Business License Suspension or Revocation in Minnesota

What Gives a Minnesota City the Power to Suspend or Revoke a Business License?

A Minnesota city’s power to license, and to discipline a license, comes from a state grant of power carried out through the city’s own ordinance or charter. A statutory city’s council may adopt ordinances for “the promotion of health, safety, order, convenience, and the general welfare” (Minn. Stat. § 412.221, subd. 32). Other subdivisions name specific businesses, such as the power “to license and regulate restaurants and public eating houses, except that a restaurant or delicatessen in a grocery store is subject only to regulation under chapter 28A” (subd. 30). Home rule charter cities act under their charters.

Some license types have their own statute. For tobacco, “A town board or the governing body of a home rule charter or statutory city may license and regulate the retail sale of tobacco, tobacco-related devices, and electronic delivery devices . . . and nicotine and lobelia delivery products” (Minn. Stat. § 461.12, subd. 1). “The county board shall license and regulate” those sales in unorganized territory and where the town or city does not, except on the State Fairgrounds (subd. 1). A retailer licensed by its town or city is “not required to obtain a second license for the same location under the licensing ordinance of the county” (subd. 1). The licensing authority must run “unannounced compliance checks at least once each calendar year at each location” where these products are sold (subd. 5).

Because each city writes its own ordinance, the grounds for discipline differ from city to city. Two examples:

• Minneapolis sets minimum standards for a license “under Titles 10, 11, 13 and 14 of this Code,” and “Failure to comply with any of these standards and conditions shall be adequate grounds for the denial, refusal to renew, revocation or suspension” of the license (Minneapolis Code section 259.250). The standards make the licensee “directly and vicariously responsible for any violations on the premises, including parking areas, by any employees, independent contractors, other persons hired by the licensee, or otherwise under the supervision or management of the licensee,” and require “adequate security to prevent criminal activity, loitering, lurking and disorderly conduct.”
• St. Paul lets the council act when the licensee has violated “any statute, ordinance or regulation reasonably related to the licensed activity, regardless of whether criminal charges have or have not been brought in connection therewith” (St. Paul Legislative Code section 310.04(b)). A violation reasonably related to the licensed activity can support a license case there even when no criminal charge is brought.

I suggest reading your own city’s general licensing chapter and the chapter for your license type first, because those two chapters set the grounds and the process for your case. A license problem can also start from a zoning violation or another building-code issue, and the page on Minnesota regulatory requirements covers the state-level rules beside the local ones.

What Notice and Hearing Must a City Give Before It Acts?

A licensee is entitled to notice of the charges and a meaningful chance to answer them, and the St. Paul ordinance and tobacco statute quoted below put the hearing ahead of any penalty. When the government takes a protected property interest, “procedural due process guarantees reasonable notice and a meaningful opportunity to be heard” (In re Rental Dwelling License Held by Khan, 804 N.W.2d 132 (Minn. App. 2011)). In Staeheli v. City of St. Paul, 732 N.W.2d 298 (Minn. App. 2007), a St. Paul license case, the parties did not dispute that revoking the license deprived the holder of a property interest. The Court of Appeals, quoting an earlier decision, said “Due process requires that a defendant must be given adequate time to investigate the charges and prepare its defense” (Staeheli, 732 N.W.2d 298).

Statutes and ordinances add their own requirements:

• Tobacco. “No suspension, revocation, or other penalty may take effect until the licensee has received notice, served personally or by mail, of the alleged violation and an opportunity for a hearing before a person authorized by the licensing authority to conduct the hearing. A decision that a violation has occurred must be in writing” (Minn. Stat. § 461.12, subd. 2).
• St. Paul. The licensee “must be notified in writing that adverse action may be taken against the license or application, and that they are entitled to a hearing before action is taken by the council.” The notice “must state the issues involved or grounds upon which the adverse action may be sought or based” (St. Paul Legislative Code section 310.03(b)).
• Minneapolis. For a license under Titles 10, 11, 13, and 14 of its code, adverse action “may be based upon good cause at any time upon proper notice and hearing” (Minneapolis Code section 259.250).

If the notice sets a date to respond or to request a hearing, I suggest calendaring that date the day the notice arrives. I also suggest answering in writing before it, because some early choices give up the hearing. In St. Paul, “a licensee who would be making a first or second appearance on a violation that calls for a monetary fine before the council may elect to pay the fine to the department of safety and inspections without a council hearing, unless the notice of violation has indicated that a hearing is required because of circumstances which may warrant deviation from the presumptive fine amount,” and that payment “will be considered to be a waiver of the hearing to which the licensee is entitled” (St. Paul Legislative Code section 310.03(m)).

