Cooper v. McBeath

• Decision Date: 13 January 1994
• Docket Number: No. 91-8346,91-8346
• Citation: 11 F.3d 547
• Parties: Steve C. COOPER and Richard L. Wilson, Plaintiffs-Appellees, v. W.S. McBEATH, Defendant-Appellant, and Licensed Beverage, Licensed Beverage Distributors Association, Inc., et al., Intervenor-Defendants-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 547

11 F.3d 547

62 USLW 2443

Steve C. COOPER and Richard L. Wilson, Plaintiffs-Appellees, v. W.S. McBEATH, Defendant-Appellant, and Licensed Beverage, Licensed Beverage Distributors

Association, Inc., et al., Intervenor-Defendants-Appellants.

No. 91-8346.

United States Court of Appeals, Fifth Circuit.

Jan. 13, 1994.

Mary Joe Carroll, Michael R. Klatt, Clark, Thomas, Winters & Newton, Austin, TX, for Licensed Beverage.

W. Reed Lockhoof, Louis V. Carrillo, Asst. Attys. Gen., Dan Morales, Atty. Gen., Austin, TX, for McBeath.

Michael S. Simpson, Jill Boyer Scott, David James Bush, Hughes & Luce, Austin, TX, for TX Package Stores Assoc.

Shannon H. Ratliff, Marc O. Knisely, McGinnis, Lochridge & Kilgore, Austin, TX, for Wholesale Beer Distributors of TX.

Alan D. Albright, Akin, Gump, Strauss, Hauer & Feld, L.L.P., Austin, TX, for Cooper.

Richard L. Wilson, pro se.

Appeal from the United States District Court for the Western District of Texas.

Before REYNALDO G. GARZA, and JONES, Circuit Judges. ^*

EDITH H. JONES, Circuit Judge:

The chief question in this case is whether certain portions of the Texas Alcoholic Beverage Code ("Code") violate the Commerce Clause and/or the Privileges and Immunities Clause of the United States Constitution. Finding that the dispute is not moot and that the plaintiffs possess ample standing to challenge the statutes, we determine that the Code's durational residency and citizenship requirements amount to simple economic protectionism and therefore run afoul of the Commerce Clause. Moreover, the Twenty-first Amendment provides no sanctuary for these parochial statutes. Accordingly, we affirm the district court's grant of summary judgment in favor of the plaintiffs.

FACTS AND PRIOR PROCEEDINGS

The pertinent facts of this "brewing" controversy are straightforward. Richard L. Wilson and Steve C. Cooper are residents of Florida and Tennessee, respectively. Together, they seek to own and operate a topless nightclub in San Antonio called Baby Dolls, which is operated by K.S. Enterprises, Inc. ("KSE"), a Texas corporation holding a mixed beverage permit issued by the Texas Alcoholic Beverage Commission ("TABC" or "Commission"). Toward this end, Wilson and Cooper established Bexar County Enterprises, Inc. ("BCE"), a Tennessee corporation wholly owned by Wilson and Cooper.

In September, 1990, BCE purchased 49% of KSE's stock and acquired an option to purchase the remaining shares whenever the legality of the transaction under the Code could be established (i.e., whenever the transfer could occur without jeopardizing the liquor permit held by KSE). Apparently, BCE later transferred its KSE stock and the option to purchase the remaining shares to Wilson and Cooper, individually. ¹ The remaining KSE shares are held in escrow, and are to be transferred to plaintiffs whenever the permit is free from threat of revocation.

The instant dispute arose because several provisions of the Texas Alcoholic Beverage Code ("Code") require a sustained period of Texas citizenship and/or residency before the Commission can issue a mixed beverage permit. The Commission refused to conduct background investigations on Wilson and Cooper because they, as non-Texas residents, were deemed per se ineligible under Texas law to hold a liquor permit.

The challenged Code provisions at that time provided:

^* Section 11.46(a)(11) allows the TABC to refuse a permit to any applicant who has not been a Texas citizen for the three years immediately preceding his permit application. ²

^* Section 11.61(b)(19) allows the TABC to cancel a permit upon finding that the permittee was not a Texas citizen for the three years immediately preceding his permit application. ³

^* Section 28.04, relating to changes in corporate control, forbids renewal of a mixed beverage permit if there has been a change of ownership of over 50% of the corporate stock, unless the transferee is "qualified" to hold the permit.

^* Section 109.53, located in the Code's regulatory and penal provisions, states unequivocally that "[n]o person who has not been a citizen of Texas for a period of three years immediately preceding the filing of his application therefor shall be eligible to receive a permit under this code."

