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Authentic Beverage v. TABC et. al.

It was a Who’s Who of the Texas Beer Industry at the Federal Courthouse in Austin today, enough so to give me flashbacks of our failed efforts to affect change in Texas beer laws in the last legislative session (a high-level recap: we brewers want 1) the ability to sell our products to consumers and to distributors 2) the ability to call our products what they really are and 3) the ability to tell people where to find our beers). In the crowd were representatives from The Beer Alliance, who sided with us in our efforts to gain the right to sell brewpub beer to distributors, many TABC staffers, representatives from a handful of distributors and importers, a staff of a key Texas Congressional Committee, and our old friend Keith Strama from The Wholesale Beer Distributors of Texas. From all appearances, I was the only member of the craft brewing industry present and perhaps from the brewing tier altogether (I didn’t recognize anyone from the big breweries, but there could have been someone there I don’t know).

For those unaware, Authentic Beverage, joined by co-plaintiffs Jester King Craft Brewery, LLC and Zax, LLC, filed suit against the TABC and its commissioners (in their official capacity) over a number of issues. You can read what Jester King had to say about the suit and the actual filings by the plaintiffs and the defendants.

For those unaware and who don’t want to go through the rigor of reading the entire suit, I’ll summarize the main points that were argued this morning.

  1. Brewers’ first amendment rights are violated by the state’s prohibition on breweries from “advertising” where their products can be found, whereas an “advertisement” has been defined as any communication be it traditional advertising, a list on the company’s website, or even word-of-mouth.
  2. Brewers’ first amendment rights are violated by the state’s prohibition on breweries from listing the alcohol content of their products in any “advertisement”, whereas an “advertisement” has been defined as any communication be it traditional advertising, a list on the company’s website, or even word-of-mouth. A brewer can, but is not required to, list alcohol content of products on a label, but cannot do so in advertising.
  3. Brewers’ first amendment rights are violated by the state’s definition of “beer” as a malt beverage containing 4% or less alcohol by weight and “ale” as a malt beverage containing over 4% alcohol by weight. In industry parlance, the terms “beer” and “ale” have nothing to do with alcohol content (and in fact an ale is a beer while a beer is not necessarily an ale, by industry terminology). The suit contends the state compels producers of beer to make false statements to consumers in order to adhere to its definitions of “beer” and “ale” (since if a producer makes a lager that is over 4% ABW, they are required to call it an ale even though it is not, and if they make an ale under 4% ABW they are not able to call it an ale although it really is).
  4. Brewers’ have their 14th amendment rights violated by virtue of the states make brewers chose between being a brewpub (which can only sell its products directly to the consumer on its premise) and a production brewery (which can only sell its products to distributors for resale) while not applying the same restrictions to wineries, which are allowed to do both.

There was another argument made as to the number of permits a foreign brewery is forced to obtain, but I won’t go into that as it constituted the least amount of time and has the least direct impact to Texas brewers.

On the 1st Amendment Issues, Judge Sparks was especially harsh on the TABC’s counsel (note, the state’s Attorney General Office acted as counsel, not TABC lawyers), which failed to provide a rational basis for the law. It is important to note that the courts have found the government can restrict free speech where they have a governmental interest to do so, but the defense failed to provide a rational basis. One exchange went like this:

Defense: I can’t site you to any specific evidence [of a rational basis]…

Judge Sparks: Because there isn’t any!

In the end, the State seemed to center their defense around the circular argument that (I”m paraphrasing) “The rational basis for the law is that they are the laws.” As you might imagine, this didn’t impress Judge Sparks very much, who at one point rhetorically asked the defense “you are aware that the legislature can pass unconstitutional laws, right?”

The defense did cite the 21st amendment, which ended prohibition and gave the states to regulate alcohol in their state, as a defense, but that led to the most comical moment of the morning for me, as Judge Sparks asked: “So can the state just define wine as beer? Can they define malt liquor as orange juice? […] These are false statements.”

In the end, it appears that at least on the issue of item #3 above, the plaintiffs will prevail, ending the absurd labeling silliness that gets Texas ridiculed nationwide by people who know the actual beer nomenclature of beer, ale and everything else under the sun.

On the issue of advertising where to find one’s beers, the court did raise a valid concern. If we let breweries advertise where to find their beers, what would stop the big breweries (or any brewery) advertising on behalf of their preferred clients and putting undue influence on the market? Or what is to stop a big brewery from offering ads to retailers as incentives for carrying their beers over other brands? This is an area that (in my opinion) needs some mechanism to regulate what constitutes “providing information to consumers” and what constitutes anti-competitive behavior. I think that will be the biggest hurdle to overcome, because clearly there is a governmental interest in competitive markets.

On the 14th amendment claim, my sense (and this is just my opinion) is that the court may agree that our laws are nonsensical, but that doesn’t make them unconstitutional. Unfortunately, states do indeed retain the right to make stupid laws and we citizens sadly have no constitutional protection against stupidity – it has to be coupled with a real constitutional violation. The question: are breweries and wineries similar enough to where an equal protection claim can be made? To me, the answer is yes – but I have a certain (biased) viewpoint based on the similarity of the production processes. At the same time, I can admit that wine is in fact different than beer – and that is the issue of whether or not equal protection applies. It will be interesting to see what the court says.

