Gabriel Inv. Grp., Inc. v. Tex. Alcoholic Beverage Comm'n (In re Gabriel Inv. Grp., Inc.)
Decision Date | 28 January 2022 |
Docket Number | No. 21-50322,21-50322 |
Citation | 24 F.4th 503 (Mem) |
Parties | In the MATTER OF GABRIEL INVESTMENT GROUP, INCORPORATED and Gabriel GP, Incorporated. Debtors, Gabriel Investment Group, Incorporated, Appellant, v. Texas Alcoholic Beverage Commission, Appellee. |
Court | U.S. Court of Appeals — Fifth Circuit |
David J. Beck, Esq., Russell S. Post, Beck Redden, L.L.P., Houston, TX, for Appellant.
Rance Craft, Assistant Solicitor General, Office of the Attorney General for the State of Texas, Austin, TX, Jason Bradley Binford, Esq., Office of the Attorney General, Financial Litigation & Charitable Trusts Division, Austin, TX, for Appellee.
Before King, Costa, and Willett, Circuit Judges.
Ever since Prohibition ended in 1933, states have enacted a byzantine patchwork of rules regulating alcohol. It took a global pandemic to ease some of them. During the early coronavirus lockdown, when on-site dining was off limits, the renowned marquee outside El Arroyo, an Austin Tex-Mex hotspot, posted this playful plea: "Now would be a good time to legalize drive-up margaritas." The Texas Legislature obliged, and alcohol-to-go is now legal in the Lone Star State.1
More entrenched booze rules, however, remain on the books. For example, retail liquor store sales remain strictly regulated in Texas. One bright-line restriction is that retailers must hold a "package store permit" to sell liquor at retail. And since 1995, Texas law has banned publicly traded corporations from obtaining such a permit. As with many Texas liquor laws, however, there's a carveout for preferred players. Under certain circumstances, a package store organized as a public corporation can hold the required permit.
Today's dispute poses a spinoff question: What happens to the permit if an exempt corporation is sold to a non-exempt corporation? For the reasons discussed below, we CERTIFY to the Supreme Court of Texas.
Texas regulates retail alcohol sales through the Texas Alcoholic Beverage Code.2 And the Code does not treat all sales the same. Relevant here, it subjects sales of "liquor"—an "alcoholic beverage, other than a malt beverage, containing alcohol in excess of five percent by volume, unless otherwise indicated"3 —to special rules. Chief among them: liquor retailers must hold a "package store permit."4 And not all retailers are allowed to hold one.
Before 1995, the door for public corporations to hold package store permits was wide open. The Texas Legislature slammed that door shut, though, with its 1995 Amendments to the Code.5 Part of the 1995 Amendments, now codified under Section 22.16(a), expressly state that "[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."6 What is a public corporation? Under Section 22.16(b), "any corporation or legal entity whose shares or other evidence of ownership are listed on a public stock exchange," or "any corporation or other legal entity in which more than 35 persons hold an ownership interest in the entity."7
To enforce the Code, the Legislature turned to the Texas Alcoholic Beverage Commission.8 The Code charges the Commission with deciding which retailers to "grant" or "refuse" new package store permits, and which retailers get theirs "suspend[ed]" or "cancel[ed]."9 Sometimes, though, a public corporation can still get past the Commission—but only if the public corporation is on the right list.
When the Legislature enacted Section 22.16, it expressly excluded two types of public corporations from Section 22.16(a)'s flat prohibition on public corporations owning or controlling package store permits. The first were hotels.10 The second were corporations that qualified for a so-called "Grandfather Clause." That is, under Section 22.16(f), any corporation:
According to the parties, two—and only two—public corporations qualify for the Grandfather Clause today. One of them is Gabriel Investment Group, Inc.12
GIG sells liquor in 45 package stores throughout South Texas. Though it traces its historical roots to the late 1940s, GIG itself was not incorporated until April 13, 1995. At inception it had 41 shareholders. On April 25, three days before the magic date in Section 22.16's Grandfather Clause, GIG applied for a package store permit. The Commission issued GIG the permit a few months later, on August 15.
