Full Opinion

FIRST DISTRICT COURT OF APPEAL STATE OF FLORIDA _____________________________ No. 1D19-4599 _____________________________ FLORIDA DEPARTMENT OF CORRECTED PAGE: pg 2 BUSINESS AND PROFESSIONAL CORRECTION IS UNDERLINED IN RED MAILED: July 2, 2021 REGULATION, DIVISION OF BY: FTA ALCOHOLIC BEVERAGES AND TOBACCO, Appellant, v. WALMART INC., WAL-MART STORES EAST, L.P., ABC FINE WINE AND SPIRITS, FLORIDA INDEPENDENT SPIRITS ASSOCIATION, PUBLIX SUPERMARKETS, and TARGET CORPORATION, Appellees. _____________________________ On appeal from a Final Order of the Division of Administrative Hearings. John D.C. Newton, II, Judge. May 19, 2021 M.K. THOMAS, J. Florida Department of Business and Professional Regulation, Division of Alcoholic Beverages and Tobacco (the Division), appeals a final order declaring proposed Florida Administrative Code Rule 61A-3.055 (proposed rule) invalid. The proposed rule attempts to define items “customarily sold in a restaurant” as that term is used in section 565.045, Florida Statutes, for the purpose of issuing Consumption on Premises (COP) liquor licenses. It was created after the existing rule was found to be invalid, which we affirmed on appeal. See Fla. Dep’t of Bus. & Prof’l Regulation, Div. of Alcoholic Beverages & Tobacco v. Target Corp., No. 1D18-5311 (Fla. 1st DCA May 19, 2021). In the instant appeal, the Division argues the Administrative Law Judge (ALJ) erred by considering issues not raised by Walmart or Target (Petitioners) in their petitions when it concluded the proposed rule to be an invalid exercise of delegated legislative authority. Because we find the issues sufficiently raised below and conclude that the proposed rule enlarges and modifies the statute, we affirm the order on appeal for the reasons set forth below. 1 2 I. Facts Pursuant to section 565.045, a COP licensee may not sell “anything other than the beverages permitted, home bar and party supplies and equipment (including but not limited to glassware and party-type foods), cigarettes, and what is customarily sold in a restaurant.” § 565.045(2)(a), Fla. Stat. (emphasis added). In both the existing rule and the proposed rule, the Division attempts to provide clarification as to what is considered “customarily sold in a restaurant.” After Petitioners successfully petitioned to have the existing rule declared invalid, the Division developed the proposed rule. The proposed rule provides as follows: 1 We find no merit to the remaining issues raised in this appeal and affirm those issues without further comment. 2 In Case 1D20-0004, ABC Fine Wine & Spirits, Florida Independent Spirits Association, and Publix, (Intervenors) who intervened in the rule challenge proceedings, also appeal the ALJ’s final order. In that case, we reverse the ALJ’s conclusion that Florida Independent Spirits Association lacked standing to intervene. ABC Fine Wine & Spirits v. Dep’t of Bus. & Prof’l Regulation, No. 1D20-0004 (Fla. 1st DCA May 19, 2021). 2 (1) As used in section 565.045, Florida Statutes, items customarily sold in a restaurant shall only include the following: (a) Food cooked or prepared on the licensed premises; or (b) Hot or cold beverages; or (c) Souvenirs bearing the name, logo, trademark, or location of the licensed vendor operating the licensed premises; or (d) Gift cards or certificates pertaining to the licensed premises. (2) For the purpose of consumption on premises regulations set forth in section 565.045, Florida Statutes, items customarily sold in a restaurant shall include services or sales authorized in the “Florida Public Lottery Act”, section 24.122(4), Florida Statutes. Prior to adopting the proposed rule, the Division conducted public rulemaking workshops. Thereafter, Petitioners filed a petition seeking an administrative determination of the validity of the rule. After a final hearing, the ALJ held the proposed rule invalid. Specifically, the ALJ found the proposed rule enlarges, modifies, or contravenes the statute because the proposed rule does not allow for food that is cooked or prepared offsite to be sold; thus, the Division improperly restricted the items “customarily sold in a restaurant” to only those foods listed. The ALJ also found the proposed rule to be arbitrary and capricious because it fails to define “restaurant” or “customarily,” and because the Division created a list of items to be considered “customarily sold in a restaurant” without first conducting any survey, study, or investigation of restaurants to determine what they customarily sell. The Division now appeals the final order. 