STATE OF IOWA BEFORE THE DEPARTMENT OF COMMERCE ALCOHOLIC BEVERAGES DIVISION IN RE: DOCKET NO. D-2007-00075 DIA NO. 07DOCBL038 F & S 3000, Inc. d/b/a 3rd Street Mart 612 West 3rd Street Davenport, IA 52802 PROPOSED DECISION Liquor License No. LE1172 On May 3, 2007, the city of Davenport (local authority) filed an administrative hearing complaint against F&S 3000 Inc., d/b/a 3rd Street Mart (licensee), which alleges that: · On or about September 5, 2005 and again in September 2006, the licensee did, or by an agent, manager, or owner of the licensee did, violate Iowa Code section 123.39(b)(1) and Davenport Municipal Code §5.10.230(A) by misrepresenting a material fact on the application and/or renewal application for liquor control license LE 1172; and · On or about April 13, 2007, the licensee did, or by an agent, manager or owner did violate Iowa Code sections 123.39(4) and 123.26(d) through the happening of an event (felony conviction) that results in disqualification from holding a liquor license. A hearing was held before the undersigned administrative law judge on May 30, 2007 at 1:00 p.m. at the office of the Iowa Department of Commerce, Alcoholic Beverages Division, 1918 S.E. Hulsizer, Ankeny, Iowa. Assistant City Attorney Brian Heyer represented the local authority. Attorney David Treimer represented the licensee. ISSUES Whether the licensee misrepresented ownership on its license renewal applications in 2005 and 2006 when it listed Ghulam Chaudhry as the new 50% owner in place of the prior 50% owner, Ali Murtaza, because Ghulam Chaudhry and Ali Murtaza are one and the same person who has been using two different names and social security numbers on the liquor license application/renewals? Whether the corporate ownership/management of F&S 3000, Inc. includes an individual who is ineligible to hold a liquor license due to his felony convictions? THE RECORD The record includes the Hearing Complaint and attachments, the Notice of Hearing, the testimony of the witnesses, Local Authority Exhibits 1-29 (see Exhibit index for description); and Licensee Exhibits L-1 (Copy of Social Security Card for Ghulam Mustifa Chaudhry and New Jersey Commercial Driver's License for Ghulam M. Chaudhry); Exhibit L-2 (Pakistani Documents re: name change to Ali Murtaza); and Exhibit L-3 (May 29, 2007 Cover Letter from Attorney Kyle Williamson sending Change of Registered Office and/or Registered Agent to Iowa Secretary of State; Statement of Change of Registered Agent, 5/29/07; Corporate Minutes dated 5/29/07; Corporate Minutes dated 5/26/05) FINDINGS OF FACT 1. On August 27, 2003, the Alcoholic Beverages Division issued Liquor License LE-1172 to F&S 3000, Inc., based on its application listing Ali Murtaza and Shahid Mahmood as the two equal owners of the corporation's shares. Ali Murtaza signed the application on behalf of F&S 3000, Inc. The application listed Ali Murtaza's date of birth as May 15, 1965 and his social security number as 062-88-0965. (Local Authority Exhibit 1) The original license application states that F&S 3000, Inc. controls the licensed premises by ownership. An attached warranty deed and attached commercial lease show that Ali Murtaza and Ghulam M. Chaudhry owned the property (described as the East 24 feet of the west 52 feet of Lot 3 in Block 17) as tenants in common and that they leased it to F&S 3000, Inc. Ali Murtaza filed the Articles of Incorporation for F&S 3000, Inc. on October 9, 2003. (Local Authority Exhibits 1, 10) 2. On or about September 10, 2004, Liquor License LE-1172 was renewed based on an application signed by Ali Murtaza, which showed no change in the corporate ownership from the previous application. (Local Authority Exhibit 2) 3. A special meeting of F And S 3000, Inc. was purportedly held on May 26, 2005. According to the Corporate Minutes found in Local Authority Exhibit 7, the following resolutions were adopted: · Ghulam Chaudhry was named the new president of F And S 3000, Inc., and Shahid Mahmood was named the new treasurer; · 100 shares of stock were to be issued with no certificates, with 50 shares each for Ghulam Chaudhry and Shahid Mahmood. · Ali Murtaza would be retained as "Manager" and "Chief Operating Officer" of F And S 3000 Inc.; · The corporation authorized Ali "Jim" Murtaza to be a signator on any negotiable instruments, to enter into contracts on behalf of the corporation, and to bind the corporation in any such contract. (Local Authority Exhibit 7) 4. On June 20, 2005, F&S 3000, Inc. filed a statement of change of registered office/agent with the Iowa Secretary of