Texas Booze Law Called Absurd & Dishonest

     AUSTIN, Texas (CN) — Texas unconstitutionally prohibits alcohol manufacturers, wholesalers and retailers from owning even a single share of one another’s business, though Texas does so itself, the Texas Association of Business says in a lawsuit against the state.
     Joined by McLane Co., a trucking company and food and drink distributor, the business group says Texas’s “One Share Rule is absurd. It serves no perceptible governmental or societal interest of any kind.”
     It sued the Texas Alcoholic Beverage Commission on Monday in Federal Court.
     Texas regulates alcohol drinks under a three-tier system: manufacturers, wholesalers and retailers. A key principle of its Alcoholic Beverage Code is that the three tiers operate independently of each other, so “tied houses” are illegal.
     In other words, “it is illegal for a person or business that operates in one tier to own even a single share of stock in a company that operates in another tier — even in the absence of any control or influence over the other company,” the plaintiffs say.
     “This so-called One Share Rule, if consistently and faithfully applied, would usher in an era of de facto Prohibition in the State of Texas by endangering virtually every TABC licensee,” according to the complaint.
     Tied houses are defined as “any overlapping ownership or other prohibited relationship between those engaged in the alcoholic beverage industry at different levels, that is, between a manufacturer and a wholesaler or retailer, or between a wholesaler and a retailer.”
     McLane, which runs 80 distribution centers across the United States and “one of the nation’s largest trucking fleets,” says it applied for a Texas alcohol wholesale permit, but the TABC rejected it because McLane’s parent company, Berkshire Hathaway, owns about 2 percent of Wal-Mart’s stock.
     “Wal-Mart, under the TABC’s reading of the Code, is an alcohol retailer and McLane, if granted a permit, would be an alcohol wholesaler. Thus, the TABC determined that, if it granted McLane’s application, Berkshire Hathaway would be in violation of the tied-house provisions of the Code, because Berkshire Hathaway would own shares in both McLane (a would-be wholesaler) and Wal-Mart (a retailer),” the complaint states.
     So McLane withdrew its application. But it claims the TABC violates equal protection because it applies its One Share Rule selectively to new applicants, but not to incumbent licensees.
     The complaint cites a report by University of Texas economist William Charlton, Ph.D., in which he examined overlapping ownership of companies that are involved in the three-tier system, and four Texas public pension funds: the Permanent University Fund, the Employees Retirement System of Texas, the Teacher Retirement System and the Texas Permanent School Fund.
     “‘All four funds held equity positions in companies licensed to manufacture alcoholic beverages by Texas, companies licensed to retail alcoholic beverages by Texas as well as companies that owned premises on which franchisees held licenses to retail alcoholic beverages,'” Charlton wrote in the report.
     “Yet the TABC has not applied its One Share Rule to these Texas public pension funds, or to the licensees in which the funds hold stock,” the complaint states. “If the TABC actually applied the One Share Rule consistently across all licensees, few, if any, publicly traded companies would be able to manufacture, distribute, or retail alcoholic beverages in Texas.”
     For example, the TABC continues to license Core-Mark Holding Company, though it has investors who hold shares in alcohol retailers and manufacturers. McLane submitted a protest to the TABC after it renewed two Core-Mark permits. McLane asked the TABC to abandon the One Share Rule or revoke Core-Mark’s permits, but the TABC did neither.
     “The TABC has offered no rationale to support its selective licensing practice, and none is apparent, other than naked economic protectionism. The conclusion is unavoidable: the TABC wants to pick ‘winners’ and ‘losers’ in the Texas market for alcoholic beverages,” according to the complaint.
     McLane says that many state and federal officials, including all TABC employees themselves, violate the One Share Rule due to their participation in the Texas Employees Retirement System, which holds more than $1 billion in cross-tier investments.
     “The TABC cannot seriously maintain and defend a legal theory that is violated by every single one of its own employees,” the plaintiffs say. The State of Texas itself is an alcohol retailer through its sale of alcohol at University of Texas football games, and university-related entities have four permits to sell mixed beverages. Thus, the state violates the One Share Rule by investing in alcohol manufacturers and wholesalers.
     The One Share Rule also impermissibly burdens interstate commerce because investors nationwide must be aware of TABC tied-house provisions “to ensure that they do not violate the law in such a manner as to subject themselves to the possibility of criminal sanction and cause the companies they invest in to lose their Texas alcohol permits.”
     “The TABC is thus regulating and chilling the transfer of public-company stock, even when those transfers are between wholly out-of-state entities, in violation of the dormant Commerce Clause,” the complaint states.
     The TABC does not comment on pending litigation.
     The plaintiffs want the rule declared unconstitutional under the Equal Protection Clause, Due Process Clause, and dormant Commerce Clause.
     Their lead attorney is Steven Callahan with Charhon Callahan Robson & Garza, in Dallas.

%d bloggers like this: