Gabriel Inv. Grp., Inc. v. Tex. Alcoholic Beverage Comm'n (In re Gabriel Inv. Grp., Inc.)

• Decision Date: 15 April 2021
• Docket Number: Civil Action No. SA-20-CV-1244-XR,Adv. No. 20-05010-rbk,Bankr. No. 19-52298-rbk
• Citation: 630 B.R. 216
• Court: U.S. District Court — Western District of Texas
• Parties: IN RE: GABRIEL INVESTMENT GROUP, INC. and Gabriel GP, Inc., Debtors Gabriel Investment Group, Inc., Appellant, v. Texas Alcoholic Beverage Commission, Appellee.

630 B.R. 216

IN RE: GABRIEL INVESTMENT GROUP, INC. and Gabriel GP, Inc., DebtorsGabriel Investment Group, Inc., Appellant,

v.Texas Alcoholic Beverage Commission, Appellee.

Civil Action No. SA-20-CV-1244-XR

Bankr. No. 19-52298-rbk

Adv. No. 20-05010-rbk

United States District Court, W.D. Texas, San Antonio Division.

Signed April 15, 2021

Russell S. Post, Beck Redden LLP, Houston, TX, for Debtors.

Leslie Sara Hyman, Randall A. Pulman, Thomas Rice, Pulman, Cappuccio, Pullen, Benson & Jones, LLP, San Antonio, TX, David J. Beck, Russell S. Post, Beck Redden LLP, Houston, TX, for Appellant.

Jason Bradley Binford, Matthew Bohuslav, Texas Attorney General's Office, Austin, TX, Cristina M. Moreno, Office of the Attorney General of Texas, Austin, TX, for Appellee.

ORDER

XAVIER RODRIGUEZ, UNITED STATES DISTRICT JUDGE

This bankruptcy appeal involves the construction of Texas Alcoholic Beverage Code § 22.16. Section 22.16(a) contains a general prohibition against public corporations owning package store permits ("P-permits"), which are required to operate retail liquor stores. GIG is a public corporation that may and does hold P-permits pursuant to a grandfather provision in § 22.16(f). GIG filed a chapter 11 bankruptcy proceeding, confirmed a plan, and filed an adversary proceeding against the Texas Alcoholic Beverage Commission ("TABC") seeking a declaratory judgment that its grandfather exemption (and thus its right to hold P-permits) will survive regardless of whether GIG stock is purchased by a separate, non-exempt public corporation. The Bankruptcy Court held that GIG's right to hold P-permits would not survive such a sale because it would be contrary to the general prohibition against public corporations owning or operating retail liquor stores. GIG appeals. The Court affirms.

Background

GIG operates "package stores" (retail liquor stores) under the trade names "Gabriel's" and "Don's & Ben's Liquor." Among other things, P-permits authorize the sale of liquor, wine, and malt beverages for off-premises consumption only, and they are required to own and operate package stores. TEX. ALC. BEV. CODE § 22.01. A liquor retailer must obtain a separate P-permit for each physical location where liquor is sold for off-premises consumption. "A person may not hold or have an interest, directly or indirectly, in more than 250 package stores or in their business or permit." Id. § 22.04. Under Texas law, public corporations—defined as (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 in which more than 35 persons hold an ownership interest in the entity—are prohibited from owning or holding P-permits. Id. § 22.16(a). GIG is a public corporation. But GIG is exempt from this prohibition under a grandfather clause in § 22.16(f) for public corporations holding P-permits on April 28, 1995.¹

Section 22.16 provides in its entirety:

Ownership by Public Corporations Prohibited

(a) A package store permit may not be owned or held by a public corporation, or by any entity which is directly or indirectly owned or controlled, in whole or in part, by a public corporation, or by any entity which would hold the package store permit for the benefit of a public corporation.

(b) For purposes of this section, a public corporation means:

(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 in which more than 35 persons hold an ownership interest in the entity.

(c) Before the commission may renew a package store permit, an individual who is an owner or officer of the permittee must file with the commission a sworn affidavit stating that the permittee fully complies with the requirements of this section.

(d) This section shall not apply to a package store located in a hotel.

(e) Any package store permittee who is injured in his business or property by another package store permittee or by any other person by reason of anything prohibited in this section may institute suit in any district court in the county where the violation is alleged to have occurred to require enforcement by injunctive procedures and to recover triple damages plus costs of suit including reasonable attorney's fees.

(f) This section shall not apply to a corporation:

(1) which was a public corporation as defined by this section on April 28, 1995; and

(2) which holds a package store permit on April 28, 1995, or which has an application pending for a package store permit on April 28, 1995; and

(3) which has provided to the commission on or before December 31, 1995, a sworn affidavit stating that such corporation satisfies the requirements of Subdivisions (1) and (2).