3 II. Analysis A. Whether the Issues Were Adequately Raised in the Petitions The Division argues that the final order should be reversed because the ALJ held the proposed rule invalid based on factual and legal objections not alleged in the petitions. A party who is challenging the validity of a proposed or adopted rule must state in their petition “the particular provisions alleged to be invalid and a statement of the facts or grounds for the alleged invalidity.” § 120.56(1)(b), Fla. Stat. The agency is required to prove “that the proposed rule is not an invalid exercise of delegated legislative authority as to the objections raised.” § 120.56(2)(a), Fla. Stat. (emphasis added). Generally, in all forms of litigation, objections must be pleaded with “sufficient particularity for a defense to be prepared.” Arky, Freed, Stearns, Watson, Greer, Weaver & Harris, P.A. v. Bowmar Instrument Corp., 537 So. 2d 561, 563 (Fla. 1988). In their petitions, Petitioners argued both that the proposed rule is an invalid exercise of delegated legislative authority because it is arbitrary and capricious, and because it enlarges, modifies, or contravenes the statute it purports to implement. Walmart noted that “restaurant” is not defined by rule or statute and argued that the proposed rule improperly limits the items that are considered “customarily sold in a restaurant.” These issues were identified in the pretrial stipulation as issues of fact to be litigated. Additionally, in their opening statement, Petitioners argued that the Division failed to define “restaurant” and “customarily” and failed to do any type of investigation or study to determine what is “customarily sold in a restaurant.” Based on the foregoing, we find the basis for the ALJ’s ruling was sufficiently pleaded and provided sufficient particularity for the Division to prepare its defense. B. Whether the Prosed Rule Enlarges, Modifies, or Contravenes the Statute As we find the issues were sufficiently pleaded in the petitions, we consider the merits of the Division’s claim. The Division first claims the ALJ erred in holding the proposed rule enlarges, modifies, or contravenes the statute it was meant to implement. The Division argues that there in not sufficient 4 evidence to conclude that food prepared offsite is “customarily sold in a restaurant,” which was the basis for the ALJ’s ruling, and that in so ruling, the ALJ erroneously relied on State, Department of Business Regulation, Division of Alcoholic Beverages and Tobacco v. Salvation Limited, Inc., 452 So. 2d 65 (Fla. 1st DCA 1984). On appeal, findings of fact will be affirmed if supported by competent, substantial evidence. Jacoby v. Fla. Bd. of Med., 917 So. 2d 358, 359 (Fla. 1st DCA 2005). However, questions of law are subject to de novo review. SW Fla. Water Mgmt. Dist. v. Save the Manatee Club, Inc., 773 So. 2d 594, 597 (Fla. 1st DCA 2000). Whether a rule is an invalid exercise of legislative power is a question of law. Id.; see also Orlando Health Cent., Inc. v. Agency for Healthcare Admin., 252 So. 3d 849, 852 (Fla. 1st DCA 2018). A rule is an invalid exercise of delated legislative authority where it “goes beyond the powers, functions, and duties delegated by the Legislature . . . .” § 120.52(8), Fla. Stat. An agency may not propose to create a rule that “enlarges, modifies, or contravenes the specific provisions of the law implemented.” § 120.52(8)(c), Fla. Stat. It is not enough that the agency’s rule is “reasonably related” to the Legislature’s purpose or statutory provisions. § 120.536(1), Fla. Stat. The agency’s rule and interpretation must comport with the specific authorizing statute. § 120.536(1), Fla. Stat.; State, Dep’t of Children & Family Servs. v. I.B., 891 So. 2d 1168, 1171 (Fla. 1st DCA 2005) (“No agency shall have authority to adopt a rule only because it is reasonably related to the purpose of the enabling legislation . . . or [] within the agency’s class of powers and duties.”). A rule also must be consistent with the Legislature’s statutory mandates. Cleveland v. Fla. Dep’t of Children & Families Dist.: 07 Seminole Unit 55205, 868 So. 2d 1227, 1231 (Fla. 1st DCA 2004). “Courts are not free to choose an interpretation they conclude is the best public policy, but must defer to the other branches.” Fla. Dep’t of Educ. v. Cooper, 858 So. 2d 394, 397 (Fla. 1st DCA 2003); see also § 120.68(7)(d), (e), Fla. Stat. The ALJ properly concluded that “one cannot determine what is customarily sold in a ‘restaurant’ until one