Jester King v. TABC Defendant Motion for Summary Judgement

8/3/2019 Jester King v. TABC Defendant Motion for Summary Judgement

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IN THE UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF TEXASAUSTIN DIVISION

AUTHENTIC BEVERAGES COMPANY,

INC., et al. Plaintiffs,

v. CIVIL ACTION NO. 1:10-CV-710-SS

TEXAS ALCOHOLIC BEVERAGE

COMMISSION, et al. Defendants.

DEFENDANTS MOTION FOR SUMMARY JUDGMENT

COME NOW DEFENDANTS and, pursuant to Rule 56 make this Motion for Summary

Judgment, and would show as follows:

History

Following the repeal of Prohibition, in 1935 the 44th Texas Legislature created the Texas

Liquor Control Board to regulate the manufacture, distribution, storage, and sale of alcoholic

beverages in the State of Texas. The Boards initial responsibilities were to promote temperance,

protect the public interest, encourage observance of the Liquor Control Act, collect alcoholic

beverage taxes and discourage certain socially undesirable activities such as bootlegging,

underage drinking, and organized crime.1 The Texas statutes (now called the Texas Alcoholic

Beverage Code) created a three-tier system that separates ownership and operations between

manufacturers, wholesalers, and retailers. Dickerson v. Bailey, 336 F.3d 388, 397 (5th Cir. 2003).

The vertical integration of the manufacture, distribution, and sale of alcoholic beverages is, with

rare exceptions, prohibited. Id. This tripartite funtional division of firms that participate in the

alcoholic beverage industry is designed to aid Texas in the regulation and control of alcohol

1 1992 Staff Report of Sunset Advisory Committee (SAC A-134:4/92) p.3; and see H.B. 77, 44 th

Case 1:10-cv-00710-SS Document 34 Filed 10/20/11 Page 1 of 24


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consumption, and prevents companies with monopolistic tendencies2

from dominating all levels

of the alcoh0olic beverage community. Id. (quotation marks and citation omitted). The three-

tier system, itself, is unquestionably legitimate. North Dakota v. United States, 110 S.Ct 1986,

1993 (1990). The administrative rules created by the Texas Alcoholic Beverage Commission are

contained in Title 16 of the Texas Administrative Code, Chapters 31-50 (nonconsecutively).

The Plaintiffs

The plaintiffs are three in-state businesses representing each of the three tiers of the

liquor control system: Zax is a retailer, Authentic is a distributor, and Jester King is a

manufacturer that brews less than 75,000 barrels a year, and thus can operate as a manufacturer

and distributor of its products under TEX.ALCOHOLIC BEV.CODE 62.12.

The Contest

The Plaintiffs, collectively, seek a ruling from this Court (via 42 U.S.C. 1983) that:

the following statutory and regulatory provisions be struck as violative of their

collective (commercial) right to free speech under the First Amendment:

The statutory definitions of ale and beer (TEX.ALCOHOLIC BEV.CODE 1.04

(12) and (15));

The section 108.01(4) prohibition of particular advertising by a manufacturer or

distributor that refers to the alcohol content of the product.

The TABC regulatory definitions of beer and malt liquor (TABC Administrative

Rules 45.71 (1) and (10));

The administrative labeling rules regarding the distinction between beer and ale

(TABC Administrative Rules 45.77 (a) and (c));

2Quoting an Austin Court of Appeals case from 1953, the 5

thCircuit in S.A. Discount Liquor,

Inc. V. Texas Alcoholic Beverage Commission, 709 F.2d 291, 293 n.4 (1983) stated, We need

not dwell upon the evils of the tied house. It is obvious that one result of such control could bethe creation of a monopoly for certain brands of liquor as well as dictating prices.



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The administrative labeling rules prohibiting use of specific terms regarding alcoholic

content (TABC Administrative Rules 45.79 (f) and 45.82(f));

The application of TEX.ALCOHOLIC BEV.CODE 102.07 that would prohibit a

manufacturer from publicising where its products are being sold by a retailer.

- the following statutory and regulatory provisions be struck as violative of theCommerce Clause:

The statutory definitions of ale and beer (TEX.ALCOHOLIC BEV.CODE 1.04

(12) and (15));

The TABC regulatory definitions of beer and malt liquor (TABC Administrative

Rules 45.71 (1) and (10));

The administrative labeling rules regarding the distinction between beer and ale

(TABC Administrative Rules 45.77 (a) and (c));

[T]he designation under Title 3 of the Code, of foreign breweries as the firstAmerican source of supply for their products, rather than the U.S. importers of their

products, in conflict with federal regulation which treats the U.S. importer of any

alcoholic beverage as the first American source of supply.

