Legal Memorandum: Adverse Action by an Administrative Body

Issue: Whether adverse action by the Department of Health (DOH) based on the conduct of others in violation of state statutes and administrative rules is permissible?

From a practical standpoint, it would seem reasonable for an administrative body to base adverse action on the conduct of third parties if that conduct is within the control of the licensee.  Liquor licenses are frequently revoked based on the conduct of intoxicated patrons.  However, the argument that a license revocation cannot be based on the conduct of others has some support.  In Wajda v. City of Minneapolis, 246 Minn. 339 (Minn. 1976), the City of Minneapolis denied Wajda a liquor license to operate a tavern because her son had previously operated the tavern and committed liquor violations.  The court found no rational relationship between Wajda and her son such that her license could be denied based on his conduct.  Likewise, the nonrenewal of the liquor license in E.T.O., Inc. v. Town of Marion, 375 N.W.2d 815 (Minn. 1985) was found arbitrary and capricious not because it was based on the conduct of others, but because the violation of the licensing ordinance came as no fault of the licensee.  Analogizing the situation to the liquor licensing statute’s grandfather clause (which did not apply on the facts), the court reasoned that “[t]he rationale behind the clause is to prevent licensees from being deprived of their licenses for reasons over which they have no notice or control.  To deny Fergie’s Bar the same protection would, we believe, be arbitrary or capricious and render the statute invalid.”

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