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The Texas Alcoholic Beverage Commission v. D. Houston, Inc.

Court of Appeals of Texas, Third District, Austin

May 25, 2017

D. Houston, Inc. d/b/a Treasures Appellants,
D. Houston, Inc. d/b/a Treasures// Cross-Appellees, The Texas Alcoholic Beverage Commission and Sherry Cook, Administrator// Cross-Appellant, The Texas Alcoholic Beverage Commission and Sherry Cook, Administrator Appellee,


          Before Chief Justice Rose, Justices Pemberton and Field.


          Bob Pemberton, Justice.

         This cause, which was abated previously, presents cross-appeals concerning the district court's jurisdiction over claims brought against the Texas Alcoholic Beverage Commission (TABC) and its administrator, in her official capacity. The claimant was D. Houston, Inc., which holds TABC-issued permits utilized in its operation of what it terms a "gentleman's club, " "Treasures, " located in Houston. Treasures brought its claims after TABC initiated an enforcement proceeding seeking to impose civil penalties (including potential revocation of Treasures's permits) predicated on alleged violations of the Alcoholic Beverage Code and TABC rules through the purported conduct of five of Treasures's "dancers" or "entertainers."[1] Treasures's claims-and, in turn, the jurisdictional issues presented-fall into two categories. Both categories of claims must be dismissed, for the reasons we will explain below.[2]

         TABC Rule 35.31(b)

         Under color of Section 2001.038 of the Administrative Procedures Act (APA), [3]Treasures asserted a claim against TABC for a declaration regarding the "applicability" of TABC Rule 35.31(b), which states in relevant part:

         A licensee or permittee violates the provisions of the Alcoholic Beverage Code . . . if any of the offenses . . . are committed:

(1) by the licensee or permittee in the course of conducting his/her alcoholic beverage business; or
(2) by any person on the licensee or permittee's licensed premises; and
(3) the licensee or permittee knew or, in the exercise of reasonable care, should have known of the offense or the likelihood of its occurrence and failed to take reasonable steps to prevent the offense.[4]

         Treasures pleaded that its "dancers operate as separate, independent businesses, " or "[a]t most . . . may be deemed independent contractors." Based on that factual premise, Treasures sought "a declaration regarding the inapplicability of TABC Rule 35.31(b)(1), or alternatively, the applicability of Rule 35.31(b)(2) & (3) to the acts of employees acting outside the scope of their employment, to independent contractors, and to independent businesses."

         TABC interposed a plea to the jurisdiction, which the district court granted. The court rendered judgment dismissing the claim for want of jurisdiction, specifically citing failure to exhaust administrative remedies that the court viewed as necessary to develop the factual predicate for the rule's application. Treasures challenges this ruling in its appeal. It emphasizes the concept that Section 2001.038 allows pre-enforcement adjudication of rule "applicability" issues, and thus does not (at least categorically) require exhaustion of remedies. Nor, Treasures insists, would the presence of some factual questions preclude its claim, as "Section 2001.038 is not limited to questions of law." In any event, Treasures maintains, its claim does not require resolution of factual disputes, such as "whether Treasures'[s] dancers were in fact independent contractors (versus employees), " whether "the dancers' alleged criminal conduct was in the course and scope of their employment, " or the ultimate question of whether Treasures can be held liable based on the dancers' conduct, which Treasures acknowledges "would be resolved in the contested case below." Instead, as Treasures explains the distinction, it is seeking a declaration regarding "a question of law"-specifically, whether TABC, in order to hold Treasures liable for the conduct of its independent contractors or employees acting outside the course and scope, must prove Treasures's "negligence" under (b)(2) and (3) or has the benefit of (b)(1)'s "essentially strict liability" standard.

         Very recently, in LMV-AL Ventures, LLC v. Texas Department of Aging and Disability Services, this Court revisited, in light of contemporary immunity jurisprudence, the sometimes-unclear parameters of rule "applicability" challenges under APA Section 2001.038.[5] We clarified that a rule "applicability" challenge authorized by Section 2001.038 is limited to determining whether a rule is capable of being applied to or is relevant to a factual situation, as distinguished from a challenge to the rule's application (i.e., "how the rule should be applied" to particular facts or "the specific outcome after a rule's application.").[6]

         Like the facility in LMV, Treasures seeks a declaration not as to the "applicability" of Rule 35.31(b)(1), (2) and (3)-the rule would plainly be applicable or relevant to Treasures's situation in some way-but as to the rule's application to the particular facts Treasures assumes (the conduct made the basis for the enforcement action was committed by independent contractors, independent businesses, or employees acting outside the course and scope).[7] Consequently (and without need to belabor any other potential jurisdictional barriers), Treasures's claim is not authorized by Section 2001.038 and is barred by sovereign immunity.[8] We affirm the district court's judgment dismissing that claim for want of subject-matter jurisdiction.

         Alcoholic Beverage Code Section 11.641(c)

         Treasures's remaining claims sought declaratory and injunctive relief with respect to Section 11.641(c) of the ...

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