                            COURT OF APPEALS
                            SECOND DISTRICT OF TEXAS
                                 FORT WORTH


                                  NO. 2-07-150-CV


I GOTCHA, INC.,                                                     APPELLANT
D/B/A ILLUSIONS
                                             V.

TEXAS ALCOHOLIC                                                       APPELLEE
BEVERAGE COMMISSION
                                         ------------

           FROM THE 342ND DISTRICT COURT OF TARRANT COUNTY

                                         ------------

                           MEMORANDUM OPINION 1

                                         ------------

                                      I. Introduction

      In two issues, appellant I Gotcha, Inc. d/b/a Illusions (Illusions) appeals

from the trial court’s final judgment affirming appellee Texas Alcoholic Beverage

Commission’s (TABC) imposition of a $13,500 civil penalty for violations of the

Texas Alcoholic Beverage Code (the “Code”). We affirm.



      1
          … T EX. R. A PP. P. 47.4.
                                  II. Background

         Illusions, a topless bar in Fort Worth, is the holder of a mixed beverage

permit and a mixed beverage late hours permit issued by TABC. These permits

were originally issued by TABC on December 16, 1983, and have been

continually renewed.

         On February 12, 2005, Taquisha Lawson was working as a dancer at

Illusions under the stage name “Sassy.” On that date, at about 9:00 p.m.,

TABC agents Brian Miers and Ralph May entered the premises in an undercover

capacity and sat at a table in an open area of the club near the stage.

         While seated, Miers and May were approached by Lawson, who joined

them at the table and inquired as to why Miers and May were at Illusions that

night.       Miers responded that they were “looking for some kind of an after

party.” Lawson and Miers then engaged in a conversation wherein Lawson told

Miers that she was getting off work at 2:00 a.m, Miers told Lawson that he

and May had a hotel room in town, and Miers invited Lawson to their hotel

room after she got off work. Lawson told Miers it would cost him $400 an

hour for both Miers and May, but that she would “give them all the . . . they

could handle.” 2 In Lawson’s presence, Miers leaned over to May and relayed


         2
      … In order not to offend the reader, we have left out the explicit
language Lawson allegedly used.

                                         2
the details of the conversation; all three nodded their heads in agreement.

Thereafter, Miers told Lawson that he and May were leaving to meet up with

some friends, but that someone would be back to pick her up. Lawson told the

agents that if they did not return to pick her up, they “would miss out on one

good [thing].”

      Immediately thereafter, Miers and May left Illusions and contacted their

arrest team.     Miers detailed the evidence supporting a prostitution charge

against Lawson and provided a description of Lawson’s appearance, including

skin color, hair style, clothing, and identifying jewelry. The arrest team entered

Illusions, obtained a digital photograph of Lawson, and returned to Miers to

confirm through picture identification that they had located the right individual.

The arrest team then arrested Lawson for solicitation.

      On December 15, 2005, the TABC issued Illusions a notice of hearing

charging,

      The place or manner in which [Illusions] conducts its business
      warrants the cancellation or suspension of the permit and/or license
      based on the general welfare, health, peace, morals and safety of
      the people and on the public sense of decency in violation of
      §§ 11.61(b)(7) and/or 61.71(a)(17) [of the Code].

The notice alleged that

      On or about February 12, 2005, [Illusions] and/or its agent, servant,
      employee, Taquisha Lawson, and/or some other person, on the
      licensed premises, offered to engage or agreed to engage in sexual

                                       3
      conduct for a fee in violation of § 43.02(a)(1) of the Texas Penal
      Code and/or § 104.01(7) of the Texas Alcoholic Beverage Code
      and/or § 35.31(a)(b)(1)(c)(12) of the Texas Alcoholic Beverage
      Commission Rules.

