of the proceedings,” constitutes a due process violation. Id. at 1207, 1210. What is permissible, however, “is that if more than one function is reposed in a single administrative entity, walls of division be constructed which eliminate the threat or appearance of bias.” Id. at 1209. As Licensee recognizes, Lyness is distinguishable, as there is no suggestion in the record that members of the Bureau, which acts as the prosecutor, 47 P.S. § 4-470(a.1), were also members of the Board, which acts as an adjudicator, Section 464 of the Liquor Code, 47 P.S. § 4-464. Moreover, as we have held, even if Licensee’s application to replace Mr. Klem had been granted, this would not have “remove[d] the objectionable situation.” (Licensee’s Br. at 10.)

although the Board did not adopt this finding. When Walsh did become aware of the charges against Mr. Klem and his plea, she attempted to remove him as manager before the restaurant resumed operation by submitting the application to replace Mr. Klem. This was a corrective measure to address the underlying issue, but the Bureau never acted on it. The Board responds that Licensee’s claims that it did not know about Mr. Klem’s illegal activities and that once Walsh learned about them she tried to remove him are contradicted by the record evidence. Walsh and Mr. Klem are in a relationship, live together, and have two children, the Board notes. Mr. Klem pleaded guilty on February 10, 2014, and was sentenced to state prison on May 28, 2014; yet Walsh did not act to have him removed as the Board-approved manager until about October 2015. Moreover, Walsh tried to hide this from the Board by indicating on Licensee’s renewal application that none of its employees or its manager had a felony or misdemeanor conviction. The fact is, the Board asserts, that Mr. Klem sold and trafficked narcotics out of the property while acting as Licensee’s manager. Walsh and Licensee were well aware of not only Mr. Klem’s felonious conduct but also that of Licensee’s employees, but Licensee took no action to remedy this malfeasance until after the Board objected to the renewal of Licensee’s license. Therefore, the Board submits, there is no basis for disturbing the trial court’s determination. Under the Liquor Code, “the renewal of a liquor license is not automatic.” Jim Jay Enters., Inc. v. Pa. Liquor Control Bd., 91 A.3d 274, 283 (Pa. Cmwlth. 2014). The Board, under Section 470(a.1) of the Liquor Code, may refuse to renew a liquor license for several reasons.16 When a party appeals a Board decision, the

16 Specifically, Section 470(a.1) of Liquor Code provides as follows:

trial court, pursuant to Section 464 of the Liquor Code, 47 P.S. § 4-464, makes its own findings of fact and conclusions of law.17 The trial court is required to “receive

(a.1) The Director of the Bureau of Licensing may object to and the board may refuse a properly filed license application:

(1) if the licensee, its shareholders, directors, officers, association members, servants, agents or employes have violated any of the laws of this Commonwealth or any of the regulations of the board;

(2) if the licensee, its shareholders, directors, officers, association members, servants, agents or employes have one or more adjudicated citations under this or any other license issued by the board or were involved in a license whose renewal was objected to by the Bureau of Licensing under this section;

(3) if the licensed premises no longer meets the requirements of this act or the board’s regulations; or

(4) due to the manner in which this or another licensed premises was operated while the licensee, its shareholders, directors, officers, association members, servants, agents or employes were involved with that license. When considering the manner in which this or another licensed premises was being operated, the board may consider activity that occurred on or about the licensed premises or in areas under the licensee’s control if the activity occurred when the premises was open for operation and if there was a relationship between the activity outside the premises and the manner in which the licensed premises was operated. The board may take into consideration whether any substantial steps were taken to address the activity occurring on or about the premises.

