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HomeMy WebLinkAboutminutes.council.20100804 Special Meeting Aspen City Council August 4, 2010 Mayor Ireland called the special meeting to order at 1:08 p.m. with Councilmembers Johnson and Skadron present. Councilmembers Romero and Torre are recused because of conflicts of interest. LIQUOR LICENSE TRANSFER — Mill Street Aspen LLC d/b /a Junk Mayor Ireland stated this is an appeal to the City Council of a denial of a transfer of a liquor license in front of the Liquor Licensing Authority. The denial was on the grounds of moral character. Mayor Ireland said Council will hear argument and witnesses from the appealing party. Mayor Ireland said the Colorado Liquor code was adopted by the Council in Chapter 5.04 of the Aspen Municipal Code and it states in part, any corporation, any of whose officers, directors or shareholders holding 10% or more of the outstanding issued capital stock thereof are not of good moral character or any person who is not of good moral character shall not be issued a license. Mayor Ireland said this is a new hearing and the appealing party has to ability to make a new case without reference to what was said before. Mayor Ireland noted the state liquor code does not define "moral character "; however, there are some regulations adopted with criteria for determining character; "when a licensing authority is required to make a determination as to the character, record, reputation of the licensee or applicants for new licenses, including transfer of ownership or existing licenses, the authority may consider the following factors, which may include but not limited to, the applicant or licensee has submitted false applications, made willful misrepresentations and/or committed fraudulent acts; the applicant or licensee has a criminal history of crimes of moral turpitude by way of example, crimes of moral turpitude shall include but not be limited to murder, burglary, robbery, arson, kidnapping, sexual assault, illegal drugs or narcotic convictions. The applicant or licensee has had previous licenses denied, suspended or revoked as a result of violation of law; the applicant or licensee been found delinquent with any payment of state and local taxes and record of such delinquency has been filed in a court having jurisdiction or some other court. The applicant or licensee has committed a statutory violation that results in suspension, revocation or denial of any other professional license." Alan Feldman, representing Mill Street Aspen LLC, said this is a de novo review of the denial of this application at the liquor authority level, for Council to take a fresh look at everything and for them to make up their own mind. This is not whether the liquor board abused it discretion or acted arbitrarily. Feldman said the only issue before Council is the good moral character of the applicant. Feldman noted at the state level, only managers or owners of 10% or more of the company has to pass the good moral character test. The city liquor authority has a more stringent requirement. Feldman said the City Clerk reported to the LLA that the application was complete and in full. Feldman said the issue of good moral character is a criminal issue. Feldman pointed out he filed a preliminary 1 Special Meeting Aspen City Council August 4, 2010 motion with the Council that good moral character is defined by criminal violations and the propensity towards criminal conduct to make sure liquor license applicants can operate their establishment within the boundaries of the liquor code, to make sure laws are not being broken. Feldman stated there is zero criminal history of anybody involved in this application; Liza and Scott DeGraff and Mill Street Aspen LLC. Feldman told Council Scott DeGraff has been issued two liquor licenses in Aspen within the last two years, part of which process determined him to be of good moral character. Feldman pointed out the city's liquor license checklist does not require an applicant to submit a list of all civil disputes that they have been a part of. Feldman said an applicant must know by what standard he is to be judged. Feldman noted it is expensive to do business in Aspen and one should know what is required before going down the application path. Feldman said the applicant did all that was required and then was blindsided with civil claims that are counting toward good moral character determination. Feldman stated he feels good moral character has been defined by the Colorado Supreme Court in 1980 as only criminal conduct. This case involved a massage parlor and the issue was whether the statute involving good moral character was vague. Feldman reiterated the Supreme Court has said what good moral character is so that community members are not saying other community members are immoral. Feldman said governing bodies cannot use community opinion to make moral character determinations, which is why the liquor license applications ask