      On May 8, 2006, an administrative law judge at the State Office of

Administrative Hearings (the “ALJ”) held a hearing at which Miers and Illusions’s

owner, Walt Duncan, testified. Lawson was not cited and did not appear at the

hearing.   Documentary evidence of Illusions’s Code violation history and its

independent investigation into the incident was introduced.

      Approximately two months later, on July 10, 2006, the ALJ issued a

proposal for decision, concluding in relevant part that “[Illusions’s] employee, on

the licensed premises, offered and agreed to engage in sexual conduct for a fee,

in violation of [sections 11.61(b)(7) and 104.01(7) of the Code].” The ALJ

recommended a sixty day suspension of Illusions’s permits or, in lieu of

suspension, a $13,500 civil penalty.        Subsequently, on October 30, 2006,

TABC issued a final order adopting the ALJ’s July 10, 2006 proposal and

ordered Illusions’s permits suspended for a period of sixty days beginning on

January 3, 2007, unless Illusions paid a $13,500 civil penalty to TABC on or

before 12:01 a.m. on December 27, 2006.

      Thereafter, Illusions filed all necessary notices and requests for

reconsideration and a petition for judicial review. [AE x] The trial court


                                        4
conducted a hearing on Illusions’s petition for review and on April 5, 2007,

signed an order affirming TABC’s October 30, 2006 final order. This appeal

followed.

                              III. Standard of Review

      We review an administrative ruling of the TABC under the substantial

evidence rule.3 Generally speaking, a court reviewing an administrative action

under the substantial evidence rule is only concerned with the reasonableness

of the administrative order, not with its correctness.4 An administrative decision

is reasonably supported by substantial evidence if the evidence as a whole is

such that reasonable minds could have reached the same conclusion that the

agency reached. 5 The rule is designed to discourage courts from administering

regulatory statutes enacted by the legislature.6



       3
      … See T EX. A LCO. B EV. C ODE A NN. § 11.67(b)(Vernon 2007); T EX. G OV’T
C ODE A NN § 2001.175 (Vernon 2000); see also Tex. Alcoholic Beverage
Comm’n v. Wishnow, 704 S.W.2d 425, 427 (Tex. App.—Houston [14 th Dist.]
1985, no writ).
       4
       … See Tex. Health Facilities Comm’n v. Charter Med.-Dallas, Inc., 665
S.W.2d 446, 452 (Tex. 1984)(citing Gerst v. Nixon, 411 S.W.2d 350, 354
(Tex. 1966)); Cent. Power & Light v. Public Util. Comm’n, 36 S.W.3d 547, 561
(Tex. App.—Austin 2000, pet. denied).
       5
      … Tex. State Bd. of Med. Examiners v. Birenbaum, 891 S.W.2d 333,
337 (Tex. Civ. App.—Austin 1995, writ denied).
       6
           … Lewis v. Metropolitan S. & L. Ass’n, 550 S.W.2d 11, 13 (Tex. 1977).

                                         5
      A court may not invade the fact finding authority of an administrative

agency.7     Nor may a court substitute its judgment for the agency’s on the

weight of the evidence on questions committed to agency discretion.8        A

reviewing court may only determine whether the contested order is reasonably

supported by substantial evidence. 9

      An agency’s action will be sustained if the evidence is such that

reasonable minds could have reached the conclusion the agency must have

reached in order to justify its action. 10

      An agency’s findings and conclusions are presumed to be supported by

substantial evidence, and the burden is on the opponent to prove otherwise by

showing that no substantial evidence existed at the time of the hearing to

support the order.11 Finally, we must uphold the agency’s decision even if the

evidence actually preponderates against the agency’s finding so long as enough


       7
       … State Banking Bd. v. Allied Bank Marble Falls, 748 S.W.2d 447, 448
(Tex. 1988).
       8
     … See T EX. G OV’T C ODE A NN. § 2001.174 (Vernon 2000); see also Auto
Convoy Co. v. R.R. Comm’n of Tex., 507 S.W.2d 718, 722 (Tex. 1974).
       9
           … Auto Convoy Co., 507 S.W.2d at 722.
       10
       … Suburban Util. Corp. v. Pub. Util. Comm’n of Tex., 652 S.W.2d 358,
364 (Tex. 1983).
       11
       … Imperial Am. Res. Fund v. R.R. Comm’n of Tex., 557 S.W.2d 280,
286 (Tex. 1977).