establishes the meaning of ‘restaurant.’” Because “restaurant” is not defined by statute or rule, we look to the plain meaning of the term when 5 analyzing the validity of the proposed rule. See State v. Fla. Senior Living Ass’n, Inc., 295 So. 3d 904, 912 (Fla. 1st DCA 2020) (noting that where a word in a rule is not defined, like a statute, “they are to be given ‘their plain and ordinary meaning’”). As an initial matter, we note that a plain reading of the proposed rule makes clear that subsection (1) of the rule provides an exclusive list of items customarily sold in a restaurant. If there is an item, such as food prepared offsite, that is proven to be customarily sold in a restaurant, but that item is not included in the list, the rule will likely be deemed invalid. Here, the ALJ did not determine that food prepared offsite is customarily sold in a restaurant based on evidence submitted at the hearing. Rather, he did so based on this Court’s ruling in Salvation Limited. In that case, the Division appealed an order finding the administrative rule at issue invalid. Salvation Ltd., Inc., 452 So. 2d at 66. At the time, Florida law limited the number of liquor licenses that could be issued, with certain “restaurants” being exempt from the limitation. Id. Under the rule used by the Division to determine whether a “restaurant” qualified for the exemption, the “restaurant’s” meals were required to “be prepared and cooked on the premises.” Id. At the time, “restaurant” was defined as “a public eating place” in Webster’s New Collegiate Dictionary. Id. at 67. This Court held that under that definition of “restaurant” there is no requirement that food be prepared and cooked on the premises. Id. The Division argued in Salvation Limited as it does here— that any reference to “restaurant” should be construed to mean a “public food service establishment.” However, as determined previously, this argument does not support the Division’s conclusion that food must be cooked onsite, as a “public food service establishment” is a place where ‘food is regularly prepared, served, or sold.” Id. Thus, even if a “restaurant” is considered a “public food service establishment,” the definition of such an establishment does not require food to be prepared onsite. We find our ruling in Salvation Limited persuasive. We recognize that the definition of “restaurant” has been slightly revised since this Court’s ruling in that case. Merriam-Webster (2019) now defines restaurant as “a business establishment where 6 meals or refreshments may be purchased.” However, as was the case in Salvation Limited the plain meaning of “restaurant” does not require the food to be prepared onsite. Applying the more recent definition to the instant case does not affect the holding in Salvation Limited. Thus, we agree with the ALJ; the plain meaning of the term “restaurant” supports that such establishments customarily sell food prepared offsite, and by excluding such items, the proposed rule enlarges, modifies, or contravenes the statute. 3 C. Whether the Proposed Rule is Arbitrary or Capricious Although we find the proposed rule enlarges, modifies, or contravenes the statute, we disagree that the rule is arbitrary or capricious. A rule is an invalid exercise of delegated legislative authority if it is arbitrary or capricious. § 120.52(8), Fla. Stat. “A rule is arbitrary if it is not supported by logic or the necessary facts; a rule is capricious if it is adopted without thought or reason or is irrational[.]” § 120.52(8)(e), Fla. Stat. The Division first argues the ALJ erred in essentially requiring it to define the terms “restaurant” and “customarily” before determining what is “customarily sold in a restaurant.” We disagree. As explained above, where a term is not defined by statute or rule, the plain meaning of that term will be used. The Division is not required to do more. The Division next claims that the ALJ erred when it held the rule to be arbitrary and capricious because the list of items customarily sold in a restaurant “is not based upon any factual examination or evidence about what restaurants, whatever the definition, actually sells.” However, there is no question that the Division undertook the proper procedures to adopt the proposed 3 In case No. 1D20-0004, Intervenors argued that the proposed rule should be read in pari materia with the party supply rule, Florida Administrative Code Rule 61A-3.054. However, we find the argument unpersuasive as the rules do not relate to the same subject. The party supply rule only deals with what is considered party supplies, and the proposed rule strictly addresses what is considered “customarily sold in a restaurant.” 