questions and ask for fingerprints. Feldman stipulated there are claims made again Scott DeGraff and he has made counterclaims, all of which are being adjudicated in the courts. Feldman said no evidence should be considered by Council on civil matters; only criminal matters are relevant. Mayor Ireland said Feldman's motion asks Council to limit the hearing to judging good moral character solely on the basis of criminal conduct. Mayor Ireland ruled that having been issued liquor licenses to this applicant is dispositive and controlling is largely irrelevant to the proceedings. The issue in front of Council is whether the applicant is of good moral character and it does not matter to Council that some one may have missed something in other liquor licenses. Mayor Ireland noted the due process argument is because the liquor license checklist did not include questions about prior conduct and since those were not asked about, it violates due process to bring that up in a liquor license hearing. That argument eviscerates the entire liquor license hearing process because it says that the papers are controlling and if not all questions were asked, they cannot be asked at a later date. Mayor Ireland agreed that business disputes or civil disputes are not criminal conduct; however, that does not mean those may not include a violation of the definition of the good moral character standard. The fact that someone owes money is not dispositive of bad moral character. Mayor Ireland said the RF case is on point for propensities toward bad moral character without rising to the level of criminal conviction or conduct. Mayor Ireland said there are things people can do that are of bad moral character that have not been defined by the law as illegal. Eluding prosecution does not mean that conduct cannot be considered. Lack of a conviction is not controlling and the RF case speaks to 2 Special Meeting Aspen City Council August 4, 2010 rehabilitation. If bad moral conduct is established by conduct in the past, the issue is whether there has been rehabilitation. Mayor Ireland agreed this hearing is not about how many people have opinions about someone else's moral character but around evidence of immoral conduct. Feldman said the U.S. Constitution provides for due process and if a person is accused of criminal conduct, they have the right to defend themselves. Feldman said it is tricky to call someone a criminal who has no criminal record. Mayor Ireland said people may allege what they wish without having the standard of "beyond a reasonable doubt ". Mayor Ireland reiterated Council's job is to determine is a person is of good moral character, not whether a crime has been committed nor whether criminal conduct has been established beyond a reasonable doubt. Feldman stated Council is making a decision that good moral character can be based on anything other than criminal conduct is unsupportable by Colorado law; there are no cases or statutes that gives that authority. Mayor Ireland brought up a case in Cook County relating to a falsification of an affidavit, which Council can consider. Feldman said there is no criminal conduct if there is no arrest. Mayor Ireland said Council's job is not to establish criminal liability but to establish whether someone is of good moral character and in doing so, Council may consider criminal conduct whether it was charged or proved. Scott DeGraff was sworn in. DeGraff told Council he is the manager of the LLC not managing the actual operation. DeGraff told Council he owns venues around the United States and it would impossible to manage actual operations. Mayor Ireland asked if DeGraff is the managing member of the LLC. DeGraff said he is the manager of a manager managed LLC. DeGraff said he has never managed one of his venues in 18 years. Kathryn Koch, city clerk, was sworn in, and told Council when the application was filed, Scott DeGraff s name was listed as manager of the operation. Mayor Ireland asked when Gena Bocadero became the manager of the operation. DeGraff said Ms. Bocadero has worked for him for 9 years and she handles on- premise operations. Ms. Koch told Council the liquor application was amended to denote Ms. Bocadero as the manager. Feldman said he answered the question about the manager on the application and misunderstood and put DeGraff s name. Feldman said when he understood the confusion, he resubmitted an application inserting Ms. Bocadero's name as manager of the operation. Mayor Ireland asked how many liquor licenses DeGraff has held. DeGraff said about 30 and in Colorado, 3. Mayor Ireland asked DeGraff if he is familiar with the case in Illinois. DeGraff said he is. Mayor Ireland asked if DeGraff filed with the court an affidavit that contained false statements. DeGraff said not intentionally; DeGraff said he believed the affidavit to be true at the time. Mayor Ireland asked if the court later found the affidavit to be false. DeGraff said the court found information and