                                             6
evidence suggests the agency’s determination was within the bounds of

reasonableness.12

                             IV. Substantial Evidence

      In its first issue, Illusions asserts that the trial court erred in sustaining the

ALJ’s finding that Illusions violated sections 11.61(b)(7) and 104.01(7) of the

Code. Specifically, Illusions contends that there was no substantial evidence to

support a finding that Lawson was an employee of Illusions, that Lawson

solicited Miers and May, or that the place or manner in which Illusions conducts

its business warranted suspension of its permits.

      In order to prevail on its complaint, TABC had to establish by substantial

evidence that Illusions violated sections 11.61(b)(7) and 104.01(7) of the Code.

Those sections provide as follows:

      § 11.61.      Cancellation or Suspension of Permit

      ....

             (b) The commission or administrator may suspend for not
             more than 60 days or cancel an original or renewal permit if
             it is found, after notice and hearing, that any of the following
             is true:

                    ....


      12
      … Gerst v. Goldsbury, 434 S.W.2d 665, 667 (Tex. 1968); see also Sw.
Pub. Serv. v. Pub. Util. Comm’n of Tex., 962 S.W.2d 207, 215 (Tex.
App.—Austin 1998, pet. denied).

                                          7
                    (7) the place or manner in which the permittee
                    conducts his business warrants the cancellation
                    or suspension of the permit based on the general
                    welfare, health, peace, morals, and safety of the
                    people and on the public sense of decency. 13

     § 104.01. Lewd, Immoral, Indecent Conduct

              No person authorized to sell beer at retail, nor his agent,
              servant, or employee, may engage in or permit conduct on the
              premises of the retailer which is lewd, immoral, or offensive
              to public decency, including, but not limited to, any of the
              following acts:

                    ...

                    (7) permitting solicitations of persons for immoral
                    or sexual purposes. 14

     A. “Employee”

     Illusions contends that the substantial evidence does not support a finding

that Lawson was an employee of Illusions. Illusions asserts that Lawson was

an independent contractor.

     The primary distinction between an independent contractor and an

employee is that the independent contractor merely agrees to accomplish

results, whereas an employee yields control over his or her time and physical




      13
           … T EX. A LCO. B EV. C ODE A NN. § 11.61(b)(7) (Vernon 2007).
      14
           … Id. at § 104.01(7) (Vernon 2007).

                                          8
activities to the employer. 15 The term “employee” is not defined in the Code.

Therefore, we apply its ordinary meaning in our analysis.16

      Employees are ordinarily defined as a person in the service of another

under a contract of hire, express or implied, oral or written, whereby the

employer has the right to direct the means or details of the work and not merely

the result to be accomplished.17 While the employer’s “control” is the most

important feature of an employment relationship, Texas courts have found

several related factors to be helpful in distinguishing employees from

independent contractors, including (1) the independent nature of the worker’s

business; (2) the worker’s obligation to furnish necessary tools, supplies and

material; (3) the hiring party’s right to control the progress of the work; (4) the