7 rule, and those procedures do not require the Division to conduct an empirical investigation prior to crafting and adopting a rule. We conclude that it would be improper to require such investigation where it is not otherwise demanded by rule or statute. Rather, the Division simply needs to satisfy their burden of proving the proposed rule is support by logic or the necessary facts and was adopted with thought and is not irrational. See § 120.52(8), Fla. Stat. Here, the Division met it burden by proving it went through the necessary rule adoption procedures and accepted comment from those affected by the proposed rule. Thus, the proposed rule is not arbitrary or capricious. III. Conclusion While we do not find the proposed rule to be arbitrary or capricious, we do agree with the ALJ that it enlarges, modifies, or contravenes the statute. We also conclude that Petitioners adequately pleaded the issues ruled on. Therefore, we affirm the ALJ’s ruling to the extent it finds the proposed rule to be an invalid exercise of delegated legislative authority. AFFIRMED. LEWIS, J., concurs; WINOKUR, J., dissents with opinion. _____________________________ Not final until disposition of any timely and authorized motion under Fla. R. App. P. 9.330 or 9.331. _____________________________ WINOKUR, J., dissenting. As the majority opinion notes, a holder of a COP liquor license may only sell at the licensed premises “the beverages permitted, home bar and party supplies and equipment (including but not limited to glassware and party-type foods), cigarettes, and what is customarily sold in a restaurant.” § 565.045(2)(a), Florida Statutes. With no further detail the Division is left to determine what is “customarily sold in a restaurant” so it may perform its 8 duty to ensure that liquor licenses are issued only to those entities that meet the statutory requirements. To do so, the Division adopted a rule defining “items customarily sold in a restaurant.” Fla. Admin. Code R. 61A-3.055. Upon challenge by Target and Walmart, the rule was found an invalid exercise of delegated legislative authority, a finding we have affirmed. See Fla. Dep’t of Bus. & Pro. Regul. v. Target Corp., No. 1D18-5311 (Fla. 1st DCA May 19, 2021). The Division thereupon proposed a new version of Rule 61A-3.055, which is at issue in this appeal. As they did in the earlier challenge, Walmart and Target seek to have the disputed phrase interpreted in a manner that allows the full array of their merchandise to be identified as items “customarily sold in a restaurant” so that they may obtain a license to sell liquor. Walmart made this basis of their attack explicit in its petition, noting that its locations in Florida are licensed as restaurants and that as such, “[b]ecause these entities are restaurants, the items they ‘customarily’ sell identify categories of items that can be sold by a restaurant under its [COP] license . . . .” In other words, because they are “restaurants,” what they customarily sell is what is “customarily sold in a restaurant.” The ALJ did not rule on this argument for the rule’s invalidity. Instead, the order focused on one of the items listed by the Division in the proposed rule: “food cooked or prepared on the licensed premises.” After a thorough analysis of the history of the common and statutory definitions of “restaurant,” the ALJ concluded that “the definitions make no mention of where the food is prepared.” As such, the proposed rules limiting food customarily sold at a restaurant to food “cooked or prepared on the licensed premises” modified or contravened the statute. The Division notes that this reason was not the objection raised for the rule’s invalidity and as such, it is an improper reason to invalidate the rule. See § 120.56(2)(a) (requiring the agency in a rule challenge to demonstrate that the rule “is not an invalid exercise of delegated legislative authority as to the objections raised”) (emphasis supplied). I agree. Under the statutory scheme for rule challenges, an ALJ cannot invalidate a rule for a reason that was not alleged but seems correct to the ALJ. 9 One may respond that this is a nitpicking objection, that even if true, the challenger could simply raise the ALJ’s reason for invalidity in another rule challenge, so it might as well be permitted here. But adherence to this requirement is especially important in this case. Walmart and Target have