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Wal-Mart Stores, Inc. v. Texas Alcoholic Beverage Commission

United States Court of Appeals, Fifth Circuit

August 15, 2019

WAL-MART STORES, INCORPORATED; WAL-MART STORES TEXAS, L.L.C; SAM'S EAST, INCORPORATED; QUALITY LICENSING CORPORATION, Plaintiffs - Appellees Cross-Appellants
v.
TEXAS ALCOHOLIC BEVERAGE COMMISSION; KEVIN LILLY, Presiding Officer of the Texas Alcoholic Beverage Commission; IDA CLEMENT STEEN, Defendants - Appellants Cross-Appellees TEXAS PACKAGE STORES ASSOCIATION, INCORPORATED, Movant - Appellant Cross-Appellee

          Appeal from the United States District Court for the Western District of Texas

          Before DAVIS, HAYNES, and GRAVES, Circuit Judges.

          JAMES E. GRAVES, JR., CIRCUIT JUDGE

         Plaintiff-Appellee Wal-Mart Stores, Incorporated and three of its subsidiaries (collectively, "Walmart"), brought 42 U.S.C. § 1983 claims against the Texas Alcoholic Beverage Commission and three of its commissioners (collectively, the "TABC"), to challenge four Texas statutes (Tex. Alco. Bev. Code §§ 22.04, 22.05, 22.06, 22.16)[1] that govern the issuances of permits that allow for the retail sale of liquor in Texas (called "package store" permits, or "P permits"). Section 22.16 prohibits public corporations from obtaining P permits in Texas. Walmart argued that the ban violates the dormant Commerce Clause of the United States Constitution and the Equal Protection Clause of the Fourteenth Amendment. Later, we granted the Texas Package Store Association's ("TPSA") motion to intervene as a matter of right, in defense of the statutes. See Wal-Mart Stores, Inc. v. Tex. Alcoholic Beverage Comm'n, 834 F.3d 562 (5th Cir. 2016).

         We now consider the TABC and TPSA's ("appellants") appeal of the district court's conclusion that the public corporation ban offends the dormant Commerce Clause, and Walmart's cross-appeal of the district court's determination that the public corporation ban does not violate the Equal Protection Clause. We affirm the part of the district court's judgment rejecting Walmart's Equal Protection challenge to the public corporation ban. Conversely, because the district court erred in its findings regarding the discriminatory nature and burden imposed by the public corporation ban, Walmart's dormant Commerce Clause challenge to § 22.16 is remanded.

         I. Facts

         A.

         Texas regulates the sale and importation of alcoholic beverages through a three-tier system that requires separate licenses and permits for producers, wholesalers, and retailers who meet certain eligibility requirements. See Wine Country Gift Baskets.com v. Steen, 612 F.3d 809, 818-19 (5th Cir. 2010) (noting that Texas has a three-tier system "in which producers sell to state-licensed wholesalers, who sell to state-licensed retailers"). Liquor retailers must obtain a separate permit for each physical location where liquor is sold for off-premises consumption. The permits authorize an unlimited volume of sales from the permitted location. The TABC is the state agency responsible for issuing permits and enforcing the Texas Alcoholic Beverage Code. The TPSA is the trade association of Texas package stores that are majority-owned by Texans.

         There is one permit relevant to this appeal. P permits authorize the sale of liquor, wine, and ale for off-premises consumption. Tex. Alco. Bev. Code § 22.01. Texas liquor stores must hold a P permit.

         At the time of this litigation, there were 2, 578 active P permits issued by the TABC, and 574 were owned by a package store chain (a business holding six or more P permits). There were 21 active package store chains. Since 1944, package store chains have grown in size and volume of sales, although the total number of package stores has remained approximately the same. The package store chains have a significant share of the Texas market, but it is not clear how much. The largest package store chains control seven of the nine seats on the TPSA's executive committee.

         B.

         Texas' public corporation ban proscribes "any entity which is directly or indirectly owned or controlled, in whole or in part, by a public corporation" from obtaining a P permit. Tex. Alco. Bev. Code § 22.16(a). The statute defines a "public corporation" 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). Public corporations can hold any of the other seventy-five types of alcohol permits that Texas issues.

         Walmart is a retailer that is the largest public company in the world.[2] Operating approximately 5, 000 stores in the U.S., Walmart currently sells beer or wine in forty-seven states, including 668 locations in Texas, and liquor in thirty-one states. Walmart's goal is to increase its sales and profits from alcoholic beverages in Texas. Walmart has plans to open liquor stores adjacent to some of its existing Texas retail locations. However, because it is a publicly traded corporation without a majority shareholder, Walmart cannot implement its plan unless the public corporation ban is invalidated.

