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New Midwest Rentals LLC v. Iowa Department of Commerce

Court of Appeals of Iowa

February 7, 2018


         Appeal from the Iowa District Court for Polk County, David N. May, Judge.

         A convenience store sought judicial review after the alcoholic beverages division denied its request to renew its retail beer permit.

          Fred L. Dorr of Wasker, Dorr, Wimmer & Marcouiller, P.C., West Des Moines, for appellant.

          Thomas J. Miller, Attorney General, and John R. Lundquist, Assistant Attorney General, for appellee.

          Vogel, P.J., and Vaitheswaran and Potterfield, JJ.

          VOGEL, Presiding Judge.

         New Midwest Rentals, LLC, d/b/a Des Moines Valero #204 (Valero), sought judicial review of the decision of the Iowa Department of Commerce Alcoholic Beverages Division (the ABD), which denied Valero's application to renew its retail beer permit. After the district court affirmed the ABD's action, Valero appeals, asserting (1) the district court erred in concluding the language of Iowa Code section 123.45 (2013) is unambiguous; (2) the ABD's interpretation of section 123.45 is irrational, illogical, and wholly unjustifiable; and (3) the ABD's denial of Valero's retail beer permit violates its equal protection and due process rights under both the Federal and Iowa Constitutions. While we agree the district court was wrong to declare the language of section 123.45 unambiguous, we do not find the ABD's interpretation of the statute irrational, illogical, or wholly unjustifiable. We likewise find no constitutional violation in the ABD's denial of Valero's retail beer permit. The agency's decision is affirmed.

         I. Background Facts and Proceedings.

         Gerald Forsythe wholly owns the company New Midwest Rentals, and in 2010 the company purchased five convenience stores, which, after renovations were made, operate under the name Valero. The Valero store at issue in this case is number 204, located on Easton Boulevard in Des Moines. Store 204 was initially issued a class "C" beer permit on November 11, 2011. On April 25, 2012, the ABD received a request for a direct shipper wine license[1] for a company called Continental Vineyards, LLC, d/b/a Broken Earth Winery. Forsythe signed the Broken Earth Winery application.[2] When the ABD cross-referenced Forsythe's name, they discovered he also owned the Valero stores. Forsythe was informed by the ABD that he may not hold both an ownership interest in a California winery and a business holding an Iowa retail beer permit. Broken Earth Winery subsequently withdrew its direct shipper application.

         Believing that Forsythe was actively working towards divesting his ownership interest of either the winery or the Valero stores, the ABD renewed the beer permit for store 204 in 2012. In October 2013, store 204 filed its second renewal application, with Forsythe still listed as owner, and the ABD confirmed he still retained an ownership interest in Broken Earth Winery. The ABD subsequently denied the renewal application for store 204 because of Forsythe's ownership interest in the Broken Earth Winery.

         Valero appealed the decision of the ABD staff, and this matter was heard by an administrative law judge (ALJ) in a contested case proceeding in February 2014. The ALJ concluded the renewal permit was properly denied on the basis of Iowa Code section 123.45, which the ALJ determined unambiguously stated individuals engaged in the business of manufacturing "alcoholic beverages, wine, or beer . . . shall not . . . directly or indirectly be interested in the ownership, conduct, or operation of the business of another licensee or permittee authorized under this chapter to sell at retail, nor hold a retail liquor control license or retail wine or beer permit." See Iowa Code § 123.45.

          Valero appealed the ALJ's decision, which was upheld by the ABD's administrator on October 3, 2014. The administrator concluded, "[T]he legislature forbid a liquor, wine or beer manufacturer or wholesaler from holding any retail license or permit, regardless of what type of alcoholic beverage the retailer sells." The administrator acknowledged "the probability of the California winery exerting an undue influence over the . . . Iowa retail beer permit[] at issue is questionable, " but he noted "the legislature intended, through clearly enacted legislative language in Iowa Code [section] 123.45, to apply to such circumstances." The administrator also rejected Valero's claim that the ALJ should have used rules of statutory construction when interpreting section 123.45 because such rules are only employed when a statute is ambiguous, which the administrator determined section 123.45 was not.

         Valero sought judicial review of the administrator's decision with the district court pursuant to Iowa Code section 17A.19. After a hearing, the district court issued a decision on March 12, 2015, concluding the language used by the legislature in section 123.45 was ambiguous:

A reasonable person could interpret the meaning of this statute to prohibit any alcoholic beverage manufacturer to hold any type of alcoholic beverage retail permit, as the ABD held. . . . [Or] a reasonable person could also interpret the statute to only prohibit the dual ownership among the same type of alcoholic beverages (e.g. a wine manufacturer and wine retail permittee). At the very least, a reasonable person could be uncertain as to the meaning of the statute.

         Because of the ambiguity in the statute, the 2015 judicial review decision remanded the matter so the ABD could apply the statutory rules of construction to determine which meaning the legislature intended.

         Neither party appealed that decision, and the case proceeded back to the ABD for the application of the rules of statutory construction to section 123.45. On March 25, 2016, the ABD administrator issued its decision on remand, finding "[t]he legislature has directed the [ABD] to maintain strict separation between the retail, wholesale, and manufacturing of the industry through its enactment of Iowa Code chapter 123. The [ABD] concludes a rational and logical interpretation of Iowa Code [section] 123.45 (2015)[3] prohibits [Valero] from holding Iowa retail beer permits."

         Valero once again sought judicial review of the agency's decision. In November 2016, a second district court judge affirmed the ABD decision, concluded section 123.45 was in fact unambiguous, and prohibited a wine manufacturer from holding a retail beer permit. Valero appeals from the 2016 judicial review decision.

         II. Scope and Standard of Review.

         Judicial review of an agency's actions is governed by Iowa Code chapter 17A. Neal v. Annette Holdings, Inc., 814 N.W.2d 512, 518 (Iowa 2012). The district court reviews the agency's actions in an appellate capacity. JBS Swift & Co. v. Hedberg, 873 N.W.2d 276, 279 (Iowa 2015). "The district court may grant relief if the agency action has prejudiced the substantial rights of the petitioner, and the agency action meets one of the enumerated criteria contained in section 17A.19(10)(a) through (n)." Burton v. Hilltop Care Ctr., 813 N.W.2d 250, 256 (Iowa 2012) (citations omitted). We then apply the same standards of section 17A.19(10) to determine whether we reach the same result as the district court. Id. at 255-56. "If we ...

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