Amended tobacco statute provides due process

The Alaska Supreme Court ruled last week that a lower court was correct in upholding a decision to fine a tobacco seller and temporarily suspend its state endorsements for illegal sales to minors. At issue is the state's tobacco endorsement statute, which was amended by lawmakers in 2007 to address due process concerns. Like the former version of the statute, the amended statute provides that if a licensee's employee is convicted of violating state law while acting within the scope of employment, the State may impose a civil penalty.

 However, the amended statute differs by establishing an employee's conviction as a rebuttable presumption of negligence to support a finding of liability. The plaintiff in the case, Holiday Alaska Inc., sells tobacco at more than 25 stores in Alaska, and each store holds a tobacco license endorsement from the State. However, five separate incidents of Holiday employees illegally selling tobacco to minors were reported. Each case resulted in conviction: One employee was found guilty by default judgment, three pled guilty, and one was found guilty at trial. The State filed a notice of intent to suspend the five stores' endorsements based on the employee convictions, seeking to impose a $300 civil fine and a 20-day endorsement suspension against each store. Holiday requested a hearing before the Office of Administrative Hearings in each case. An administrative law judge held two hearings.

 The ALJ first considered the allegations against Holiday resulting from four of the convictions and issued a consolidated decision; he later considered the allegations against Holiday resulting from one additional employee's conviction and issued a separate decision. Throughout the proceedings Holiday asserted various constitutional challenges, which the ALJ denied because he could not "rule on a constitutional challenge that seeks to nullify the statute." However, the judge allowed Holiday to present evidence relevant to its constitutional challenges to construct a factual record for appeal. The ALJ later concluded that Holiday did not overcome the statutory presumption of negligence established by the convictions, and therefore was liable for each violation and subject to penalty under the tobacco endorsement statute.

 The judge considered Holiday's internal procedures as evidence justifying mitigation of the penalty, but did not find the policies rebutted liability entirely. He recommended imposing a $300 penalty and suspending the tobacco license endorsement for 13-20 days in each case, with reductions in three instances based on the mitigating evidence of internal policies. The commissioner adopted the ALJ's recommendations as the final agency decision. Holiday appealed to the superior court. The court upheld the commissioner's decision without modification, specifically rejecting Holiday's constitutional arguments. Holiday appealed, presenting only one issue: whether the state's tobacco endorsement statute, as amended, violates its due process rights.

 In its ruling filed Friday, the state's high court affirmed the superior court's conclusion that the amended statute provides due process. The amendment actually "enhances" procedural protections, it said. Justice Daniel E. Winfree explained that the amended statute grants the licensee the right to notice of minor offense charges pending against any employee, "allowing the licensee to overcome the rebuttable presumption that its employee's conviction constitutes proof of a negligent sale of tobacco products to a minor, and allowing the licensee to present mitigating evidence of its efforts to curtail negligent sales."

 He added, "These additional procedural protections serve to further diminish the risk of erroneous deprivation." The Court also noted that Holiday presented no reason why an employee would be less motivated under the amended statute to fight an erroneous charge. "A conviction may cost the employee his or her job, and the penalty represents a measurable percentage of an hourly worker's earnings, providing significant motivation to fight an erroneous charge," Winfree wrote in the Court's 10-page ruling. "And the statutory change requiring notice to a licensee of charges against an employee enables the licensee to provide counsel to fight erroneous charges. "Indeed, in this case Holiday provided several of its employees with legal representation and at least one employee went to trial."