         Walmart unsuccessfully lobbied the Texas Legislature to repeal § 22.16.[3] After its failed attempt to obtain a legislative remedy, Walmart sued the TABC in federal court to have the judiciary neutralize the public corporation ban, and this court subsequently granted the TPSA's motion to intervene.

         After a week-long bench trail, the district court concluded, inter alia, that the public corporation ban: (1) has a discriminatory purpose and the ban's burden on interstate commerce is clearly excessive when compared to the local benefits, and (2) does not violate the Equal Protection Clause. The district court enjoined the TABC from enforcing the public corporation ban. This appeal and cross-appeal followed. We consider whether the public corporation ban is unconstitutional under the dormant Commerce Clause and the Equal Protection Clause.[4]

         II. Standards of Review

         We review a district court's judgment regarding the constitutionally of a statute de novo. Allstate Ins. Co. v. Abbott, 495 F.3d 151, 160 (5th Cir. 2007). The district court's findings of fact relevant to the constitutional question are reviewed for clear error. Id. Because this case involves a dormant Commerce Clause challenge, one threshold issue is whether the public corporation ban was enacted with the purpose to discriminate against interstate commerce. Id. at 160-62. In Allstate, this court applied the Arlington[5] factors to determine whether purposeful discrimination inspired a state legislature's actions in violation of the dormant Commerce Clause.[6] Therefore, we do the same.[7] "[A] district court's finding of fact on the question of discriminatory intent is reviewed for clear error." Abbott v. Perez, 138 S.Ct. 2305, 2326 (2018). "If the district court's findings are plausible in light of the record viewed in its entirety, we must accept them, even though we might have weighed the evidence differently if we had been sitting as a trier of fact." Veasey v. Abbott, 830 F.3d 216, 229 (5th Cir. 2016) (en banc) (quotation marks omitted). "However, when the district court's 'findings are infirm because of an erroneous view of the law, a remand is the proper course unless the record permits only one resolution of the factual issue.'" Id. (quoting Pullman-Standard v. Swint, 456 U.S. 273, 292 (1982)). In the latter case, we should reverse and render a decision. Id.

         III. Challenges

         A.

         The Supreme Court has long held that the Commerce Clause "prohibits state laws that unduly restrict interstate commerce." Tennessee Wine & Spirits Retailers Ass'n v. Thomas, 139 S.Ct. 2449, 2459 (2019). This interpretation is known as the dormant Commerce Clause. "'This negative aspect of the Commerce Clause' prevents the States from adopting protectionist measures and thus preserves a national market for goods and services." Tennessee Wine, 139 S.Ct. at 2459 (quoting New Energy Co. of Ind. v. Limbach, 486 U.S. 269, 273 (1988)).

         "A statute violates the dormant Commerce Clause where it discriminates against interstate commerce either facially, by purpose, or by effect." Allstate, 495 F.3d at 160. Given that this case involves a law that regulates liquor retailers, the dormant Commerce Clause analysis must be considered in light of the Twenty-first Amendment. Section 2 of the Amendment grants states the authority to regulate the transportation, importation, possession, and use of alcohol within their own borders. See U.S. Const. amend. XXI, § 2.

         Recently, in Tennessee Wine, the Court reaffirmed what this court had previously concluded:[8] Section 2 does not grant states the power to violate the "nondiscrimination principle" of the dormant Commerce Clause. 139 S.Ct. at 2470 (citing Granholm v. Heald, 544 U.S. 460, 487 (2005)). The Court acknowledged that, under § 2, states "remai[n] free to pursue their legitimate interests" in addressing the health and safety risks associated with the alcohol trade. Id. at 2472 (alteration in original) (quotation marks omitted). Therefore, "each variation [of law] must be judged based on its own features." Id.

          The Court clarified the standard for evaluating a discriminatory alcohol-related regulation, charging courts to "ask whether the challenged [discriminatory] requirement can be justified as a public health or safety measure or on some other legitimate nonprotectionist ground." Id. at 2474. The standard has teeth. "[M]ere speculation" or "unsupported assertions" of fact are insufficient to validate an otherwise discriminatory law. Id. If the "predominant effect" of the discriminatory law is protectionism and not "the protection of public health or safety," the law is not shielded by § 2. Id. at 2474. In conducting the inquiry, courts must look for "concrete evidence" that the statute "actually promotes public health or safety," or evidence that "nondiscriminatory alternatives would be insufficient to further those interests." Id.

         Section 22.16 is a facially neutral statute that bans all public corporations from obtaining P permits irrespective of domicile. Therefore, we focus on whether the ban was enacted with a discriminatory purpose or has a discriminatory effect on interstate commerce.

         B.