State. The registered office/agent changed from Ali Murtaza at 1139 Brady St. in Davenport, Iowa to Ghulam Chaudhry at 612 W. 3rd St., in Davenport, Iowa. The signature of "Ghulam Chaudhry" appears on the change form with the corporate title of "President." (Local Authority Exhibits 3, 6) a. Ghulam Mustafa Chaudhry testified at the administrative hearing and identified his signature on the registered agent change form. Ghulam Mustafa Chaudhry testified that he is the brother of Ghulam Murtaza Chaudhry, aka Ali Murtaza. He testified that in Pakistan, a person's last name is the family name and siblings often share the same first name, but the middle name is distinctive. He estimated that there might be as many as 20 persons named Ghulam Chaudhry in his hometown in Pakistan. b. Ghulam Mustafa Chaudhry came to the United States in 1985 and is a U.S. citizen. He submitted copies of his social security card (147-85-1471), which was issued to Ghulam Mustifa Chaudhry. He also submitted a copy of his New Jersey commercial driver's license, issued to Ghulam M. Chaudhry. The witness's appearance at hearing matched the photograph on his driver's license. Ghulam Mustafa Chaudhry has lived in New Jersey since 2000, except for a period of 6-7 months in 2004 when he lived in Davenport. (Testimony of Ghulam Mustafa Chaudhry; Licensee Exhibit L-1) 5. Ghulam Mustafa Chaudhry provided confusing testimony concerning his purchase of Ali Murtaza's corporate shares of F&S 3000, Inc. Ghulam Mustafa Chaudhry testified that he did not pay Ali Murtaza any money when he received the stock shares in 2005 but instead gave his brother his interest in the 3rd Street Mart real estate. Ghulam Mustafa Chaudhry further testified that since he lives in New Jersey, he gave Ali Murtaza his power of attorney, which was prepared by attorney Kyle Williamson. Documents maintained in the Scott County Recorder's Office reflect the following transfers by warranty deed in 2005: a. On May 3, 2005, Ali Murtaza and Aileen Murtaza, husband and wife, conveyed and recorded the transfer of their interest in the East 24 feet of the West 52 feet of Lot 3 in Block 17 to Ali Murtaza and Shahid Mahmood, as tenants in common. (Local Authority Exhibit 17) b. On August 19, 2005, Ghulam M. Chaudhry, a single person, conveyed and recorded the transfer of his interest in the East 24 feet of the West 52 feet of Lot 3 in Block 17 to Ali Murtaza and Shahid Mahmood, as tenants in common. However, Ali Murtaza signed the warranty deed on behalf of Ghulam M. Chaudhry, as Power of Attorney. (Local Authority Exhibit 16) c. On August 24, 2005, Ali Murtaza and Aileen Murtaza, husband and wife, and Ghulam Chaudhry conveyed and recorded the transfer of their interests in the East 24 feet of the West 52 feet of Lot 3 in Block 17 to F&S 3000, Inc. (Local Authority Exhibit 14) Ghulam Mustafa Chaudhry claims to have paid for his 50 shares of F&S 3000, Inc. with the conveyance of his real property interest to Ali Murtaza. However, the validity of that transfer is in question since Ali Murtaza signed the deed as power of attorney for his brother, and it appears that the power of attorney was never recorded. In addition, Ali Murtaza then turned around and conveyed his interest back to F&S 3000, Inc., of which Ghulam Chaudhry is 50% owner. 6. On or about September 5, 2005, Shahid Mahmood signed and submitted a renewal application for Liquor License LE-1172 on behalf of F&S 3000, Inc. The renewal application stated that Shahid Mahmood and Ghulam Chaudhry each owned 50% of the corporate shares. Ali Murtaza's name did not appear on the renewal application when it was initially submitted to the local authority. Shahid Mahmood attached the May 26, 2005 Corporate Minutes to this renewal application. (Local Authority Exhibit 7) On September 26, 2005, the local authority's Administrative Assistant returned the renewal application to Shahid Mahmood and Ali Murtaza and asked them to submit additional information relating to the reported change in ownership. The administrative assistant noted that the Iowa Secretary of State's website still listed Ali Murtaza as a director of F&S 3000, Inc. and further noted that the submitted Corporate Minutes list Ali Mustafa as the "Manager" and "Chief Operating Manager." Because of his continuing status with the corporation, Ali Murtaza needed to be listed in the ownership section of the application and to provide his criminal history. (Local Authority Exhibits 5-7; Testimony of Shahid Mahmood) In response to the local authority's request, Ali Murtaza was added to the 2005 