, Corbin, KY

November 27, 2013

Ruling favors Ernie’s Spirits

Recommends ABC Board not to revoke store’s package liquor license, grant beer license, Corbin, KY

CORBIN — By Jeff Noble / Staff Writer

The special hearing officer in the Ernie’s Spirits case has ruled that the store’s retail liquor package license was properly granted, and shouldn’t be revoked.

The officer, Susan Durant with the Administrative Hearings Branch of the state Attorney General’s Office, also recommended the Corbin store — which has yet to open — be granted a retail beer license.

Her decision was made last Wednesday in Frankfort.

It’s now up to the state ABC (Alcoholic Beverage Control) Board to make the final decision.

Brent Caldwell, the lawyer for Ernie’s Spirits owner Kevin Durham, said Tuesday that decision could be made by the ABC Board as early as next Thursday, Dec. 5.

The board is made up of ABC Commissioner Frederick Higdon, Distilled Spirits Administrator Tony Dehner, and Malt Beverage Administrator Stephanie Stumbo.

Dehner succeeded Danny Reed as Distilled Spirits Administrator. Reed was the administrator in charge during the time of the Ernie’s Spirits application in 2012.

“We’re very pleased by the hearing officer’s decision. The ABC board has 15 days to file exceptions where they disagree with any findings the hearing officer has made,” Caldwell said in a phone interview from Frankfort.

Speaking on Durham’s behalf, Caldwell added, “The board makes the final decision. They can accept or reject the decision from the haring officer, or they can make changes to the decision. If those changes are made, we would have the right to appeal it. We’ll see if they file something and we’ll take it from there.”

Caldwell noted that his client, and Reed’s testimony, were key elements in Durant’s decision.

“The main thing that helped him was that he (Durham) made full disclosure of his plans for purchasing the property and building the building throughout the process. Daniel Reed’s testimony helped out also, because he described it as a “fluid process” in that the ABC worked with the applicant throughout the process to make it right and legal. That is a normal process. And at the end, nobody was deceived by any false information,” he said.

Caldwell pointed out the store — located at 25 RJV Drive, off the Cumberland Falls Highway — remains closed until the board makes its final ruling.

“It’s built, it’s ready to go, but my client hasn’t done anything to open it up until this final decision by the ABC Board is in his favor. … Kevin’s been very frustrated because it’s been a slow process, and it’s been a serious financial burden for him, because he’s spent $1.2 million just to get the license and get it built. He’s very pleased with the hearing officer’s decision. We look forward to winning in the end, and we feel very good now,” he stated.

Three administrative hearings on the Ernie’s Spirits case were held in Frankfort on Aug. 2, Aug. 7 and Sept. 25 of this year.

The issue was whether a retail liquor package license issued to the store should be revoked, and whether Ernie’s Spirits should be refused a retail beer license for false material statements made in the license application.

According to Durant’s ruling, court records said the Board’s established practices and procedures in the licensing process were “immaterial until the issuance of the actual license. The Malt Beverage Administrator followed the lead of the Distilled Spirits Administrator,” and found the retail liquor package valid, and that Ernie’s Spirits should be issued a retail beer license.

Court records showed the Ernie’s Sprits, LLC application (doing business at Ernie’s Spirits) was signed by Kevin Durham as manager, with the Articles of Organization filed on May 5, 2012. At the time, Kevin Durham owned 70% of the corporation, with his father Ernie Durham owning 30%. When the hearings were held, Kevin was the sole owner, due to his father’s death. The application also showed the location’s address was at 25 RJV Drive, with RJV Properties being the owner of the property. The property was purchased for $417,000 with a good faith deposit of $4,000 paid, and contingent mainly upon Durham’s getting a package liquor license. The lease that accompanied the application was between Matuse Property Holdings, LLC and Ernie’s Spirits, LLC, and signed by Kevin Durham for Ernie’s Spirits as tenant on May 8, 2012, and by Kevin Durham as landlord. The application and lease were received by the ABC Board on May 9, 2012.

