Wal-Mart Stores, Inc. v. Tex. Alcoholic Beverage Comm'n

110 F.Supp.3d 719

Wal-Mart Stores, Inc., et al., Plaintiffs,

v.Texas Alcoholic Beverage Commission, et al., Defendants.

1-15-CV-134 RP

United States District Court, W.D. Texas, Austin Division.

Signed July 24, 2015

Alexander L. Kaplan, Vikram Swaruup, Chanler Ashton Langham, Neal Stuart Manne, Susman Godfrey, LLP, Houston, TX, Frederick William Sultan, IV, Mark T. Mitchell, Gardere Wynne Sewell LLP, Austin, TX, Steven M. Shepard, Susman Godfrey, LLP, New York, NY, for Plaintiffs.

Adam N. Bitter, Maria Amelia Calaf, Office of the Attorney General, Austin, TX, for Defendants.

ORDER

ROBERT L. PITMAN, UNITED STATES DISTRICT JUDGE

Before the Court are Defendants' Motion to Dismiss Plaintiff's Original Complaint for Declaratory and Injunctive Relief and Incorporated Memorandum of Law, filed May 5, 2015 (Clerk's Dkt. # 11) and the responsive pleadings thereto. After reviewing the pleadings, relevant case law, as well as the entire case file, the Court issues the following order.

I. BACKGROUND

Plaintiffs Wal–Mart Stores, Inc. ("Wal–Mart"), Wal–Mart Stores Texas, LLC, Sam's East, Inc. and Quality Licensing Corp. filed this action naming as defendants the Texas Alcoholic Beverage Commission ("TABC"), Jose Cuevas, Jr. in his official capacity as Presiding Officer of the TABC, as well as Steven M. Weinberg and Ida Clement Steen, each in their official capacity as Commissioners of the TABC.

Wal–Mart is a publicly traded corporation which owns and operates retail stores in Texas, in part through its wholly-owned subsidiaries, the other three plaintiffs in this action. Wal–Mart sells wine, beer or both in its stores. Texas law requires a seller of wine and beer to maintain a license or permit for each store to sell those beverages. Quality Licensing Corp. holds the TABC licenses and permits authorizing Wal–Mart to sell wine and beer. Wal–Mart sells distilled spirits in other states, and would like to do so in Texas. As set forth below, the Texas regulatory scheme governing licenses for the sale of alcoholic beverages (the "Code") prevents Wal–Mart from obtaining the permits required to do so.¹

The Code grants to the TABC the authority to issue a variety of permits for the sale of alcohol. See TEX. ALCO. BEV. CODE ANN. § 5.31(b)(5) (authorizing TABC to "ensure a consistent, predictable, and timely licensing and permitting process" under the Code). The holder of a package store permit may sell all types of alcoholic beverages, including distilled spirits. Id. § 22.01. A "public corporation," defined as publicly traded corporations or those with more than thirty-five shareholders, is prohibited from holding a package store permit.Id. § 22.16. The public corporation prohibition does not apply to either a package store located in a hotel or to holders of permits issued before April 1995. Id.

Wal–Mart alleges that the intent of the public corporation prohibition is to favor Texas residents over non-residents. According to Wal–Mart, this intent is apparent when the history of the prohibition is examined. The public corporation prohibition was enacted by the Texas legislature in 1995, following the Fifth Circuit's decision in Cooper v. McBeath, 11 F.3d 547 (5th Cir.1994). In Cooper the Fifth Circuit held that the Code's prior requirement that an applicant for a permit to sell alcohol must have been a resident of Texas for at least one year violated the Commerce Clause. Id. at 554. According to Wal–Mart, floor debate and discussion in committee hearings of the bill enacting the challenged Code provisions make clear the legislature was intending to continue to favor in-state ownership of package store permits, in the wake of the Fifth Circuit's opinion. (Orig.Compl.¶¶ 21–23). Wal–Mart further alleges that the legislature's intent is made clear by the fact that the public corporation prohibition does not apply to holders of permits issued before April 1995, that is issued when the Code required holders to be Texas residents. (Id. ¶ 24).

Wal–Mart additionally alleges the Code's discriminatory purpose and effect are evidenced by its limits on package store permits. The Code provides that no "person" may hold or have an interest in more than five package store permits. TEX. ALCO. BEV. CODE ANN. § 22.04(a).² Again, this limit exempts package store permits owned by hotels. Id. § 22.04(d). The Code provides an additional exemption:

If one person or two or more persons related within the first degree of consanguinity have a majority of the ownership in two or more legal entities holding package store permits, they may consolidate the package store businesses into a single legal entity. That single legal entity may then be issued permits for all the package stores, notwithstanding any other provision of this code.

