Liquor Store Lobby Tries to Overturn Ruling that Allows Booze Licenses for Non-Texans

Total Wine, the chain of delightfully enormous alcoholic beverage emporia, might never have made it to Texas were it not for a strip club.

Twenty-four years ago two guys, one from Florida, one from Tennessee, decided to buy a San Antonio Baby Dolls. They had the cash. They had the expertise. Their only hurdle was an antiquated piece of Texas law barring non-Texans from acquiring liquor licenses.

They fully cleared that hurdle in January 1994, when the 5th U.S. Circuit Court of Appeals ruled that the statute "discriminates against out-of-staters" for no defensible reason, and thus violates the U.S. Constitution's Commerce Clause. Non-Texans were now free to sell booze in Texas. The ruling in the Baby Dolls case indirectly opened the door for Maryland-based Total Wine to open a store on Central Expressway in 2012, then five more outlets in Texas.

The Texas Package Stores Association, the home-grown liquor-store lobby, still doesn't like the decision nor, it seems, the incursion of non-natives onto its turf. Last month, in what seems to be a more or less direct shot at Total Wine, TPSA filed a motion in federal court asking a judge to reconsider the 5th Circuit's 1994 decision in the Baby Doll's case.

According to the filing, two subsequent court decisions have changed the U.S. booze-regulation landscape. In 2005, the U.S. Supreme Court ruled in Granholm v. Heald that laws barring out-of-state wineries from shipping to customers in New York and Maryland were unconstitutional, which at first glance would seem to strike a fatal blow to states' blatantly protectionist alcohol laws. But deeper in the majority opinion, the court endorsed the "three-tier" system of alcohol regulation -- i.e. separating the industry into producers, wholesalers and retailers -- was legit.

Then, last year, came the Eighth Circuit's decision in Southern Wine v. Division of Alcohol and Tobacco Control.

Southern Wine, a Florida-based wholesaler, sued the state of Missouri, claiming that its Texas-like residency restriction was unconstitutional. But the 8th Circuit drew a distinction between producers like the wine-makers of Granholm, who are protected by the Commerce Clause from laws that favor local producers, and wholesalers, who fall under the 21st Amendment which, in repealing Prohibition, also gave states wide latitude to regulate the sale of alcohol.

TPSA hasn't returned our phone call, but their court filing makes their argument clear. Texas' residency requirements "do not affect the flow of alcoholic beverage products from outside Texas. And just as the Eighth Circuit held with regard to wholesalers, if Texas may require retailers to be in-state without running afoul of the Commerce Clause, then Texas has the flexibility to define the required degree of in-state presence and need not use the most narrowly tailored means to address the State's legitimate concerns about regulating those involved in the sale of alcoholic beverages."

And the state, which never got around to repealing the residency requirements, says it does have legitimate concerns. The Texas Alcoholic Beverage Commission filed an amicus brief in the Southern Wine case saying the provisions "ensure that those who distribute a dangerous product, alcoholic beverages, have a stake in the welfare of the community in which they operate; (2) they provide a guard against the threats of organized crime; and (3) nonresident absentee owners have less incentive to refrain from practices that, although profitable, could expose the community to harm."

Deborah Skakel, a New York-based attorney specializing in alcohol regulation, says the TPSA's argument is in line with the Supreme Court's Granholm decision and the 8th Circuit's Southern Wine decision.

"As far as i'm concerned, yes, a state can impose a residency requirement by virtue of the fact of Granholm," she says. "The three-tier system is unquestionably legit."

The Texas requirement is "not an undue burden to the extent that the retailer has to be licensed by the state, and you're imposing the same burden on everybody."

But TPSA's argument may not be decided on its legal merit. In an intervention filed in federal court, Total Wine argues not that the group's arguments are wrong but that, since the two out-of-staters who bought Baby Dolls are long gone, TPSA doesn't have standing to reopen that case.

Send your story tips to the author, Eric Nicholson.

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Eric Nicholson
Contact: Eric Nicholson