renewal application under the ownership section and was listed as having 0% ownership. Ali Murtaza was also listed under the criminal history section with the answer "none" for his dates of arrests, charges, and dispositions. Following these amendments, the renewal application was approved. (Local Authority Exhibit 7) 7. In September 2006, F&S 3000, Inc. submitted an electronic renewal application containing the same ownership information that had previously been submitted in 2005. Ali Murtaza was again listed as a director of the corporation with 0% ownership interest. (Local Authority Exhibit 8) 8. On April 13, 2007, Ali Murtaza, a.k.a. Jim Murtaza and a.k.a. Ghulam Murtaza Chaudhry, pled guilty and was convicted on seven felony counts in the United States District Court for the Southern District. Two counts were for providing False Statements in an Immigration Document and five counts were for Misuse of a Social Security Number. The factual basis for the guilty plea concerned, in part, Ali Murtaza's use of false information, including a false birth date, when filing an application for Temporary Resident Status and two separate false applications for social security numbers. Ali Murtaza used the second social security number in the initial application for Liquor License LE-1172 for F&S 3000, Inc. Ali Murtaza was sentenced to serve six months in prison on each felony count, all counts to be served concurrently. (Local Authority Exhibits 19-22; Testimony of Aileen Murtaza) 9. Ali Murtaza's wife, Aileen Murtaza, continues to work for 3rd Street Mart as a cashier. She also orders inventory and makes bank deposits. Aileen Murtaza denied that her husband retained any ownership interest in F&S 3000, Inc. after 2005. She also testified that her husband had not functioned as a manager at 3rd Street Mart for approximately eight months, and further described his duties prior to his incarceration as similar to her own. (Testimony of Aileen Murtaza) Shahid Mahmood occasionally works as a cashier at 3rd Street Mart, but he also operates another business in Dubuque, which requires him to travel between the two cities. (Testimony of Shahid Mahmood) Ghulam Mustafa Chaudhry resides in New Jersey, but visits Davenport every 6-12 months. (Testimony of Ghulam Mustafa Chaudhry). 10. The day before the administrative hearing, the registered agent for F&S 3000, Inc. was changed from Ghulam Chaudhry to Shahid Mahmood. Ghulam Chaudhry and Shahid Mahmood testified that this occurred at a special meeting held at the office of the corporate attorney, Kyle Williamson. Attorney Williamson prepared a cover letter, dated May 29, 2007, to send the change form to the Iowa Secretary of State. (Exhibit L-3, pp.1-2) The license also submitted, as part of Exhibit L-3, Corporate Minutes dated May 29, 2007. These Corporate Minutes state that a special meeting of the Board of Directors was held, Ghulam Chaudhry and Shahid Mahmood were present, and a resolution was passed dismissing Ali "Jim" Murtaza as the financial manager for the corporation. (Exhibit L-3; Testimony of Shahid Mahmood; Ghulam Chaudhry) 11. At the administrative hearing, both Shahid Mahmood and Ghulam Mustafa Chaudhry testified that a decision was made at the May 29, 2007 corporate meeting to give Ghulam Mustafa Chaudhry 67% of the corporation's shares, reportedly because Shahid Mahmood had made a loan to Ali Murtaza without Ghulam Mustafa Chaudhry's knowledge. They did not explain why this change was not reflected in the May 29, 2007 Corporate Minutes that purportedly removed Ali Murtaza as "financial manager." Rather, the licensee submitted Corporate Minutes (also as part of its Exhibit L-3), which Mahmood and Chaudry claimed reflected the previous days' change to give Ghulam Chaudhry 67% of the corporate shares. However, the Corporate Minutes submitted as part of Exhibit L-3, which purported to grant Ghulam Chaudhry 67 shares, were dated May 26, 2005, not May 29, 2007. These May 26, 2005 Corporate Minutes are similar to the May 26, 2005 Minutes previously submitted with the 2005 renewal application (Local Authority Exhibit 7) with several important distinctions. a. The first version of the May 26, 2005 Corporate Minutes gives Ghulam Chaudhry 50 shares and Shahid Mahmood 50 shares; the second version gives Ghulam Chaudhry 67 shares and Shahid Mahmood 33 shares. b. Only the second version bears a "FAXED" stamp that is crossed out and also bears a notary stamp, for a notary whose commission expired on November 20, 2006, six months prior to May 29, 2007. Moreover, the notary does not state