Wal-Mart Stores, Inc. v. Tex. Alcoholic Beverage Comm'n

• Decision Date: 20 March 2018
• Docket Number: 1:15–cv–134–RP
• Citation: 313 F.Supp.3d 751
• Parties: WAL–MART STORES, INC., Wal–Mart Stores Texas, LLC, Sam's East, Inc., and Quality Licensing Corp., Plaintiffs, v. TEXAS ALCOHOLIC BEVERAGE COMMISSION, Jose Cuevas, Jr., Steven M. Weinberg, and Ida Clement Steen, Defendants, and Texas Package Stores Association, Inc. Intervenor.
• Court: U.S. District Court — Western District of Texas

313 F.Supp.3d 751

WAL–MART STORES, INC., Wal–Mart Stores Texas, LLC, Sam's East, Inc., and Quality Licensing Corp., Plaintiffs,

v. TEXAS ALCOHOLIC BEVERAGE COMMISSION, Jose Cuevas, Jr., Steven M. Weinberg, and Ida Clement Steen, Defendants,andTexas Package Stores Association, Inc. Intervenor.

1:15–cv–134–RP

United States District Court, W.D. Texas, Austin Division.

Signed March 20, 2018

Alexander L. Kaplan, Pro Hac Vice, Michael C. Kelso, Pro Hac Vice, Chanler Ashton Langham, Neal Stuart Manne, Susman Godfrey, L.L.P., Houston, TX, Frederick William Sultan, IV, Mark T. Mitchell, Gardere Wynne Sewell LLP, Austin, TX, Steven M. Shepard, Susman Godfrey, LLP, New York, NY, for Plaintiff.

Adam N. Bitter, Office of the Attorney General, Maria Amelia Calaf, Wittliff Cutter Austin, PLLC, Matthew Bohuslav, Texas Attorney General's Office, Patrick K. Sweeten, Austin, TX, for Defendants.

Adam N. Bitter, Matthew Bohuslav, Patrick K. Sweeten, Texas Attorney General's Office, Maria Amelia Calaf, Wittliff Cutter Austin, PLLC, Austin, TX, for Defendant.

Greg Alan Waldrop, Terrill & Waldrop, Ryan D.V. Greene, Law Office of Alan Waldrop, Austin, TX, for Intervenor.

ORDER

ROBERT PITMAN, UNITED STATES DISTRICT JUDGE

1. Wal–Mart Stores, Inc. and three of its subsidiaries (collectively, "Wal–Mart") bring suit against the Texas Alcoholic Beverage Commission and three of its commissioners (collectively, "TABC"). Wal–Mart raises a constitutional challenge to four Texas statutes, Tex. Alco. Bev. Code §§ 22.04, 22.05, 22.06, 22.16, governing the issuance of package store permits, which allow the retail sale of liquor in the state. Generally, the statutes prohibit public corporations, including Wal–Mart, from obtaining any package store permits, and prohibit other companies with diffuse ownership from obtaining more than five package store permits. Wal–Mart asserts claims against TABC pursuant to 42 U.S.C. § 1983 for violations of the dormant Commerce Clause, U.S. Const. art. I, § 8, cl. 3, and the Equal Protection Clause, U.S. Const. amend XIV, § 1. It seeks a declaration that the statutes are unconstitutional and a permanent injunction against their enforcement.

2. The Texas Package Store Association ("TPSA") was allowed to intervene as a matter of right to defend the statutes. See Wal–Mart Stores, Inc. v. Tex. Alcoholic Beverage Comm'n , 834 F.3d 562 (5th Cir. 2016).

3. On June 5–9, 2017, the Court held a bench trial. In light of the entire evidentiary record, the Court now issues the following findings of fact and conclusions of law.¹

FINDINGS OF FACT

I. The Parties

4. Wal–Mart is a retailer that operates approximately 5,000 stores in the United States. Wal–Mart currently sells beer or wine in forty-seven states, and liquor in thirty-one states. Wal–Mart currently sells beer and wine in Texas at 668 locations.

5. Wal–Mart is a publicly traded corporation. No person owns a majority of its stock.

6. Wal–Mart has a plan to open liquor stores adjacent to some of its existing Texas locations. These liquor stores would operate on separate premises from Wal–Mart's existing retail stores and would obtain separate package store permits to authorize the sale of liquor. Wal–Mart is prevented from implementing its plan by the statutes challenged in this lawsuit.

7. TABC is the state agency charged with issuing permits and enforcing the Texas Alcoholic Beverage Code. If Wal–Mart were to apply for a package store permit (which would allow it to sell liquor), TABC would deny Wal–Mart's application based on the challenged statutes.

8. TPSA is the trade association of Texas package stores. TPSA only accepts applications from package stores that are majority-owned by Texans.

II. Texas's Off–Premises Retail Permits

9. To sell alcoholic beverages for off-premises consumption in Texas, retailers must obtain a separate permit for each physical location where alcohol is sold. Each permit authorizes an unlimited volume of sales from the permitted location. There are four off-premises retail permits relevant to this case.

