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IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF TEXAS AUSTIN DIVISION AUTHENTIC BEVERAGES COMPANY, INC., et al. Plaintiffs, v. TEXAS ALCOHOLIC BEVERAGE COMMISSION, et al. Defendants.

CIVIL ACTION NO. 1:10-CV-710-SS

DEFENDANTS MOTION FOR SUMMARY JUDGMENT COME NOW DEFENDANTS and, pursuant to Rule 56 make this Motion for Summary Judgment, and would show as follows: History Following the repeal of Prohibition, in 1935 the 44th Texas Legislature created the Texas Liquor Control Board to regulate the manufacture, distribution, storage, and sale of alcoholic beverages in the State of Texas. The Boards initial responsibilities were to promote temperance, protect the public interest, encourage observance of the Liquor Control Act, collect alcoholic beverage taxes and discourage certain socially undesirable activities such as bootlegging, underage drinking, and organized crime.1 The Texas statutes (now called the Texas Alcoholic Beverage Code) created a three-tier system that separates ownership and operations between manufacturers, wholesalers, and retailers. Dickerson v. Bailey, 336 F.3d 388, 397 (5th Cir. 2003). The vertical integration of the manufacture, distribution, and sale of alcoholic beverages is, with rare exceptions, prohibited. Id. This tripartite funtional division of firms that participate in the alcoholic beverage industry is designed to aid Texas in the regulation and control of alcohol

1992 Staff Report of Sunset Advisory Committee (SAC A-134:4/92) p.3; and see H.B. 77, 44th
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consumption, and prevents companies with monopolistic tendencies2 from dominating all levels of the alcoh0olic beverage community. Id. (quotation marks and citation omitted). The threetier system, itself, is unquestionably legitimate. North Dakota v. United States, 110 S.Ct 1986, 1993 (1990). The administrative rules created by the Texas Alcoholic Beverage Commission are contained in Title 16 of the Texas Administrative Code, Chapters 31-50 (nonconsecutively). The Plaintiffs The plaintiffs are three in-state businesses representing each of the three tiers of the liquor control system: Zax is a retailer, Authentic is a distributor, and Jester King is a manufacturer that brews less than 75,000 barrels a year, and thus can operate as a manufacturer and distributor of its products under TEX. ALCOHOLIC BEV. CODE 62.12. The Contest The Plaintiffs, collectively, seek a ruling from this Court (via 42 U.S.C. 1983) that: the following statutory and regulatory provisions be struck as violative of their collective (commercial) right to free speech under the First Amendment: The statutory definitions of ale and beer (TEX. ALCOHOLIC BEV. CODE 1.04 (12) and (15)); The section 108.01(4) prohibition of particular advertising by a manufacturer or distributor that refers to the alcohol content of the product. The TABC regulatory definitions of beer and malt liquor (TABC Administrative Rules 45.71 (1) and (10)); The administrative labeling rules regarding the distinction between beer and ale (TABC Administrative Rules 45.77 (a) and (c));

Quoting an Austin Court of Appeals case from 1953, the 5th Circuit in S.A. Discount Liquor, Inc. V. Texas Alcoholic Beverage Commission, 709 F.2d 291, 293 n.4 (1983) stated, We need not dwell upon the evils of the tied house. It is obvious that one result of such control could be the creation of a monopoly for certain brands of liquor as well as dictating prices.
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The administrative labeling rules prohibiting use of specific terms regarding alcoholic content (TABC Administrative Rules 45.79 (f) and 45.82(f)); The application of TEX. ALCOHOLIC BEV. CODE 102.07 that would prohibit a manufacturer from publicising where its products are being sold by a retailer. the following statutory and regulatory provisions be struck as violative of the Commerce Clause: The statutory definitions of ale and beer (TEX. ALCOHOLIC BEV. CODE 1.04 (12) and (15)); The TABC regulatory definitions of beer and malt liquor (TABC Administrative Rules 45.71 (1) and (10)); The administrative labeling rules regarding the distinction between beer and ale (TABC Administrative Rules 45.77 (a) and (c)); [T]he designation under Title 3 of the Code, of foreign breweries as the first American source of supply for their products, rather than the U.S. importers of their products, in conflict with federal regulation which treats the U.S. importer of any alcoholic beverage as the first American source of supply. the following statutory and regulatory provisions be struck as violative of the Supremacy Clause: TABC Administrative Rules 45.71 (1) and (10); TABC Administrative Rules 45.77 (a) and (c)); and TEX. ALCOHOLIC BEV. CODE 1.04 (12) and (15) all allegedly contravene applicable federal law; [T]he designation under Title 3 of the Code, of foreign breweries as the first American source of supply for their products, rather than the U.S. importers of their products, in conflict with federal regulation which treats the U.S. importer of any alcoholic beverage as the first American source of supply. a number of disparities between the statutes governing the activities of wineries, small manufacturers, and brewpubs within the three tier system demonstrate a violation of their collective right to Equal Protection under the law, including: TEX. ALCOHOLIC BEV. CODE 108/09 (regarding winery advertising) TEX. ALCOHOLIC BEV. CODE 16.01(5) (regarding winery sales to consumers) TEX. ALCOHOLIC BEV. CODE 74.01(2) (regarding sales to consumers at brewpub) TEX. ALCOHOLIC BEV. CODE 12.05 and 62.12 (regarding small manufacturer sales to retailers)\