Id. § 22.05.

According to Wal–Mart, in practice and pursuant to an internal Licensing Application Manual from the TABC, this provision allows blood relatives to continually acquire licenses, consolidate them into a single private entity, transfer ownership of the private entity to one family member, and then repeat the process. (Orig.Compl.¶¶ 31–41). Wal–Mart alleges this practice has resulted in a few companies accounting for more than 20% of Texas' package stores in total, with the six largest companies owning 45% of the package stores in El Paso County, 43% of the package stores in Bexar County and 31% of the package stores in Travis County. (Id. ¶¶ 36–38).

Wal–Mart finally complains the Code requires current beer and wine permit holders from simultaneously holding package store permits. Specifically, Wal–Mart states it currently holds 543 BQ permits for wine and beer sales, 3 BF licenses to sell beer and 1 Q permit to sell wine. According to Wal–Mart, to apply for a package store permit, Wal–Mart would be required to first abandon all of its existing BQ permits. See TEX. ALCO. BEV. CODE ANN. § 22.06 (restricting package store permit holders from also owning interest in wine and beer retailer's permit). However, the Code does not limit a holder of a BF license or Q permit from also holding a package store permit. Wal–Mart alleges the cost of abandoning its current BQ permits, and applying for separate BF licenses and Q permits so as to be eligible for a package store permit would exceed $1 million. According to Wal–Mart, this irrational distinction among retailers engaged in the same businesses serves no valid governmental purpose and creates separate classes of retailers with no rational difference. (Orig.Compl.¶ 44).

Plaintiffs assert causes of action for violation of their constitutional rights under the Equal Protection Clause, the Commerce Clause and the Privileges and Immunities Clause of the United States Constitution. (Id. ¶¶ 51–71). Plaintiffs seek declaratory and injunctive relief, as well as attorneys' fees and costs.

Defendants have filed a motion to dismiss all of the claims for failure to state a claim. The parties have filed responsive pleadings and the motion is ripe for determination.

II. APPLICABLE LAW

When evaluating a motion to dismiss for failure to state a claim under Rule 12(b)(6) the complaint must be liberally construed in favor of the plaintiff and all facts pleaded therein must be taken as true. Leatherman v. Tarrant Cnty. Narcotics Intelligence & Coordination Unit, 507 U.S. 163, 164, 113 S.Ct. 1160, 122 L.Ed.2d 517 (1993) ; Baker v. Putnal, 75 F.3d 190, 196 (5th Cir.1996). Although Federal Rule of Civil Procedure 8 mandates only that a pleading contain a "short and plain statement of the claim showing that the pleader is entitled to relief," this standard demands more than unadorned accusations, "labels and conclusions," "a formulaic recitation of the elements of a cause of action," or "naked assertion[s]" devoid of "further factual enhancement." Bell Atl. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). Rather, a complaint must contain sufficient factual matter, accepted as true, to "state a claim to relief that is plausible on its face." Id. at 1974. The Supreme Court has made clear this plausibility standard is not simply a "probability requirement," but imposes a standard higher than "a sheer possibility that a defendant has acted unlawfully." Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). The standard is properly guided by "[t]wo working principles." Id. First, although "a court must accept as true all of the allegations contained in a complaint," that tenet is inapplicable to legal conclusions" and "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Id. at 678, 129 S.Ct. 1937. Second, "[d]etermining whether a complaint states a plausible claim for relief will ... be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Id. at 679, 129 S.Ct. 1937. Thus, in considering a motion to dismiss, the court must initially identify pleadings that are no more than legal conclusions not entitled to the assumption of truth, then assume the veracity of well-pleaded factual allegations and determine whether those allegations plausibly give rise to an entitlement to relief. If not, "the complaint has alleged—but it has not ‘show[n]’—‘that the pleader is entitled to relief.’ " Id. (quoting FED. R. CIV. P. 8(a)(2) ).

III. ANALYSIS

A. Equal Protection Clause

Defendants first argue Wal–Mart's equal protection attacks all fail as a matter of law. Wal–Mart maintains no rational or non-arbitrary basis exists for the differential treatment under the Code of: (1) public corporations and private business organizations in the issuance of package store permits; (2) public corporations and individuals without close blood relatives and individuals with close blood relatives in relation to the acquisition and consolidation of package store permits; (3) public corporations and publicly traded hotel corporations in relation to holding package store permits; and (4) BQ...