WAL-MART STORES, INCORPORATED; WAL-MART STORES TEXAS, L.L.C; SAM'S EAST, INCORPORATED; QUALITY LICENSING CORPORATION, Plaintiffs - Appellees Cross-Appellants
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
from the United States District Court for the Western
District of Texas
DAVIS, HAYNES, and GRAVES, Circuit Judges.
E. GRAVES, JR., CIRCUIT JUDGE
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) 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
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.
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.
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.
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.
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.
is a retailer that is the largest public company in the
world. 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.
unsuccessfully lobbied the Texas Legislature to repeal §
22.16. 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
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.
Standards of Review
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 factors to determine whether purposeful
discrimination inspired a state legislature's actions in
violation of the dormant Commerce Clause. Therefore, we do
the same. "[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.
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)).
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.
in Tennessee Wine, the Court reaffirmed what this
court had previously concluded: 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.
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
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.
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.
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.
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
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.
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
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 ...