         Although the district court correctly cited the Arlington framework, some of its discriminatory purpose "findings are infirm." Veasey, 830 F.3d at 230 (quotation marks omitted). The record does not support "only one resolution of the factual issue," as there is evidence that could support the district court's finding of a purpose to discriminate, so we must remand for a reweighing of the evidence on that issue. Id.

         "The burden of establishing that a challenged statute has a discriminatory purpose under the Commerce Clause falls on the party challenging the provision." Allstate, 495 F.3d at 160. We consider the following non-exhaustive factors when determining whether a state legislature's actions amount to purposeful discrimination against interstate commerce: (1) whether the effect of the state action creates a clear pattern of discrimination; (2) the historical background of the action, which may include any history of discrimination by the decisionmakers; (3) the "specific sequence of events leading up" to the challenged state action, including (4) any "departures from normal procedures[;]" and (5) "the legislative or administrative history of the state action, including contemporary statements by decisionmakers." Id. Legislators' awareness of a discriminatory effect "is not enough: the law must be passed because of" that discriminatory effect. Veasey, 830 F.3d at 231 (applying the Arlington factors). The challenger must show that the discriminatory effect was "a substantial or motivating factor" leading to the enactment of the statute. Id. (quotation marks omitted). If the challenger meets that burden, defendants must "demonstrate that the law would have been enacted without this factor." Id.

         First, the district court properly found that Texas has a clear history of discriminating against out-of-state alcohol retailers. From the passage of its Liquor Control Act in 1935, Texas had prohibited out-of-state individuals and companies from owning package stores. In Cooper v. McBeath, this court invalidated Texas laws imposing durational residency requirements on alcohol retail store owners. 11 F.3d 547 (5th Cir. 1994) (Cooper I). While Cooper I was pending, the Texas Legislature enacted House Bill 1445, in an attempt to moot the Cooper I litigation. The bill repealed the residency requirements at issue in the case. Texas kept durational residency requirements for other permits. Soon after the governor of Texas signed the bill, the Cooper I plaintiffs moved to dismiss the appeal as moot. However, this court denied the motion and issued an opinion striking down the residency requirements, with language broad enough to apply to all the alcohol permits. Id. at 550-51, 554. Despite the Cooper I decision, Texas enforced durational residency requirements as applied to P permits for another twelve years-stopping enforcement only after the practice was permanently enjoined by a federal district court. S. Wine & Spirits of Texas, Inc. v. Steen, 486 F.Supp.2d 626, 633 (W.D. Tex. 2007). The evidence relied on by the district court was "not long past history." Veasey, 830 F.3d at 232. Texas decisionmakers have a history of discrimination.[9]

         Addressing a second factor, the district court erred in finding that the legislative history of § 22.16 includes direct evidence of a purpose to discriminate against interstate commerce. The district court made much of the fact that § 22.16 was enacted in 1995, one year after Cooper I. A lawyer and lobbyist who worked on behalf of the TPSA drafted the corporation ban. The TPSA, which had vigorously defended the residency requirements struck down by this court, later admitted that there was a fear that "large stores could disrupt what had been a very stable business climate" and there could be a "Wal-Martization" of the Texas package store market. Further, the Texas legislature was aware that, but for the Cooper I decision, the TPSA would not have suggested and supported the public corporation ban.

         Based largely on those findings regarding the conduct and motivations of the TPSA, the district court concluded that the Texas legislature enacted the public corporation ban with the same protectionist motivations. This despite the provision's drafter testifying that he told legislators the purpose of the bill was accountability. He was the only witness at the committee hearings and told the legislators that the purpose of the bill was to promote accountability, or "to have real human beings who are easily identifiable, who are close to the business, and who ultimately bear personal responsibility for the actions of the package store." Years later-at trial-he admitted that he "knew that any bill [enacted] might be challenged" and that his "assignment was to craft a bill which . . . would survive a commerce clause challenge." The district court determined that the "TPSA's chief concern was maintaining the business climate created by the residency requirement," and that the legitimate rationales concerning accountability were "pretextual." However, in Veasey, we reiterated that overreliance on "post-enactment testimony" from actual legislators is problematic, and not "the best indicia of the Texas Legislature's intent." Veasey, 830 F.3d at 234. In light of Veasey, after-the-fact statements made by a non-legislator are certainly not sufficient indicia of legislative intent.

         The district court did not find evidence connecting any Texas legislator to the conclusion that the accountability rationale was pretextual. The only comments from a Texas legislator the district court relied on were made by state Senator Kenneth Armbrister. When asked to explain the purpose of the public corporation ban, Armbrister stated that the ban meant "you can't have a package store inside a Walmart" and "Walmart can't own the package store." As the district court noted, during the senate floor debate on Senate Bill 1063 (which became § 22.16), Armbrister agreed with state Senator Henderson's ...


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