- the following statutory and regulatory provisions be struck as violative of theSupremacy Clause:

TABC Administrative Rules 45.71 (1) and (10); TABC Administrative Rules

45.77 (a) and (c)); and TEX.ALCOHOLIC BEV.CODE 1.04 (12) and (15) all allegedly

contravene applicable federal law;

[T]he designation under Title 3 of the Code, of foreign breweries as the first

American source of supply for their products, rather than the U.S. importers of theirproducts, in conflict with federal regulation which treats the U.S. importer of any

alcoholic beverage as the first American source of supply.

- a number of disparities between the statutes governing the activities of wineries,small manufacturers, and brewpubs within the three tier system demonstrate a

violation of their collective right to Equal Protection under the law, including:

TEX.ALCOHOLIC BEV.CODE 108/09 (regarding winery advertising)

TEX.ALCOHOLIC BEV.CODE 16.01(5) (regarding winery sales to consumers)

TEX.ALCOHOLIC BEV.CODE 74.01(2) (regarding sales to consumers at brewpub)

TEX.ALCOHOLIC BEV.CODE 12.05 and 62.12 (regarding small manufacturer

sales to retailers)\



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ARGUMENT

A) STANDINGIt is settled law that [c]hallenges to statutes regulating commercial speech do not enjoy

the expanded standing inquiry employed in normal First Amendment overbreadth cases, because

the overbreadth doctrine does not apply to commerdial speech. McKinley v. Abbott, 643 F.3d

403, 407 (5th Cir. 2011)(citation and quotation marks omitted). Accordingly, each plaintiff bears

the burden to show (1) a concrete and particularized injury in fact that is actual or imminent, not

conjectural or hypothetical; (2) a causal connection between the injury and the conduct alleged;

and (3) that the injury will be redressed by a favorable decision. Id. Whats more, a plaintiff

must demonstrate standing for each claim he seeks to press. DaimlerChrysler Corp. v. Cuno,

126 S.Ct. 1854, 1867 (2006).

1) Authentics Speech ClaimsInterrogatories and a deposition of a Vice President of Authentic Beverages did little to

shed light on how this distributor has standing to assert any of the speech claims in this case.

Starting at the end, Authentic will have a difficult time demonstrating redressability in its

standing to pursue a claim challenging the beer labeling laws in Texas, considering they no

longer have a beer distribution license or beer importation license, and have no plans to acquire

one for the next two years. [Fisher Depo (Ex. 1), pp. 46-48]. Further, Authentic is a distributor,

and, as such, neither manufactures (brews) nor retails any malt beverages. [Ex, 1 pp.15-16].

Authentic aknowledges that it is the manufacturer of the beverage (as opposed to the distributor),

whose responsibility it is to secure permission from the TABC to sell a particular product in

Texas by submitting it for approval through TABCs label approval process. [Ex. 1, pp. 16-17;

and see 16 TAC 45.85 (Approval of Labels)]. As to whether there is a concrete and



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particularized injury to Authentic that is actual or imminent stemming from Texas stautory

or regulatory definitions of beer or ale, Authentic was unable to name a product that had

been submitted to TABC for approval (in the past year or otherwise) that Authentic desired to

sell, only to have the product disapproved by TABC on account of its label. [Ex. 1, p. 19].

Indeed, far from concrete or imminent injury, the only discussion that was had about

products not brought to market by Authentic was so rife with speculation as to the reason why

either the manufacturer had never sought to be a licensed manufacturer or sought label approval

from TABC as to make any linkage between injury to Authentic and the labeling laws in Texas

absolutely devoid of first hand knowledge. [Ex. 1, pp.21; 23; 26; 27]. Lastly, Authentic

admitted that there is neither a shortage of manufacturers, nor that that it is even difficult to

locate malt beverage manufacutrers who are licensed in Texas with products that are available to

enter the distribution marketfurther distancing itself from a causal linkage between any alleged

deficiencies in Texas labeling laws and an injury to Authentic. [Ex. 1, p. 33].

2) Zax Speech ClaimsZax is a restaurant in Austin that retails (for on-site consumption) a selection of malt

beverages. [Baldwin Depo. (Ex. 2) p.7]. Like Authentic, Zax has no direct, first hand

knowledge as to whether a product not currently available for sale in Texas was not advanced

into the market by its manufacturer due to the labeling laws in Texas. [Ex. 2, pp.17-18]. In fact,

Zax was forthright in admitting it had no specific evidence that demonstrates a particular

economic impact to Zax as a result of the Texas definitions of beer versus ale and malt

liquor. [Ex. 2, p.19].



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Zax would like for manufacturers to be able to advertise for him that their products are

available for retail at his establishment, but as to the averment in Mr. Baldwins deposition that

Zax cannot advertise the availability of a particular product, [Ex. 2, pp.22-23] there is no

statutory or regulatory restriction on malt beverage retailers like Zax that prohibits them from

advertising that they retail a particular product. Again, on all three prongs of the standing test,

Zax has not demonstrably suffered any ill effects to its commercial free speech rights.