Records indicated Durham was sent an email by Janet L. Williams, the Assistant Director of Distilled Sprits on May 22, 2012. She pointed out three problems in the lease, saying “the lease says that the premises were for use as a private residence; it did not list the date the lease commenced; and it automatically renewed on a month-to-month basis.” Williams added the lease didn’t have to be corrected at the time, but that the ABC would require a corrected lease before a license could be issued, should Ernie’s Sprits be selected as one of the three package liquor stores allocated to Corbin.

The document showed Williams continued as Durham’s main contact with the ABC Board throughout the licensing process until she retired in February of this year.

During the hearings, court records said Williams testified that the ABC Board can accept an application without a lease, but that the board must have a proper lease by the time the ABC grants a final license.

Williams’ supervisor, Danny Reed, testified that “a lease was not important until the find license was granted. Reed stated it was ‘very rare’ for an applicant to have everything in place at the time of the application,” according to court records.

Ernie’s Spirits, Liquor King, and Tri County Liquor of Corbin (now Liquor Mart of Corbin) were the chosen as the three winning applicants for Corbin’s retail package liquor licenses in July 2012, out of a field of 12 applicants.

Court records noted Durham updated Williams on the status of Ernie’s Spirits on a regular basis, after getting conditional approval of the license.

A copy of the revised lease between Matuse and Ernie’s Spirits was sent by Durham to Williams on Sept. 25, 2012. It showed Matuse Property Holdings LLC was organized on Aug. 17, 2012, with the Articles of Organization filed with the Kentucky Secretary of State’s office on Aug. 20, 2012. Records indicated the revised lease superseded the lease that was given during the application process to be one of the three Corbin stores picked, with the commencement date of the lease being Dec. 1, 2012.

According to the record, Durham requested to Reed Oct. 2, 2012 for a six-month extension of the original Oct. 31, 2012 store opening date. Reed granted an extension that same day to April 30 of this year.

Court records noted that around Nov. 29, 2012, the owner/operator of Liquor World stores in Richmond and Manchester, Clinton Wesley Morgan, and who one of the unsuccessful applicants for a license in Corbin, gave the Board a report from an investigation he had conducted in regards to the Ernie’s Spirits. The independent investigation was conducted by John Ray Roberts, who worked with the ABC for over 14 years, and was dated March 28 of this year. Roberts’ report noted at the time the Matuse lease was submitted as part of the application of Ernie’s Sprits on May 8, 2012 that “Matuse did not exist as a corporation and diid not have a possessory interest in 25 RJV Drive. Further, Matuse did not own the property on Sept. 25, 2012, when the new/revised lease was submitted. Matuse did not obtain the deed to 25 RJV Drive until Oct. 4, 2012.”

A package liquor license was issued to Ernie’s Spirits on April 4 of this year by Tony Dehner, who succeeded Reed as Distilled Spirits Commissioner after Reed’s term ended. Dehner also sent a letter explaining that there were circumstances on why the license was issued. He added the ABC Board considered the leases between Matuse and Ernie’s on May 1 and Sept. 25, 2012 to be “false and fraudulent. However, because ‘The issuance conditions specified in his (Reed’s) Oct. 2, 2012 extended letter of intent were satisfied. For those reasons the law requires me to issue the previously approved LP (Liquor Packge) license.” But Dehner noted, “The issuance of this license does not waive any violations by you relating to the false application statements and fraudulent deeds referenced above. KRS 243.500 (2) provides that a license may be revoked for any false material statement made in the license application. …The Department has initiated an administrative action seeking to revoke your license.”

Ernie’s Spirits was refused a retail beeer license on April 8 of this year, by state Malt Beverage Administrator, Stephanie Stumbo. Court records indicated the refusal was for the same reasons the board sought to revoke the retail package license that had just been issued to the store.

The ABC Board issued an Administrative Complaint and Order Scheduling Hearing, seeing to revoke Ernie’s Spirits alcoholic beverage license on April 4 of this year.