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What You Donít Know Might Hurt You: Court of Appeals Imposes Strict Liability on Liquor Licensee for Illegal Activity on Licenseeís Premises

Board of Liquor License Commírs for Baltimore City v. Steven Kougl, et al.
No. 43 (Md. Ct. App. February 17, 2017)

by Matthew S. Sarna, Law Clerk
Semmes, Bowen & Semmes (www.semmes.com)

Available at: http://www.mdcourts.gov/opinions/coa/2017/43a16.pdf

In Bd. Of Liquor License Comm’rs for Baltimore City v. Steven Kougl, et al., No. 43 (Md. Ct. App. February 17, 2017), the Maryland Court of Appeals held that strict liability applies to liquor licensees for illegal activity on the licensee’s premises.

In April 2013, the Baltimore City Police Department conducted an undercover operation at Club Harem in Downtown Baltimore City (the “Club”). During the operation, one of the Club’s employees approached a detective, exposed her breasts, and solicited prostitution. While the State nolle prossed these charges eight months after the incident, in July 2014, the Board of Liquor License Commissioners (the “Liquor Board”) charged Steven Kougl, the owner of the Club, with three violations of the Liquor Board Rules. Specifically, the Liquor Board charged Kougl for violating Rule 4.17(a), prohibiting the solicitation of prostitution on a licensee’s premises; Rule 4.17(b), prohibiting indecent exposure on a licensee’s premises; and Rule 4.18, prohibiting the violation of federal, state, and local laws on a licensee’s premises.

After determining that Kougl violated all three Rules, the Liquor Board imposed a 30-day suspension of Kougl’s liquor license. The Circuit Court for Baltimore City affirmed the decision of the Liquor Board. Kougl next appealed to the Court of Special Appeals, claiming that because he had no knowledge of the prohibited activity on his premises, he had not violated Rules 4.17(a), 4.17(b), or 4.18. The Court of Special Appeals reversed the Circuit Court and found that the lack of evidence to Kougl’s actual or constructive knowledge of the activities shielded him from liability.

Upon certiorari to the Court of Appeals, the Court examined whether the Liquor Board correctly interpreted its Rules to impose strict liability where the pertinent portions of the Rules contain no language limiting a licensee’s responsibility to situations where the licensee has actual or constructive knowledge of the offending conduct.

The Court began its analysis by highlighting that a “degree of deference should often be accorded the position of the administrative agency.” Finucan v. Md. Bd. of Physician Quality Assurance, 380 Md. 577, 590 (2004). Leading from that position, the Court took a look at the plain language of the regulation to guide its interpretation. The Court, quoting Christopher v. Montgomery Cty. Dep’t of Health & Human Servs., 381 Md. 188, 209 (2004), stated, “Our approach is a commonsensical one designed to effectuate the purpose, aim, or policy of the enacting body.”

Under the plain meaning of the regulation, the Court pointed out several specifically chosen words: “permit,” “suffer,” and “allow.” Utilizing Black’s Law Dictionary, the Court determined that the Liquor Board was interpreting this language using a reasonable definition of “permit” to explain that a licensee can unknowingly “permit” conduct prohibited by Rules 4.17(a) and (b). The Court also found that the definition of “suffer” also complied with the Liquor Board’s assertion that there is no knowledge requirement in these specific Rules. Further, the Court pointed to cases from the Supreme Courts of New Jersey and Wisconsin, in which the courts have interpreted “permit” and “suffer” to impose strict liability. See Div. of Alcoholic Beverage Control v. Maynards Inc., 927 A.2d 525, 538 (N.J. 2007); City of West Allis v. Megna, 133 N.W.2d 252, 253 (Wis. 1965).

The same methodology and reasoning went into defining the word “allow” in Rule 4.18. Because an accepted definition of “allow” does not require knowledge, the Court granted deference to the Liquor Board’s interpretation and held that Rule 4.18 also imposes strict liability.

Finally, the Court nullified Kougl’s argument that, because 4.17(b) uses the word, “knowingly” in its second clause, a knowledge requirement should envelop the entirety of the Rule. However, the Court pointed out that the inclusion of this word in (b)’s second clause, and its omission throughout the rest of the relevant Rules lead to the conclusion that the Liquor Board specifically intended to negate any actual or constructive knowledge requirement for violation of the Rules. The Court explained that requiring knowledge would render superfluous the word “knowingly” in Rule 4.17(b), and interpretation canons ensure that “no word, clause, sentence, or phrase is rendered surplusage, superfluous, meaningless, or nugatory.” In re Kaela C., 394 Md. 432, 467 (2006).

Accordingly, the Court of Appeals reversed the Court of Special Appeals and held that Rules 4.17(a), 4.17(b), and 4.18 impose strict liability on licensees for offending conduct that occurs on their premises.