3) Jester Kings Speech ClaimsThough a manufacturer would arguably be in the best position to establish its standing to

challenge Texas malt beverage labeling laws, Jester King removes itself from standing to bring

these claims by its failure to encounter an actual or imminent injury. First, Jester King, to

Ronald Extracts knowledge, has never submitted a sample product with a label to TABC for

approval and had it rejected. [Extract Depo. (Ex. 3) p.16]. In other words, there is no concrete,

particularized instance of a malt beverage and label bearing any particular information or

language, submitted by Jester King to TABC for testing and approval that has been rejected.

Furthermore, though Mr. Extract has a highly-refined sense of what he considers to be stylistic

distinctions between ale, lager, and beer, he has no evidence of any injury to Jester King

occasioned by, for instance, the fact that one of their products is labled Commercial Suicide

Oaked Dark Mild and below this title appears Bottle Conditioned Beer versus if their product

had been called Commercial Suicide Oaked Dark Mild Ale. [See Ex. 3, pp.18-19; 32-33].

Indeed, Mr. Extract even confirmed that referring to an ale as a beer, in his estimation, isnt even

inaccurate. [Id.].



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B) COMMERCIAL SPEECHSUBSTANTIVE ARGUMENTIn its complaint, Plaintiffs allege that the Texas requirement that malt beverages of over

4% alcohol be labeled ale/malt liquor violates First Amendment rights provided by the

Constitution of the United States. Texas law is easily distinguished from the labeling

requirements inRubin v. Coors Brewing Co., 514 U.S. 476, where the Supreme Court held that a

labeling ban (one prohibiting the disclosure of alcohol content of beer) violated the First

Amendment because it failed to advance a governmental interest in a direct and material way.

The Court held that such a restriction stood in direct opposition to the protections granted to

commercial speech, and applied the four-prong Central Hudson test (outlined below). Unlike the

fact pattern inRubin, Texas labeling laws clearly meet the burden of this test.

The First Amendment protects the dissemination of truthful and non-misleading

commercial messages about lawful products and services in order to ensure that consumers

receive accurate information, see, e.g., Virginia Bd. of Pharmacy v. Virginia Citizens Consumer

Council, Inc., 425 U.S. 748, 765. (1976) In that case, the Court noted that the free flow of

commercial information is indispensible to the proper allocation of resources in a free enterprise

system because it informs the numerous private decisions that drive the system.Id. at 765.

However, the Supreme Court has consistently recognized that the state has the power to regulate

any instances of commercial speech and has held that several factors should be considered to

determine whether regulation is valid: (1) whether the speech at issue concerns lawful activity

and is not misleading; (2) whether the asserted governmental interest is substantial; (3) whether

the regulation directly advances the governmental interest; and (4) whether that regulation is

more extensive than necessary to substantially serve its stated interest. Central Hudson Gas &

Elec. Corp. v. Public Serv. Comm'n of N.Y.,447 U.S. 557. 566 (1980)



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In examining the facts of this case through the lens of the four-part Central Hudson test,

it is clear that in this instance, Texas interest in requiring higher content malt beverages to be

labeled as ale or malt liquor or more to the point, not labeled beer-- is substantial and

outweighs any First Amendment right associated with the Plaintiffs labeling preferences. The

Texas law meets the four partHudson test as follows:

(1)Whether the speech at issue concerns lawful activity and is not misleadingIn this case, the labeling requirements for malt beverages sold in Texas are the speech at

issue. Beer and ale are regulated by the State as products lawfully sold for commercial purposes.

The Supreme Court of the United States has, on many instances, maintained these products fall

under the purview of commercial speech and its consequent protections. 44 Liquormart, Inc. v.

State of Rhode Island, 517 U.S. 484, 496 (1996); see alsoRubin v. Coors Brewing Company, 514

U.S. 476, 481 (1995). The long history of the delineation of beer from higher alcohol beer

would create a misleading assumption among consumers and sellers and servers of malt

beverages.

The post-prohibition emphasis in Texas to delineate between beer and the higher alcohol

content ale mirrored the approach of most other States and reflected the strong public policy

reasoning of the time to regulate stronger malt beverages differently than lesser intoxicating

beer. In 1933 Raymond Fosdick and Albert Scott published a treatise Toward Liquor

Control which made recommendations to States regarding sound alcohol regulation as the end

of prohibition approached. The treatise served as the model for regulation throughout the

country and advocated the three tier system which is still the standard of regulation throughout

the country. Importantly, the book emphasizes the need to delineate between strong and



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light beer. Toward Liquor Control, Chapter Three: Light wines and Beer vs. Spirits (Harper

and Brothers Publishers, 1933).

The treatise advocates that regulation be tailored to different beverages based on alcohol

content stating that American liquor legislation in the past has, as we have seen, been guided

more by emotion than by reason or experience. In the stumbling search for a law to cure the

drink evil, legislators seldom paused to inquire what drinks should be the main target of attack.

