          TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN



                                          NO. 03-01-00642-CV




                         Texas Alcoholic Beverage Commission, Appellant


                                                      v.


                   Carlos Sanchez, d/b/a Tierra Caliente Bar and Grill, Appellee




         FROM THE DISTRICT COURT OF TRAVIS COUNTY, 98TH JUDICIAL DISTRICT
             NO. GN103121, HONORABLE DARLENE BYRNE, JUDGE PRESIDING




                 This is an alcoholic beverages permit and license case. The Travis County District Court

ordered the grant of a permit and license to sell alcoholic beverages at the >Tierra Caliente Bar and Grill= to

Carlos Sanchez (ASanchez@), overruling the Travis County Judge=s administrative ruling refusing the same

application. The Texas Alcoholic Beverage Commission (Athe Commission@) appeals, contending that the

county judge=s order was supported by substantial evidence and should have been affirmed. Because we

find that there was substantial evidence to support the county judge=s determination, we will reverse.
                                             BACKGROUND

                 In 2001, Sanchez filed an original application in the constitutional county court for a wine

and beer retailer=s permit and a retail dealer=s on-premise late hours license for the ATierra Caliente Bar and

Grill,@ under the provisions of the Alcoholic Beverage Code (Athe Code@).1 See Tex. Alco. Bev. Code

Ann. '' 61.31(a), 25.01, 70.01 (West 1995). The Tierra Caliente shares the same address and grounds

as a motel, the Chariot Inn. Because the property, particularly the motel, had a history of criminal activity,

the Commission protested the application. Together with the Austin Police Department and the Travis

County Sheriff=s Department, the Commission filed a notice of protest and opposed the application at a

hearing before the county judge.

                 The Commission contested the permit and license on the ground that serving alcohol at that

particular location would threaten the general welfare, peace, morals, and safety of the area. See Tex. Alco.

Bev. Code Ann. ' 61.42(a)(3). To support its claim, the Commission submitted an affidavit by the Austin

chief of police and testimony of a Commission agent and several law enforcement officials to show that there




        1
          The Code requires an applicant to file an original application for a wine and beer retailer=s permit
and a retail dealer=s on-premise late hours license in the constitutional county court in the county where the
business will be located. Pursuant to sections 61.31(b) and 61.32, the county judge conducts a hearing on
the application to determine whether to grant or refuse the application. Tex. Alco. Bev. Code Ann. ''
61.31-.32 (West 1995).




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was an unacceptable amount of criminal activity at that location. The county judge denied the permit and

license under the Code, citing section 61.42(a)(3).

                 Sanchez appealed to the district court. See id. ' 11.67(a),(b); Tex. Gov=t Code Ann. '

2001.174 (West 2000). On appeal, Sanchez argued that one of the Commission=s administrative rules,

Rule 35.31 (Athe Rule@), provides the exclusive standard to establish criminal activity at a specific location as

grounds for denying a permit or license under section 61.42(a)(3). See 16 Tex. Admin. Code '

35.31(b)(3) (West 2001). Sanchez also contended that the Commission presented no substantial evidence

to support its allegation of criminal activity. To suspend a license or deny a license renewal, the Rule

requires evidence both that the permittee: (1) had either actual or constructive knowledge of criminal

activities on the premises; and (2) failed to take reasonable steps to prevent them. Id. Relying specifically

on the Rule, the district court reversed the county judge=s order and granted Sanchez=s application.

                 The Commission contends on appeal to this Court that, while the Rule may control renewal

applications based on the manner in which permit and license holders behave, it does not apply to original

applications in which the permit or license is contested based upon location; therefore, under the Code the

county judge=s determination was based on substantial evidence. In reply, Sanchez contends that: (1)

because the Rule governs the application proceeding the county judge had no basis on which to deny the

application; and (2) even if the Rule does not apply, the Commission failed to provide substantial evidence

that there was criminal activity on the premises. We agree with the Commission=s interpretation of its rule

and will address the relationship between the Rule and section 61.42(a)(3) first.