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ARGUMENT A) STANDING It is settled law that [c]hallenges to statutes regulating commercial speech do not enjoy the expanded standing inquiry employed in normal First Amendment overbreadth cases, because the overbreadth doctrine does not apply to commerdial speech. McKinley v. Abbott, 643 F.3d 403, 407 (5th Cir. 2011)(citation and quotation marks omitted). Accordingly, each plaintiff bears the burden to show (1) a concrete and particularized injury in fact that is actual or imminent, not conjectural or hypothetical; (2) a causal connection between the injury and the conduct alleged; and (3) that the injury will be redressed by a favorable decision. Id. Whats more, a plaintiff must demonstrate standing for each claim he seeks to press. DaimlerChrysler Corp. v. Cuno, 126 S.Ct. 1854, 1867 (2006). 1) Authentics Speech Claims Interrogatories and a deposition of a Vice President of Authentic Beverages did little to shed light on how this distributor has standing to assert any of the speech claims in this case. Starting at the end, Authentic will have a difficult time demonstrating redressability in its standing to pursue a claim challenging the beer labeling laws in Texas, considering they no longer have a beer distribution license or beer importation license, and have no plans to acquire one for the next two years. [Fisher Depo (Ex. 1), pp. 46-48]. Further, Authentic is a distributor, and, as such, neither manufactures (brews) nor retails any malt beverages. [Ex, 1 pp.15-16]. Authentic aknowledges that it is the manufacturer of the beverage (as opposed to the distributor), whose responsibility it is to secure permission from the TABC to sell a particular product in Texas by submitting it for approval through TABCs label approval process. [Ex. 1, pp. 16-17; and see 16 TAC 45.85 (Approval of Labels)]. As to whether there is a concrete and
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particularized injury to Authentic that is actual or imminent stemming from Texas stautory or regulatory definitions of beer or ale, Authentic was unable to name a product that had been submitted to TABC for approval (in the past year or otherwise) that Authentic desired to sell, only to have the product disapproved by TABC on account of its label. [Ex. 1, p. 19]. Indeed, far from concrete or imminent injury, the only discussion that was had about products not brought to market by Authentic was so rife with speculation as to the reason why either the manufacturer had never sought to be a licensed manufacturer or sought label approval from TABC as to make any linkage between injury to Authentic and the labeling laws in Texas absolutely devoid of first hand knowledge. [Ex. 1, pp.21; 23; 26; 27]. Lastly, Authentic admitted that there is neither a shortage of manufacturers, nor that that it is even difficult to locate malt beverage manufacutrers who are licensed in Texas with products that are available to enter the distribution market further distancing itself from a causal linkage between any alleged deficiencies in Texas labeling laws and an injury to Authentic. [Ex. 1, p. 33]. 2) Zax Speech Claims Zax is a restaurant in Austin that retails (for on-site consumption) a selection of malt beverages. [Baldwin Depo. (Ex. 2) p.7]. Like Authentic, Zax has no direct, first hand knowledge as to whether a product not currently available for sale in Texas was not advanced into the market by its manufacturer due to the labeling laws in Texas. [Ex. 2, pp.17-18]. In fact, Zax was forthright in admitting it had no specific evidence that demonstrates a particular economic impact to Zax as a result of the Texas definitions of beer versus ale and malt liquor. [Ex. 2, p.19].