length in time of the employment; and (5) the method of payment. 18




       15
            … 41 Am. Jur. 2d INDEPENDENT C ONTRACTORS §§ 1–23 (2008).
       16
            … See T EX. G OV’T C ODE A NN. § 312.002 (Vernon 2005).
       17
       … See Thompson v. Travelers Indem. Co., 789 S.W.2d 277, 279 (Tex.
1990); Farrell v. Greater Houston Transp. Co., 908 S.W.2d 1, 3 (Tex.
App.—Houston [1 st Dist.] 1995, writ denied); Travelers Ins. Co. v. Ray, 262
S.W.2d 801, 803 (Tex. Civ. App.—Eastland 1953, writ ref’d).
       18
        … Ross v. Tex. One P’ship, 796 S.W.2d 206, 210 (Tex. App.—Dallas
1990, no writ); Sherard v. Smith, 778 S.W.2d 546, 548 (Tex. App.—Corpus
Christi 1989, writ denied); Wasson v. Stracener, 786 S.W.2d 414, 420 (Tex.
App.—Texarkana 1990, writ denied).

                                         9
      At the hearing before the ALJ, the parties introduced the following

evidence: (1) dancers at Illusions must fill out paperwork and provide Illusions

with, among other things, their name, stage name, address, telephone number,

and social security number; (2) dancers are given a “rule book” that they must

read and sign; (3) dancers are briefed by Illusions’s management as to the club

rules that they are expected to follow; (4) Illusions does not provide weekly

work schedules—the dancers just “show up”; (5) some of the dancers are

transient and not around very long; (6) Illusions may “swap” dancers among its

clubs on any given night to ensure that there are enough dancers at each club;

(7) dancers sign in on a door sheet; (8) dancers are required to pay a $10 stage

fee each night they perform; (9) dancers request music from the disc jockey;

(10) Illusions directs how the dancers rotate around the stage and how many

songs the dancers perform at each pole on the stage; (11) Illusions’s “house

mom” provides assistance with hair and makeup, snacks, and clothing as

needed, and she guards the dancers’ money when they are not around; (12) the

only compensation dancers receive from Illusions is a commission for drinks sold

at the club, and their compensation is primarily derived from tips they receive

from customers; and (13) Illusions does not file tax statements on the dancers.

      Reviewing this evidence in light of the factors listed above, we conclude

that there is substantial evidence to support the ALJ’s conclusion that Illusions

                                       10
exercised sufficient control over Lawson’s dancing activities to make her an

employee of Illusions on the night in question.19

      B. Interested Witness Testimony

      Illusions further contends that the ALJ’s ruling is not supported by

substantial evidence because the only evidence that Lawson solicited Miers and

May is testimony from an interested witness. In order for the testimony of an

interested witness to establish a fact, as a matter of law, it must be “clear,

direct and positive,” with “no circumstances in evidence tending to discredit or

impeach such testimony.” 20




      19
         … See Vela v. State, 776 S.W.2d 721, 724–25 (Tex. App.—Corpus
Christi 1989, no pet.)(holding dancer was employee when dancer worked
nights, entered club through dressing room, and danced on stage several times);
Bruce v. State, 743 S.W.2d 314, 315–16 (Tex. App.—Houston [14 th Dist.]
1987, no pet.)(holding dancer employee when dancer filled out application and
had to get permission before performing, club’s disc jockey called dancer to
stage to perform, club provided dressing room closed off from club patrons, and
dancer received a commission from drinks sold at club); but cf. Reich v. Circle
C. Inv., Inc., 998 F.2d 324, 327 (5 th Cir. 1993)(focusing on the “economic
reality” and considering the degree of control exercised by the club, the extent
of the relative investments, the degree to which the dancer’s opportunity for
profit or loss was determined by the club, the skill and initiative required in
performing the job, and the permanency of the relationship).
      20
       … Swilley v. Hughes, 488 S.W.2d 64, 67 (Tex. 1972); see also Great
Am. Reserve Ins. Co. v. San Antonio Plumbing Supply Co., 391 S.W.2d 41, 47
(Tex. 1965); Cochran v. Wool Growers Cent. Storage Co., 140 Tex. 184, 191,
166 S.W.2d 904, 908 (Tex. 1942).

