Bd. of Liquor License Comm’rs for Balt. City v. Kougl: “But I didn’t know there was prostitution at my adult entertainment club.”

By Brad McCullough

In the film classic Casablanca, Captain Renault claimed he was “shocked – shocked – to find gambling going on” in Rick’s café. Similarly, in a case recently decided by the Court of Appeals of Maryland, Steven Kougl was shocked that prostitution was being solicited in his adult entertainment establishment, The Club Harem. But the court found it unnecessary to pass on the credibility of Kougl’s claims of innocence and lack of knowledge, holding that liquor board regulations made him strictly liable for the illicit activities at his club. Bd. of Liquor License Comm’rs for Balt. City v. Kougl, No. 43, Sept. Term, 2016 (Feb. 17, 2017).

Kougl’s problems arose from a visit to the club by an undercover detective in the vice division. The detective struck up a conversation with one of the club’s employees, Jamaica Brickhouse, who exposed her breasts and asked the detective to touch them. After the detective commented on the appearance of her breasts, Ms. Brickhouse suggested that she and the detective retire to the “VIP” room where they could have sexual intercourse. She explained that the room would cost $170, and that she would require a tip for her services. The detective proposed a $100 tip. Ms. Brickhouse accepted, but before any money exchanged hands, she went onstage to perform, and the detective left the club. Months later, Ms. Brickhouse was charged with prostitution.

She was not the only person facing legal peril for what had transpired. Rules promulgated by Baltimore City’s Board of Liquor License Commissioners regulate sexual conduct and prohibit illegal activity on the premises of a liquor licensee. One rule provides that a licensee must not “permit or suffer any employee … to solicit any person for prostitution;” another rule provides that a licensee must not “permit or suffer any person to appear in any act or other performance with breasts … uncovered;” and yet another rule provides that a licensee must not “allow the commission” of any illegal conduct on the licensee’s premises. Id. at 7–8, 10 (quoting Liquor Board Rules 4.17(a), 4.17(b), and 4.18)[1] (emphasis supplied by the Court). The Board found that Kougl violated those rules and suspended his liquor license for thirty days. The Circuit Court for Baltimore City affirmed. But the Court of Special Appeals reversed, holding “that the plain meaning of the words ‘suffer,’ ‘permit,’ and ‘allow,’ as used in Rules 4.17 and 4.18 ‘necessarily require that some level of knowledge by the licensee must be established by the evidence.’” Id. at 3 (quoting Kougl v. Bd. of Liquor License Comm’rs for Balt. City, 228 Md. App. 314, 330 (2016)). As “there was no evidence of Kougl’s actual or constructive knowledge of Brickhouse’s conduct,” the Board erred in finding that Kougl violated those Rules. Id.

The Court of Appeals disagreed with the intermediate court. Writing for the court, Judge Sally Adkins began by analyzing whether the plain language of the Rules supported the Board’s interpretation and decision. Courts “conduct this plain language inquiry within the context of the regulatory scheme,” and the “approach is a commonsensical one designed to effectuate the purpose, aim, or policy of the enacting body.” Id. at 7 (citation and internal quotation marks omitted). In choosing “the appropriate definition,” courts “look to the agency’s interpretation of its own regulation,” and defer to that interpretation “unless it is plainly erroneous or inconsistent with the regulation.” Id. at 9 (citation and internal quotation marks omitted).

The court explained that Black’s Law Dictionary provides three definitions for the term “permit,” two of which do “not require knowledge on the part of the actor.” Id. at 9. And the only definition Black’s provides for the term “suffer” does not require the actor to have knowledge. Thus, the court held “that a licensee can unknowingly ‘permit’ conduct prohibited by Rules 4.17(a) and (b),” and that the inclusion of term “suffer” likewise “does not impose a knowledge requirement on” those Rules. Id. at 9.

As for liability under Rule 4.18, Black’s gives two definitions for the term “allow,” one that requires the actor’s knowledge, and one that does not. Id. at 10–11. Again, the court’s “task is not to determine whether any possible definition includes a knowledge requirement. Rather, it is to determine whether the Liquor Board’s interpretation of its Rules is legally correct.” Id. at 11 (citation omitted). Since one “accepted definition of ‘allow’ does not require knowledge,” and as courts give “some deference” to the Board’s interpretation, the Court of Appeals held “that Rule 4.18 imposes strict liability.” Id.

Two other factors provided support for the court’s holding. First, “other states interpreting the words ‘permit’ and ‘suffer’ in liquor board regulations have concluded that they impose strict liability.” Id. at 9 (citations omitted).[2] Second, unlike Rules 4.17(a) and 4.18, and the relevant provision in Rule 4.17(b), another portion of Rule 4.17(b) prohibits a licensee from “knowingly” permitting or suffering premises to be used for certain illicit activities.[3] The Board argued that “the use of the term knowingly’ in the second part of Rule 4.17(b)” showed that the Rules that lack a similar “knowingly” element were intended to impose strict liability. Id. at 11. The court agreed. And, “[a]n interpretation of the Rules [at issue] that requires the licensee to act with actual or constructive knowledge would render superfluous the word ‘knowingly’ in Rule 4.17(b),” so the court concluded “that Rule 4.17(a), 4.17(b), and 4.18 do not include a knowledge requirement – they impose strict liability.” Id. at 13.

Finally, the court discussed the parties’ contention regarding the analysis adopted in Dawkins v. State, 313 Md. 638 (1988), for determining whether an offense is a “public welfare offense” for which criminal liability may be imposed under a strict liability test. But because the Rules are civil regulations that do not impose criminal liability, there was no “need to apply the Dawkins analysis to determine whether the presumption [against strict liability had] been overcome.” Kougl, Slip Op. at 16.

Despite the somewhat salacious background of this case, it amounts to another instance where courts accede to decisions of administrative agencies. In short, where an agency interprets a regulation or rule it has adopted, Maryland courts defer to that interpretation unless it is plainly inconsistent with the plain language of that rule or regulation.

[1] The Liquor Board Rules have since been amended. Effective January 1, 2016, Rules 4.17 and 4.18 have been renumbered as 4.15 and 4.16, respectively.

[2] The court noted that “some courts have found that ‘suffer’ and ‘permit’ require knowledge on the part of the licensee.” Kougl, Slip Op. at 10 n. 10 (citations omitted). The Court of Appeals “disagree[d] with those courts.” Id.

[3] That part of Rule 4.17(b) provides that a licensee must not “knowingly permit or suffer his premises to be used for the conduct, exhibition or performance of an obscene act or other performance.” Kougl, Slip Op. at 8 (quoting Rule 4.17(b)).