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Zax would like for manufacturers to be able to advertise for him that their products are available for retail at his establishment, but as to the averment in Mr. Baldwins deposition that Zax cannot advertise the availability of a particular product, [Ex. 2, pp.22-23] there is no statutory or regulatory restriction on malt beverage retailers like Zax that prohibits them from advertising that they retail a particular product. Again, on all three prongs of the standing test, Zax has not demonstrably suffered any ill effects to its commercial free speech rights. 3) Jester Kings Speech Claims Though a manufacturer would arguably be in the best position to establish its standing to challenge Texas malt beverage labeling laws, Jester King removes itself from standing to bring these claims by its failure to encounter an actual or imminent injury. First, Jester King, to Ronald Extracts knowledge, has never submitted a sample product with a label to TABC for approval and had it rejected. [Extract Depo. (Ex. 3) p.16]. In other words, there is no concrete, particularized instance of a malt beverage and label bearing any particular information or language, submitted by Jester King to TABC for testing and approval that has been rejected. Furthermore, though Mr. Extract has a highly-refined sense of what he considers to be stylistic distinctions between ale, lager, and beer, he has no evidence of any injury to Jester King occasioned by, for instance, the fact that one of their products is labled Commercial Suicide Oaked Dark Mild and below this title appears Bottle Conditioned Beer versus if their product had been called Commercial Suicide Oaked Dark Mild Ale. [See Ex. 3, pp.18-19; 32-33]. Indeed, Mr. Extract even confirmed that referring to an ale as a beer, in his estimation, isnt even inaccurate. [Id.].

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B) COMMERCIAL SPEECH SUBSTANTIVE ARGUMENT In its complaint, Plaintiffs allege that the Texas requirement that malt beverages of over 4% alcohol be labeled ale/malt liquor violates First Amendment rights provided by the Constitution of the United States. Texas law is easily distinguished from the labeling requirements in Rubin v. Coors Brewing Co., 514 U.S. 476, where the Supreme Court held that a labeling ban (one prohibiting the disclosure of alcohol content of beer) violated the First Amendment because it failed to advance a governmental interest in a direct and material way. The Court held that such a restriction stood in direct opposition to the protections granted to commercial speech, and applied the four-prong Central Hudson test (outlined below). Unlike the fact pattern in Rubin, Texas labeling laws clearly meet the burden of this test. The First Amendment protects the dissemination of truthful and non-misleading commercial messages about lawful products and services in order to ensure that consumers receive accurate information, see, e.g., Virginia Bd. of Pharmacy v. Virginia Citizens Consumer Council, Inc., 425 U.S. 748, 765. (1976) In that case, the Court noted that the free flow of commercial information is indispensible to the proper allocation of resources in a free enterprise system because it informs the numerous private decisions that drive the system. Id. at 765. However, the Supreme Court has consistently recognized that the state has the power to regulate any instances of commercial speech and has held that several factors should be considered to determine whether regulation is valid: (1) whether the speech at issue concerns lawful activity and is not misleading; (2) whether the asserted governmental interest is substantial; (3) whether the regulation directly advances the governmental interest; and (4) whether that regulation is more extensive than necessary to substantially serve its stated interest. Central Hudson Gas & Elec. Corp. v. Public Serv. Comm'n of N.Y.,447 U.S. 557. 566 (1980)
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In examining the facts of this case through the lens of the four-part Central Hudson test, it is clear that in this instance, Texas interest in requiring higher content malt beverages to be labeled as ale or malt liquor or more to the point, not labeled beer-- is substantial and outweighs any First Amendment right associated with the Plaintiffs labeling preferences. The Texas law meets the four part Hudson test as follows: (1) Whether the speech at issue concerns lawful activity and is not misleading In this case, the labeling requirements for malt beverages sold in Texas are the speech at issue. Beer and ale are regulated by the State as products lawfully sold for commercial purposes. The Supreme Court of the United States has, on many instances, maintained these products fall under the purview of commercial speech and its consequent protections. 44 Liquormart, Inc. v. State of Rhode Island, 517 U.S. 484, 496 (1996); see also Rubin v. Coors Brewing Company, 514 U.S. 476, 481 (1995). The long history of the delineation of beer from higher alcohol beer would create a misleading assumption among consumers and sellers and servers of malt beverages. The post-prohibition emphasis in Texas to delineate between beer and the higher alcohol content ale mirrored the approach of most other States and reflected the strong public policy reasoning of the time to regulate stronger malt beverages differently than lesser intoxicating beer. In 1933 Raymond Fosdick and Albert Scott published a treatise Toward Liquor Control which made recommendations to States regarding sound alcohol regulation as the end of prohibition approached. The treatise served as the model for regulation throughout the country and advocated the three tier system which is still the standard of regulation throughout the country. Importantly, the book emphasizes the need to delineate between strong and