Who Hears the Case: the Council, a Hearing Officer, or an Administrative Law Judge?

The city’s ordinance decides who hears the evidence, and in St. Paul and Minneapolis the council makes the final decision either way. St. Paul sends the case straight to the council only “Where there is no dispute as to the facts underlying the violation or as to the facts establishing mitigating or aggravating circumstances.” Otherwise, “the hearing must be conducted before a hearing examiner appointed by the council or retained by contract with the city for that purpose” (St. Paul Legislative Code section 310.03(c)). The examiner writes findings and a recommendation, and “The council may accept, reject or modify the findings, conclusions and recommendations of the hearing examiner” (section 310.03(c-1)).

Minneapolis lets its licensing official send the case “to an administrative hearing officer pursuant to Title 1, Chapter 2 of this Code, to an administrative law judge or directly to an appropriate committee of the city council” (Minneapolis Code section 259.255). The council has “final authority to impose any appropriate adverse license action.” The Court of Appeals has held that Minneapolis’s process of hiring and selecting its own hearing officers did not violate due process on the record in that case (Khan, 804 N.W.2d 132).

A city can also hire an administrative law judge from the state’s administrative hearings office: cities “may contract with the chief administrative law judge for the purpose of providing administrative law judges and reporters for administrative proceedings or informal dispute resolution” (Minn. Stat. § 14.55). The contract “may include the preparation of findings, conclusions, or a recommendation for action by the political subdivision.” The state Administrative Procedure Act’s hearing rules do not apply to a city on their own, because an “agency” under that act is a state body “having a statewide jurisdiction” (Minn. Stat. § 14.02, subd. 2). The Minnesota Supreme Court applied that limit to a county (Dietz v. Dodge County, 487 N.W.2d 237 (Minn. 1992)).

In St. Paul, choosing whether to dispute the facts decides which of these hearings you get. One business owner asked me about a proposed fine, suspension, and amended license conditions. I wrote that the choice between accepting the inspectors’ observations and disputing them was the central decision, and that it is hard to undo once made.

Why Does the Hearing Record Decide the Appeal?

A court reviewing a council’s license decision by certiorari reads the record the city made and does not hold a new trial. The Minnesota Supreme Court described certiorari review as “limited to an inspection of the record” of the body below, and, quoting an earlier decision, as “necessarily confined to questions affecting the jurisdiction of the board, the regularity of its proceedings,” and whether the decision was “arbitrary, oppressive, unreasonable, fraudulent, under an erroneous theory of law, or without any evidence to support it” (Dietz, 487 N.W.2d 237). The Court of Appeals “may not substitute its own judgment, retry the facts, or weigh credibility” (Khan, 804 N.W.2d 132).

The council stage is not a second chance to add evidence either. Minneapolis’s council committee “may hear argument from the parties, but shall take no further evidence” (Minneapolis Code section 259.255). St. Paul’s council “may not consider any factual testimony not previously submitted to and considered by the hearing examiner” (St. Paul Legislative Code section 310.03(c-1)).

What that means for you: everything you want a judge to see later must go into the hearing itself. I suggest bringing, and offering as exhibits:

1. Your own documents: inspection responses, repair invoices, photographs, training records, security logs, and incident reports.
2. Witnesses who saw what happened, ready to testify.
3. Cross-examination of the city’s witnesses. St. Paul guarantees the right to “meet adverse testimony or evidence by reasonable cross-examination and rebuttal evidence” (section 310.03(c)).
4. Evidence of what you changed afterward, because it bears on the penalty even where the violation is admitted.

I suggest asking for more time if you need it and stating on the record why, because a court looks for a showing of prejudice. In Staeheli, the court wrote that the hearing’s time limit “appears to have been arbitrary” and that the time allotted “may have been inadequate,” but it would not reverse without a showing of prejudice, noting that “a credible claim of prejudice would constitute reversible error” (732 N.W.2d 298).

How Do Presumptive Penalties and Negotiated Outcomes Work?

Some cities publish a schedule of presumptive penalties, and that schedule is the council’s starting point for any negotiated outcome. St. Paul’s general matrix sets these penalties for “Violations of conditions placed on the license”: a $500 fine for the first appearance, $1,000 for the second, a “$2,000.00 fine and 10-day suspension” for the third, and revocation for the fourth (St. Paul Legislative Code section 310.03(m)). The penalties “are presumed to be appropriate for every case,” but the council may depart “where the council finds and determines that there exist substantial and compelling reasons making it more appropriate to do so.” When it departs, “the council must provide written reasons that specify why the penalty selected was more appropriate.”