                                      11
      Meirs was the only witness to testify concerning the events forming the

basis of TABC’s complaint. He testified that Lawson voluntarily approached him

and May, talked directly to him, agreed to go to a hotel room with him and May

when she got off work at 2:00 a.m., and told him it would cost $400 an hour

for both him and May, that she would “give them all the . . . they could handle,”

and, that if they did not come back to get her, they “would miss out on one

good [thing].” Meirs further testified that he related this information to May in

Lawson’s presence and that the three of them nodded their heads in agreement.

      In a contested case hearing, the administrative law judge, as the finder of

fact, is the sole judge of the witness’s credibility and is free to accept or reject

the testimony of any witness or even accept “part of the testimony of one

witness and disregard the remainder.”21 A reviewing court is not permitted to

substitute its judgment for the administrative law judge’s regarding the

credibility of witnesses and must resolve evidentiary ambiguities in favor of the

administrative order with a finding of substantial evidence to support the

administrative law judge’s decision.22




       21
       … S. Union Gas Co. v. R.R. Comm’n of Tex., 692 S.W.2d 137, 141–42
(Tex. App.—Austin 1985, writ ref’d n.r.e).
       22
       … Ford Motor Co., v. Tex. Dep’t of Transp., 936 S.W.2d 427, 429–30
(Tex. App.—Austin 1996, no writ).

                                         12
      Upon conducting a thorough review of the record, we find no evidence

tending to discredit Miers’s testimony concerning the events that took place

between Miers and May, and Lawson inside Illusions on the night of February

12, 2005. Miers’s testimony is clear, direct, and positive. Accordingly, the ALJ

could properly consider Miers’s testimony in finding that Lawson had solicited

Miers and May for sexual purposes.23

      C. Place or Manner Violations

      Illusions also contends that the one incident on which TABC’s claim is

based is insufficient to support a finding that the place or manner in which

Illusions operates its business jeopardizes the people’s general welfare, health,

peace, morals, or sense of public decency.24

      Whether a permittee conducts its business so as to jeopardize the people’s

general welfare, health, peace, morals or sense of public decency cannot be




      23
       … See Great Am. Reserve, 391 S.W.2d at 47; Cochran, 166 S.W.2d at
908; see also Swilley, 488 S.W.2d at 67.
      24
        … Illusions asserts without argument or authority that sworn testimony
of a pattern must be established to support a place or manner violation. We
have found no authority—statutory, case law, or otherwise— requiring that a
pattern be established to support a place or manner violation. But see Tex.
Alcoholic Beverage Comm’n v. I Gotcha Inc., 2006 WL 2095449, at * 2, 4
(Tex. App.— Amarillo July 28, 2006, pet. denied)(memo op.)(finding substantial
evidence to support ALJ’s findings and conclusions of a “pattern of
inappropriate conduct”).

                                       13
determined by a set formula.25 The agency has great discretion in making this

determination, and we will not disturb it unless it is apparent that the agency

acted arbitrarily and unreasonably.26 We will uphold this conclusion of law if it

is supported by substantial evidence. 27

       The substantial evidence shows that Lawson did solicit Miers and May for

sexual purposes in violation of sections 11.61(b)(7) and 104.01(7) of the

Code. 28 In addition, TABC introduced Illusions’s permit violation history that

demonstrated that Illusions had been cited four previous times for Code

violations. 29




        25
      … Four Stars Food Mart, Inc. v. Tex. Alcoholic Beverage Comm’n, 923
S.W.2d 266, 272 (Tex. App.—Fort Worth 1996, no writ); Ex parte Velasco,
225 S.W.2d 921, 923 (Tex. Civ. App.—Eastland 1949, no writ).
        26
             … Four Stars, 923 S.W.2d at 272; Velasco, 225 S.W.2d at 923.
        27
             … Four Stars, 923 S.W.2d at 272.
        28
             … See supra Part IV. B.
        29
         … One of the violations concerned a breach of the peace contrary to
Code sections 28.11 and 11.61(b)(2). The trial court reversed this violation
because it was not supported by substantial evidence. The charge in that
matter did not charge the club with a violation, but only the dancers involved.
The record does not reveal the nature of the remaining three violations. At the
time of the hearing, Illusions had accepted and paid the civil penalty on one, the
trial court had remanded one to TABC for further consideration, and one was
on appeal.