(Id. at 28) The treatise explains If light beers and wines were the only alcoholic beverages

consumed, the social implications of the liquor trade would present but few difficulties. . . It is,

primarily, the distilled liquors and, secondarily, the heavier beers and wines that create the real

problems. (Idat 35)

(2)Whether the asserted governmental interest is substantialPlaintiffs argument does not appear to acknowledge the long history of distinguishing

between malt beverages by class name based on their relative alcohol content (which the

Supreme Court addresses extensively in the two aforementioned cases, (44 Liquormartand

Rubin), and the substantial state interest that requires labeling in delineating the two products. In

Rubin, where the Supreme Court held that a federal ban on labeling violated the First

Amendment, the Court recognized that the general thrust of federal alcohol policy appears to

favor greater disclosure of information, rather than less. Id. at 484. Texas law, as relevant to the

regulation of alcohol, advances the same substantial interest, and the law in Texas is clear that

malt beverage labels and packaging can certainly contain the percent of alcohol by weight in

addition to requiring the class designation of beer or ale or malt liquor.



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In this case, the states labeling requirement fulfills a legitimate state interest in the

following ways:

(1.) The labeling requirement provides a clear distinction to consumers as to thelower alcohol content beer versus a product that contains a higher level of

alcohol and is, therefore, not labeled as beer. It is a simple system thatprotects both those who know the technical percentage of alcohol definition

of beer and those merely familiar with the products labeled beer.

(2.) The labeling requirement provides on-premises service providers with aninstant ability to monitor alcohol consumption of patrons by easily being able

to distinguish between higher and lower alcohol content malt beverages and

thus comply with Texas laws prohibiting sales to intoxicated persons; [SeeEx.2, p.24]

(3.) The labeling requirement provides an efficient method to implement a taxcode that taxes different strength malt beverages at different rates3; and

(4.) The labeling requirement is essential to the States goal of allowingflexibility to local communities who, under the wet-dry laws of the State are

currently able to authorize the sale of beer only.4

Importantly, there remain portions of Texas that are completely dry and many other

communities value the ability to allow only less intoxicating beverages to be sold within certain

jurisdictions. Texas law distinguished beer and ale in part to allow communities to choose to

permit sales of the less intoxicating beer while restricting sale of the higher alcohol content

Ale or other stronger forms of alcoholic beverage.

(3) and (4) Whether the regulation directly advances the governmental interest, and

whether that regulation is more extensive than necessary to substantially serve its

stated interest

The last two steps of the Central Hudson analysis basically involve a consideration of

the fit between the legislatures ends and the means chosen to accomplish those ends. Posadas

3 See TEX.ALCOHOLIC BEV.CODE 201.42; 203.034 See TEX.ELECTION.CODE 501.035



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de Puerto Rico Associates v. Tourism Co. of P.R., 478 U.S. 328, 341 (1986). These two elements

ofCentral Hudson, examined together, demonstrate that not only does the labeling regulation

advance the governmental interest, but it is also no more extensive than necessary to

substantially serve its stated interest.

Mere demonstration that a substantial government interest exists does not mean that any

means a state deems necessary can be employed to advance these interests. But in this case, once

the above uses of the labeling distinctions between beer and ale/malt liquor are understood, it is

clear the Texas labeling requirements fulfill the same health, safety and public welfare goals of

numerous labeling requirements for food and beverage throughout the country, thereby directly

advancing the states governmental interest.5

Alcoholic beverages remain a highly regulated commodity throughout the country and

Texas has benefited from a regulatory system that seeks to minimize dangers associated with the

over consumption of intoxicating beverages. The label requirement that beer and ale be labeled

differently is even more critical as it allows industry members, servers, and consumers the ability

to easily distinguish between higher alcohol content malt beverages and modify sales and

consumption accordingly. Plaintiffs contention mandates Texas to alter its definition away from

regulation of alcohol content, and, instead classify Ale based on where the fermentation and at

what temperature fermentation of yeast occurs (top fermentation at comparatively high

temperatures versus bottom-fermentation at cooler temperatures).

The States interest delineates high alcohol content malt beverages not the few ales that

may be brewed with under 4% alcoholic content by weight and theoretically may want to be

5 See Texas Alcoholic Beverage Code 5.38 Quality And Purity Of Beverages.



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labeled Ale because of the method of its fermentation. The States interest in providing a simple

labeling system to alert industry members, tax collectors/law enforcement and consumers to a

beverages status as a higher alcohol content malt beverage directly advances its interest in

minimizing the instances of over consumption of alcohol, efficiently collecting taxes, and

providing maximum flexibility to local communities to determine the level of wet-dry status of

their jurisdictions.

Furthermore, Defendants respectfully disagree with the Courts initial conclusion that

simply requiring a conspicuous statement of alcohol content on labels would be a less

restrictive means of achieving this distinction. [Doc. #18]. It may, indeed, be the case that the

public is not keenly aware that the label classifications of beer and ale or malt liquor

center on the 4% alcohol by weight mark. If this is the case, though, then the public would also

be unaware of the meaning of a statement of percentage alcohol content on labels. After all,

Texans understanding of what is in a bottle labeled beer whether with specific knowledge of

the 4% alcohol by weight maximum or not -- has been unchanged in Texas since 1935. This is

precisely why the classification (beer or ale / malt liquor) is required on the label, and why

the percentage of alcohol content may additionally be placed on the label.