How St. Paul counts appearances matters as much as the amounts. Under the general matrix, “A second violation within twelve (12) months must be treated as a second appearance,” “A third violation within eighteen (18) months must be treated as a third appearance,” and “A fourth violation within twenty-four (24) months must be treated as a fourth appearance” (section 310.03(m)). Under the general matrix, a violation outside those windows counts as a first appearance. St. Paul’s tobacco matrix counts differently: except as Minn. Stat. § 461.12, subd. 2 otherwise provides (that subdivision counts a violation “at the same location within 36 months after the initial violation”), “A second violation within twenty four (24) months must be treated as a second appearance, a third within twenty four (24) months treated as a third appearance, and a fourth within twenty four (24) months treated as a fourth appearance” (section 310.03(m)). A licensee facing a first or second appearance on a violation calling for a fine may pay without a council hearing unless the notice says a hearing is required, as quoted above. That payment also counts as an appearance “for the purpose of determining presumptive penalties for subsequent violations.”

Tobacco penalties start from the statute: “the licensee shall be charged an administrative penalty of $300 for the first violation,” and “For a third or any subsequent violation at the same location within 36 months after the initial violation, an administrative penalty of $1,000 must be imposed, and the licensee’s authority to sell tobacco, tobacco-related devices, electronic delivery devices, or nicotine or lobelia delivery products at that location must be suspended for not less than seven days and may be revoked” (Minn. Stat. § 461.12, subd. 2). For a sale to a person under 21, “It is an affirmative defense to the charge of selling tobacco, tobacco-related devices, electronic delivery devices, or nicotine or lobelia delivery products to a person under the age of 21 years in violation of subdivision 2 or 3 that the licensee or individual making the sale relied in good faith upon proof of age as described in section 340A.503, subdivision 6” (§ 461.12, subd. 6). Sections 461.12 to 461.18 “do not preempt a local ordinance that provides for more restrictive regulation of sales of tobacco, tobacco-related devices, electronic delivery devices, and nicotine and lobelia products” (Minn. Stat. § 461.19), and St. Paul’s tobacco matrix sets a “$2,000.00 fine and 7-day suspension” for a third appearance on a sale to a person under 21 (St. Paul Legislative Code section 310.03(m)).

Within those limits, the terms a city attorney and a licensee can discuss include:

• a fine in place of a suspension, or a smaller fine;
• a suspension that is stayed, so it takes effect only if another violation occurs within a set period;
• new license conditions instead of, or along with, a penalty. Minneapolis may impose “A limitation on the hours of operation of the licensed business or establishment,” limits on where activities occur, and limits on patron occupancy (Minneapolis Code section 259.165), and St. Paul has a similar list (St. Paul Legislative Code section 310.04(c)).

Conditions deserve the closest reading, because in St. Paul they “will remain on such licenses when renewed and must continue thereafter until removed by the council” (section 310.04(c)), and each one becomes a new way to violate the license. When the same owner asked me whether to contest a proposed fine, suspension, and amended conditions, I wrote that paying the penalty was the cheaper thing to do that day. I added that what paying cost was the amended conditions, which attach to the license and stay attached, and where a third violation leaves the business if there is ever a fourth.

How Do You Get a City Council’s Decision Reviewed in Court?

A city council’s license decision is usually reviewed by writ of certiorari in the Minnesota Court of Appeals, and a tobacco penalty that is “a decision under subdivision 2 or 3” of Minn. Stat. § 461.12 has a district court route described below. “A quasi-judicial decision made by a municipality is reviewable through a writ of certiorari” (Khan, 804 N.W.2d 132). The Minnesota Supreme Court has held that, without another adequate method of review, “judicial review of the quasi-judicial decisions of administrative bodies, if available, must be invoked by writ of certiorari” (Dietz, 487 N.W.2d 237). In Dietz, the court reinstated the dismissal of a district court lawsuit, concluding that “writ of certiorari was the only mechanism by which Dietz could obtain judicial review of the county’s decision to terminate her employment.”

