Strike 3 – You Really Are Out! The ABC’s Strict Application of Penalties for Sales to Minors
The Modern History of the Use of Decoys to buy Alcohol
Hinman & Carmichael has been representing licensees charged by the ABC with sales to minor decoy violations for over 30 years. We have defended hundreds of cases during that period. We appealed one particularly egregious minor decoy case in 1992 on a constitutional defense. Our grounds for appeal were that the program was entrapment, there were no standards of conduct of the program that made it fair and there was no statutory exception allowing the program to exist. Because of our appeal, the entire state-wide decoy program was suspended for almost two years before the California Supreme Court ruled in 1994 that law enforcement could use minor decoys provided there were standards. We ultimately prevailed to the extent that the industry, in Rule 141 in 1996, established required standards of law enforcement conduct when running minor decoy programs.
For the last 20 plus years the law enforcement minor decoy standards have been tested and refined in a long series of cases. The ABC, for its part during this period, has been judicious in applying the standards and has seldom gone to the ultimate sanction – license revocation – unless the circumstances were especially egregious or the licensee had not tried to correct the behavior that permitted the minor decoy to get access to alcohol. Regardless, license revocation is permitted by Section 25658.1 of the ABC Act if there is a third violation within a 36-month period.
The ABC policy has now changed. The current ABC administration is rigidly approaching these cases and the current policy is to revoke licenses if there is a third strike within 36 months. Every licensee that sells at retail (which includes all producer tasting rooms, and all off-sale stores of any sort) should know of the decoy program, and understand the consequences.
The very business itself is at stake.
The Violation – What is it? Why decoys?
It violates California law for any licensee to sell or furnish alcohol to anyone under 21 years of age, or to permit them to consume alcohol in an on-premises establishment (which includes tasting rooms). That people under 21 will attempt to purchase alcohol, or sneak drinks when accompanying older friends, is no surprise to any licensee selling at retail.
What may be a surprise is that most citations for underage sales result from the use by ABC agents or local police of decoys—minors sent into a retailer to buy alcohol. These programs are popular in the police community throughout the state, are funded by local law enforcement grants, and are training grounds for young people desiring a career in law enforcement. The decoys themselves commonly try very hard to succeed to impress their police handlers. That can result in an unfair program that can be challenged under Rule 141.
If the retailer fails to identify the decoy as underage and makes the sale, an immediate citation issues, and the retailer will be charged by the ABC.[1] Decoy operations must be conducted under Rule 141.[2] Deviation from the Rule provides a defense for the licensee and its employee victimized by the decoy. These defenses are enumerated in case law at the ABC Appeals Board level, and in 20 plus years of California appellate decisions. Every case has unique facts, and testing those facts against the requirements of Rule 141 is an analysis that should always be done.
The Penalty Guidelines – Another Trap
If being entrapped by a decoy from the government were not bad enough, another trap for the unwary awaits in the ABC’s Penalty Guidelines.[3] Those Guidelines were intended to set forth the penalties usually imposed for various offenses.
However, the ABC reserved the right to alter penalties based on certain “aggravating or mitigating circumstances” listed in the Guidelines.
The Penalties that the Guidelines provide for sales to minors are:
- 1st Violation – 15 days suspension, which can almost always be converted to a monetary penalty of no less than $3,000.
- 2nd Violation in 3 years – 25 days suspension, which can often be converted to a penalty of $20,000.
- 3rd Violation in 3 years – REVOCATION OF LICENSE
This escalating schedule is equivalent to, but even more Draconian than, allowing the state to confiscate your car for a third traffic ticket in three years.
Because of the relatively modest penalty for the first violation, many licensees choose not to contest the first charge, because the penalty is usually less that the cost of defending the case. Some even do not defend the second charge, even if they have a meritorious defense. The flaw in that strategy is that the licensee is stepping into the batter’s box with an 0-1 or 0-2 count where:
- More pitches are coming—licensees with a violation are almost invariably targeted for more decoy operations;
- Strike 3 is not just an “out,” but the end of the ballgame—indeed, the entire season– for the licensee; and
- Once a violation has been settled, a licensee cannot contest it in a hearing on a later violation.
