A three judge panel of the 5th Circuit ended Walmart’s recent Commerce Clause triumph. Overturning and remanding for further fact-finding, the district court’s finding that a Texas ban on public companies owning liquor stores was enacted with a discriminatory intent meant to keep out-of-state interests from holding in-state liquor licenses. You can read the full opinion here.
Walmart has requested a rehearing en banc and the Texas Liquor Store lobbying group looking to protect its hold on in-state monopolized licenses has filed a request for the same three judge panel to re-hear the case and find in its favor definitively without remanding the matter.
Briefly, a few years back when the 5th Circuit invalidated Texas’s requirement that only Texas residents could hold packaged store licenses to sell alcohol for off-premise consumption, Texas passed a law stating that no public corporation (companies listed on public stock exchanges or having more than 35 owners) could hold a liquor store license. Under this newer statute, Walmart can sell beer and wine, but not liquor because Walmart is publicly traded.
Walmart tried to lobby to change the law, but couldn’t, so it brought suit to have the law declared invalid. The district court found in Walmart’s favor, holding that the law was enacted for the discriminatory purpose of keeping out-of-state companies away from liquor licenses in violation of the dormant Commerce Clause and that the law excessively burdened interstate commerce.
The Texas Alcoholic Beverage Commission and the Texas Package Stores Association appealed and a three judge panel found that the district court erred in its findings as it applied the facts to precedent and overturned the rulings in favor of Walmart, remanding those matters and instructing the district court that history of prior discriminatory statutes in liquor regulation was not enough, by itself, to support a finding that a subsequent statute must also be discriminatory.
The panel similarly upheld the district court’s determination that the out-of-state corporation ban did not have a discriminatory effect, citing Supreme Court precedent holding that just “because the burden of a state regulation falls on some interstate companies [that] does not, by itself, establish a claim of discrimination against interstate commerce.” Bolstering the district court’s determination in favor of Texas on this issue: “[i]n the present case, the public corporation ban treats in-state and out-of-state public corporations the same… [t]here are no barriers whatsoever to out-of-state companies obtaining P permits [liquor stores] so long as they are not a public corporation.”
The panel also overturned and remanded the district court’s determination that the ban on public corporations owning liquor stores in Texas violated the dormant Commerce Clause because it imposes a burden on interstate commerce that is clearly excessive in relation to the putative local benefits. The court looked to precedent to say that this test, known as the “Pike” test (Pike v. Bruce Church Inc.), required the court to look to evidence addressing the public corporations ban on the flow of interstate goods, “or how the ban affects the flow of the potential market participant’s goods to the Texas liquor retail market.” The court sent the case back for the district court to consider this issue – inhibition of the flow of interstate goods. But, while the district court’s analysis as to the disparate impact on out-of-state market participants was the wrong analysis, the fact cited by both courts – that the public corporations ban has resulted in a situation where 98% of the liquor store owners in Texas are Texas residents and that there are many out-of-state companies that would otherwise enter the market should naturally result in the determination that a vast majority of liquor sold in Texas is in-state liquor belonging to in-state stores and that out-of-state liquor is rarely sold (not who manufactures it, but who owns it and is selling it – the source). “If the effect of a state regulation is to cause local goods to constitute a larger share, and goods with an out-of-state source to constitute a smaller shaer, of the total sales in the market .. the regulation may have a discriminatory effect on interstate commerce.”
Given Walmart’s request for an en banc hearing and the TABC’s request for a rehearing, it will be some time before we get clarity as to whether this goes back to the district court for a reconsideration of the enumerated issues. Until that time, or an en banc hearing and determination, this case remains a question mark in the new line of cases resulting from Tennessee Wine and Spirits’ opening the gates to Commerce Clause challenges to previously unchallenged state alcohol regulations. For my money, the win is still Walmart’s to lose given the remand should result in more detailed fact-finding about the discriminatory intent and the three judge panel didn’t re-apply the law, it wholesale substituted its factual findings for the district court’s in determining and weighing the evidence and drawing conclusions from it creating an opportunity on remand for the district court to expand on its findings and leave less room for the appeals court to undermine those findings by saying the facts aren’t enough.
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