Indeed, the Federal Register, Vol 72, No. 146 for Tuesday, July 31, 2007 (Part III,

Department of the Treasury) [Ex. 4(excerpt)] contains an interesting parallel consideration to the

one before the Court. There, The Alcohol and Tobacco Tax and Trade Bureau considered

proposed rulemaking to amend its regulations to require a statement of alcohol content expressed

as a percentage of alohol by volume on all alcohol beverage products. Id. at p. 41860. Note at

41864 (bottom of first column) how it is members of the beer industry who object to the

extension of mandatory alcohol content labeling requirements on malt beverages, who then go on



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to establish that [t]he alcohol content of most beeris in a very narrow range, and consumers are

generally aware of that fact. A weighted average of the alcohol content of the top 20 brands of

domestic and import beer base on 2004 sales data is 4.5 percent alcohol by volume. Id. Note

that this is directly in line with Texas definition of beer, as 4.5 percent alcohol by volume

equates to approximately 3.8% by weight. Continuing, the Brewers Association, representing

approximately 1,400 small brewers and thousands of homebrewers and beer enthusiasts,

commented in support of optional alcohol content statements on beer labels, and suggested that

mandatory labeling would impose unnecessary costs on the industry. Id.

The Supreme Court inRubin, 115 S.Ct. at 1593-4 made this important determination

while finding the governments interest in prohibiting disclosure of alcohol content on labels fell

short of the Central Hudson analysis:

[R]espondent suggests several alternatives, such as directly

limiting the alcohol content of beers, prohibiting marketing efforts

emphasizing high alcohol strength . .. or limiting the labeling ban

only to malt liquors, which is the segment of the market that

allegedly is threatened with a strenght war. We agree that theavailability of these options, all of which could advance the

Governments asserted interest in a manner less intrusive to

respondents First Amendment rights . . .

These reasonable alternatives are those employed by Texas law, which expressly permits

the display of alcohol content on malt beverage labels that the Court addressed in Rubin. Texas

does define a limit on the alcohol content of beer, and does prohibit marketing efforts

emphasizing high alcohol strength.

6

It also provides that higher alcohol-containing beverages

6 Plaintiffs also challenge on commercial free speech grounds 16 TAC 45.79(f) and 45.82(f).

While Defendants also believe that Plaintiffs have not established any concrete, particularized

injury related to the prohibition of use of such words on malt beverage labels as full strength or

extra strength, Defendants note that this prohibition of certain terms regarding strength of



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cannot be labeled as beer, yet provides the term ale as an alternative to the name malt

liquor. It is important to note that Plaintiffs have the option to not use the term ale if it is

believed to be innacurate, and, instead, could use the classification malt liquor. In their First

Amended Complaint, they eshew the term as being unpopular, though in none of Plaintiffs

depositions was the use, or non-use of malt liquor linked to any particular injury.

1) Some Definitions Have No Nexus To SpeechIn particular, the TEX.ALCOHOLIC BEV.CODE 1.04(12) and 16 TAC 45.71(10)

definitions of ale or malt liquor and malt liquor are simple definitions that, themselves, have

no nexus to speech interests and simply define terms as they are used later in the code or

regulations. No plaintiff has demonstrated its standing to attack these definitions.

2) Protection From Vertical Integration (The Three-Tier System) Justifies MinorRestrictions

Plaintiffs bemoan the fact that an application of TEX.ALCOHOLIC BEV.CODE 102.07

(Prohibited Dealings With Retailer or Consumer) has been considered as prohibiting any

manufacturer or distributor from advertising or publicizing the location of products sold by the

manufacturer or distributor. Though Plaintiffs describe this as disallowing breweries from

informing consumers about where their products can be purchased at retail [Pl. Amended

Complaint [Doc. #27 at p.14] it is important to consider three things: 1) once a product is in the

possession of a retailer, it is the retailers product, and no longer the manufacturer or distributors

product. [See Ex. 1, pp.14-15; Ex. 3, pp.9-10]; 2) allowing manufacturers and distributors to

identify particular retail outlets to consumers is clearly confering on the retailer a benefit or thing

alcohol content are mirrored in Federal law: 27 CFR 7.29(f) (Labeling and Advertising of Malt

Beverages; Labeling Requirements for Malt Beverages; Prohibited Practices).



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of value, which implicates vertical integration; and, 3) there is no alleged prohibition on retailers

regarding advertising the brands of products it sells.

