Court Broadens Grounds for Stay of License Revocation Pending Appeal

An Arizona Court of Appeals ruling in a liquor license case offers good news – and greater access to due process – for contractors facing license revocation at the hands of the Arizona Registrar of Contractors. The court’s ruling in P&P Mehta LLC v. Jones remedies a long-standing problem for Arizona businesses that face losing their licenses issued by state or local governments.

The problem: While a licensee could appeal in Superior Court a revocation order by the licensing agency, the court would grant a stay of the revocation only if the licensee could demonstrate that it was “likely to prevail” in court. A licensee who failed to meet that difficult standard would lose its license – and essentially be out of business – until the court ordered reinstatement.

That situation has been particularly untenable for contractors, whose licenses can be pulled by the Registrar of Contractors in as few as 20 days, and for whom disputes can be especially complicated and meeting the “likely to prevail” standard highly unlikely in a brief hearing.

“Near-Impossible.” Fortunately, in its Mehta ruling, the Court of Appeals found that requiring a licensee “to demonstrate at the inception of the review process a significant probability of success asks the near-impossible. Except in the most egregious instances of agency error, this effort will fail.” Instead, the Court ruled that issuing a stay should be based on the licensee’s showing of “good cause” and “some degree of merit.” The Court also ruled that a licensee need not demonstrate that it would suffer “irreparable harm” if the revocation is not stayed.

New Standards. In defining the new standards for staying a license revocation, the Court cited Oregon’s two-pronged test for substantive merit:

• a “colorable claim of error” – i.e., an assertion by the licensee that “is seemingly valid, genuine, or plausible, under the circumstances of the case” – and

• a showing by the licensee that revoking its license would pose greater harm to the licensee than the staying of the revocation would pose to the licensing agency.
  

For contractors, the Mehta ruling means that, upon satisfying the test for substantive merit, they can continue to operate under their existing license until they have their day in court.