47 P.S. § 4-470(a.1). 17 Section 464 of the Liquor Code provides, in relevant part, as follows:

The court shall hear the application de novo on questions of fact, administrative discretion and such other matters as are involved, at such time as it shall fix, of which notice shall be given to the board. The court shall either sustain or over-rule the action of the board and either order or deny the issuance of a new license or the renewal or transfer of the license or the renewal of an amusement permit to the applicant.

the record of the proceedings before the Board, if it is offered, and is permitted to take new evidence. Even if the trial court does not make findings of fact that are materially different from those found by the [Board], it may reach a different conclusion.” Jim Jay Enters., Inc., 91 A.3d at 283. In a de novo hearing, the trial court, as the trier of fact, is permitted to sustain, alter, change, modify, or amend the Board’s decision. Id. at 284. “When there are violations of the law unrelated to the [Liquor] Code, the [Board] may refuse to renew a license where a licensee (1) knows or should have known of ongoing criminal activities; and (2) . . . failed to take substantial affirmative steps to prevent such activities.” Id. (internal quotation marks omitted). Both parts of this test must be satisfied in order for it to form the basis for refusing to renew a liquor license. Id. “In determining whether to renew a license on appeal, the trial court is permitted to consider substantial steps taken by a licensee to remediate the violations.” Id. However, “[r]emedial measures must be taken at a time when the licensed establishment knew or should have known that illicit activity was occurring on the premises.” Id. Regarding the first part of the test, it does not appear that Licensee challenges the trial court’s findings that Licensee, via Walsh, knew or, at least should have known, of Mr. Klem’s drug activity at the property. To the extent Licensee’s brief can be construed as, in fact, raising such a challenge, substantial evidence18 supports the trial court’s findings. There is substantial evidence in the record, particularly Mr. Klem’s own admission during the plea colloquy, that he imported large amounts

47 P.S. § 4-464. 18 “Substantial evidence is relevant evidence that a reasonable mind might consider adequate to support a conclusion.” First Ward Republican Club of Phila. v. Pa. Liquor Control Bd., 11 A.3d 38, 43 n.9 (Pa. Cmwlth. 2010).

of cocaine from Philadelphia and then used the property to store and distribute that cocaine. Walsh knew, or at least should have known, of Mr. Klem’s drug activity at the property given the extensive drug activity occurring at the property over a 5-year period, Walsh worked at the restaurant “side by side” with Mr. Klem beginning around 2009, and then in 2011 became Licensee’s sole member, and Walsh is Mr. Klem’s long-time girlfriend, they live together, and have two children together.19 (Hr’g Tr., Jan. 20, 2016, at 33, R.R. at 204a); see Pa. Liquor Control Bd. v. Can, Inc., 664 A.2d 695, 699 (Pa. Cmwlth. 1995) (concluding that the record amply supported Board’s determination that corporate owner of bar should have known of pervasive drug activity occurring at the bar because he was often present there), petition for allowance of appeal granted in part, 671 A.2d 1135 (Pa. 1996), appeal withdrawn. As for the second part of the test, once again substantial evidence supports the trial court’s determination that Licensee did not take timely substantial remedial measures. Notably, as the Board highlights, even on Licensee’s renewal application, it made no mention that its Board-approved manager had two felony convictions. It was not until the Bureau, in response to Licensee’s renewal application, objected and pointed out that Mr. Klem had two felony convictions that Licensee filed the application to replace Mr. Klem. This was 20 months after Mr. Klem first pleaded guilty. Even now, Mr. Klem is still involved in the management of the restaurant and will have some role with the restaurant going forward.

19 Licensee contends that the hearing examiner found that Walsh was credible when she testified that she did not know of Mr. Klem’s drug activity. Even if the hearing examiner’s proposed finding of fact No. 30 could be read in this way, as opposed to merely recounting her testimony, the Board did not adopt this finding of fact, which even Licensee concedes. 47 P.S. § 4-464 (stating that the hearing examiner shall make a “recommendation”).

Accordingly, we see no basis for disturbing the trial court’s determination denying Licensee’s renewal application, and, therefore, we affirm.20

_____________________________________ RENÉE COHN JUBELIRER, Judge

20 In light of our determination, we need not address the other bases for denying Licensee’s renewal application.

IN THE COMMONWEALTH COURT OF PENNSYLVANIA

LaRussa’s Italian Café, LLC, : Appellant : : v. : No. 778 C.D. 2017 : Commonwealth of Pennsylvania, : Pennsylvania Liquor Control Board :

ORDER

NOW, May 8, 2018, the Order of the Court of Common Pleas of Lackawanna County, dated May 3, 2017, is AFFIRMED.

_____________________________________ RENÉE COHN JUBELIRER, Judge