Hagan v. Farris

807 S.W.2d 488, 1991 Ky. LEXIS 37, 1991 WL 51385

• Court: Kentucky Supreme Court
• Decided: April 11, 1991
• Docket: 90-SC-361-DG
• Status: Published

Opinions

SPAIN, Justice.

This case arises out of a dispute over the granting of a retail package liquor license by the appellee, Kentucky Alcoholic Beverage Control Board (hereinafter “ABC Board”), to the appellee, Bloomfield Liquors, Inc. (hereinafter “Bloomfield Liquors”). Appellants Hagan and Robinson, shareholder and employee, respectively, of appellant Kentucky Home Liquors, Inc., protested Bloomfield Liquors’ application to the ABC Board, which granted the license after a hearing. The appellants appealed the ABC Board’s decision to the Franklin Circuit Court, and in turn to the Court of Appeals, both of which affirmed. We granted discretionary review from the decision of the Court of Appeals.

In May 1985, Ray Houghlin acquired the real estate and rights to a retail package liquor license from FMJ, Inc., which had operated a liquor store in the city of Bloomfield, Kentucky, across the street from Houghlin Funeral Home. Houghlin then closed the liquor store, had the building razed, and had a parking lot constructed in its place.

Houghlin applied to the ABC Board to have the liquor license placed in dormant status pending his location of a buyer. The ABC Board granted the request and placed the license in dormancy for a period of ninety days. Houghlin subsequently requested and was granted seven additional ninety-day dormancy period extensions, the last of which expired on July 26, 1987. Houghlin was also allowed by the ABC Board to renew his license twice by paying annual renewal license fees during the two-year period of dormancy. Houghlin never made active use of the liquor license by the operation of a liquor business.

Houghlin sold the liquor license to Bloomfield Liquors on July 26, 1987. A protest of Bloomfield Liquors’ application to transfer this liquor license was made by the appellants to the ABC Board. A hearing was held by the ABC Board to consider the appellants’ protest. Appellants argued at the hearing that, pursuant to 804 KAR 4:110, the liquor license had lapsed and become void because the license had been dormant for two years. They also argued that the granting of this license violated the mandatory quota of liquor licenses allotted by the ABC Board for Nelson County.¹ The ABC Board overruled the protest and granted Bloomfield Liquors its license.

Appellants then filed an appeal of the ABC Board’s decision with the Franklin Circuit Court. On appeal, the appellants continued to argue that Houghlin’s liquor license could not be transferred because it was null and void under the regulation. The appellees argued that the separate “buy-out” provision of 804 KAR 4:110(4)(a) was applicable to the license in question. This provision allows the ABC Board, upon notice of a buy-out, to extend a license thirty days beyond the date of expiration of seller’s license. The regulation also gives the Distilled Spirits Administrator discretion in extending the time for filing a renewal application for a “reasonable length of time.” Id. The trial court upheld the ABC Board’s ruling granting the transfer of this liquor license. However, in doing so, it noted that the ABC Board’s interpretation of 804 KAR 4:110 was “tortured at best” and defeated the regulation’s purpose. The trial court also noted that holding a license in dormancy for a period of two years could by no stretch of the imagination be interpreted as a “buy-out” situation under 804 KAR 4:110(4)(a). As noted above, the trial court nevertheless affirmed the ABC Board’s decision because of the continuing practice of the ABC Board to grant such extensions and the strong detrimental reliance thereon by Houghlin in receiving these extensions and in being permitted to pay his annual license renewal fees.

The Court of Appeals unanimously affirmed the trial court in approving the transfer of the liquor license to Bloomfield Liquors, Inc., solely because there was strong detrimental reliance by both Hough-lin and Bloomfield Liquors on the ABC Board’s decades-old, consistent interpretation of the dormancy regulation. The Court of Appeals at the same time condemned the ABC Board’s interpretation of its regulations, but applied its decision prospectively and held that its ruling would not affect the license granted to Bloomfield Liquors or any of the liquor licenses that were currently under dormant status as of the date of its opinion for alleged “buyouts.” (Thirty-five package liquor licenses and twenty-nine drink liquor licenses.)

We agree with the Court of Appeals. The facts in this ease do not support the Board’s interpretation that the entire dormancy period of the Houghlin license should be covered by the “buy-out” exception. Houghlin’s immediate intention in buying the license from FMJ, Inc., clearly was to demolish the liquor store building and provide additional parking for his funeral home. There was no evidence of any pending “buy-out” negotiations thereafter until immediately before the transfer to Bloomfield Liquors, two years later. To permit this practice to continue is to grossly abuse the dormancy provisions of the regulations.

An agency must be bound by the regulations it promulgates. Shearer v. Dailey, 312 Ky. 226, 226 S.W.2d 955 (1950). Further, the regulations adopted by an agency have the force and effect of law. Linkous v. Darch, 323 S.W.2d 850 (1959). An agency’s interpretation of a regulation is valid, however, only if the interpretation complies with the actual language of the regulation. Fluor Constructors, Inc. v. Occupational Safety and Health Review Commission, 861 F.2d 936 (6th Cir.1988). KRS 13A.130 prohibits an administrative body from modifying an administrative regulation by internal policy or another form of action.

We agree that Houghlin had placed strong reliance on the ABC Board’s interpretation of its own regulation. Houghlin followed the established ABC Board practice of filing dormancy extension requests to keep his license in dormant status. Houghlin was also allowed by the ABC Board to renew his license by the payment of two annual license fees. In most cases, an agency’s interpretation of its own regulations is entitled to substantial deference. Fluor Constructors, Inc., supra. A construction of a law or regulation by officers of an agency continued without interruption for a long period of time is entitled to controlling weight. Barnes v. Department of Revenue, Ky., 575 S.W.2d 169 (1978). It is usually the practice to conform to an agency’s construction when that agency was responsible for a regulation’s adoption. Passafiume v. Shearer, Ky., 239 S.W.2d 456 (1951). We believe that, because of Houghlin’s reliance and the ABC Board’s continued misinterpretation of its own regulation, it would be unfair and unjust to overrule the ABC Board’s decision and rule that Houghlin had no license to transfer to Bloomfield Liquors.

We agree with the Court of Appeals that the decision in this case should be applied prospectively so as to provide an equitable result to the licensees who had liquor licenses in dormant status as of the date of the Court of Appeals’ opinion. It is within the inherent power of a Court to give a decision prospective or retrospective application. Lasher v. Commonwealth, Ky., 418 S.W.2d 416 (1967). It is further permissible to have a decision apply prospectively in order to avoid injustice or hardship. Jacobs v. Lexington-Fayette County Urban Government, Ky., 560 S.W.2d 10, 14 (1978). This is true where property rights are involved and parties have acted in reliance on the law as it existed, and a contrary result would be unconscionable. Bishop v. Bishop, Ky., 343 S.W.2d 587 (1961).

The decision of the Court of Appeals is affirmed.

LAMBERT, LEIBSON and REYNOLDS, JJ., concur. WINTERSHEIMER, J., dissents by separate opinion, in which STEPHENS, C.J., joins. COMBS, J., not sitting.

1 . Nelson County, under ABC Board regulations, has a quota of twelve licenses. Currently, fourteen licenses are in operation in Nelson County since two licenses were "grandfathered in” when the regulation setting up quotas was adopted. The granting of this license will result in fifteen licenses in operation in Nelson County-