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NO. 88-370 IN THE SUPREME COURT OF THE STATE OF MONTANA
1988

FRASCELI, INC., d/b/a MAMA CASSIE'S PASTA SHOP & DELI, a Montana corporation, Petitioner and Respondent, -vsSTATE OF MONTANA, DEPARTMENT OF REVENUE, LIQUOR DIVISION, and DEBRA S. BATTLESON, d/b/a CHI CHI'S MEXICAN AMERICAN RESTAURANT,
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APPEAL FROM:

District Court of the Eighth Judicial. District, In and for the County of Cascade, The Honorable Thomas McKittrick, Judge presiding.

COUNSEL OF RECORD: For Appellant: West Law Firm; Candace F. West, Helena, Montana For Respondent: Leaphart Law Firm; W. William Leaphart, Helena, Montana Alexander & Baucus; Gary Deschenes, Great Falls, Montana Eric J. Fehlig, Dept. of Revenue, Helena, Montana

Submitted on Briefs:

Mov. 3, 1 9 8 8

Decided: December 13, 1988 Filed:

Clerk

Mr. Chief Justice J. A. Turnage delivered the Opinion of the Court. Debra Battleson, d/b/a Chi Chi's Mexican American Restaurant (Chi Chi's), appeals an order entered by the Eighth Judicial District Court regarding the final ownership of one beer and wine license for the Great Falls area. The order, which overruled the agency decision made by the Director of t-he Department of Revenue (DOR), instructed the Department to reinstate the proposed order of the hearing examiner. The issues on appeal are: 1. Whether the conduct of the Director of the DOR constituted reversible error; 2. Whether the District Court abused its discretion by ordering the hearing examiner's proposal to be adopted. We reverse in part and affirm in part. In the fall of 1986, one new retail beer and wine license became available, based on the quota system, for the Great Falls area. Based on the notice published by the Department of Revenue, which oversees and issues these T i censes, there were seven applicants. An evidentiary hearing was held on April 20, 1987, by a hearing examiner to determine who among these seven applicants would receive the license. A proposed order, alona with findings of fact, conclusions of law was issued on May 23, 1987, by the examiner. That proposal awarded the license to Frascell, Inc., d/b/a Mama Cassie's Pasta Shop and Deli (Mama Cassie's) . Chi Chi's was the only unsuccessful applicant to file exception to the proposed order and further requested oral argument before the Director of DOR, which was the official making the final agency decision pursuant. to the Montana Administrative Procedure Act (MAPA).

The Director heard oral argument on July 31, 1987, and issued a final agency decision on September 29, 1987, awarding the license to Chi Chi's. The agency decision stated that the proposed findings regarding Chi Chi's were insufficient and drafted additional findings of fact in favor of Chi Chi's. Mama Cassie's appealed this final agency decision and order to the District Court which heard oral argument. At that hearing, the parties stipulated that the Director of DOR conducted a personal, unannounced visit to both Mama Cassie's and Chi Chi's after he took oral argument on the MAPA appeal but before he issued his final order reversing the hearing examiner. It is that conduct, the unnoticed, on-site visit of both establishments, that Mama Cassie's contests. The District Court found that conduct to be improper. In its order, the District Court found that "[tlhese visits were made without any prior notice to the parties and the visits were not reflected in the record or evidence as to why the Director made these visits, it is apparent that he would not have made the visits unless he felt there was some necessity to supplement the 'record' that was before him at final arguments." The District Court concluded that the "offthe-record" visits by the Director irrevocably denied the parties of (1) the right to prior notice of the intent to visit; (2) the right to object to such visits; (3) the opportunity to be present during the visits; ( 4 ) the right to respond and present evidence and argument on all issues involved under S 2-4-612 ( I ) , MCA; and, (5) the right to conduct cross-examination required for a full and true d-isclosure of the facts as required by

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