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                                             DISCUSSION

Scope of the County Judge=s Authority

                 The Code provides as follows:


                         Mandatory Grounds for Refusal: Distributor or Retailer

        (a) The county judge shall refuse to approve an application for a license as a distributor or
            retailer if he has reasonable grounds to believe and finds that:
              ....

              (3) the place or manner in which the applicant for a retail dealer=s license may
                  conduct his business warrants a refusal of a license based on the general welfare,
                  health, peace, morals, safety, and sense of decency of the people[.]


Tex. Alco. Bev. Code Ann. ' 61.42(a)(3).2

                 To interpret section 61.42(a)(3), the Commission has, in the Rule, promulgated a non-

exhaustive list of offenses against the general welfare that fall within the scope of the Code. A current

licensee or permittee violates the Code when he knows or should have known Aof the offense or the

likelihood of its occurrence and fail[s] to take reasonable steps to prevent the offense.@ 16 Tex. Admin.

Code ' 35.31(b)(3). Sanchez argues that the Rule requires the Commission to provide evidence both that:




          2
                 Code provisions governing applications for retail dealer=s on-premises licenses also govern
applications for wine and beer retailer=s permits. Tex. Alco. Bev. Code Ann. ' 25.04(a) (West 1995). For
convenience, we will simply refer generally to a license.


                                                     4
(1) an offense listed in subsection (c) was committed; and (2) the applicant=s conduct linked him to that

offense.3




       3
          Subsection (c) provides a non-exhaustive list of fifteen different offenses described in either the
Texas Penal Code or the Texas Health and Safety Code which, if committed on the premises of a licensed
business, constitute grounds for license suspension or non-renewal. 16 Tex. Admin. Code ' 35.31(c)
(West 2001).




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                 According to Sanchez, because the Commission did not prove the existence of any criminal

activity or Sanchez=s connection to any such activity, the district judge properly ordered that the application

be granted. Sanchez argues that the Rule=s evidentiary requirements must apply because it

provides the exclusive means for refusing an application based on criminal activity under section

61.42(a)(3). In the Rule, subsection (c) lists the Aoffenses that are the subject of this Rule,@ and

subsection (d) explicitly states that the Rule is not the exclusive means by which section

61.42(a)(3) may be violated. 4 See Tex. Admin. Code ' 35.31(c)-(d) (West 2001). By its terms,

then, the Rule does not create the exclusive means by which criminal conduct will warrant an

application=s refusal under the Code. It merely creates a list of offenses to which the Rule must

apply.

                 Although the Code allows the county judge to deny a license based on place or

manner, the Rule speaks to licensing based on manner. Because the Rule does not address an

evidentiary standard for denying an application when the location alone is at issue, it does not

define the entire scope of the authority the Code grants to the county judge. Therefore, the Rule

cannot be the exclusive means for denying an application under section 61.42(a)(3) based on

indications of criminal activity. We find that the Rule does not limit the county judge=s discretion

to deny a liquor license based on reports of criminal activity at a particular location.


         4
            Subsection (d) of the Rule states that, AThis rule does not constitute the exclusive means by which
. . . ' 61.42(a)(3) . . . may be violated.@ 16 Tex. Admin. Code ' 35.31(d) (West 2001).




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                 The Commission further argues that Sanchez=s application does not fall within the Rule=s

subject matter because he is an original applicant and the Rule only applies to current licensees or

permittees and, as construed by the Commission, to renewal applicants. The Code defines an

applicant as a person who submits or files either an original or renewal application. Tex. Alco.

Bev. Code Ann. ' 1.04(9) (West 1995). The Rule applies to any Alicensee or permittee.@ 16 Tex.

Admin. Code 35.31(b). Statutory provisions and rules bearing on the same matters must be given a

consistent and harmonious meaning. Texas Citrus Exch. v. Sharp, 955 S.W.2d 164,169 (Tex.