on what date the signatures were witnessed and notarized. See Iowa Code section 9E.15(2007). The first version has neither the "FAXED" stamp nor the notary stamp. c. Only the second version states that the corporation shall accept and receive a deed from Ali and Aileen Murtaza for the property commonly known as 648 Marquette Street, Davenport, Scott County, Iowa. It makes no sense for this resolution to have been passed on May 29, 2007, because the referenced warranty deed was in fact recorded in Scott County nearly two years earlier. In all other respects, the May 26, 2005 Corporate Minutes appear identical to the copy previously submitted with the 2005 renewal application. (Local Authority Exhibit 7; Testimony of Shahid Mahmood; Ghulam Mustafa Chaudhry; Licensee Exhibit L-3) CONCLUSIONS OF LAW I. Applicable Statutes and Rules Iowa Code section 123.39(1)(b)(1) and (4) (2005, 2007) provide, in relevant part: b. A license or permit issued under this chapter may be suspended or revoked, or a civil penalty may be imposed on the license or permit holder by the local authority or the administrator for any of the following causes: (1) Misrepresentation of any material fact in the application for the license or permit... ... (4) An event which would have resulted in disqualification from receiving the license or permit when originally issued. Applications for liquor licenses must include the names and addresses of all persons, in the case of a corporation, the officers, directors, and persons owning or controlling ten percent or more of the capital stock thereof, having a financial interest, by way of loan, ownership, or otherwise in the business. Iowa Code section 123.31(3)(2005). Iowa Code section 123.30(1)(a)(2005, 2007) provides: 1. a. A liquor control license may be issued to any person who is of good moral character as defined by this chapter. "Person" means any individual, association, partnership, corporation... Iowa Code section 123.3(25)(2005, 2007). Iowa Code section 123.3(26)(2005,2007) defines the good moral character requirement and provides, in relevant part: 26. "Person of good moral character" means any person who meets all of the following requirements: a. The person has such ...good reputation as will satisfy the administrator that the person will comply with this chapter and all laws, ordinances, and regulations applicable to the person's operations under this chapter... ... d. The person has not been convicted of a felony... e. The requirements of this subsection apply to the following: (1) Each of the officers, directors, and partners of such person. (2) A person who directly or indirectly owns or controls ten percent or more of any class of stock of such person. ... In hearings before the Alcoholic Beverages Division, the burden of going forward with the evidence is on the state or local authority; the burden of proving compliance with the statute is on the licensee. See McCrea v. Iowa Department of Transportation, 336 NW2d 427 (1983); Iowa Code section 17A.18(3)(2007). II. Analysis On May 3, 2007, the City of Davenport (local authority) filed its Hearing Complaint seeking revocation of Liquor License LE-1172 on the grounds that the licensee misrepresented ownership by providing two different names and social security numbers for the same person on two license renewal applications and on the grounds that the licensee's ownership includes an individual who is ineligible to hold a liquor license. Since the local authority made no motions to amend the Hearing Complaint or expand the scope of issues at hearing, this analysis and the proposed decision will be limited to the issues raised in the local authority's Hearing Complaint. 185 IAC 10.21(3). A. Misrepresentation of Ownership The local authority asserted that the prior 50% owner and incorporator of F&S 3000, Inc., Ali Murtaza, and the purported new 50% owner of F&S 3000, Inc., Ghulam Chaudhry, were one and the same person who used two different names and two different social security numbers on the original license application and on the license renewal applications filed in 2005 and 2006. However, the preponderance of the evidence presented at hearing established that Ghulam Mustafa Chaudhry, aka Ghulam Mustifa Chaudhry, aka Ghulam M. Chaudhry, aka Ghulam Chaudhry, is Ali Murtaza's brother. Ghulam Mustafa Chaudhry has been issued the social security number that appears on the 2005 and 2006 renewal applications and is the person who signed documents purporting to give him an ownership interest in F&S 3000, Inc. Ghulam Mustafa Chaudhry appeared