interpreted a document differently than the affidavit that DeGraff believe to be true. Mayor Ireland asked if one filed an affidavit 3 Special Meeting Aspen City Council August 4, 2010 containing false statements would be a criminal act. DeGraff said it was not a criminal act. Feldman said there is no crime of filing a false affidavit. The affidavit states loan proceeds were used and the judge found it was a deposit that was used. Feldman said DeGraff filed an affidavit which he believed to be true and it turned out not to be. Mayor Ireland asked DeGraff if he concealed from his investors any self - dealing. DeGraff said not. Mayor Ireland asked if DeGraff disputes the circuit court in Illinois punished him for filing a false affidavit and breaching fiduciary duties with his clients resulting in punitive damages. DeGraff stated he disputes this and believes he was right at that time. DeGraff said it was a bad judgment; however, he paid the penalty. DeGraff told Council since then, he has had 18 venues licensed in 4 different states including 3 in Colorado. DeGraff acknowledge the court said what he did was wrong. Councilman Johnson asked about the ownership of other venues. DeGraff said in Las Vegas, his partner runs the office and he has interests in the licenses. DeGraff said his wife owns 99% of this business. This LLC was set up so that one can be member manager or a manager, which is what DeGraff is. DeGraff said his businesses are set up for tax and estate planning purposes. Mayor Ireland asked if DeGraff has a contractual arrangement to manage the LLC beyond being a member of the LLC. DeGraff said there would be a management company that Liza DeGraff would be the main member of. Mayor Ireland asked who is managing the LLC. DeGraff said he is the manager of the LLC; he is a member and he is the manager. Mayor Ireland asked if there is another LLC that manages this business. DeGraff said there will probably be a management company set up which will get a management fee. Mayor Ireland asked who the management company will be. DeGraff said it will be Mill Street Management LLC. Mayor Ireland asked what that company will manage. DeGraff said it is set up to receive any fees. DeGraff reiterated the real manager of the operation will be Gina Bocadero. Mayor Ireland asked if there is an LLC managing this operation. DeGraff said there is an LLC that would technically manage the operation because there is a fee that gets paid. Mayor Ireland asked if there is record in the file or an application for a manager for this LLC. DeGraff said there is not because it does not manage on a day to day operation. Ms. Koch said the file does not contain any documents about a management company. DeGraff said the management company does not manage the operation; it does not do anything; it receives a fee. DeGraff said it would give advice. Jim True, special counsel, told Council anyone involved in the operation of a liquor license needs to be reported in the application. Councilman Johnson noted Scott DeGraff signed as personal guarantee to the lease. DeGraff told Council no management company has done anything for this business; it is not part of this application. DeGraff said using this management company will not change anything. Mayor Ireland said the issue here is whether some other entity has managerial authority and if they do that needs to be disclosed in this application. The applicant has stated there is a management entity that will receive fees. Mayor Ireland asked if there is a contractual arrangement with an LLC that will provide management 4 Special Meeting Aspen City Council August 4, 2010 services. DeGraff answered not at this time; the owner of this entity is Mill Street Aspen LLC and this is the only entity that can share in profits. Feldman said the application is accurate and if in the future a management company is contracted with, the liquor code provides for the disclosure of that. Mayor Ireland said the issue before Council is whether they think there has been criminal conduct and if so, has there been rehabilitation. Mayor Ireland said not reporting a management company is relevant as to whether the applicant is rehabilitated or not. Mayor Ireland stated an entity receiving fees from this operation needs to be listed. DeGraff said he has not formed this entity yet and he does not have a contractual relationship. Mayor Ireland said Council has heard there was an affidavit filed containing false statement in Cook County, Illinois. The applicant, DeGraff, testified these were not intentionally false; however, the court found they were and punished DeGraff accordingly. Feldman stated criminal conduct is defined by criminal laws, with the absence of an arrest and prosecution and conviction or admission of criminal conduct, Council cannot establish criminal conduct. Feldman said if one provides testimony on the witness stand, which is proven to be false, that does not automatically establish criminal conduct. The