Two acts preserve review, and the statutes set the time for both. “No writ of certiorari shall be issued, to correct any proceeding, unless such writ shall be issued within 60 days after the party applying for such writ shall have received due notice of the proceeding sought to be reviewed thereby. The party shall apply to the court of appeals for the writ” (Minn. Stat. § 606.01). “Such writ must also be served upon the adverse party within such period of 60 days” (Minn. Stat. § 606.02). The appellate rules confirm that “The appeal period and the acts required to invoke appellate jurisdiction are governed by the applicable statute” (Minn. R. Civ. App. P. 115.01). A license that a state agency decides in a contested case follows a shorter rule: “A petition for a writ of certiorari by an aggrieved person for judicial review under sections 14.63 to 14.68 must be filed with the court of appeals and served on all parties to the contested case not more than 30 days after the party receives the final decision and order of the agency” (Minn. Stat. § 14.63). Where the commissioner of health “proposes to deny, refuses to renew, suspends, or revokes” a hotel, lodging, or food service license “under subdivision 8 or 9” of Minn. Stat. § 144.99, subdivision 10 gives “an opportunity to request a hearing under the contested case provisions of chapter 14,” and “If the person does not request a hearing by notifying the commissioner within 20 days after receipt of the notice of proposed action, the commissioner may proceed with the action without a hearing” (subd. 10). That subdivision “does not apply to: (1) the denial of or refusal to renew a permit, license, registration, or certificate based on the applicant’s failure to meet or maintain the minimum qualifications for holding the permit, license, registration, or certificate; or (2) the denial of, refusal to renew, suspension of, or revocation of a permit, license, registration, or certificate if the person against whom the action is proposed to be taken has been granted a hearing under this subdivision within the previous 12 months.” Check the current text of the statute before relying on these periods.

The petition “shall definitely and briefly state the decision, judgment, order or proceeding that is sought to be reviewed and the errors that the petitioner claims,” and “The petitioner shall pay $550 to the clerk of the appellate courts, unless no fee is required under Rule 103.01, subd. 3, or by statute” (Minn. R. Civ. App. P. 115.03). The court may modify or reverse a council’s decision if, quoting an earlier decision, the city “made its decision based on unlawful procedure, acted arbitrarily or capriciously, made an error of law, or lacked substantial evidence in view of the entire record submitted” (Khan, 804 N.W.2d 132). The court affirmed the revocation in Khan, explaining, while quoting an earlier decision, that it must affirm if there is “any legal and substantial basis” to support the decision.

Two situations follow a different route or a different rule:

1. Tobacco penalties. “Any person aggrieved by a decision under subdivision 2 or 3 may have the decision reviewed in the district court in the same manner and procedure as provided in section 462.361” (Minn. Stat. § 461.12, subd. 7). Section 462.361 provides review “by an appropriate remedy in the district court, subject to the provisions of this section” (Minn. Stat. § 462.361, subd. 1). I suggest confirming which provision the city relied on before choosing a court, because a tobacco action under the city’s own ordinance may not be a decision under subdivision 2 or 3.
2. Hotel, lodging, and food service licenses. “A license is required annually for every person, firm, or corporation engaged in the business of conducting a food and beverage service establishment, youth camp, hotel, motel, lodging establishment, public pool, or resort” (Minn. Stat. § 157.16, subd. 1). The commissioner of health “may enter into an agreement with any community health board, or county or city that has an established delegation agreement as of January 1, 2014, to delegate all or part of the licensing, inspection, reporting, and enforcement duties” under a list of laws that includes chapter 157 (Minn. Stat. § 145A.07, subd. 1), and § 157.16 refers to “establishments licensed by local governments” (subd. 3a). For an action the commissioner takes on such a license, the hearing request under § 144.99, subdivision 10, its two exceptions, and review under § 14.63 are quoted in the paragraph on preserving review above.

When Can a Business Keep Operating While It Appeals?

A stay is how a business asks to keep operating during review, and the request goes to the city first. “The agency or body may stay enforcement of the decision in accordance with Rule 108. Application for a supersedeas bond or a stay on other terms must be made in the first instance to the agency or body. Upon motion, the Court of Appeals may review the agency’s or body’s decision on a stay and the terms of any stay” (Minn. R. Civ. App. P. 115.03).

Rule 108, which Rule 115.03 points to, states the general rule for appeals from a trial court: “an appeal from a judgment or order does not stay enforcement of the judgment or order in the trial court unless that court orders relief in accordance with Rule 108.02” (Minn. R. Civ. App. P. 108.01). Security for a stay can take several forms: “a supersedeas bond, a letter of credit, a deposit of cash or property with the trial court administrator, or any other form of security that the trial court approves as adequate under the circumstances” (Minn. R. Civ. App. P. 108.02).

I suggest asking the council for a stay in writing as soon as it votes. I also suggest offering terms that answer the city’s concern, such as added security staff or reduced hours while the case is pending. A stay request backed by those terms gives the council something to agree to and gives the Court of Appeals a record of what you offered.

How Does a Suspension Affect Your Lease, Insurance, Lenders, and Other Licenses?