at hearing and testified that he signed the documents in question. He and Ali Murtaza, aka Jim Murtaza, aka Ghulam Murtaza Chaudhry, are not the same person. Therefore, based on this record it cannot be concluded that the licensee misrepresented ownership on the 2005 and 2006 renewal applications by presenting two different social security numbers and two different names for one person, i.e. Ali Murtaza, a.k.a Ghulam Murtaza Chaudhry. B. License Ineligibility-Felony Conviction On April 13, 2007, Ali Murtaza (a.k.a Jim Murtaza and a.k.a Ghulam Murtaza Chaudhry) was convicted of seven felony counts in the United States District Court for the Southern District of Iowa. As a convicted felon, Ali Murtaza is ineligible, under the good moral character requirement, to hold a liquor license in the state of Iowa. Iowa Code section 123.3(26)(d) (2007). As of the date of his felony convictions, Ali Murtaza remained a director of F&S 3000, Inc. (State Exhibit 9) When a corporation is the licensee, the good moral character requirements apply to each of the officers, directors, and partners of such person. Iowa Code section 123.3(26)(e)(1). (emphasis supplied) As of April 13, 2007, Ali Murtaza's status as both a director of F&S 3000, Inc. and as a convicted felon rendered the corporation ineligible to hold Liquor License LE-1172. According to the Corporate Minutes dated May 29, 2007 and submitted as part of Licensee Exhibit L-3, the Board of Directors of F&S 3000, Inc. took action to dismiss Ali "Jim" Murtaza as the "financial manager" of the corporation on May 29, 2007. However, no action was taken to address or change Ali Murtaza's status as a director of the corporation. Even if the resolution had attempted to remove Ali Murtaza as a director of the corporation as of May 29, 2007, such an action would not have retroactively preserved the corporation's eligibility to hold the liquor license. The licensee's submission of a second set of Corporate Minutes as part of its Exhibit L-3, which were dated May 26, 2005 but which the licensee's two shareholders both testified represented corporate action they had taken the day prior to hearing on May 29, 2007, raises serious credibility questions about the reliability of the corporation's documents. The May 26, 2005 Corporate Minutes included in Licensee Exhibit L-3 had no credibility, due to the numerous inconsistencies and irregularities outlined in Finding of Fact #11. The corresponding testimony of Ghulam Chaudhry and Shahid Mahmood with respect to this exhibit was not credible. Moreover, if their testimony that these Corporate Minutes reflected action they took on May 29, 2007 was to be believed, then on May 29, 2007 they specifically retained Ali Murtaza as "Manager" and "Chief Operating Officer" and authorized him to sign all negotiable instruments and contracts binding the corporation. ORDER IT IS THEREFORE ORDERED that Liquor License LE-1172, issued to F&S 3000, Inc., d/b/a 3rd Street Mart, is hereby REVOKED due to the felony convictions of one of its directors, which renders the corporation ineligible to hold a liquor license in the state of Iowa. Pursuant to the administrative rules of the division, any adversely affected party may appeal a proposed decision to the Administrator of the Alcoholic Beverages Division within thirty (30) days after issuance of the proposed decision. In addition, the Administrator may initiate review of a proposed decision on the Administrator's own motion at any time within thirty (30) days following the issuance of a proposed decision. 185 IAC 10.27(1) and (2). Requests for review shall be sent to the Administrator of the Alcoholic Beverages Division, 1918 S.E. Hulsizer, Ankeny, IA 50021. Unless otherwise ordered, each appealing party may file exceptions and briefs within thirty (30) days of the notice of appeal or order for review. Within thirty (30) days thereafter, any party may file a responsive brief. The Administrator may shorten or extend the briefing period as appropriate. The Administrator may resolve the appeal on the briefs or provide an opportunity for oral argument. 185 IAC 10.27(6). The administrator may affirm, reverse or modify the proposed decision. A party who is adversely affected by the proposed decision shall not be deemed to have exhausted administrative remedies unless the adversely affected party files a request for review of the proposed decision within the time provided and the Administrator has reviewed the proposed decision and has affirmed, reversed, or modified the proposed decision. Dated this 21st day of June, 2007.