Registrar, Alcohol and Gaming Commission Ontario v. Diamond In The Sky Inc., 2007 CanLII 27005

ALCOHOL AND GAMING COMMISSION OF ONTARIO

IN THE MATTER OF The :

Liquor Licence Act, R.S.O. 1990, c. L.19, as amended

B E T W E E N:

Registrar, Alcohol and Gaming Commission Ontario

Registrar

-and-

Diamond In The Sky Inc. O/A Shananigans

Applicant

DECISION

Panel: Allan Higdon, Member Beryl Ford, Member

Decision Date: July 10, 2007

Hearing Location: Stratford, Ontario

Alcohol and Gaming Commission of Ontario 90 Sheppard Avenue East, Suite 300 Toronto ON M2N 0A4 Phone (416) 326- 0366 Fax (416) 326-5566 Website:agco.gov.on.ca

Appearances

Registrar, Alcohol and Gaming Commission ) Brad Alton, Representative Diamond In The Sky Inc., Applicant ) Michelle Kropp, Frances Brennan, Representatives

The Application

1. The Registrar of the Alcohol and Gaming Commission of Ontario issued a Notice of Proposal dated December 15, 2006 to review an application for a liquor licence from Diamond In The Sky Inc., the “Applicant”, for indoor capacity at Shananigans, 388 Downie Street, Stratford, Ontario, N5A 1X6, the “Premises”. The Proposal alleges violations of subsections 6(2) (a), (d), (e), and (f) of the Liquor Licence Act (LLA). The Application was heard on February 14, 15, March 30, and April 2, 2007 in the City of Stratford.

Decision

2. After considering all the evidence and submissions, the Board approves the Application made by the Applicant for indoor capacity at the Premises on the conditions set out below. Reasons for these findings follow.

Preliminary Matters

3. Throughout the hearing witnesses referred to the Premises by three different names, Cactus Jack’s, Wild Rose, and Shananigan’s. The Board has used all the names in its decision.

4. At the commencement of the hearing Ms. Kropp advised the Board her client, Mr. Mitchell Hutchinson, admitted he was charged under the Controlled Drug and Substance Act in October 1997 after a small amount of marijuana was found in his car. Mr. Hutchinson pled guilty, was fined $500 and suspended from driving for six months.

5. This was a very complex hearing over a period of four months. Evidence was heard on four full days that spanned the four months. Throughout the hearing, the Board heard witness testimony relating to an individual, Michael Beyer, who had extensive business dealings in Stratford and Kitchener involving real estate holdings and licensed premises. The Registrar alleges the Applicant is a front for Michael Beyer.

6. Because of the complexity of the hearing and the introduction of evidence referencing individuals who were not witnesses and many establishments with no direct connection to the Applicant, the Board will address the issues related to the ss.6(2)(a) allegations and then proceed to consider the remaining issues and allegations

Evidence respecting subsection 6(2) (a) allegations

7. Diane Gauthier, of the Ministry of Finance (“MOF”) Collection Department, testified that MOF takes the position Mr. Dunlop, a principal of Diamond in the Sky Inc., is financially irresponsible. He is in default of Retail Sales Tax (“RST”) with respect to a previous business, Black Jack Skateboard, and has an outstanding balance of $1200.83. Mr. Dunlop constantly filed late tax returns for the business and was not diligent in his responsibility to the Ministry of Finance.

8. Ms. Gauthier first heard Mr. Dunlop’s and Mr. Hutchinson’s names during a MOF investigation into Michael Beyer. Exhibit 7 provides a summary of outstanding sales and corporate taxes for a variety of numbered Ontario companies associated with Michael Beyer. Ms. Gauthier gave extensive evidence into various enterprises owned or operated by Michael Beyer all related to unpaid corporate and retail sales taxes. She stated that the MOF’s concern is a possible link between Michael Beyer and Mitchell Hutchinson and that Diamond in the Sky Inc. could possibly be a front for Michael Beyer to obtain a liquor licence. She confirmed, however, the investigation had not disclosed evidence of a link between Beyer, Diamond in the Sky Inc., Dunlop or Hutchinson. Ms. Gauthier stated that, until the hearing, she was not aware Michael Beyer was no longer in possession of 388 Downie Street. She confirmed that, consequently, there is no basis for MOF”s concern that Beyer and the Applicant had a landlord tenant relationship.

