             IN THE COURT OF APPEALS OF TENNESSEE
                         AT NASHVILLE
                                                      FILED
                                                        July 16, 1999
BRENT DIXON, d/b/a          )
CHAPARRAL’S STEAK HOUSE,    )
                                                     Cecil Crowson, Jr.
                            )
                                                    Appellate Court Clerk
     Plaintiff/Appellee,    )
                            )             Appeal No.
                            )             01-A-01-9809-CH-00484
VS.                         )
                            )             Lawrence Chancery
                            )             No. 9013-98
LAWRENCEBURG BEER BOARD and )
THE CITY OF LAWRENCEBURG,   )
                            )
     Defendant/Appellant.   )


    APPEALED FROM THE CHANCERY COURT OF LAWRENCE COUNTY
                AT LAWRENCEBURG, TENNESSEE

                  THE HONORABLE JIM T. HAMILTON, JUDGE




JOE W. HENRY, JR.
DEBORAH R. SOWELL
HENRY, HENRY & SPEER, P.C.
119 South First Street
P. O. Box 458
Pulaski, Tennessee 38478
       Attorneys for Plaintiff/Appellee

ALAN C. BETZ
22 Public Square
P. O. Box 488
Lawrenceburg, Tennessee 38464
       Attorney for Defendant/Appellant




                           AFFIRMED AND REMANDED




                                               BEN H. CANTRELL,
                                               PRESIDING JUDGE, M.S.


CONCUR:
KOCH, J.
COTTRELL, J.
                                 OPINION


              The Chancery Court of Lawrence County held that Lawrenceburg’s beer

ordinance was arbitrary because it limited the holders of licenses to sell beer to those

named in the ordinance. We affirm.



                                           I.



              Lawrenceburg’s City Commission has consistently taken a hard line on

the proliferation of beer outlets within the city.     Between 1965 and 1994 the

Lawrenceburg beer ordinance limited beer sales inside the city to six private clubs

named in the ordinance. In 1994, when the number of beer permits had decreased

to five, the city annexed an area in which there were five holders of beer permits

issued by Lawrence County. The City Commission amended the beer ordinance to

allow the five permit holders in the annexed area and the five existing establishments

to continue to sell beer. The amended ordinance specifically named the current

permit holders and specifically prohibited the issuance of any other beer permits.



              By 1997 one of the original private clubs in the city had moved to the

county, and the city had annexed three additional areas to the East, Northwest, and

South. These areas contained three establishments selling beer under county

permits. The City amended its beer ordinance once more to allow those three outlets

to continue to sell beer. The ordinance listed all the permit holders by name, and

provided that the number of permits in the city would thereafter be restricted in

number to the twelve already holding permits. It also provided that a qualified

purchaser of any of the businesses holding permits could be issued a permit to

operate in the same location, but if any of the holders went out of business for twelve

consecutive months, or failed to sell beer for twelve consecutive months, the number

of permits allowed in the city would be reduced accordingly.




                                         -2-
                In 1998 Brent Dixon, the operator of Chaparral’s Steak House in

Lawrenceburg, applied for a permit to sell beer on his restaurant premises. The Beer

Board rejected the application because of the restrictions in the beer ordinance. Mr.

Dixon filed a petition for certiorari in the Chancery Court of Lawrence County, and the

chancellor held that the City could not restrict the issuance of beer permits to those

specifically named in the ordinance.



                                                  II.



                The Twenty-First Amendment to the United States Constitution ended

national prohibition, § 1, but it gave back to the states the power to regulate the

transportation or importation of intoxicating liquors for “delivery or use” in the states,

§ 2. In 1993 Tennessee responded to the impending end of the “noble experiment”

by allowing the sale of 3.2 percent beer if the seller obtained a permit from a city or

county. Tenn. Public Acts 1933, § 69; McHenry v. State, 80 S.W.2d 655 (Tenn.

1935).



                The beer laws have remained remarkably constant since that time.1

Cities have the power to regulate, by ordinance, the sale of beer so as to promote the

public health, morals, and safety of their citizens. Tenn. Code Ann. § 57-5-108(a)(1).

