AUSTIN, Texas (CN) - Wal-Mart sued Texas in a constitutional challenge to a law that prevents publicly traded corporations from selling liquor in the state.
Wal-Mart Stores and its Sam's affiliate sued the Texas Alcoholic Beverage Commission and its members on Feb. 12 in Federal Court, alleging violations of the Equal Protection, Commerce and Comity clauses of the Constitution.
Wal-Mart sells wine and/or beer in its 546 Texas stores, but cannot sell distilled spirits (i.e. liquor) because the Texas Alcoholic Beverage Code prohibits it. The so-called package store permit allows Texas retailers to sell liquor to customers for off-premises consumption, but Wal-Mart, as a "public corporation," is barred from getting the permit.
Wal-Mart calls the bar irrational and unconstitutional. Also irrational, Wal-Mart says, is that publicly traded hotel corporations are excluded from the ban.
"These arbitrary and irrational distinctions create separate classes of retailers with no rational difference or purpose. One class of retailers - public corporations - are denied an opportunity to compete in the distilled spirits market, while another class of retailers - private corporations and publicly traded hotel corporations - are allowed to compete without similar restriction," according to the complaint.
The Texas Alcoholic Beverage Code defines a public corporation as: "either (1) any corporation or other legal entity whose shares or other evidence of ownership are listed on a public stock exchange or (2) any corporation or other legal entity with more than 35 persons holding an ownership interest."
Wal-Mart says the TABC code grants special exceptions to certain individuals, families and hotels through a loophole that allows them to circumvent the five-store limit for package store permits. Immediate family members of a package store permit-holder can "consolidate permits (or stores) under a holding company and then acquire an unlimited number of additional permits."
The consolidation loophole states: If an individual holds a Package Store Permit and wishes to consolidate with a corporation, at least 51% of the stock of the corporation must be owned by an individual who has a consanguinity relationship with the existing permittee. If two corporations wish to consolidate, both corporations must have an individual who owns 51% of the stock and who are related within the first degree of consanguinity."
But Wal-Mart has no "blood relative of the first degree" who owns 51% or more of its stock, so it cannot take advantage of the unlimited consolidation loophole. Additionally, the five package store limit does not apply to the stockholders, managers, or other members of a corporation operating hotels, so the number of hotel package store permits is unlimited.
The loophole has resulted in large package store chains that "dominate regional markets and limit consumer choice." For instance, Spec's Family Partners Ltd. has 160 package store permits and Twin Liquors LP has 76 such permits.
Wal-Mart says the TABC code would require it to give up all of its current 543 BQ permits for wine and beer sales before it could apply for a package-store permit because the code forbids a BQ permittee from simultaneously holding even one package-store permit.
But the code does not forbid someone who holds both a Q permit and a BF license from also holding a package-store permit. So Wal-Mart would either have to stop selling beer and wine in Texas, or it could apply for 543 new beer licenses (BF licenses) and 543 new wine permits (Q permits) at a cost of more than $1.3 million.
Wal-Mart says it wants to sell distilled spirits in outlets separate from its retail stores and would ban minors from entering without a parent. The liquor stores would be built next to existing Wal-Mart and Sam's stores and would have their own entrances.
Wal-Mart says a previous TABC code was struck down in 1994 by the 5th Circuit. In that instance, the code required an applicant for any alcoholic beverage permit to be a Texas resident for at least one year, which the appeals court found to be discriminatory against non-Texas residents.
Wal-Mart say it is not challenging Texas' three-tier system for manufacturers, distributors, and retailers of alcoholic beverages. It only seeks "relief from unconstitutional Texas laws that prevent it from participating in the retail tier of the sale of distilled spirits to retail customers for off-premises consumption."
Wal-Mart spokesman Lorenzo Lopez told Courthouse News: "Our Texas customers want added convenience when shopping for adult beverages. However, the current law prohibits publicly owned businesses such as Wal-Mart from offering spirits to its customers. This is counter to Texas' belief in free enterprise and fair competition, limits our customer's choice and keeps the price of sprits artificially high, all of which harm Texas consumers.
"Wal-Mart believes the law needs to be changed to provide a fair and level playing field so we can offer our customers a full assortment of adult beverages as part of a convenient and comfortable shopping experience."
The TABC did not respond to a request for comment.
Wal-Mart seeks declaratory judgment that the TABC code is unconstitutional, and an injunction preventing enforcement of the relevant sections of the Texas Alcoholic Beverage Code, plus costs.
Its lead counsel is Neal Manne with Susman Godfrey of Houston.
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