9. Ms. Gauthier confirmed that Shananigan’s is fully paid up on its Corporate and Retail Sales Taxes. She also confirmed that Shananigan’s returns for November 2005 through April 2006 were filed by the Applicant’s accountant at the end of April. MOF Collection Department has met with Mr. Hutchinson and Mr. Dunlop to give them advice and assist them in preparing the returns to ensure future compliance.

10. Mitchell Hutchinson testified that he has had financial problems in the past; most of these were attributed to a serious accident he suffered that prevented him from working. After an insurance settlement was made to Mr. Hutchinson, (Exhibit 13), he paid off his student loans, invested money back into Natures Way Development and is making financial progress. Mr. Hutchinson testified Diamond in the Sky Inc. had engaged an accountant and had relied on him to batch and file tax returns. After taking advice and instruction from the MOF, he assured the Board that he and Mr. Dunlop will take full responsibility for complying with regulations by submitting taxes in a timely fashion in the future.

11. Mr. Dunlop testified that he had regretted not keeping a separate account for taxes owing when he owned Black Jack Skateboard. He first started the business when the demand for the product was high; however, the trend for skateboards was short-lived causing him to run into financial difficulties with the business. This was his first business enterprise and he understands clearly now that his inexperience caused him to make poor business decisions. He has since learned the meaning of good business practices and continues to work hard and learn from his past experience.

12. With regard to the outstanding Retail Sales Tax account, Mr. Dunlop testified he had attempted to make a full payment to the MOF however, due to technical difficulties at the MOF computer services; the transaction had not yet been completed. Mr. Dunlop told the Board that Shananigans is a coffee house that he and Mitchell Hutchinson are working to build into a profitable business. The business is not currently operating at a profit although they are paying their bills and meeting their responsibilities.

Analysis and decision regarding subsection 6(2) (a) allegations

13. The evidence before the Board disclosed that Michael Beyer is no longer the owner of 388 Downie Street, Stratford where the premises are located. The Registrar’s witness admitted the MOF investigation did not produce any evidence of a connection between Mr. Hutchinson, Mr. Dunlop or Diamond in the Sky Inc. with Michael Beyer

14. The evidence did show that both Mr. Dunlop and Mr. Hutchinson have had serious financial difficulties relating to unpaid and late tax returns with the MOF However, at this point in time Mr. Hutchinson has no outstanding debts to the MOF and Mr. Dunlop is in the process of making payment on his outstanding balance. Both Mr. Dunlop and Mr. Hutchinson have taken instruction and advice from the MOF on the rules and regulations to comply with the MOF requirements. They now understand clearly that it is their responsibility to ensure that RST is reported and submitted in accordance with the law. Diamond in the Sky Inc. has engaged an accountant to assist it with its financial obligations.

15. The business of Shananigans is currently a coffee house. Both Mr. Dunlop and Mr. Hutchinson are working diligently to build it into a business that will benefit the community and allow them to operate at a profit. Diamond in the Sky Inc. has a business plan which outlines the plans for the future operation. (Exhibit 18)

16. It is the opinion of the Board that, although both Mr. Hutchinson and Mr. Dunlop had made poor decisions in the past, they have attempted to rectify their problems. Their immaturity and lack of experience at the time no doubt contributed to their actions.

17. In assessing all of the evidence, the Board finds no basis for the Registrar’s allegation the Applicant is a front for Michael Beyer. There is no evidence Michael Beyer has or had any financial interest in Shananigans or contact or influence in Diamond in the Sky Inc. His landlord relationship with the Premises has ended. The Board is confident the Applicant now has the experience and maturity to ensure their financial obligations are met and have learned from past experiences. They have a sound business plan and the determination and enthusiasm to successfully operate a business with honesty and integrity. In all the circumstances, the Board dismisses the ss.6(2)(a) allegation that the Applicant cannot reasonably be expected to be financially responsible in the conduct of its business.

Evidence relating to subsection 6(2)(d), (e) and (f) allegations

18. Police Officers Rudolf Hartsfield and Mike Pierzchalski, testifying for the Registrar, gave evidence pertaining to Mr. Hutchinson’s past involvement in a marijuana grow operation in 1998.

19. Mr. Hutchinson lived in a rented house with two roommates who were growing illegal marijuana plants in the house. Mr. Hutchinson moved out of the house and broke off his relationship with his roommates. Two months later he needed to retrieve property left there. As he was in fear of his roommates, he planned to return with his father and they asked police to escort them to the house for safety purposes. On entering the house, the police soon became aware that marijuana was growing in the house. The police returned with a search warrant and found marijuana plants growing in most rooms in the house. An investigation followed and Mr. Hutchinson’s two former roommates were charged with running a ‘marijuana grow operation’. No charges were laid against Mr. Hutchinson relating to the ‘grow op.’ He had not lived in the premises for the previous two months and the owner of the house had told the police officers Mr. Hutchinson had not been seen anywhere near the property in the previous months. Mr. Hutchinson testified against his roommates.

20. Mr. David Baxter, AGCO Manager of Liquor Licensing, testified that he reviews all liquor licence applications (Exhibits 8, 9) and reviewed the application by Diamond in the Sky Inc. signed by Mr. Dunlop, for premises known as Cactus Jack’s Roadhouse. As Mr. Dunlop’s lack of bar experience was unusual, Mr. Baxter met with Mr. Dunlop to discuss the application. Mr. Dunlop was forthright during the interview and indicated he intended to be the president of the corporate company. Mr Hutchinson, his friend who did have experience working in a bar, was to be the Manager. Mr. Dunlop admitted Mr. Hutchinson’s involvement in the business, but said they did not think that they would qualify for a liquor licence on a joint venture because of Hutchinson’s past criminal record.

21. Mr. Baxter met with both Mr. Dunlop and Mr. Hutchinson to discuss the application. Mr. Baxter told them the application review process does not automatically exclude a person with a criminal record and decisions are made on a case by case basis.

22. After their meeting with Mr. Baxter, Mr. Hutchinson and Mr. Dunlop decided to submit a joint application. When Mr. Hutchinson submitted his personal record report (Exhibit 10), concerns were raised regarding some of the information pertaining to his criminal record. Mr. Hutchinson disclosed that he had been charged with a robbery of a gas station. He disclosed other criminal charges relating to the marijuana conviction but did not disclose Highway Traffic Act infractions. Mr. Hutchinson testified he did not think HTA matters would be included in a ‘criminal record’ check.

23. Mr. Hutchinson had also worked as an employee in a licensed establishment owned by Michael Beyer. This also raised a concern for the Registrar because, as noted above, the AGCO is concerned Beyer is using other people as fronts to obtain liquor licences. The AGCO has investigated several applications in which Beyer’s involvement was suspected. One involved an application for an establishment operating as Wild Rose, to be known as Cactus Jack’s Roadhouse located at 388 Downie Street Stratford the same address as the Premises. (Exhibits 2, 2a, 2b) In that case the investigation disclosed an affiliation between the applicant and Michael Beyer and the application was denied on July 5, 2005. As the applicant did not challenge the refusal the AGCO concluded he was a front for Michael Beyer.

24. Mr. Baxter testified that it soon after the denial of that application, on July 11, 2005, the AGCO received Mr. Dunlop’s application for the same premises. The timing of Mr. Dunlop’s application was considered suspicious. An investigation was commenced primarily because of the short time frame between the applications and the concern that the application was a front to obtain a liquor licence for Mitchell Hutchinson and indirectly to Michael Beyer.

25. Mr. Baxter confirmed the investigation of Mr. Dunlop’s application did not produce any evidence that Michael Beyer had any contact with Mr. Hutchinson, Mr. Dunlop or Diamond in the Sky Inc. There was no evidence of monies or any financial support coming from any outside source other than Mr. Hutchinson. Mr. Baxter testified that, throughout the investigation, Mr. Hutchinson and Mr. Dunlop had been forthright and fully cooperative.

26. Mr. Robert Sparks, witness for the Registrar, gave very compelling and credible evidence pertaining to Michael Beyer and the numerous business ventures Michael Beyer owned or held a controlling interest in. He further testified that many reputable individuals in the community invested, and lost money with Michael Beyer. Mr. Sparks testified that he was deeply involved with Michael Beyer’s operations. He stated that if anyone worked in the bar industry in Stratford or Kitchener in the late 90’s it was inevitable they would work for Michael Beyer, because he owned a great majority of the establishments. Michael Beyer’s companies eventually ran into serious financial difficulties. Mr. Sparks testified Beyer used his name on property deals and mortgages without his knowledge. He lost his family, his home, and had debts that lead him into bankruptcy. He eventually moved out of Stratford because of fears for his family and personal safety.

27. Mr. Sparks testified that when Mitchell Hutchinson and Dunlop approached him about renting space at 388 Downie Street, he and Derek Hallock had purchased the building from Michael Beyer. The building consisted of a rooming house and a bar known as Wild Rose/Cactus Jack’s Roadhouse. The deal was brokered through Devonshire Interbay Financial Funding Corporation. The deal was orchestrated by Michael Beyer. Sparks testified that no other than Beyer, Cronin and Hallock would have known that Bayer was still the de facto owner of the building.