3) Alternative Argument Rregarding Beer Exclusivity Below 4% Alcohol By WeightShould this Court find that any party has standing to challenge the definition of beer

found in the TEX.ALCOHOLIC BEV.CODE 1.04(15), and should the Court also not find that

Defendants have justified its propriety under the Central Hudson test, Defendants advance the

following argument regarding the statutory interpretation of the TEX.ALCOHOLIC BEV.CODE

1.04(15):

Article II, section 1(c) of the 1935 Act defined Beer as follows:

(c) The wordbeer as hereinafter used in this Act and for thepurpose of this Article, shall mean any malt beverage containing

one-half (1/2) of one percent (1%) or more of alcohol by volume

and not more than four per centum (4%) of alcohol by weight.

The term malt liquor was not defined by the 1935 Act, but the term appeared in the

local option election section of the Act in describing the levels of alcoholic beverages voters

might approve for sale in their area, including legalizing the sale of vinous and malt liquors that

do not contain alcohol in excess of four per cent (4%) . . . The term ale was not in the

original Act.

The next legislative session, in 1937, saw an emphasis on addressing gaps in regulation

of the flow of alcohol: H.B. 5 sought to re-define and prohibit the operation of an open saloon,

(essentially a bar) and the laws were expanded to address the abuse of medicinal liquors.

Whereas the original 1935 Act contained a provision restricting the dispensing and prescription



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of medicinal liquors,7

the legislature in 1937 sharpened the restrictions, including reducing the

amount of medicinal alcohol a doctor could prescribe from a quart to a pint per day.

And in Article II of the Act, which dealt with licensing beer manufacturers, two notable

changes were made. First, in section 2, the legislature removed all question as to what could be

sold as a beverage containing between 1/2 and 4% alcohol by weight in Texas:

The manufacture, sale, distribution, and transportaion of beer ishereby authorized within the State of Texas . . . . It shall be

unlawful to manufacture, sell, barter, or exchange within this State

any beverage containing alcohol in excess of on-half of one per

cent by volume and not more than four (4) per cent of alcohol by

weight except beer. (emphasis added)

With this exclusivity provision regarding beer installed in the code, the 45th Texas

legislature made an addendum to the definition of beer:

The term beer means a malt beverage containing on-half of oneper cent or more of alcohol by volume and not more than four (4)

per cent of alcohol by weight, and shall not be inclusive of any

beverage designated by label or otherwise by any other name than

beer. (emphasis added).

Flashing forward to the present, the prohibitions against open saloons are long gone, all

of the licensing and regulatory provisions regarding medicinal liquors have been struck, and the

exclusivity portion of the manufacturers license (i.e. that the only alcoholic beverage that can be

manufactured or sold in Texas between and 4% of alcohol by weight is beer) was long-ago

removed from the manufacturers license statute, and moved to 101.66amd in 1993 was

amended to include wine coolers and spirit coolers. Now, retailers legally sell innumerable

alcoholic beverage[s] as defined under the code as any beveage containing more than a

7 Article 1, sec. 15(n)



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percent of alcohol by volume, which, in addition to beer can include mixed beverages spirit

coolers and wine coolers within that to 4% alcohol content range.

But when beer was moved from Article II of the Code (at the head of the section

addressing the licensing of beer manufacturers) over to the general definitions in Article I (now

TEX.ALCOHOLIC BEV.CODE 1.04) it appears to have been isolated from the relevant revisions

to the statute.over the years, and is even out of alphabetical order within the definitions. The tail

end of the 1937-revised definition of beer still states: . . . and does not include a beverage

designated by label or otherwise by a name other than beer. With none of its statutory context

remaining, this part of the definition makes absolutely no sense.

The Texas Code Construction Act is instructive on how to treat this definitional anomoly.

TEX.GOVT CODE 311.023 states that in construing a statute, whether or not the statute is

considered ambiguous on its face, a court may consider the:

(1)Object sought to be attained;(2)

Circumstances under which the statute was enacted;(3)Legislative history;

(4)Common law or former statutory provisions, including laws on the same or similarsubjects;

(5)Consequences of a particular construction; . . .Moreover, TEX.GOVT CODE 312.005 instructs that [i]n interpreting a statute, a court

shall diligently attempt to ascertain legislative intent and shall consider at all times the old law,

the evil, and the remedy. Finally, TEX.GOVT CODE 311.021states the Texas Legislatures

intention that in enactment of statutes, it is presumed that compliance with the state and United

States constitutions is intended, as is a just and reasonable result.

Accordingly, should the Court find standing by the Plaintiffs and that the definition of

beer in TEX.ALCOHOLIC BEV.CODE 1.04(15) has not been justified in its present form under



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the Central Hudson test, Defendants seek an appropriate interpretation of TEX.ALCOHOLIC BEV.

CODE 1.04(15) under the factors of code construction set out by the Texas Legislature, and for

this Court to interpret the definition of beer in accordance with its first definition, prior to the

1937 amendment: The wordbeer as hereinafter used in this Act and for the purpose of this

Article, shall mean any malt beverage containing one-half (1/2) of one percent (1%) or more of

alcohol by volume and not more than four per centum (4%) of alcohol by weight.