crime of perjury has an element of intent; a person has to have the intent to defraud. Feldman pointed out there has been no arrest and no prosecution for perjury. The presumption in this country is that one is innocent until proven guilty. Mayor Ireland stated the statute is clear and it does not speak to a requirement that conduct must be criminal or proven to be criminal; it says any person, unless such person's character, reputation, are satisfactory to the respective licensing authority. Mayor Ireland said if the legislation had intended bodies had to find there was a criminal conviction, it would have said so. The statute questions if an applicant's character has violated a moral standard and one can look to character and reputation. Councilman Skadron asked about the statement that the Illinois case did not establish a criminal record. Feldman answered Illinois case was a civil case involving money, which means Scott DeGraff does not have a criminal record. True told Council the city attorney's office does not dispute there is no evidence of any criminal conviction or arrest of either Liza or Scott DeGraff True stated this case in Illinois was civil and the court made a determination that the individual filed a false affidavit in court. DeGraff said if the judge felt he did anything intentional, she could have gone for more actions. Feldman said since there was no criminal conviction or arrest, there is nothing to rehabilitate. Councilman Skadron pointed out DeGraff is not the first person to apply for a liquor license in Aspen; however, the applicant does bring a reputation which has resulted in this hearing. Feldman noted under the liquor code, Aspen requires people to do business in accordance with the liquor laws; that is what this hearing is about. Feldman said this is about conduct in the 1990's. The judgment came down in 2001; it was appealed in 2004; since then DeGraff has had liquor licenses, including 2 in Aspen. Feldman said Council should ask the attorney's office in any of DeGraff s liquor licenses in Snowmass or Aspen if there have been violations. Councilman Skadron said he has checked and there 5 Special Meeting Aspen City Council August 4, 2010 were no reports. Feldman said this shows DeGraff can run a liquor establishment in Aspen. Mayor Ireland noted page 10 of the order of the judge in Illinois, "the Court does find, however, that the defendant's exaggerated situation with under reporting sales in its financial reports and assertions that the business had been failing to make its rent payment that were not entirely true. There were also assertions defendants made substantial loans of the business but those were not verified either ". The court subsequently found what had happened in that case was that the applicant had engaged in filing false affidavits, it did not need to find there was an intent, and it did impose $1 million in punitive damages for misconduct, which is relevant. Mayor Ireland stated he does not accept the idea there has to be a criminal conviction for someone to be shown acting contrary to good moral character standard. DeGraff noted the Court also said he had to do an accounting, which was done and it was correct. Mayor Ireland stated that is not in evidence. DeGraff said people wanted money and he ended up paying. DeGraff told Council the total settlement was more than $1 million. DeGraff stated 18 places have been licensed since that court case. DeGraff said he appealed the ruling, lost that the appeal and paid the fine. Feldman told Council there were claims in the case for fraud and perversion, which were dismissed. When the order came from the appellant judge affirming the court's ruling, DeGraff paid a total of $3 million. DeGraff told Council he has disclosed the court case in other states where he has applied for liquor license and no one has ever had a problem with it. DeGraff said he and his wife have designed a lot of establishments. They are going to open Junk even if it is all food. Feldman asked if there were any issues regarding the character of Liza DeGraff. Mayor Ireland answered none that he was aware of. DeGraff said there are some honest disputes in the court system. DeGraff said he feels his position is valid. DeGraff said the construction crew at Junk is paid weekly. DeGraff stated it is a privilege to have a liquor license and he feels he deserves it. DeGraff said he did not have bad moral character when he received license in Aspen 18 months ago. Councilman Skadron asked the property owner, Mark Hunt, if he considered other operators for the property. Hunt told Council he talked to a handful of operators and he is familiar with some of DeGraff s other venues in Chicago and they are in the top tier of restaurants. Liza DeGraff took the oath. Ms. DeGraff stated 2008 was a game changer for many people and businesses imploded and Scott DeGraff was a victim of that. Councilman Skadron said the reputation of DeGraff exceeds that and has to do with the fabric of the community and how some members of the community feel violated by trust they had placed in DeGraff. Councilman Skadron said Aspen deals with many business people and this issue has not come before Council for any other business person. Mayor Ireland said the money owing to local contractors is not relevant. Feldman said the issues affecting DeGraffs reputation could all be wrong. 