What about mitigation? The ABC reserved the right to deviate from the Penalty Guidelines where mitigating circumstances exist. The current administration of the ABC has made clear, however, that a third sale to a minor will result in revocation, despite what the licensee has done to try to prevent those sales.
At most, absent aggravating circumstances, the ABC will offer to settle with licensee by offering a suspension of the revocation to allow a sale of the license to a qualified third party at another location. But, if the licensee contests the third charge and loses, the ABC will seek (and impose) immediate revocation, usually with no opportunity to sell the license. Of course, sale of a license to someone located elsewhere is of little comfort to the licensee that depends on the sale of alcohol for its business.
In a recent case, Woodland Chevron L.P. v. Dept. of ABC[4], the ABC Appeals Board clarified that it will not interfere with the ABC’s broad discretion to impose penalties, even if it disagrees with the ABC’s decision[5]:
While we might consider a lesser penalty more appropriate, we cannot say it was an abuse of discretion for the ALJ to conclude that continuation of appellant’s license would be contrary to public welfare and morals. With some reluctance, we therefore affirm the penalty of revocation.
In plain terms the ABC has virtually unfettered discretion to impose revocation in every third strike case—even though reflexively applying an ironclad penalty in every case would seem to be the antithesis of exercising discretion.
Given the ABC’s position, what should licensees do?
We recommend:
First, take even more precautions against sales to minors. Such precautions are the quintessential “mitigating circumstances,” and, while they may not reduce a penalty, they may well prevent an illegal sale in the first place.
The most important precautions include:
- Enroll employees engaged in sales in the LEAD training program offered periodically by the ABC[6] and in the TIPS certification training program offered online.[7] Allow only trained employees to sell alcohol.
- Require every employee serving alcohol to anyone who appears to be under 40 always:
- To ask: “Are you over 21?” (decoys must answer truthfully): and
- To obtain and screen ID.
- Equip your cash registers with an ID screener that cannot be by-passed;
- Review your policies frequently with your employees and document the meetings;
- Use a “Secret Shopper” service to monitor employee compliance; and
- Cultivate good relationships with local police and public officials, who may be helpful if you have a violation.
If you are cited for serving a minor:
- Do not reflexively fire the employee, at least until you have thoroughly investigated the incident (fired employees rarely make helpful witnesses);
- Investigate and review the incident with counsel before you decide whether to settle or defend. (We routinely perform this service for clients at a cost that is modest in comparison to the stakes involved);
Remember that is likely that your ability to prevent underage sales will be tested again (and again) and that, if have 3 violations in 3 years, your license will be revoked.
The Consequences of License Revocation
If you are not already sufficiently frightened by this ABC policy, the consequences of a license revocation go beyond losing the license. The premises where the license is revoked are not eligible to even apply for another license for a year, and the chances of a license application being accepted then are low. This reduces the value of the property, and is often an event of default under a lease. The company and the individual owner of the license that is revoked will have to list the revocation on any license application (or license renewal) in California and in other states or for other premises from the date of the decision onward. This is an especially difficult burden because failure to disclose prior discipline is perjury, which is a felony.
Finally, the employee (or in some cases the owner) who made the sale will have to also defend a criminal violation (separate from the ABC violation) that itself may be career ending.
Considering the potential consequences, it behooves every licensee to pay close attention to preventing the ability of minor police decoys from penetrating your business and destroying your livelihood. It is not safe out there.
[1] The ABC’s explanation of the program is found at http://www.abc.ca.gov/
[2] Section 141 is set forth on the portion of the website cited above.
[3] The Guidelines are found at http://www.abc.ca.gov/
[4] AB-9594 (6/12/17), available at https://abcab.ca.gov/wp-
[5] Opinion, p. 10.
[6] The program is described at http://www.abc.ca.gov/
[7] The program is described at https://www.gettips.com/.