Such a construction then reduces the challenges to the beer/ale labeling provisions to

challenges to the TABC Administrative Rules, and to a state administrative law matter rather

than a Federal Constituttional claim.

C) COMMERCE CLAUSEPlaintiffs complaint baldly alleges that Texas definitions of beer and ale or malt

liquor,(and labeling class distinctions between the two) create an unconstitutional burden on

interstate commerce.8 State regulations violate the dormant Commerce Clause by

discriminating against or unduly burdening foreign or interstate commerce See, e.g., Or. Waste

Sys., Inc., 511 U.S. 93, 98 (1994) (Interstate Commerce Clause). Regulations that facially

discriminate are virtually per se invalid, Camps Newfound/Owatonna, Inc., 520 U.S. 564, 575

(1997)(explaining that discriminatory regulations are strictly scrutinized); whereas regulations

that merely burden commerce are valid unless the burden imposed on such commerce is clearly

excessive in relation to the putative local benefits. Or. Waste Sys., Inc., 511 U.S. at 99.

In the context of the Interstate Commerce Clause, if a state regulation is found to be

nondiscriminatory, the court examines the nature of the local interest and whether alternative

8 Pl. Am. Complaint [Doc. #27] at pp. 13-14.



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means could achieve that interest with less impact on interstate commerce.Nat'l Solid Waste

Mgmt. Ass'n, 389 F.3d 491, 501 (5th Cir. 2004). If a legitimate local purpose is found, then the

question becomes one of degree. And the extent of the burden that will be tolerated will of

course depend on the nature of the local interest involved, and on whether it could be promoted

as well with a lesser impact on interstate activities. Id. (quoting Pike, 397 U.S. at 142, 90 S.Ct.

844).

It is unclear how Texas statutory and regulatory definitions and labeling are to have

demonstrably burdened interstate commerce, however it is equally clear under the standing

standards articulated, above, that none of the Plaintiffs in the case have standing to pursue such

claims. Only the most speculative claims of interstate commercial affect have been mentioned in

this case (such as the belief that out of state beer manufacturers would rather not bother with

Texas regulations), however such conclusory statements attributed to non-parties should hardly

serve as a substitute for an actual or concrete injury. Defendants stand on the legitimacy of the

local interests in these laws and regulations, as stated above, and their low impact on interstate

commerce.

Additionally, Plaintiffs assert that the designation under Title 3 of the Code, of foreign

breweries as the first American source of supply for their products . . . is an unconstitutional

burden on interstate commerce.9

First American Source is defined in TEX.ALCOHOLIC BEV.CODE 37.10 and applies

only to wine and distilled spirits. It does not apply to beer or ale as they are malt beverages under

Texas law. Again, it is patently unclear what standing Plaintiffs have to maintain this claim, or

how this code provision could be said to be an impermissible burden on interstate commerce.

9 Pl. Am. Complaint [Doc. #20] at p.15.



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D) SUPREMECY CLAUSE\Plaintiffs allege the same statutory and regulatory claims that were an unconstitutional

burden on interstate commerce also contravene applicable federal law and [are therefore, a

violation of the Supremecy Clause.10

However, this argument is equally unavailing. Presuming

Plaintiffs are referring to Title 27 CFR 7.24(a),(d),(e) dealing with Class and Type for labeling

purposes, it must be noted that 27 CFR 7.20(a) (Application) mandates such class and type

labeling applies only to the extent that thelaw of such State imposes similar requirements.

Second, the number and types of permits required by Texas law do not contravene or

conflict with the federal statutory requirement of a federal basic permit, but are allowed

pursuant to the authority of the 21st

Amendment, and are harmonious with the federal statutes

regulations. Plaintiff will not be able to show otherwise.

E) EQUAL PROTECTIONThe Equal Protection challenges raised by Plaintiffs are to be reviewed by this Court in

accordance with a rational basis test. Under this standard, a legislative classification will be

upheld if there is a rational relationship between the disparity of treatment and some legitimate

governmental purpose.Heller v. Doe, 509 U.S. 312, 320, (1993). Because all legislation

classifies its objects, differential treatment is justified by any reasonably conceivable state of

facts.Id. Legislation need not pursue its permissible goal by using the least restrictive means of

classification; consequently, the Equal Protection Clause is not violated merely because the

classifications made ... are imperfect.Johnson v. Rodriguez, 110 F.3d 299, 306 (5th Cir.), cert.

denied, 118 S.Ct. 559 (1997) (quotation omitted). As referened earlier by this Court, equal

10 Pl. Am. Complaint [Doc. #20] at pp.14-15.



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protection is not a license for courts to judge the wisdom, fairness, or logic of legislative

choices. F.C.C. v. Beach Commcns, Inc., 508 U.S. 307, 313 (1993). Furthermore, on a

rational basis review, a classification in a statute . . . comes to [the court] bearing a strong

presumption of validitiy . . ., and those attacking the rationality of the legislative classification

have the burden to negative every conceivable basis which might support it. Id. at 314 (internal

citations and quotations omitted).