already once challenged a prior version of the Division’s rule, as set forth in the Target Corporation decision, where they made the same argument that everything they sell falls into the category of “customarily sold in a restaurant.” There, the ALJ invalidated the rule not because he agreed with this argument but because he was able to detect two items that were customarily sold by restaurants but were not included in the original rule (t-shirts and souvenirs). In the proposed rule, the Division adds souvenirs to the list of customarily-sold items. And yet, the ALJ again invalidates the proposed rules, finding another item that ought to be included in the definition. How many times must the Division alter the rule to add an item that an ALJ says must be included before one finally rules on the argument the challengers actually made? For this reason, we should reverse the order under review. Even if I agreed that the ALJ invalidated the proposed rule on a ground that Walmart and Target adequately pleaded, we should still reverse the order. I will not belabor the lack of evidentiary support for the ALJ’s conclusion, or the ALJ’s disagreement with the Division’s conception of the definition of restaurant, how it has evolved since the Beverage Law was enacted, and whether it permits the exclusion of food cooked or prepared off the licensed premises, other than to say that the Division’s rule definition of the phrase was well within “the range of permissible interpretations” and should not have been invalidated. Bd. of Podiatric Med. v. Fla. Med. Ass’n, 779 So. 2d 658, 660 (Fla. 1st DCA 2001). I will mention, however, that the ALJ misapplied Dep’t of Bus. Regul., Div. of Alcoholic Beverages & Tobacco v. Salvation Ltd., 452 So. 2d 65 (Fla. 1st DCA 1984), to support its conclusion that the disputed phrase must include food cooked or prepared off the premises. In Salvation, Ltd., the rule in question concerned application of section 561.20(2)(a)3., Florida Statutes (1981), which permitted the sale of liquor under a special license to a “restaurant” that met certain specific criteria. This Court in Salvation, Ltd. set forth the 10 statutory criteria that qualified for this special license. “The applicant or licensee must: (1) be a restaurant, (2) have 2,500 square feet of service area, (3) be equipped to serve 150 persons full-course meals at tables at one time, and (4) derive at least 51 percent of its gross revenue from the sale of food and nonalcoholic beverages.” Id. at 66. “To these fixed and definite criteria, [the Division] added, by rule, a fifth criterion: that the meals be prepared and cooked on the licensed premises.” Id. This Court concluded that “[t]he serving of food by a restaurant simply does not require that the food be prepared and cooked on the premises,” so that the additional criterion was invalid. Id. at 67. The Salvation, Ltd. Court answered a different question than the one presented here. It found that the definition of restaurant does not exclude service of food prepared and cooked off premises. This was critical as the statute limited the special license to “restaurants,” so any definition that unduly restricted the definition of “restaurant” was improper. By contrast, the statute under consideration here is not in any way limited to restaurants. An applicant or licensee need not be a restaurant to comply with section 565.045(2)(b). It must only limit its sales to, among other things, items customarily sold in a restaurant. Thus, an establishment that sells food prepared or cooked off premises may qualify as a “restaurant” under section 561.20(2)(a)3., Florida Statutes (1981), but that fact says nothing about whether such items are customarily sold in restaurants. Accordingly, I do not believe that Salvation, Ltd. controls here. I would find that the Division met its burden to demonstrate that the rule was not an invalid exercise of legislative authority. I reject the steps the ALJ claimed the Division should have taken to support its rule, as they are not required by statute. For these reasons, I respectfully dissent from the majority opinion. _____________________________ Ross Marshman, General Counsel, of the Department of Business & Professional Regulation, Tallahassee, for Appellant. 11 Elliot H. Scherker, Brigid F. Cech Samole, and Katherine M. Clemente of Greenberg Traurig, Miami, for Appellee Walmart, Inc., and Wal-Mart Stores East, L.P. William N. Spicola, Tallahassee, for Appellees Target Corporation, Topgolf International Inc., and Walmart Inc. 12