28. Neither Hutchinson nor Dunlop ever dealt with Michael Beyer regarding their lease for 388 Downie Street. By the time they approached him and Hallock about a lease, the transfer licence for Cactus Jack’s Roadhouse had long been expired and Michael Beyer had abandoned any idea of running 388 Downie Street as a licensed establishment.

29. A portion of the building was eventually leased to Diamond in the Sky Inc. (Exhibit 4). Mitchell Hutchinson paid a deposit of $20,000 for chattels. The cheque was made out to Robert Sparks. Mr. Hutchinson and Mr. Dunlop did considerable renovations to the building. Mr Hutchinson invested further money into bringing the building up to meet the building codes. The building was later repossessed by Interbay Financial Funding Corporation in November 2006.

30. Mr. Sparks testified that he did not believe that Diamond in the Sky Inc., Mr. Hutchinson or Mr. Dunlop were fronts for Michael Beyer. He told the Board that he was convinced he would have heard from other people if they had been involved in any way with Michael Beyer.

31. Mitchell Hutchinson started the business Nature’s Way Research and Development, when he was l6 years old with a loan from Mitchell District Credit Union. He is the sole proprietor, Hutchinson ran a landscaping business that experimented with pesticide free horticultural practices through Nature’s Way..

32. Mr. Hutchinson suffered a debilitating back injury in an accident in 1999. It was after the accident that he lost his mobility. He could no longer operate his landscaping business, his girlfriend ended their relationship, and he was in constant pain and on heavy painkillers. He was desperate for money and, in desperation, decided to rob a gas station. This was the worst decision in his life and something he must live with and regret for the rest of his life. A few weeks later, he testified that he could no longer live with the guilt of his actions and he reported the crime to the police himself. He pleaded guilty and spent 6 months in prison for the crime. Mr Hutchinson expressed great emotional remorse to the Board for this period in his life.

33. In sentencing Mr. Hutchinson, Justice Donnelly noted:

Mr. Hutchinson projected as sincere and forthright. Evidence of his activity and character was of uniform high quality. The robbery conviction is a valid consideration in assessing credibility. The conviction must be considered in light of the fact that, having resorted to robbery with his life in collapse and confronted by business failure, he did contact and confess. There was no evidence of other dishonest or criminal behaviour. The robbery episode, being out of character, bespeaks desolation more than a dishonest character. (Exhibit 13 at, p.64)

34. Mr. Dunlop and Mr. Hutchinson have been friends from childhood. Mr. Hutchinson trusts Mr. Dunlop implicitly. Together they had a dream of one day starting a bar for young musicians. With Mr. Dunlop’s background and education in music and Mr. Hutchinson’s past experience in the bar industry, they were working towards fulfilling their dream.

35. The court settlement from Mr. Hutchinson’s accident allowed him to pay off his debts and make investments. The two men decided in 2005 they would start a business together. They agreed Mr. Hutchinson would make the initial investment and they would both hold 50% of the shares in a corporate company.

36. Mr. Hutchinson was familiar with the premises at 388 Downie Street, Stratford. He had visited the premises known as Cactus Jack’s Roadhouse as a customer. Mr. Hutchinson testified that he did not know that another application had been made for the premises and only learned this at the hearing. He did not know the previous applicant personally but did see him at Cactus Jack’s occasionally. He did not know why it had closed down.

37. After Cactus Jack’s Roadhouse closed down, Mr. Hutchinson started to make inquiries about leasing the premises. The building appeared derelict; it had been closed for over a year. There were no notices, permits or signs on the building advising of plans for the premises.

38. Mr. Hutchinson eventually signed a lease for the Premises with 1625967 Ont. Ltd., (Exhibit 11). The lease was dated March l5th, 2005 and signed by Robert Sparks and Mr. Hutchinson.