6 Special Meeting Aspen City Council August 4, 2010 Councilman Skadron noted DeGraff indicates he has been wronged and is counter - suing; DeGraff also stated the decision handled by the Illinois court was wrong. Councilman Skadron said at some point a pattern is established about the way DeGraff goes about his business. Feldman said DeGraff serves tens of millions of people. There are business decisions; DeGraff took the court decision and paid. Councilman Skadron said a reasonable person might conclude relative to the reputation of DeGraff that something might be amiss. Rick Neiley, representing Hansen Construction, told Council in his client's case against DeGraff, there is a judgment in favor of Hansen Construction for $166,000, which has not been paid. Neiley disagreed that this should only be about criminal conduct. There are sections that state the liquor authority may consider submitting false applications, making willful misrepresentations or committing fraudulent acts. Neiley stated it is clear the statutes goveming these proceedings cover matter of reputation and moral character outside of those arising from criminal prosecution. Neiley said in this case there are matters to consider beyond the fact there is no criminal conviction. Neiley noted the record contains comments from citizens who feel they have not been treated fairly by DeGraff. Neiley said the regulations direct one to look at whether there were false statements or misrepresentations in the application and the failure to advise the city of the judgment against DeGraff in Illinois is an omission that rises to the level of a misrepresentation. Neiley quoted from the finding of the trial court that this was more than just a matter of a business dispute. The court stated in awarding $1 million in punitive damages that there is no doubt the defendant's, DeGraff, decision not to tell the investors, the limited partners, the whole truth about the deals they were entering was deliberate. The Court also stated that the defendant filed a false affidavit with the court and in that affidavit the concealment about defendants' exclusive use of $3 million of the earnest blossomed into outright deception and the general partners continued to deceive the limited partners about a substantial partnership transaction even after the suit was filed. Neiley reiterated this is more than just a business dispute and rises to deception. Neiley pointed out in the local business disputes there is in excess of $4 million in claims and at the hearing before the Liquor Authority, parties testified to amounts they were owed. Neiley said these are members of the community and it is important to consider that in determining whether one is of good moral character. Neiley said in determining good moral character, one can look at standard definitions including conduct contrary to justice, modesty, honesty. Neiley admitted some of the claims are subject to dispute; however, if DeGraff wants to establish good moral character, these claims should be resolved. Neiley presented real estate transactions; one involves the DeGraff residence which is subject to a lawsuit of Axelman. The property was purchased on May 29, 2008, and claims filed in March, and December 2008, the DeGraffs transferred the property out of their name November 3, 2009, to a LLC TateDaisy LLC, which was after lawsuits had been filed. This could be considered to be a fraudulent conveyance intended to shield the 7 Special Meeting Aspen City Council August 4, 2010 assets from creditors. Neiley told Council the property at 257 Park Avenue in May 2008 was conveyed to a new LLC. Neiley reiterated the liquor code states Council can consider matters related to fraudulent conduct, willful misrepresentations and other things. Neiley stated the course of conduct from 2000 to the present suggests a lack of good moral character in dealing with partners and contractors. Neiley noted the record established at the Aspen Liquor Authority was more than adequate to support their position. Neiley urged Council to deny the application. Mayor Ireland asked if the unpaid obligations are with DeGraff personally or with corporations. Neiley said both Mayor Ireland asked if DeGraff not paying debts or a corporation amount to immoral conduct. Neiley said he has not done discovery to determine that. Carter Sheriff, general contractor for Junk, told Council this is a new business for him and on this job every sub contractor is being paid weekly. Jeffrey Halferty told Council he did the design for 305 S. Mill and has had no issues being paid. Halferty