Sometime that December, GIG filed an affidavit with the Commission. In the affidavit, GIG averred that it met the Grandfather Clause's requirements. The Commission marked the affidavit as received on December 22. GIG has since consistently claimed that the Grandfather Clause exempts it from Section 22.16, and the Commission has consistently issued GIG package store permits.
So it went until 2019, when GIG filed for Chapter 11 bankruptcy protection. As part of its reorganization plan, GIG explored selling itself to another public corporation. But questions abounded. If GIG sold all or some of its shares to a public corporation, would GIG remain exempt from Section 22.16 under the Grandfather Clause? If so, could GIG continue to grow its collection of package store permits after the sale?
GIG sued the Commission to find out, requesting declaratory judgment in its favor. The bankruptcy court, after reviewing dueling motions for summary judgment, concluded that the answer to both questions is no. GIG now appeals.
The bankruptcy court framed GIG's questions aptly: "this would make a great moot court question and law students could spend many hours researching, writing briefs and arguing this and it would be a very close issue." We agree.
On the one hand, GIG insists the answer to both its questions is yes. As it correctly notes, Texas courts read statutes by "look[ing] first to the ‘plain and common meaning of the statute's words.’ "13 And if the statute is "unambiguous," then "its plain meaning will prevail."14 Turning to Section 22.16, then, GIG makes a simple argument: the Grandfather Clause expressly provides that "[t]his section"— Section 22.16 —"shall not apply " to a corporation satisfying its three-prong test;15 GIG satisfies the Grandfather Clause's three-prong test; therefore, all of Section 22.16 —to include its prohibition against public-corporation ownership or control, under Section 22.16(a)16 —does not apply to GIG. Period. Full stop. End of discussion.
GIG's argument certainly has an appeal of simplicity to it. And, as GIG further notes, other sections of the Code reinforce its reading. The Code generally requires package stores to operate on separate premises from other kinds of businesses.17 But there is an exception. Under Section 11.50, some holders of package store permits who had them "issued on or before April 1, 1971[ ] ... may continue to operate a package store on premises comprising a portion of a building" without the kinds of physical-separation requirements the Code otherwise requires.18 And in Section 11.50, the Legislature expressly provided that its exception would no longer apply after any "change in ownership," with a limited exception.19 Section 22.16's Grandfather Clause, though, has no such change-in-ownership exception.20
On the other hand, the Commission insists the answer to GIG's two questions is no. It argues structure: that 22.16(a)'s public-corporation prohibition is permit specific, while the Grandfather Clause is corporation specific. Indeed, Section 22.16(a) does expressly provide that "[a] package store permit may not be owned or held ... 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."21 In contrast, the Grandfather Clause expressly provides that Section 22.16 "shall not apply to a corporation " meeting its three-part test.22 According to the Commission, then, GIG is free to sell its shares to whomever it likes. There's only one catch: If GIG sells its shares to a public corporation, then its package store permits become invalid.
Like GIG, the Commission is not without additional support for its argument. It argues that GIG's reading would rewrite the Grandfather Clause, making it read that Section 22.16 "shall not apply to a permit held by a corporation" that satisfies its three-prong test;23 that Section 22.16(d)'s express exemption for "a package store located in a hotel" counsels interpreting changes of ownership for hotels differently than corporations covered only under the Grandfather Clause;24 and that the Grandfather Clause's statutory "context" belies looking to the Code's other grandfather clauses to support GIG's interpretation.25
We are, of course, in the day-to-day business of resolving textual ambiguities; this is our wheelhouse. But, as the bankruptcy court noted, this is no moot-court competition. The stakes here are very real. The Commission represented below that holding for GIG would eviscerate an "important consumer protection." And a transferable license likely has significant economic value. Further, we are not the final arbiters of Texas law.26 That role belongs to the Supreme Court of Texas.27
So the bigger question, at least at this point, is whether we should decide GIG's questions.
The Texas Rules of Appellate Procedure provide that "[t]he Supreme Court of Texas may answer questions of law certified to it by any federal appellate court...
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