Carico Investments v. Texas' Alcoholic Beverage, Civil Action 11-03-5532.

• Decision Date: 24 July 2006
• Docket Number: Civil Action 11-03-5532.
• Citation: 439 F.Supp.2d 733
• Parties: CARICO INVESTMENTS, INC., Plaintiff, v. The TEXAS ALCOHOLIC BEVERAGE COMMISSION, et al., Defendants.
• Court: U.S. District Court — Southern District of Texas

439 F.Supp.2d 733

CARICO INVESTMENTS, INC., Plaintiff, v. The TEXAS ALCOHOLIC BEVERAGE COMMISSION, et al., Defendants.

Civil Action 11-03-5532.

United States District Court, S.D. Texas, Houston Division.

July 24, 2006.

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Michael Alan Lamson, Lamson & Looney, Houston, TX, for Plaintiff.

David Earl Jenkins, Office of the Attorney General, Austin, TX, James C. Todd, Ass't Atty Gen, Lars Hagen, TX Atty General, Stephen H. Capelle, Assistant Atty Gen, Craig H. Russell, Assistant Atty Gen, Austin, TX, for Defendants.

OPINION ON SUMMARY JUDGMENT

MILLER, District Judge.

Before the court are the parties' cross-motions for summary judgment. The plaintiff Carico Investments, Inc.¹ has filed a second motion for summary judgment (Dkt. 48). The defendants are the Texas Alcoholic Beverage Commission and certain Commission officials sued in their official capacity, Alan Steen (Executive Director of the TABC), and Michael Burnett and Craig Schmidt (agents of the TABC) (collectively "TABC"). The TABC has filed a supplemental brief for summary judgment which will be treated as TABC's second motion for summary judgment (Dkt. 49). A hearing was held on the motions July 13, 2006. For the reasons that follow, the court grants Carico's motion in part, and denies the TABC's motion in its entirety.

Carico challenges the constitutionality of Texas Alcoholic Beverage Code sections 11.61(b)(7), 61.71(a)(17), and 101.64, as well as TABC Administrative Rule section 35.31 (16 TEX. ADMIN. CODE § 35.31 (2006)). Carico seeks a declaratory judgment that sections 11.61(b)(7), 61.71(a)(17), and 101.64 of the Texas Alcoholic Beverage Code are unconstitutional as written under the First, Fourth, and Fourteenth Amendments of the United States Constitution, and that these same provisions, along with rule 35.31(c)(12) of the Texas Alcoholic Beverage Code, are unconstitutional as applied by the TABC. Carico also seeks a permanent injunction against the TABC from enforcing these provisions. An allegation of the denial of rights guaranteed under specific constitutional provisions raises a question appropriate for review under the Declaratory Judgment Act, 28 U.S.C. § 2201. See, e.g., Block v. Thompson, 472 F.2d 587, 588-89 (5th Cir.1973) (per curiam); Parks v. Allen, 409 F.2d 210, 210-11 (5th Cir.1969) (per curiam); Barnes v. Merritt, 376 F.2d 8, 8-12 (5th Cir.1967).

FACTUAL BACKGROUND

Carico is a distributor of adult magazines, videos, and DVDs. Carico offered these items for sale on consignment through retail vendors licensed by the TABC, such as convenience stores and truck stops, giving a percentage of the sale proceeds to the retailer/consignee. The magazines were packaged in bundles of two or more, with the covers mostly obscured. Carico alleges that for several years the TABC conducted "illegal seizures of Plaintiff's magazines, causing actual or de facto interference with Plaintiff's customers, and/or imposing a prior restraint on the promotion and exhibition of expressive material protected by the First and Fourteenth Amendments of the United States Constitution."² Carico further maintains the TABC intimidated retailers from continuing to carry Carico's products by threatening suspension or non-renewal of their alcohol licenses.

The TABC agents deemed magazines, videotapes, or DVDs obscene if they depicted scenes of oral, vaginal, or anal penetration, either on the cover or within the materials.³ TABC agents inspected establishments licensed by the TABC, and if such materials were found, they would generally issue an administrative warning to the retailer that the possession of the materials violated the Alcoholic Beverage Code. If the TABC found these materials a second time, it would institute administrative action against the vendor to suspend its license. The following incidents are documented in TABC reports:

1. On March 30, 2002, TABC agent Tricia L. O'Cayce seized approximately 120 bundles of magazines from the Quickie Pickie in Austin, Texas, and prepared an administrative case against the store for possession of pornographic material.⁴

2. On January 23, 2003, TABC agent Brian D. Bowers initiated an administrative action against SNS Food Store in Clute, Texas. Bowers inspected magazines behind the service counter and determined many were in violation of the Alcoholic Beverage Code. He seized approximately 38, all the adult magazines in the store, save copies of Playboy and Playgirl.⁵