said he hopes Council grants the liquor license. Mayor Ireland closed the public hearing. Feldman stated good moral character is a criminal determination. Feldman stated everyone agrees there is no criminal accusations or convictions regarding the applicant. Feldman said what happened in the Illinois case never rose to a criminal matter; it was a civil case. There was no crime and DeGraff paid the bill. Since that time, the establishments in Aspen have operated without a police call. Feldman said the DeGraffs' ability to manage an operation in accordance with the liquor codes is unassailable with no evidence to prove either DeGraff cannot operate a business within the confines of the liquor codes. Feldman requested Council approve the liquor license as there is no legal basis to deny it. Scott DeGraff told Council in 19 years of business, doing millions of dollars of business and paying the bills fast. DeGraff said he moved his family to Aspen, works hard, employs a lot of people. DeGraff said there are not a lot of lawsuits pending in Aspen. DeGraff told Council he was approached to be the focal point of the development in Snowmass. DeGraff told Council he only had one contractor in Snowmass, CFC PCL, and this is being taken care in Court. DeGraff said the issues with the Red Onion are legal cases. DeGraff stated he does not believe someone has to pay a bill they do not think is correct. DeGraff said there are issues with his personal houses that will be resolved in court. Councilman Skadron asked if Junk was red tagged by the city's community development department. DeGraff said it was red tagged one time and it was about a planter box, which was taken down and now it has to be rebuilt. DeGraff told Council a lot of money has been put into this project; it is a prime space in Aspen. Councilman Skadron noted DeGraff had an the operation in Snowmass, which did not work out; had the Red Onion in Aspen, which did not work out; there is work on a personal residence, resulting in 8 Special Meeting Aspen City Council August 4, 2010 lawsuits; this property was red tagged by the city. DeGraff said at the Red Onion, he and the landlords decided before the business opened that things were not working out and ended the relationship by mutual choice. DeGraff told Council he plans to open with food service as soon as the project gets a c /o. Councilman Johnson said the lease contains a $400,000 provision. DeGraff said a request for funding happens weekly; anything extra comes out of Liza DeGraff's accounts. DeGraff told Council the project has not used the entire $400,000. Mayor Ireland asked about the Colorado liquor license application, question #10, whether a liquor license has ever been issued to the applicant, limited liability company, officers, directors or stockholders, and if yes, list any current or former financial interest. Mayor Ireland asked if Fun Worldwide LLC is the only entity to which a liquor license has been issued. DeGraff said Fun Worldwide is the only operation in Colorado that is currently operating. Mayor Ireland said the question is "Ever been issued to the applicant" and asked if there are other license. DeGraff said as a member, he has been issued other licenses. DeGraff said the Red Onion never opened; Junk Liquor Sky in Snowmass was another license. DeGraff told Council this form was filled out by his counsel. Mayor Ireland asked if the financial interests in any Colorado liquor licenses had been filed with the city clerk's office. Ms. Koch answered no, other than Fun Worldwide. DeGraff s resume does show other liquor licensed businesses. Mayor Ireland asked why the current and former financial interests were omitted from the application for Junk. DeGraff answered this was filled out by his attorney who did not report businesses that did not open, the Red Onion. Mayor Ireland said the applicant failed to list at least one other entity in which he had a financial interest nor disclosed the interests in the license that was listed. Mayor Ireland said this application is not complete and what is troubling is that the applicant is shifting the blame to his counsel. Mayor Ireland asked if DeGraff lent money to Fun Worldwide LLC. DeGraff told Council he has no formal loan documents with Fun Worldwide; he put money in the bank to start the business as an investment. DeGraff told Council he has an interest in Junk Liquid Sky LLC. Mayor Ireland asked if DeGraff lent Junk Liquor Sky money. DeGraff stated he was not a lender for Junk Liquid Sky nor did he loan money to Junk Red Onion LLC. Mayor Ireland asked about the management company referred to earlier. DeGraff said he has not yet used that company and if he does, he will file the appropriate paperwork. True asked about the federal action 09 -CV 1963. Feldman stated this is part of his brief and should be part of the record. DeGraff said that case is in settlement negotiation. True said documents were presented by Rick Neiley of conveyance of properties for North 3` and 257 Park Avenue. DeGraff said those are correct documents. True noted the record is also a packet submitted to Council which is 472 pages and a record from the Liquor Licensing Authority. DeGraff acknowledged this is part of the record. 