Some notes on what I feel are take-aways from today’s hearing:

  1. The state was unable to provide an evidentiary defense or rational basis for the laws being challenged in the 14th amendment portion of the suit. That doesn’t, in an of itself, make the laws unconstitutional, but it does provide some interesting fodder in the next legislative session. It will certainly be interesting to stand in front of the congress and remind them that the state can’t think of any reason for these laws to exist. Judge Sparks had another interesting comment when TABC was pressed to explain the rationale behind the laws they enforce and couldn’t. “So you guys just blindly enforce the laws they send you?” asked the judge.
  2. The tides continue to change in our state. The “old guard” is on their heels and they are fighting change with their last tooth and nail. I’m not talking about the TABC here, I’m talking about the WBDT.
  3. A great job, and I mean this in all sincerity, by both sides in today’s hearing. I think the plaintiff’s counsel did a good job explaining their case (and I’m not talking about the rational case of whether the laws are dumb – but the case of whether they are constitutional), and I want to impress upon you that they 14th amendment claim is an uphill battle. Whereas the burden of proof in the 1st amendment claim lies on the defense to provide a rational basis or governmental interest, the burden in the equal protection case relies solely on the plaintiff. Attorney’s Pete Kennedy and Jim Houchins did a great job. On the flip side, Beau Eccles from the AG’s office did a good job of defending the state. The fact of the matter is that THERE IS NO RATIONAL BASIS for these laws, but the AG is required to defend them anyway. They can’t just “roll over” because they personally think they are stupid. Their job is to defend the laws the Legislature writes. I found Mr. Eccles to be a well-reasoned, open-minded and rational person who did his best to defend the state. Despite the fact that I disagree with the position he was defending today, I’m glad to have someone like him defending our state when other issues might arise.

Certainly this isn’t over. We’ll see what’s next!

 

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7 responses

  1. Schrobblehead

    It’s been a day or two since law school for me, and I don’t deal with constitutional questions every day, but if I recall correctly when it comes to 14th amendment discrimination complaints the government must only have a rational basis for its discrimination, unless the persons being discriminated against are part of a protected class such as race or gender. So the goverment still must have a rational basis for discriminating between wineries and breweries. They may not have vocalized this in court, but it’s my understanding that their position is that they want to provide protection to the Texas wineries, which grow their grapes in Texas, while brewers typically do not. This distinction might actually make sense, at least enough sense to survive a rational basis review.

    November 22, 2011 at 5:01 pm

  2. ” If we let breweries advertise where to find their beers, what would stop the big breweries (or any brewery) advertising on behalf of their preferred clients and putting undue influence on the market?”
    And what stops big Wineries from doing the same? If it’s a bad law for beer it’s a bad law for wine. cf. http://www.chisholmtrailwinery.com/find-our-wines

    “Judge Sparks had another interesting comment when TABC was pressed to explain the rationale behind the laws they enforce and couldn’t. ‘So you guys just blindly enforce the laws they send you?’ asked the judge.” Well, yes. They are a law enforcement agency. It’s like asking DEA agents why they enforce the drug laws, or DPS why they enforce the speed limit, or like Al Capone asking Elliott Ness, “Why are you giving me such a hard time?” TABC didn’t write the laws, so cannot explain the rationale behind them. Only the Legislature and the WBDT can explain the rationale.

    Thanks for the update, Scott. Please keep us posted about future developments.

    November 22, 2011 at 5:32 pm

  3. Thanks for the recap.

    I don’t want to call anyone out, but I’ve seen a TX brewery point out on social networks where their beers are being tapped. From my reading of your post, this is illegal. Am I reading that right?

    “The fact of the matter is that THERE IS NO RATIONAL BASIS for these laws, but the AG is required to defend them anyway.” They usually do, but I don’t think they are actually required to. The AG is part of the executive branch, and thus independent of the legislature. See the Obama’s refusal to defend the Defense of Marriage Act as a recent example. If the governor were on your side (and it was politically expedient, of course) I think it’s possible for the government to offer no defense (though, as with DOMA, this opens the door for the possibility of private defenders, which leads to it’s own set of problems).

    November 22, 2011 at 5:33 pm

    • Barron,

      Yes, it is illegal to brewers and distillers to tell customers where their products can be found. That includes Facebook and Twitter. Whether or not it gets enforced is another question.

      November 22, 2011 at 9:51 pm

  4. jesusan

    I appreciate the update. It’s nice to know there is a rational judge hearing this case.

    November 22, 2011 at 8:02 pm

  5. What a great post! Thanks for the succinct and readable explanation of what’s at stake; I will be referring others here.

    Strongly agree with your point that #3, the “ale” vs. “beer” question, is the most obviously stupid… hope we can get ALL these matters corrected for the sake of brewers, and US the consumers. (We are beer consumers here, yes?)

    I also appreciate your pleasant and nonbiased praise of the state’s attorney. 🙂

    I’ll be back. Fingers crossed. Let us know if there’s anything we can do or where to send emails…

    November 30, 2011 at 12:18 pm

  6. Pingback: Brewers win one in court – Off the Kuff

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