39. Mr. Hutchinson testified that Michael Beyer had never been involved in their plans. He would not have had any wish for him to know about them. When he was 23 years old he worked as a bartender at an establishment called Classics. Michael Beyer was the owner and Robert Sparks was the Manager. His brother Rick Hutchinson did occasional maintenance work for Michael Beyer. Mitchell Hutchinson did not have a relationship with Michel Beyer or socialize with him in any way

40. After he received his insurance settlement, he was looking to make some good investments. Mr. Beyer was a person known to be involved in many businesses in both Stratford and Kitchener. Through connections with his brother Richard Hutchinson, he decided to loan $20,000 to Michael Beyer as an investment. He received a promissory note from Michael Beyer dated 21 March 2005 (Exhibit 17). The money was to be paid back with interest by September 21, 2005. Mr. Beyer made no attempt to pay back the money. When approached for the money to be returned, Beyer told him ‘tough luck’. Mr. Hutchinson never received the money back and realizes now the money will never be returned. He never wishes to see or ever have anything to do with Mr. Beyer.

Analysis and decision regarding subsections 6(2)(d), (e), and (f)

41. Hutchinson was briefly employed in an establishment owned by Michael Beyer. His brother did occasional maintenance work for Beyer but no longer works for Michael Beyer. Richard Hutchinson is now employed by Interbay Financial Funding as a maintenance man and manager of the rooms rented above Shananigan’s. Beyer still owes Hutchison a substantial sum of money which he is aware will never be repaid. Mr. Baxter’s evidence confirms nothing in the evidence suggests any financial interest connects Diamond in the Sky Inc, Hutchison or Dunlop to Michael Beyer.

42. The Premises are located in a building which was once owned by Beyer. Hutchinson and Dunlop were not aware that the mortgage on 388 Downie Street went into arrears shortly after Sparks and Hallock purchased it. The building was repossessed by Interbay Financial Funding in November 2006. The Board heard evidence that Hutchinson and Dunlop are trying to negotiate a new lease with Interbay Financial Funding Corporation. The Registrar’s witness confirms Beyer had no involvement in leasing the Premises to the Applicant.

43. There were many applications for liquor licences that the AGCO considered suspicious and potential fronts for Michael Beyer. All of those applications were denied or withdrawn by the applicants when an investigation started. Mr. Hutchinson made it clear to the Board that he and Mr. Dunlop are challenging the decision of the Registrar because they are not fronts for Michael Beyer. They do not want their names even associated with Michael Beyer.

44. The Board finds that omissions were made in the liquor licence applications. However, the evidence is Hutchison made no attempt to conceal his criminal record and explained he had not understood highway traffic violations were part of a criminal record disclosure. Mr. Dunlop made the application as the sole proprietor initially because he thought that, with Mr. Hutchinson’s criminal record, they were not eligible for a liquor licence jointly. Mr. Baxter’s evidence is that both men were forthright and co-operative throughout the investigation and interviews. The Board is satisfied there was no deliberate intention to make a false statement or provide false information to the Registrar.

45. Mr. Hutchinson has shown great remorse for his criminal background. The court found his actions were out of character and explained in part by the personal crisis he was enduring at the time. After hearing Mr. Hutchison’s evidence, the Board agrees with that assessment of the incident. The Board notes Mr. Hutchinson is now actively involved through Shananigan’s with Christian groups, women’s groups and poverty groups. The Board takes this into consideration when assessing past conduct.

46. The Board does not find the Applicant, Diamond in the Sky Inc., is a front for Michael Beyer or any of his associates. There is no evidence that connects Mr. Hutchinson or Mr. Dunlop to Mr. Beyer’s current financial or business dealings. Any personal relationship between Hutchison and Beyer is poisoned by Beyer’s refusal to repay Hutchison’s investment.

47. The Board is of the opinion that Mr. Hutchinson and Mr. Dunlop are two individuals, who for a variety of reasons over the past few years, have found themselves in circumstances less than desirable. They have made efforts to straighten their financial and personal lives out. They have ambitious plans for their future. The Board does not consider them a risk to their community. They appear to have learned from their experiences and matured in their business acumen. The Board is of the opinion that, given an opportunity to operate licensed premises, they will conduct their business with honesty and integrity.

48. For these reasons, after considering all the evidence, the Board dismisses the allegations based on ss.6 (2) (d), (e) and (f).

Order

49. for the above reasons the Board APPROVES the Application for liquor licence made by Diamond In The Sky Inc. for indoor capacity for Shananigans, 188 Downie Street, Stratford, Ontario.

50. The Board orders that the following condition be attached to the licence:

Michael Beyer is excluded from the Premises and shall have no financial interest in the business, management or operation of Shenanigan’s or Diamond In The Sky Inc.

DATED AT Toronto this 10th day of JULY 2007.

BERYL FORD, BOARD MEMBER ALLAN HIGDON, BOARD MEMBER

BF/mw