A recent Texas Court of Appeals decision, EATX Coffee, LLC v. Texas Alcoholic Beverage Commission, provides an important reminder of how principles of administrative law may check the current trend towards “regulation by Internet.” Ct. of App of Texas, 4th Dist., No. 04-16-00213-CV (Dec. 7, 2016). Like TTB and many other state alcohol beverage authorities, the Texas Alcoholic Beverage Commission (TABC) periodically publishes “Question and Answer” (Q&A) documents purporting to interpret the Texas Alcoholic Beverage Code.
The EATX opinion arose from a challenge of two particular Q&A’s that, in effect, banned the filling of “crowlers” by Texas beer and wine retailers. A crowler is an aluminum can that a retailer can fill with beer and seal for consumers to take away from the retail premises. While TABC has declared that retailers may fill and sell “growlers” of beer (large bottles filled and sealed by retailers), the TABC’s Q&A’s declared the filling of crowlers to constitute manufacturing – an activity that a retailer cannot engage in without a manufacturing license. (And, of course, under state tied house laws a retailer generally cannot lawfully obtain a manufacturing license).
EATX, having invested in crowler equipment and facing disciplinary action over its filling and sale of crowlers, filed a lawsuit against the TABC seeking a declaration that TABC’s Q&A’s were wrong because the filling of a crowler does not constitute manufacturing. EATX also sought an injunction against enforcement. In response, TABC asserted that the Q&A’s were not a “rule” and therefore the trial court lacked jurisdiction to hear a challenge to the Q&A’s, and also asserted that EATX failed to exhaust the administrative remedies it could raise in defense of a TABC disciplinary action against EATX’s retail license.
The Texas Court of Appeals, 4th District, reversed. Reviewing the Q&A’s, the Court of Appeals concluded that: (1) they are of general applicably as they purport to apply to all retail permit holders; (2) they interpret the law and do not simply re-state it; (3) they do not affect only TABC’s internal management or organization. As such, the Q&A’s constitutes a “rule” within the meaning of Texas’ Administrative Procedures Act and the trial court had jurisdiction to hear the case and grant relief. Turning to exhaustion, the Court of Appeals found no authority for the proposition that a litigant aggrieved by the promulgation of a rule must instead wait and raise its arguments in an action brought to cancel, suspend or refuse to renew its license. In short, EATX can have its day in court.
Given the declining use of notice-and-comment rulemaking by TTB and most state alcohol regulatory agencies, the use of Q&A’s, “FAQs,” “advisory bulletins,” “industry memoranda,” and similar informal policy documents has been rising for decades. While such expedients may help move policy forward in a quicker, less resource-intensive (for the agency) manner, the EATX opinion stands as a useful reminder to regulators that this approach has limits.