TEX. ALC. BEV. CODE § 22.16.

GIG filed for voluntary bankruptcy under Chapter 11 on September 27, 2019. Bankr. Case No. 19-52298. As a result of its confirmed reorganization plan, GIG was separated into two entities: a reorganized debtor and an entity known as "Legacy GIG." The reorganized debtor is a privately held corporation and "will own and be vested with all of the assets of Don's & Ben's, Inc., Gabriel Holdings, LLC, SA Discount Liquors, Inc., Gabriel GP, Inc, together with permits and licenses so that Reorganized Debtor can continue to operate as a chain of 32 South Texas package stores." Legacy GIG will continue as a public corporation, and will own all of the assets owned by GIG on the Petition Date (excluding interests in GP Holdings, Inc. and the 32 permits and licenses vested with the reorganized debtor), specifically including one package store permit and all related operating assets, inventory and records. Legacy GIG (hereinafter referred to as "GIG") would continue to be able to invoke the grandfather clause in § 22.16(f) to own and hold P-permits.

GIG desires to transfer ownership of the company by selling GIG's shares to generate funds to pay GIG's creditors. GIG intends to sell ownership of GIG to a public corporation (such as Walmart), with GIG's value dependent on its ability to own P-permits and operate package stores. If another entity obtains ownership of GIG, it could potentially obtain 250 P-permits through GIG.

In conversations between GIG and TABC, TABC indicated that § 22.16(f) would not apply to GIG if GIG were sold to a different public corporation because § 22.16(a) contains the general provision that a package store permit may not be held by any entity that is directly or indirectly owned or controlled, in whole or in part, by a public corporation, or by any entity that would hold the package store permit for the benefit of a public corporation. TABC asserts that the grandfather clause was a narrow exception allowing public corporations who held P-permits in 1995, when the statute was enacted, to retain ownership of those P-permits notwithstanding the general prohibition, and that allowing public corporations who could not otherwise hold P-permits to acquire an interest in P-permits through ownership of GIG shares would allow the narrow exception to swallow the broad rule effectuating Texas's public policy prohibiting corporations from owning P-permits and operating liquor stores. ECF No. 3-5 at 24-25.

Because TABC's position was impeding GIG's ability to sell its stock, on February 12, 2020, GIG filed an adversary proceeding against TABC seeking a declaratory judgment to help effectuate its plan of reorganization.² GIG sought a declaratory judgment that (1) GIG is and will remain exempt from the § 22.16 "public corporation" ban in § 22.16(a) regardless of whether any future direct or indirect owner of all or any portion of the issued and outstanding stock of GIG is a public corporation, and (2) the rights and privileges associated with GIG's § 22.16(f) exemption from § 22.16, including GIG's right to apply for, obtain, hold, and renew P-permits as otherwise provided in the Texas Alcoholic Beverage Code will continue unimpaired following acquisition of all or any portion of GIG's issued and outstanding stock regardless of whether any purchaser of such stock is itself a public corporation. Thus, the issue presented in this adversary proceeding is whether the proposed sale to a non-exempt public corporation such as Walmart would render GIG's P-permits invalid under § 22.16's general prohibition or whether GIG would remain subject to the grandfather exemption and be able to own and hold P-permits despite its sale to a different, non-exempt public corporation.

Both sides moved for summary judgment. In its motion for summary judgment, TABC argued that the Legislature intended to prohibit public corporations from owning and operating package stores in Texas, that the plain language of § 22.16 does not support an exemption for future owners, and that construing § 22.16 in the manner suggested by GIG would render the ban outlined in § 22.16(a) meaningless. TABC notes that Walmart has tried unsuccessfully to invalidate § 22.16(a) and operate liquor stores in Texas, and "this adversary proceeding is all about using GIG's reorganization as a vehicle for Walmart to sell liquor in Texas despite Walmart's failures to accomplish this goal through other avenues including its own lawsuit and its efforts to lobby the Texas Legislature." ECF No. 3-5 at 27. GIG argued that § 22.16(f) broadly states that "this section shall not apply" to a qualifying corporation such as GIG, such that § 22.16(a) does not apply to GIG regardless of whether it is directly or indirectly owned or controlled by another public corporation or whether it holds the P-permit for the benefit of another public corporation.

On October 5, 2020, the Bankruptcy Judge heard the parties' cross-motions for summary judgment. On October 6, 2020, the Bankruptcy Judge granted TABC's motion and denied GIG's motion. ECF No. 3-5 at 90-92. GIG timely appealed on October 19, 2020. Id. at 93-99.

Applicable Legal Standards

It is undisputed that GIG...