You walk into a Walmart to prep for a party at your house. Beer? Check. Wine? Check. Liquor? Can’t seem to find that anywhere. “Do you have any bourbon?” you ask the clerk. “No, we don’t. Sorry.” You sigh and realize you’re stuck making yet another trip to another store.
This inconvenience is due in part to section 22.16 of the Texas Alcoholic Beverage Code, which prohibits public corporations (like Walmart) from holding a “package store permit” (i.e., a permit to sell liquor). A few years ago, Walmart lobbied the Texas Legislature to get rid of this ban. It failed. So in 2015 Walmart sued the Texas Alcoholic Beverage Commission alleging that section 22.16’s corporation ban was unconstitutional. Walmart asserted claims against the TABC for violations of the dormant Commerce Clause of the U.S. Constitution (a “negative” reading of the Commerce Clause that prevents states from adopting protectionist measures) and the Equal Protection Clause of the Fourteenth Amendment. Walmart sought a declaration that the Texas statutes were unconstitutional and a permanent injunction against their enforcement. A federal district court in Texas concluded that the public corporation ban violated the Commerce Clause but not the Equal Protection Clause. The district court thus enjoined the TABC from enforcing the ban.
Both parties appealed. The TABC challenged the district court’s conclusion that section 22.16 violates the Commerce Clause. And Walmart challenged the district court’s conclusion that the ban didn’t violate the Equal Protection Clause. Just few weeks ago, the appeals court released its opinion. See Wal-Mart Stores, Inc. v. Texas Alcoholic Beverage Comm’n, No. 18-50299, 2019 WL 3822150 (5th Cir. Aug. 15, 2019).
The 5th Circuit considered the Commerce Clause and the Equal Protection Clause arguments in turn. Turning first to the dormant Commerce Clause, the court focused on whether the corporation ban was enacted with a discriminatory purpose or had a discriminatory effect on interstate commerce. The court did a deep dive into the legislative history of the ban to conclude that the Legislature did not have discriminatory purpose, in large part because the ban affected all public corporations. And because the ban treated in-state and out-of-state companies the same, there was no discriminatory effect. The court also considered whether the ban’s burden on interstate commerce outweighed the benefits to Texas. This balancing question was better left to the district court, so the appeals court remanded. Because of these open questions, the appeals court vacated the issue of whether the corporation ban violated the dormant Commerce Clause.
The court turned next to the Equal Protection Clause. The district court held that the ban did not violate the Equal Protection Clause because it was rationally related to Texas’s legitimate purpose of reducing the availability and consumption of liquor throughout the state. The appeals court generally agreed. First, it established that Walmart is not a protected class and the corporation ban does not infringe upon Walmart’s fundamental rights. The Equal Protection Clause issue is thus subject rational basis review. With that low bar set, the appeals court quickly reviewed and embraced the district court’s analysis: Maybe, the court reasoned, public corporations had the capital and scale to drive liquor prices down and thus drive liquor consumption up. Enacting and enforcing laws that prevent this unwanted result is reasonable. That was enough. The Equal Protection Clause is not violated.
In sum, the 5th Circuit concluded that the district court’s enjoining enforcement of the corporation ban was vacated, the judgment that the ban did not violate the Equal Protection clause was affirmed, and the judgment that it violated the dormant Commerce Clause was vacated and remanded.
This case was decided against the backdrop of a decades-long drama between Texas’s three—and some would say Old Fashioned; pun intended—alcoholic beverage tiers: producers, distributors, and retailers. The bottom line for now, though, is that Walmart still cannot sell liquor in Texas. Whether it ever can will be determined on remand by the district court and then in what will likely be a lengthy appeals battle. Or maybe new legislation will be enacted in the meantime.
The case is also an apt reminder that alcoholic beverage producers, distributors, and retailers remain some of the most highly regulated entities in Texas. At Cobb & Counsel, we have deep familiarity with this regulatory environment. We can help you and your alcoholic beverage business with compliance, permitting, and administrative litigation. If that’s you, contact us today.