Texas Alcoholic Beverage Code
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Texas Court of Appeals Hands Down Instructive Administrative Law Opinion

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.




Texas Court Strikes Down Prohibition on Payments for Brand Rights

Late last week, a district judge in Texas declared unconstitutional under the Texas Constitution a provision of the state’s Beer Industry Fair Dealing Law (i.e., the beer “franchise” law) that expressly prohibits a brewer from accepting a payment in exchange for a grant of territorial distribution rights.  Section 102.75(a)(7) of the Texas Alcoholic Beverage Code, enacted in 2013, applies generally to “manufacturers,” including both in-state brewers and out-of-state brewers holding nonresident manufacturer’s licenses in Texas.  In 2014, three small Texas brewers – Live Oak Brewing Company, Revolver Brewing and Peticolas Brewing Company – sued the Texas Alcoholic Beverage Commission (TABC) and its executive director, Sherry Cook, arguing that Section 102.75(a)(7) violates the Texas Constitution.

In a short summary order, the district court judge agreed.  The court found that Section 102.75(a)(7) violates the Texas Constitution’s “Due Course of Law” provision, Texas’ analog to the US Constitution’s Due Process Clause, which states that a Texas citizen may not “be deprived of life, liberty, property, privileges or immunities, or in any manner disfranchised, except by the due course of the law of the land.”  Tex. Const. Art. I, § 19.

The court granted the plaintiff breweries’ motion for summary judgment on their Due Course of Law argument and enjoined the TABC and Ms. Cook (and their respective employees, agents and successors) from enforcing Section 102.75(a)(7) against the plaintiffs and any other brewers.  The court dismissed the plaintiffs’ claim that Section 102.75(a)(7) amounted to a taking of private property in violation of the Texas Constitution, though, and also dismissed the plaintiffs’ request for attorney’s fees.

Although the judge’s order did not contain any detail regarding her reasoning, the case restores an important opportunity for brewers distributing – or interested in distributing – beer in Texas.  Further, although the TABC may appeal, the decision should remind state legislatures that state restrictions on the conduct of private parties in the alcohol industry in the name of protecting the three-tier system must still pass muster under federal and state constitutional principles.




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