A suspension or revocation can reach well past the license itself. In St. Paul, “adverse action” includes action “directed at one (1) or more licenses held by a licensee at any location in the city” (St. Paul Legislative Code section 310.01). Unless an applicant is “claiming evidence of rehabilitation” under Minn. Stat. § 364.03, subd. 3, “no applicant may apply for any license within one (1) year of the denial or revocation of the same or similar license by the city council, if such denial or revocation was based solely or partially upon misconduct or unfitness of the applicant, evidence of violations of law involving licensed premises, evidence that the applicant had been involved in the operation of a nuisance, or fraud or deception in the license application” (section 310.02). An application by a person with an “interest” in the revoked enterprise “will be treated as an application by the person whose license was denied or revoked” (section 310.02). Section 310.02 defines “interest” as a term that “includes any pecuniary interest in the ownership, operation, management or profits of an establishment, but does not include: bona fide loans; bona fide rental agreements; bona fide open accounts or other obligations held with or without security arising out of the ordinary and regular course of business of selling or leasing merchandise, fixtures or supplies to such establishment; an interest in a corporation owning or operating a hotel but having at least one hundred fifty (150) or more rental units holding a license in conjunction therewith; or ten (10) percent or less interest in any other corporation holding a license” (section 310.02). That rule matters if you plan to sell the business or reopen under a new company, and the page on transferring licenses in an asset sale covers the transfer side.

Other agencies learn of some suspensions automatically. For tobacco licenses, “The commissioner of revenue must also be informed of a license renewal, transfer, cancellation, suspension, or revocation during the license period” (Minn. Stat. § 461.12, subd. 8). A hotel or restaurant’s annual license under § 157.16 is a separate license, whether the Department of Health or a local government issues it. A building’s certificate of occupancy is a separate approval as well.

Your private contracts are the other half of the exposure. A commercial lease, a loan agreement, a franchise agreement, or an insurance policy can treat a license suspension, a violation of law, or a closure as a default or as an event you must report. I suggest reading each of those documents the week the notice arrives, because a notice deadline in a lease or loan can run on its own schedule. A suspension also stops revenue for its length, so a business interruption claim and a lender conversation are worth planning before the suspension starts, not after.

What Are the Options When a City Proposes Adverse Action?

An owner facing proposed adverse action can choose among several paths, and more than one can run at once:

1. Fix the problem and document it. Correct the condition the city cited and give the licensing staff proof. This fits when the violation is real and fixable, and it can support a lower penalty even where it does not end the case.
2. Talk with licensing staff or the city attorney. A direct conversation can narrow the charges or set up a stipulated outcome. In St. Paul, an interested person (the licensee’s officers, employees, and anyone with a financial interest in it) may not, “with knowledge that a license matter has been scheduled for adverse hearing, convey or attempt to convey, orally or in writing, any information, argument or opinion about the matter, or any issue in the matter, to a council member or his or her staff until the council has taken final action on the matter.” The same rule says “nothing herein will prevent an inquiry or communications regarding status, scheduling or procedures concerning a license matter” (St. Paul Legislative Code section 310.03(c-2)), so the conversation about the merits belongs with staff and the city attorney.
3. Stipulate to an outcome. A fine, conditions, or a stayed suspension can end the matter quickly and predictably. The cost is an admitted violation that counts toward the next penalty and, in St. Paul, conditions that stay on the license until the council removes them.
4. Contest the facts at an evidentiary hearing. This fits when the city’s facts are wrong or incomplete. It costs more and takes longer, and in St. Paul the council may impose hearing costs on stated grounds, such as a position that was “frivolous, arbitrary or capricious” (section 310.03(k)).
5. Seek certiorari review and a stay. This fits when the council’s decision lacks support in the record or rests on an error of law. It reviews only the record built at the hearing.
6. Change the rule itself. When the ordinance or a condition does not fit how your business operates, changing a local ordinance or asking the council to amend a condition can solve the problem for the future.

A license case that follows a police investigation needs one more step. One hotel’s owners received a revocation notice from their city after a law enforcement raid. I suggested that the owners and staff not discuss the raid or the license with the city or the police without an attorney involved, because those statements can be used in both matters.

Protecting a Minnesota Business License

Because a court reviewing by certiorari reads only the record, a license case turns on what happens before any appeal. The written answer to the notice, the choice whether to dispute the facts, and the evidence put in at the hearing shape that record. If the council rules against you, review usually runs by certiorari on that record, and a tobacco penalty that is “a decision under subdivision 2 or 3” of § 461.12 can be reviewed in district court. The regulatory compliance practice page covers the rest of a licensed business’s obligations.

If your city has proposed a fine, suspension, or revocation and you want to know your options on your facts, email [email protected] with a brief description. I can then start an intake and conflict check before you send any confidential documents.