                                        14
      Applying the requisite deferential standard, we cannot say that the ALJ’s

conclusion that the place or manner in which Illusions conducted its business

was contrary to the people’s general welfare, health, peace, morals, safety and

sense of public decency was unreasonable.

      Having concluded that there is substantial evidence to support the ALJ’s

finding that Illusions violated sections 11.61(b)(7) and 104.01(7) of the Code,

we overrule Illusions’s first issue.

                               V. Section 11.64(b)

      Illusions next asserts that by imposing a civil penalty pursuant to section

11.64, the ALJ should have considered mitigating factors and applied section

11.64(b) of the Code to “relax” the penalty assessed.30

      In determining the amount of a penalty assessed in lieu of suspension or

cancellation of a permit, the agency must consider the type of permit held, the

type of violation, any aggravating or ameliorating circumstances concerning the

violation, including those enumerated by statute, and the permittee’s previous




       30
        … See T EX. A LCO. B EV. C ODE § 11.64(b) (Vernon 2007) (providing that
under certain statutory circumstances set forth therein, there is discretion to
“relax any provision of the code relating to the suspension or cancellation of the
permit or license” and assess a just sanction, or reinstate the permit or license
during the suspension period upon payment of a fee of “not less than $75 nor
more than $500”).

                                       15
violations. 31 The penalty cannot be based on the volume of alcoholic beverages

sold, the business receipts, taxes paid, or the financial condition of the

permittee.32 The penalty cannot be less than $150 or more than $25,000 for

each day the permit was to have been suspended. 33        An agency has broad

discretion in determining which sanction best serves the statutory policies

committed to the agency’s oversight.34 An agency’s decision in determining the

appropriate penalty will not be reversed unless an abuse of discretion is

shown. 35

      Section 11.64(b) provides that the agency may relax any provision of the

Code relating to suspension of the permit if an employee of the permittee

violated the Code without the knowledge of the permittee, the permittee did not




      31
           … See id. § 11.641(a), (c) (Vernon 2007).
      32
           … Id. § 11.641(b).
      33
           … T EX. A LCO. B EV. C ODE A NN. § 11.64(a).
      34
       … Fay-Ray Corp. v. Tex. Alcoholic Beverage Comm’n, 959 S.W.2d 362,
369 (Tex. App.—Austin 1998, no pet.).
      35
           … Id.

                                          16
knowingly violate the Code, or the violation could not reasonably have been

prevented.36 However, this provision is discretionary. 37

      The penalty imposed by the ALJ was within the statutory guidelines. The

ALJ did not abuse her discretion in refusing to relax the penalty under section

11.64(b) of the Code. We overrule Illusions’s second issue.

                                     VI. Conclusion

      Having overruled Illusions’s two issues on appeal, we affirm the trial

court’s judgment affirming the TABC’s October 30, 2006 final order.


                                                      PER CURIAM

PANEL A: CAYCE, C.J.; HOLMAN and WALKER, JJ.

DELIVERED: July 31, 2008




       36
            … T EX. A LCO. B EV. C ODE § 11.64 (b)-(c).
       37
        … Allen-Burch, Inc. v. Tex. Alcoholic Beverage Comm’n, 104 S.W .3d
345, 352 (Tex. App.—Dallas 2003, no pet.) (recognizing provision
discretionary); Tex. Alcoholic Beverage Comm’n v. Top of the Strip, Inc., 993
S.W.2d 242, 252 (Tex. App.—Austin 1998, pet. denied)(“The operative phrase
is may relax the provisions of the code.”)(emphasis in original).

                                           17