This statute “vests each municipality with an extremely broad power and discretion in

the regulation and control over the sale of beer within the city limits.” Fritts v. Wallace,

723 S.W.2d 948 at 949 (Tenn. 1987). The power cannot, however, be exercised in

an arbitrary and discriminatory manner. Id. Where the ordinance arbitrarily denies

an applicant a permit, the courts may grant the permit. The Pantry, Inc. v. City of

Pigeon Forge, 681 S.W.2d 23 (Tenn. 1984).



                A city may prohibit the sale of beer altogether, Grubb v. Morristown, 203

S.W.2d 593 (Tenn. 1947), or it may set a specific limit to the number of beer outlets.

         1
         In 1935 the legislature amended the beer laws to app ly to bev erag es ha ving a n alco holic
content of not more than five percent (5%) by weight. Tenn. Public Acts 1935, § 170.

                                                -3-
Ketner v. Clabo, 225 S.W.2d 54 (Tenn. 1949); DeCaro v. City of Collierville, 373

S.W.2d 466 (Tenn. 1963). The courts have not paid much attention to how the rule

against the arbitrary exercise of the city’s power impacts the city’s right to limit the

number of beer outlets. In DeCaro the Court seemed to say that the ordinance

limiting the number of outlets was virtually immune from review by the courts. In

Ketner the Court was a little less absolute, for it impliedly recognized that a

constitutional problem might be created by an arbitrary limit on the number of permits.

The Court said:

                       When the City authority determines under the
                police power, that the interest of the municipality will be
                best served by limiting the number of retail outlets for the
                sale of beer, it seems clear from many cases collected in
                124 A.L.R., at page 830 et seq., that the decision of the
                city authority is final, and not subject to judicial review.
                Further, from these authorities, it is clear that no
                constitutional right of a rejected applicant is infringed,
                since all citizens have an equal right to apply, and the city
                authority, in its discretion under a reasonable exercise of
                the police power and the preservation of law and order,
                may limit the number of applications to be granted.

225 S.W.2d at 56.



                We think the Ketner case contains the key to our present dilemma.

Assuming that a city has the absolute right to limit the number of beer permits within

its boundaries,2 it is an arbitrary exercise of that power to limit the eligible applicants

to those named in the ordinance. All citizens should have an equal right to apply.

That right is denied when the ordinance restricts the number and then designates that

number of permit holders by name.



                Another fact that bears on the question of whether the ordinance is

arbitrary is the provision in the Lawrenceburg ordinance that automatically reduces the

number of outlets when a permit holder does not sell beer for a period of twelve

months. If twelve outlets do not adversely impact the public health, morals, or safety



        2
          W e do not concede that the city has such absolute power. We think there is a threshold of
reasonableness that must be reached, as the court recognized in The Pantry, Inc. v. City of Pigeon
Forge, 681 S.W.2d 23 (Tenn. 1984) -- even though that case did not deal with limitations on the number
of permits.

                                                -4-
of the citizens of Lawrenceburg, it seems to us that it is arbitrary to automatically

reduce the number to eleven when one permit holder goes out of business and stays

out of business for twelve months.



              We recognize that we may be accused of creating a meaningless right

in all the citizens to compete for the limited number of permits when all available

permits are already held. We do not know of any case where one permit holder has

been “bumped” in favor of a new applicant. But there is no property right in a permit

to sell beer. Sparks v. Beer Committee of Blount County, 339 S.W.2d 23 (Tenn.

1960). It is a limited privilege, and once properly conferred, it may not be arbitrarily

taken away, Wise v. McCanless, 191 S.W.2d 169 (Tenn. 1945), but it is still subject

to a reasonable exercise of the police power.          Rivergate Wine & Liquors v.

Goodlettsville, 647 S.W.2d 631 (Tenn. 1983). Thus, an ordinance that identifies beer

permit holders by name arbitrarily takes away the right of the other citizens to compete

for the limited number of permits allowed by the ordinance.



              The judgment of the trial court is affirmed and the cause is remanded

to the Chancery Court of Lawrence County for any further proceedings necessary.

Tax the costs on appeal to the City of Lawrenceburg.




                                                  _____________________________
                                                  BEN H. CANTRELL,
                                                  PRESIDING JUDGE, M.S.



CONCUR:




_____________________________
WILLIAM C. KOCH, JR., JUDGE




                                         -5-
_____________________________
PATRICIA J. COTTRELL, JUDGE




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