Section 109.53 also includes what is commonly known as the "51 percent rule," which forbids the issuance of a permit to any corporation "unless at least 51 percent of the stock of the corporation is owned at all times by citizens who have resided within the state for a period of three years[.]" Any corporation holding a permit in violation of this section risks the forfeiture of its corporate charter.

Under these Code provisions, consummation of the contemplated sale of KSE's remaining shares would have required the Commission to revoke KSE's permit. Accordingly, Wilson and Cooper filed suit in federal district court seeking declaratory and injunctive relief against these provisions, which, they contend, violate the Privileges and Immunities Clause found in Art. 4, Sec. 2 of the U.S. Constitution and/or the Commerce Clause by prohibiting any person from owning a majority ownership in a permit-holding corporation unless that person has satisfied Texas' three-year durational residency and citizenship requirement. ⁴ After first finding

that Wilson and Cooper possessed standing to assert their claims and that their action was ripe for adjudication, the district court declared the four Code provisions unconstitutional under both doctrines and enjoined their enforcement. All Defendants, W.S. McBeath as Administrator of the TABC and various private, Texas-based liquor interests acting as Intervenors-Defendants, timely appealed. ⁵

Recent Developments

On June 19, 1993, 73 days after oral argument in this case, the Governor of Texas signed H.B. 1445 into law. H.B. 1445, whose relevant provisions became effective September 1, amended the Texas Alcoholic Beverage Code in several respects. Most important for our purposes, the revisions replaced the challenged three-year residency requirement with a one-year version. Plaintiffs (the out-of-state individuals desiring the permit) filed a suggestion of mootness urging that the Code amendments have rendered the case moot. The various Defendants argued otherwise, and we carried the motion with the case.

Preliminary Motions

1. Mootness

The case is not moot. Our holding on this question is controlled by the Supreme Court's recent decision in Associated General Contractors of America v. City of Jacksonville, --- U.S. ----, 113 S.Ct. 2297, 124 L.Ed.2d 586 (1993). In that case, the city of Jacksonville, Florida had enacted an ordinance establishing minority set-asides for city contracts. Twenty-two days after the Supreme Court granted certiorari, the city repealed the ordinance, replacing it with another ordinance which, although different from the original, still set aside certain contracts for certified black- and female-owned business. Claiming that there was no longer a live controversy with respect to the constitutionality of the repealed ordinance, the city argued that the case should be dismissed as moot. In analysis squarely applicable to the instant case, the Supreme Court disagreed:

[T]he mootness question is controlled by City of Mesquite v. Aladdin's Castle, Inc., 455 U.S. 283, 102 S.Ct. 1070, 71 L.Ed.2d 152 (1982), where we applied the "well settled" rule that "a defendant's voluntary cessation of a challenged practice does not deprive a federal court of its power to determine the legality of the practice." Id., at 289, 102 S.Ct., at 1074. Although the challenged statutory language at issue in City of Mesquite had been eliminated while the case was pending in the Court of Appeals, we held that the case was not moot, because the defendant's "repeal of the objectionable language would not preclude it from reenacting precisely the same provision if the District Court's judgment were vacated." Ibid.

This is an a fortiori case. There is no mere risk that Jacksonville will repeat its allegedly wrongful conduct; it has already done so. Nor does it matter that the new ordinance differs in certain respects from the old one. City of Mesquite does not stand for the proposition that it is only the possibility that the selfsame statute will be enacted that prevents a case from being moot; if that were the rule, a defendant could moot a case by repealing the challenged statute and replacing it with one that differs only in some insignificant respect. The gravamen of petitioner's claim is that its members are disadvantaged in their efforts to obtain city contracts. The new ordinance may disadvantage them to a lesser degree than the old one, but insofar as it accords preferential treatment to black- and female-owned contractors ... it disadvantages them in the same fundamental way. [footnote omitted]

--- U.S. at ----, 113 S.Ct. at 2301. See also, Resident Council of Allen Parkway Village v. HUD, 980 F.2d 1043, 1048 (5th Cir.1993), pet. for cert. filed May 17, 1993 (in a challenge to a federal agency's proposed decision to demolish a public housing project, the agency's subsequent decision to reject the demolition application in no way mooted the Plaintiffs' request for injunctive relief.)

Although "[a] case might become moot if subsequent events ma[k]e it absolutely clear that the allegedly wrongful behavior could not reasonably be expected to recur," United States v. Concentrated Phosphate Export Ass'n., 393 U.S. 199, 203, 89 S.Ct. 361, 364, 21 L.Ed.2d 344 (1968), that cannot be said of the instant case. Texas' decision to supplant the three-year requirements with a one-year version does not prevent the state from later restoring the latter if this Court were to find it constitutional. Here, the new one-year residency/citizenship requirement may lessen the burden placed on the Plaintiffs, but insofar as they remain out-of-state with declared intentions of staying that way, the amendments'...