10. First, a "Package Store Permit," also referred to as a "P permit," authorizes the sale of distilled spirits (commonly referred to as "liquor"), wine, and ale for off-premises consumption. Tex. Alco. Bev. Code § 22.01. This is the permit held by liquor stores (also known as "package stores").

11. Second, a "Wine Only Package Store Permit," also referred to as a "Q permit," authorizes the sale of wine and ale for off-premises consumption. Id. § 24.01.

12. Third, a "Retail Dealer's Off–Premise License," also referred to as a "BF license," authorizes the sale of beer for off-premises consumption. Id. § 71.01.

13. Fourth, a "Wine and Beer Retailer's Off–Premise Permit," also referred to as a "BQ permit," authorizes the sales of wine, ale, and beer for off-premises consumption.

Id. § 26.01. The BQ permit is similar to the combination of the BF license and the Q permit. There are, however, some technical differences. First, a Q permit allows a retailer to sell wine with a higher alcohol content than the BQ permit. Second, unlike a BQ permittee, a Q permittee is authorized to apply for some subordinate permits that would allow the Q permittee to transport its inventory between stores and to make certain local deliveries. Large grocery stores typically hold BQ permits to authorize their sales of beer and wine.

III. The Challenged Statutes

14. Wal–Mart challenges four Texas statutes governing the issuance of package store permits. Wal–Mart argues that these statutes, individually and in concert, prevent it from selling liquor in the state, and challenges the statutes as unconstitutional under the dormant Commerce Clause and the Equal Protection Clause of the United States Constitution.

15. First, the "public corporation ban" forbids "any entity which is directly or indirectly owned or controlled, in whole or in part, by a public corporation" from holding a package store permit. Tex. Alco. Bev. Code § 22.16(a). A public corporation is defined as a corporation "whose shares ... are listed on a public stock exchange" or "in which more than 35 persons hold an ownership interest." Id. § 22.16(b). Texas does not forbid public corporations from holding any of the other seventy-five kinds of alcohol permits it issues. Moreover, Texas is the only state that bars public corporations from selling liquor solely because of their status as public corporations.

16. Second, the "five-permit limit" nominally limits a package store permittee to holding no more than five permits. Id. § 22.04. However, this permit cap is subject to a significant exception, discussed below.

17. Third, the "consanguinity exception" to the five-permit limit authorizes a consolidation process that allows many companies to circumvent the five-permit limit. Id. § 22.05. The statute provides that if "two or more persons related within the first degree of consanguinity have a majority of the ownership in two or more legal entities holding package store permits, they may consolidate the package store businesses into a single legal entity." Id. The consolidated entity "may then be issued permits for all the package stores, notwithstanding any other provision of this code." Id. The practical effect of the consanguinity exception is that the five-permit limit applies only to the following classes of package-store permittees: (1) permittees who lack an individual who owns a majority of the business, and (2) permittees whose majority owner lacks a child, sibling, or parent who is willing and able to assist with the consolidation process.

18. A fourth and final statute prohibits BQ permittees from also holding an interest in a package store permit. Id. § 22.06(a)(2). In contrast to BQ permittees, BF licensees (who sell beer) and Q permittees (who sell wine and ale) are allowed to hold package store permits. In order to open a package store, Wal–Mart would first be required to abandon its BQ permits and instead obtain BF licenses and Q permits for all of its existing retail locations that sell beer and wine.

IV. The Texas Liquor Market Is Served By Large, Competitive Package Store Chains

19. Out of a total of 2,578 active package store permits issued by TABC, 574 are owned by a package store chain (meaning, a business holding six or more package store permits). TABC Ex.–120. There are now 21 such chains. Id. The largest chain, Spec's Family Partners, holds 158 permits. Id. Since 1944, the chains have greatly increased their number of stores, and their volume of sales, even as the total number of package stores has stayed approximately the same. Tr. June 5, at 225:1–227:3, 251:13–252:6; WM Ex–130.

20. Many of Texas's package store chains operate large stores with broad selections of products and hundreds of employees. E.g. , WM Ex–150; WM Ex–151; WM Ex–178. For example, Gabriel's Liquors operates a 20,000 square-foot "big box liquor close-out store" and has a 40,000 square-foot distribution warehouse. Tr. June 7 (Vol. II), at 3:4–8, 19:5–18. In 2012, Gabriel's had annual revenues of approximately $105 million, a product mix of 20,000 separate SKUs and nearly 300 employees. WM Ex–263, at 12.

21. The credible evidence demonstrates that package store chains compete vigorously. Package stores offer extensive promotions and discounts. E.g. , WM Ex–188. Package stores also compete to be the most convenient to their customers and to offer the largest selection and variety of products.

22. The credible evidence also demonstrates that package store chains have a very large share of the Texas market. Dr. Kenneth Elzinga, Wal–Mart's expert, testified that package store chains hold between 22% and 40% of the all the package store permits in each of the five most populous Metropolitan Statistical Areas ("MSAs") in the state, which together contain two-thirds of the state's population. Tr. June 5, at 242:11–244:7; WM Ex–149. This figure likely understates the market share held by package store chains, because Dr. Elzinga did not have data...