3. On May 7, 2003, TABC agent Craig Schmidt entered Bestco Food Mart in Spring, Texas, and seized an adult videotape. The video box cover, displayed in an open area, showed three penises and three topless women. Schmidt cited the store for violating sections 11.61 and 101.64 of the Alcoholic Beverage Code.⁶

4. On June 3, 2003, Craig Schmidt and Wayne Pool, agents of the TABC, entered Handi Stop No. 67 in Harris County, Texas. The agents seized 16 VHS cassettes and 24 DVDs. The agents placed the store on administrative notice that the display of these items violated sections 11.61 and 101.64 of the Alcoholic Beverage Code.⁷

5. On September 13, 2003, agent T.G. Chadwick entered the premises of a retailer located at a truck stop in Hempstead, Texas. Chadwick seized 90 tapes and issued an administrative notice for possession of indecent graphic material.⁸

6. On January 31, 2004, Brent E. Roberts and another TABC agent inspected American Newstand No. 1 in Fort Worth, Texas. Roberts had previously warned the owner that "it was not permissible for him to possess, display, sell, or distribute in any manner ANY material(s) that were Lewd Graphic or Indecent in nature." These agents seized at least three "XXX-rated magazines" and a number of VHS tapes and DVDs. Roberts issued an administrative warning and recommended that the store's permit be suspended pursuant to section 11.61(b)(7).⁹

At some point after these seizures, an unspecified portion of the magazines and movies were destroyed by the TABC. None of the remaining materials has been returned to Carico.

The TABC makes no claim that any of these seizures were pursuant to a warrant issued by a neutral magistrate or that there was a prior judicial determination that any of the seized materials were obscene. No judicial determination the seized materials were obscene has ever since been made. In his deposition, James Samuel Smelser, Chief of Enforcement of the TABC, admitted that there were no procedures to determine if the materials seized were in fact obscene beyond the determination of the individual TABC agent.¹⁰ Furthermore, Smelser testified that he believed the TABC was authorized by statute to seize not just obscene but also indecent material, and that the TABC had the authority to prevent the sale of any indecent material on premises licensed by the TABC.¹¹

The TABC relies upon its general police power to regulate alcohol as granting it the authority to confiscate indecent and obscene materials on those retail premises it licenses. If a licensee or permittee challenges whether in fact the seized materials are obscene, they are referred to a State Administrative Law Judge for a hearing conducted approximately six to eight months later.¹²

Texas enacted the Alcoholic Beverage Code and created the TABC under its police power "for the protection of the welfare, health, peace, temperance, and safety of the people of the state." TEX. ALCO. BEV.CODE ANN. § 1.03 (Vernon 1995). The TABC is charged by state law to "inspect, supervise, and regulate every phase of the business of manufacturing, importing, exporting, transporting, storing, selling, advertising, labeling, and distributing alcoholic beverages, and the possession of alcoholic beverages for the purpose of sale and otherwise." Id. at § 5.31. Texas law further provides that "[t]he commission shall supervise and regulate licensees and permittees and their places of business in matters affecting the public." Id. at § 5.33.¹³

Section 101.64 of the Alcoholic Beverage Code deals with "Indecent Graphic Material." It states that, "No holder of a license or permit may possess or display on the licensed premises a card, calendar, placard, picture, or handbill that is immoral, indecent, lewd; or profane." In sections 11.61 and 61.71 of the Alcoholic Beverage Code, the Texas state legislature grants the TABC authority to cancel or suspend licenses or permits for various infractions. Section 11.61(b) provides that

The commission or administrator may suspend for not more than 60 days or cancel an original or renewal permit if it is found, after notice and hearing, that any of the following is true . (2) the permittee violated a provision of this code or a rule of the commission ... [or] (7) the place or manner in which the permittee conducts his business warrants the cancellation or suspension of the permit based on the general welfare, health, peace, morals, and safety of the people and on the public sense of decency....

TEX. ALCO. BEV.CODE ANN. § 11.61(b) (Vernon 1995). Section 61.71(a) is largely similar

The commission or administrator may suspend for not more than 60 days or cancel an original or renewal retail dealer's on- or off-premise license if it is found, after notice and hearing, that the licensee (1) violated a provision of this code or a rule of the commission during the existence of the license sought to be cancelled or suspended or during the immediately preceding license period ... [or] (17) conducted his business in a place or manner which warrants the cancellation or suspension of the license based on the general welfare, health, peace, morals, safety, and sense of decency of the people . . . .

Id. at § 61.71(a).

The TABC has promulgated regulations meant to carry out these statutory mandates. Of present concern are those regulations in Title 16 of the Texas Administrative Code, section 35.31, which relate "to §§ 11.46(a)(8), 11.61(b)(7), 61.42(a)(3) and 61.71(a)(17) of...