9 Special Meeting Aspen City Council August 4, 2010 Councilman Johnson asked if Council is deciding this not based solely on criminal propensities for moral character. True stated his opinion that the statute is clear, saying an applicant is prohibited from receiving a liquor license if it is determined the applicant, person, employee, manager of an LLC is not of good moral character. Good moral character has been determined in RF Enterprises as an appropriate consideration and it requires Council to make a determination that there is a criminal conviction, there is a propensity for criminal conduct based on record history. True opined the law does not say it is only based on conviction, arrest; Council may make a determination based on the entirety of the individual's history that would include conduct showing a propensity for bad moral conduct. True stated the 2000 civil case in which DeGraff caused to be filed an affidavit in 2001, which the court found to contain false statements and also found there was deception in that case. True said that could be a basis for Council's determination on the issue of good moral character. It is Council's discretion to use that information and to make that determination. True pointed out the statute 25 -4 -101 is clear that Council has to consider whether has been rehabilitation. Councilman Skadron said the difference is whether to narrowly interpret this statute. Feldman stated criminal is a big word and one cannot jump to criminal conduct without an arrest. Criminal conduct is not for Council to decide within their own idea of what constitutes criminal. True stated no case law says that and it is not that restrictive to require an arrest to have been made. True reiterated in this instance a court made the determination that a false affidavit was made, which is conduct that could be deemed criminal conduct and it is Council's discretion to make that determination. Mayor Ireland said in some way this is about corporate entities being used to insulate actors from alleged misconduct. Mayor Ireland said this is a lesson for everyone to get personal guarantees. The law does permit shielding personal responsibility from entrepreneurial failure. Mayor Ireland noted at some point, repeated use may amount to immoral conduct; ordinary business failure in and of itself is not misconduct. There are limits to the ability of a corporation to immunize an individual from their own immoral activity and those limits are what the Illinois case is about. Mayor Ireland read from the case where there was an LLC with limited and general partners, "In a proposal for the deal was being presented to limited partners, some of them inquired as to legal representation. They were falsely told that the attorney doing the negotiations and drafting represented the limited partnership itself that is the entity not the general partners. In fact, no one was representing the partnership and the general partners were concealing significant aspects of the transaction. Second, defendants filed a false affidavit with this court. In that affidavit, the concealment about the defendants' exclusive use of $3 million of earnest money blossomed into outright deception. Then general partners continued to deceive the limited partners about substantial partnership transactions even after the law suit was filed. The total investment of limited partners here comprising the full funding of the limited partnership was substantial. The breach of fiduciary duty and the deception about it were serious. The amount of money 10 Special Meeting Aspen City Council August 4, 2010 intentionally withheld from the limited partners including both money actually withheld, the extension fees, and the earnest money and potentially withheld per the declaration of restricted covenant while substantial, the Court finds the punitive damages assessed here should be substantial as well. Defendant DeGraff testified that among other businesses defendant currently operates 3 businesses in Las Vegas, they collect rental income and they are doing well. The court finds a substantial award of punitive damages necessary in order to effectuate the purpose of this award." Mayor Ireland stated that was a finding of fact by the court. The Court found that the defendant acted falsely in filing an affidavit. This was appealed and the appellate court said "under the 3` step set out, we do not find that the trial court abused its discretion in assessing punitive damages. The trial court did not abuse its discretion unless no reasonable person could assume its view. The trial court correctly noted in the judgment that the purposes of damages are retribution against the wrong doer in deterrence of