Though Plaintiffs seeem to dwell on the apparent unfairness of the limited statutory

exeptions to the strict application of the three tier system given to various participants in the

liquor control system, the rationality of the legislatures classifications can be clearly seen in

those statutes that created the exceptions.

1) TEX.ALCOHOLIC BEV.CODE 108.09In 2005, the Texas Legislature (via S.B. 1137) added this section, allowing wineries to

include information in the winerys advertising that informs the public of where the winerys

products may be purchased. Plaintiffs contend that this stands in contrast to TEX.ALCOHOLIC

BEV.CODE 102/07, which would not allow manufacturers or distributors of malt beverages to

engage in the same behavior of identifying a retailer of the products manufactured or distributed

by them.

As the Bill Analysis for S.B. 1137 makes abundantly clear, the Texas Legislature

examined the Texas wine producing industry, and made statutory changes to increase the impact



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of that industry on the states economy. [Ex. 5]. This rationale also includes a clear desire by

the Legislature to foster the economic agricultural aspects of grape production in Texas.11

2) TEX.ALCOHOLIC BEV.CODE 16.01(5)This Code provision allows wineries to sell wine to ultimate consumers for consuption on

the winery premises or in unbroken packages for off-premises consumption, within an annual

limit. Wheras the Texas Legislature in 1979 amended the code (via S.B. 1252) with the purpose

of extending authoritiy to winery permit holders to include sales to ultimate consumers, [Ex.

6], the Legislatures rationale is more readily evidenced in more recent amendments regarding

sales of wine to ultimate consumers, namely the 2001 H.B. 892. The background and purpose of

amendments to the code to this bill illustrate the Legislatures desire to grow the Texas wine

industry and increase Texas grape production. [Ex. 7]

3) TEX.ALCOHOLIC BEV.CODE 74.01(2)In 1993, the Texas Legislature (via H.B. 1425) created a brewpub license to allow for

the manufacture of malt beverages which could then be sold on premises to an ultimate

consumer, as well as to sell food. The Bill Analysis for H.B. 1425 reveals that the Legislature

considered that brew pubs were licensed in 37 states, that in many cases brew pubs had become

tourist attractions, and that most brew pubs were built in conjunction with a restaurant to

provide a family atmosphere. [Ex. 8].

11 As an aside, Ronald Extract of Jester King Brewery confirmed in his deposition that the grains

and hops used in brewing are not grown in Texas. [Ex. 3, p.8]



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4) TEX.ALCOHOLIC BEV.CODE 12.05 and 62.12In 1979, S.B. 419 was passed with the particular intent of more strictly patterning the

beer industry after the three-tier system utilized by the liquor industry.12 Indeed, the legislature

sought to reverse the trend of a dwindling number of breweries in Texas by creating more

separation between these remaining larger brewers and distributors.13

To foster the growth of

breweries, for small brewers (under 75,000 barrels per year in production), the legislature carved

out an allowance that they could have the same rights as a distributor and created these sections

of the Code. 14

PRAYER

For all the reasons stated herein, Defendants pray that Plaintiffs case be, in all things,

dismissed

Respectfully submitted,

GREG ABBOTTAttorney General of Texas

DANIEL T. HODGEFirst Assistant Attorney General

BILL COBBDeputy Attorney General for Civil Litigation

DAVID C. MATTAXDirector of Defense Litigation

ROBERT B. O KEEFE

Chief, General Litigation Division

12See Bill Analysis of 66

thTexas Legislature S.B. 419 [Ex. 9].

13Id.14 See Id, and S.B. 419 (enrolled); TEX.ALCOHOLIC BEV.CODE 12.05 and 62.12



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/s/_James Beau Eccles

JAMES BEAU ECCLESTexas Bar No. 00793668

JAMES C. TODD

Texas Bar No. 20094700

Assistant Attorneys GeneralOffice of the Attorney General

General Litigation Division -019

P. O. Box 12548, Capitol StationAustin, Texas 78711

Phone No. (512) 463-2120

Fax No. (512) 320-0667

ATTORNEYS FOR DEFENDANTS

CERTIFICATE OF SERVICE

I hereby certify that a true and correct copy of the foregoing document has been deliveredvia ECFS on this the 19th day of October, 2011, to:

James O. Houchins Peter D. KennedyLaw Office of James O. Houchins Graves, Dougherty, Hearon & Moody, P.C.

P.O. Box 40028 401 Congress Ave., Ste 2200

Austin, Texas 78704 Austin, Texas 78701Attorney for Plaintiff

/S/James Beau Eccles


Jester King v. TABC Defendant Motion for Summary Judgement

Documents

Transcript of Jester King v. TABC Defendant Motion for Summary Judgement