App.CAustin 1997, no pet.). Rules adopted by an agency must be consistent with the statutory

authority of the agency, and they may not impose additional burdens, conditions, or restrictions in

excess of the statutory provisions. Railroad Comm'n v. ARCO Oil & Gas Co., 876 S.W.2d 473,

481-82 (Tex. App.CAustin 1994, writ denied).

                 The Code defines an applicant as a person who submits or files either an original or renewal

application. Tex. Alco. Bev. Code Ann. ' 1.04(9). Because permits and licenses must be renewed

periodically by application, a person can simultaneously be a permittee, licensee, and renewal applicant.

See Tex. Alco. Bev. Code Ann. '' 11.32 (permit renewal application), 61.48 (license renewal application)

(West 1995). When this occurs, the person falls within the subject-matter scope of both the Rule and the

Code. The Rule, however, only applies to Alicensees and permittees.@ 16 Tex. Admin. Code 35.31(b).

Therefore, because Sanchez is an original applicant, the Rule does not control his application.

                 Sanchez contends that, because the Tierra Caliente had been open for several weeks prior

to the application proceedings, he had a criminal activity-free operating history on the premises sufficient to

                                                      7
invoke the Rule=s standards. His case, however, presents an original application contested solely on section

61.42(a)(3)=s requirement that the location of a business be appropriate for an alcoholic beverages permit

or license. The scope of the Code is greater than that of the Rule. While section 61.42(a)(3) envisages a

review based on place or manner, the Rule only speaks to the manner in which an existing permittee or

licensee conducts his business. Before the Commission denies the permittee or licensee a renewal

application, the Rule requires evidence of the manner in which the applicant, acting as a permittee or

licensee, has conducted his business. By contrast, an original applicant has no such history. In cases like

Sanchez=s, where the protest is based on the location, the only evidence that exists is information relating to

the location=s history. We hold, therefore, that under the Code, a county judge can deny a license based

solely on information about the location for which the license is sought. The Commission=s issue is

sustained. We will now examine the county judge=s order to determine whether it was supported by

substantial evidence.


Admissibility of Police Reports

                 Before reviewing the record for substantial evidence, we must address Sanchez=s

argument that none of the proffered police reports can be used to prove the existence of criminal

activity at a particular location. Sanchez challenges the admissibility of the police reports relied

on by the county judge in denying the application. The Commission introduced the reports

through Austin Police Detective Steve Oswalt. Detective Oswalt testified that Chief of Police

Stan Knee had signed an affidavit protesting Sanchez=s application because Knee believed that



                                                      8
there was Aan excessive amount of criminal activity@ at the Tierra Caliente=s location. Chief

Knee=s affidavit and Detective Oswalt=s testimony relied on incident reports which detailed the

criminal activity occurring at the Chariot Inn during the fifteen months leading up to Sanchez=s

application. These incident reports included 258 police calls, which generated 153 police reports

for the Chariot Inn location. The Commission independently introduced these reports into

evidence. Sanchez objected on hearsay grounds. The county judge provisionally admitted the

reports for a limited purpose, but asked the parties to submit briefs concerning their admissibility

generally. In his decision and findings, the county judge relied heavily on the police reports as

evidence of criminal activity.

               Sanchez argues that the county judge admitted the reports only for the limited

purposes of showing that someone had registered a complaint and that the calls generated

reports. Therefore, Sanchez contends, they do not prove the existence of criminal activity. The

Commission replies that the police reports were appropriately admitted under the Apublic

records@ exception to the hearsay rule. See Tex. R. Evid. 803(8). Because they fall within an

exception to the hearsay exclusion, the Commission argues that the county judge appropriately

relied on the reports for evidence of criminal activity occurring at the Chariot Inn location.

               A judge sitting without a jury can provisionally admit evidence during trial, and it is

then presumed on appeal that the judge disregarded any incompetent evide nce in reaching a

judgment. Helms v. Texas Alcoholic Beverage Comm=n, 700 S.W.2d 607, 615 (Tex. App.CCorpus

Christi 1985, no writ). Hearsay, which is an out-of-court statement offered for the truth of the

                                                 9
matter asserted, is not admissible into evidence unless otherwise permitted by the Rules of

Evidence or some other statute. Tex. R. Evid. 802. Rule 803(8) provides that records or reports

of a public agency which set forth Amatters observed pursuant to duty imposed by law as to which

matters there was a duty to report,@ are an exception to the hearsay rule. Tex. R. Evid.