similar conduct. The court stated in its order against the defendants served those needs. The court also found substantial damages in this case due to the amount of money involved. The court did not abuse its discretion in awarding damages. Mayor Ireland noted the judgment states that Morton and DeGraff did not tell the limited partners about the parts of the Grand Plaza deal that they were keeping for themselves. That was a finding of the trial court and was upheld by the appellate court. Mayor Ireland said what is the issue for him is does this amount to conduct that is not moral. Mayor Ireland stated he does not accept the argument by counsel that one needs criminal conviction to establish that someone acted immorally. Mayor Ireland said the test is not conviction; the test is not even that it is criminal conduct as defined in the criminal statutes. There are limits on the ability of a corporation to immunize and individual from their own immoral activities. Mayor Ireland noted one can be judgment proof in the eyes of the law without being immune from judgment by the community for immoral conduct. Mayor Ireland said going out of business is not proof of bad moral character; using a corporation to shield oneself from entrepreneurial risk is not proof of bad moral character. Mayor Ireland agreed that the conduct litigated and appealed established bad moral character. Mayor Ireland said he does not agree that the city must grant a liquor license to anyone no matter what they have done simply because they have not been criminally convicted. Mayor Ireland stated conduct can be immoral without being a prosecutable, criminal offense. Mayor Ireland said the other issue is rehabilitation, which is demonstrated by remorse and acknowledgment of the wrong that was done. Mayor Ireland said he has not seen or heard that from this applicant. Mayor Ireland said there is no remorse here. Mayor Ireland pointed out the liquor license application fails to all entities in which the applicant has an interest. Mayor Ireland said the most troubling part of that issue is that the applicant tried to blame his attorney for that omission. Mayor Ireland stated one is either responsible or not; straightforward questions were not answered in a straightforward manner, including confusion about who is a manager, who is a member, and that there may or may not be a management company. 11 Special Meeting Aspen City Council August 4, 2010 Mayor Ireland noted it was not proven at this hearing that not paying contractors was an intent to defraud. Owing money does not make "immoral character" unless there is a showing of immoral activity or intent to deceive. The Illinois case the court found an intent to deceive. Mayor Ireland reiterated he does not think there needs to be a criminal conviction to find someone has acted immorally and has bad moral character. Mayor Ireland said there is a failure to rehabilitate and he cannot support this application. Councilman Skadron said the general course of conduct suggests a serious concerns about the propriety of awarding a license to an individual who has many unpaid debts to community members. Councilman Skadron said there is a delineation between civil claims and criminal acts. Councilman Skadron concurred with the finding of the city's special counsel that the finding of a criminal conviction is not necessary, only the propensity for criminal activity. Councilman Skadron stated the findings of Caprus involve moral turpitude that would deem the applicant a person not of good moral character. Councilman Skadron said on rehabilitation, the burden is on the applicant and the applicant has not recognized conduct that suggests an offense, there is no evidence of rehabilitation that would allow him to approve the application. Councilman Johnson agreed with special counsel's definition of good moral character and the city does have a question of good moral character in this case. Councilman Johnson stated in reading the Illinois case, he finds there was deception and the filing of a false affidavit. Councilman Johnson said he is concerned about the LLC game, with Mill Street Aspen LLC, the other management LLC and although LLC are not personal, actions of DeGraff has affected a lot of people, which is not the issue here. Councilman Johnson said failing to fill out the application correctly adds to the pattern of things heard at this meeting. Councilman Johnson said he would like to see demonstration in the future that there has been rehabilitation. Mayor Ireland said there cannot be rehabilitation without acknowledging wrong doing and there has been no acknowledgement. Councilman Skadron moved to uphold the previous denial by the Liquor License Authority and to direct Jim True, special counsel, to draft findings; seconded by Councilman Johnson. All in favor, motion carried. Mayor Ireland moved to adjourn at 4:10 p.m.; seconded by Councilman Skadron. All in favor, motion carried. A / / / Kathryn och, City Clerk 12