OXXO Chain Limited on Alcohol Sales in Texas

AUSTIN (CN) - Because the owner of Mexican convenience-store chain OXXO has indirect ownership interests in several Heineken brewers, Texas law does not permit the stores to sell alcohol, an appeals court ruled.

The Friday ruling stems from a complaint that chain owner Cadena Comercial USA Corp. brought against the Texas Alcoholic Beverage Commission last year upon denial of its applications for wine and beer retailer's off-premise permits.

A judge for the Travis County Court affirmed the denial, citing Texas laws that seek to "strictly separate" such "tied house" relationships among the three tiers of the alcoholic beverage industry - manufacturers, distributors and retailers.

Cadena is owned by Fomento Exonomico Mexicano S.A.B. de C.V., which operates thousands of mostly franchised convenience stores in Latin America.

FEMSA formed Cadena to own and operate OXXO stores in Texas under a business plan that requires the liquor licenses at each Texas location.

FEMSA also owns a 20 percent noncontrolling interest in brewers Heineken Italia, Heineken Browerijen and Mexico-based CCM, although the interests are owned indirectly through intermediary companies.

On Friday, a three-judge panel with the 3rd District Court of Appeals of Texas affirmed the denial of Cadena's application.

Writing for the court, Chief Justice J. Woodfin Jones disagreed with Cadena's interpretation that prohibited cross-ownership exists only when the owner can "control" the owned business.

Cadena argued the lower court's construction of the law is unconstitutionally vague and denies equal protection to similarly situated entities.

Jones said such a distinction between indirect and direct ownership does not matter - both are prohibited.

"The term 'interest' appears throughout the Alcoholic Beverage Code, often on its own and sometimes modified by terms like 'pecuniary,' 'financial,' 'ownership' and 'real,'" the 29-page ruling states. "Each of these modifiers connotes some type of commercial, economic or financial interest. When used on its own within the statute, the term 'interest' is typically characterized as being 'an' or 'any' interest, including direct and indirect interest, which would necessarily include all of the foregoing modified uses of the term. Any of these types of interests would fall within the plain meaning of the term 'interest.'"

Jones also noted the Texas Legislature's "crystal clear" stated objective of strictly separating the alcohol industry's three tiers in the law.

"And while controlling interests certainly run contrary to that objective, the legislature seems to have viewed even the potential for a lesser degree of influence and incentive arising from a prohibited interest to also be incompatible," the opinion states. "In the context of the Alcoholic Beverage Code, the term 'interest' is purposefully broad, but its breadth is inherently limited to interests that are material to the purpose of the statute. The principal objective of chapter 102 is to ensure strict separation of the three tiers, including any overlapping ownership interests and related practices as well as other specifically prohibited relationships that give rise to the potential for influence and inducement. We hold that the term 'interest' is unambiguous considered in this context and in relation to other uses of the term in the code."

The "control" requirement for which Cadena is arguing "has no foundation in the statutory text and is inconsistent with it," the court found.

"Courts cannot rewrite a statute in the guise of interpreting it," Jones wrote. "Whatever merit there may be to Cadena's concerns about a statutory prohibition untethered to the concept of control, that is a matter for the legislature to address, not the courts. There is simply nothing in the statute that supports inserting a controlling-interest requirement into section 102.07(a)(1), and we decline Cadena's invitation to encroach on the legislature's dominion."

Neither Heineken nor OXXO returned Sunday messages requesting comment on the ruling.

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