803(8)(B). By authorizing admission of public records as a hearsay exception, the rule makes

such records admissible for the truth of the matter asserted. Overall v. Southwestern Bell Yellow

Pages, Inc., 869 S.W.2d 629, 633 (Tex. App.CHouston [14th Dist.] 1994, no writ). The police

reports at issue include eye-witness accounts of officers as they responded to calls and

investigated alleged criminal activity. Independently of proving criminal activity, these reports

indicate that the Commission and the law enforcement agencies perceived an overall pattern of

criminal activity on the grounds of the Chariot Inn. Because these police reports fall within the

scope of the public records hearsay exception, the county judge appropriately relied upon them as

evidence of criminal activity at the Chariot Inn location.




                                               10
Substantial Evidence Review

                We now examine whether there was substantial evidence to support the county

judge=s refusal of Sanchez=s application. Because we have held that the Rule does not apply

exclusively in this instance, we look to the broad standard prescribed by section 61.42(a)(3). In

reviewing an application for a beer and wine license or permit, the county judge acts in an administrative

rather than a judicial capacity. Lindsay v. Sterling, 590 S.W.2d 560, 562 (Tex. 1985). The Code does

not define how the place or manner in which a business will be operated jeopardizes the general

welfare, health, peace, morals, or sense of decency of the people. Brantley v. Texas Alcoholic

Beverage Comm=n, 1 S.W.3d 343, 347 (Tex. App.CTexarkana 1999, no pet.). The Legislature has

given the county judge great discretion in this determination. Four Stars Food Mart, Inc. v. Texas

Alcoholic Beverage Comm=n, 923 S.W.2d 266, 272 (Tex. App.CFort Worth 1996, no writ).

                In this context, county court proceedings are subject to the procedural provisions of the

Administrative Procedure Act. Brantley, 1 S.W.3d at 343. We review administrative decisions under the

substantial evidence test. Tex. Alco. Bev. Code Ann. '' 11.67(b), 61.34. The appropriate test is whether

the evidence as a whole is such that reasonable minds could have reached the same conclusion that the

county court reached to justify its decision. Texas Alcoholic Beverage Comm=n v. Sierra, 784 S.W.2d

359, 360 (Tex. 1990). Substantial evidence need only be more than a scintilla; in fact, the evidence may

greatly preponderate against the decision and still amount to substantial evidence in favor of the decision.

Texas Health Facilities Comm=n v. Charter Medical-Dallas, Inc., 665 S.W.2d 446, 452 (Tex. 1984).




                                                    11
We do not consider whether the county judge=s ruling was correct, but only whether some reasonable basis

exists in the record for the ruling. Sierra, 784 S.W.2d at 361.

                We have reviewed the record of the county court. On the basis of this record,

which includes the affidavits and police reports suggesting pervasive criminal activity at the

location, we conclude it was reasonable for the county judge to refuse the application under

section 61.42(a)(3). Because the county judge was exercising his administrative discretion under

the Code and there was substantial evidence to support his decision, the district court erred in

overruling his determination. The Commission=s issue is affirmed.


                                           CONCLUSION

                Having reviewed the record and considered the arguments of both parties, and because

there was substantial evidence to support the county judge=s decision, we conclude that the district court

erred in relying on the Commission=s Rule to overrule the county judge=s order. Therefore, the

order of the district court is reversed and we render judgment that the order of the county judge

denying Sanchez=s application for a wine and beer retailer=s permit and retail dealer=s on-premise

late hour license is reinstated.




                                                Mack Kidd, Justice


                                                   12
Before Justices Kidd, B. A. Smith and Yeakel

Reversed and Rendered

Filed: October 17, 2002

Publish




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