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light beer. Toward Liquor Control, Chapter Three: Light wines and Beer vs. Spirits (Harper and Brothers Publishers, 1933). The treatise advocates that regulation be tailored to different beverages based on alcohol content stating that American liquor legislation in the past has, as we have seen, been guided more by emotion than by reason or experience. In the stumbling search for a law to cure the drink evil, legislators seldom paused to inquire what drinks should be the main target of attack. (Id. at 28) The treatise explains If light beers and wines were the only alcoholic beverages consumed, the social implications of the liquor trade would present but few difficulties. . . It is, primarily, the distilled liquors and, secondarily, the heavier beers and wines that create the real problems. (Id at 35) (2) Whether the asserted governmental interest is substantial Plaintiffs argument does not appear to acknowledge the long history of distinguishing between malt beverages by class name based on their relative alcohol content (which the Supreme Court addresses extensively in the two aforementioned cases, (44 Liquormart and Rubin), and the substantial state interest that requires labeling in delineating the two products. In Rubin, where the Supreme Court held that a federal ban on labeling violated the First Amendment, the Court recognized that the general thrust of federal alcohol policy appears to favor greater disclosure of information, rather than less. Id. at 484. Texas law, as relevant to the regulation of alcohol, advances the same substantial interest, and the law in Texas is clear that malt beverage labels and packaging can certainly contain the percent of alcohol by weight in addition to requiring the class designation of beer or ale or malt liquor.

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In this case, the states labeling requirement fulfills a legitimate state interest in the following ways: (1.) The labeling requirement provides a clear distinction to consumers as to the lower alcohol content beer versus a product that contains a higher level of alcohol and is, therefore, not labeled as beer. It is a simple system that protects both those who know the technical percentage of alcohol definition of beer and those merely familiar with the products labeled beer. The labeling requirement provides on-premises service providers with an instant ability to monitor alcohol consumption of patrons by easily being able to distinguish between higher and lower alcohol content malt beverages and thus comply with Texas laws prohibiting sales to intoxicated persons; [See Ex.2, p.24] The labeling requirement provides an efficient method to implement a tax code that taxes different strength malt beverages at different rates3; and The labeling requirement is essential to the States goal of allowing flexibility to local communities who, under the wet-dry laws of the State are currently able to authorize the sale of beer only.4

(2.)

(3.)

(4.)

Importantly, there remain portions of Texas that are completely dry and many other communities value the ability to allow only less intoxicating beverages to be sold within certain jurisdictions. Texas law distinguished beer and ale in part to allow communities to choose to permit sales of the less intoxicating beer while restricting sale of the higher alcohol content Ale or other stronger forms of alcoholic beverage. (3) and (4) Whether the regulation directly advances the governmental interest, and whether that regulation is more extensive than necessary to substantially serve its stated interest The last two steps of the Central Hudson analysis basically involve a consideration of the fit between the legislatures ends and the means chosen to accomplish those ends. Posadas

3 4

See TEX. ALCOHOLIC BEV. CODE 201.42; 203.03 See TEX. ELECTION. CODE 501.035
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de Puerto Rico Associates v. Tourism Co. of P.R., 478 U.S. 328, 341 (1986). These two elements of Central Hudson, examined together, demonstrate that not only does the labeling regulation advance the governmental interest, but it is also no more extensive than necessary to substantially serve its stated interest. Mere demonstration that a substantial government interest exists does not mean that any means a state deems necessary can be employed to advance these interests. But in this case, once the above uses of the labeling distinctions between beer and ale/malt liquor are understood, it is clear the Texas labeling requirements fulfill the same health, safety and public welfare goals of numerous labeling requirements for food and beverage throughout the country, thereby directly advancing the states governmental interest.5 Alcoholic beverages remain a highly regulated commodity throughout the country and Texas has benefited from a regulatory system that seeks to minimize dangers associated with the over consumption of intoxicating beverages. The label requirement that beer and ale be labeled differently is even more critical as it allows industry members, servers, and consumers the ability to easily distinguish between higher alcohol content malt beverages and modify sales and consumption accordingly. Plaintiffs contention mandates Texas to alter its definition away from regulation of alcohol content, and, instead classify Ale based on where the fermentation and at what temperature fermentation of yeast occurs (top fermentation at comparatively high temperatures versus bottom-fermentation at cooler temperatures). The States interest delineates high alcohol content malt beverages not the few ales that may be brewed with under 4% alcoholic content by weight and theoretically may want to be

See Texas Alcoholic Beverage Code 5.38 Quality And Purity Of Beverages.
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labeled Ale because of the method of its fermentation. The States interest in providing a simple labeling system to alert industry members, tax collectors/law enforcement and consumers to a beverages status as a higher alcohol content malt beverage directly advances its interest in minimizing the instances of over consumption of alcohol, efficiently collecting taxes, and providing maximum flexibility to local communities to determine the level of wet-dry status of their jurisdictions. Furthermore, Defendants respectfully disagree with the Courts initial conclusion that simply requiring a conspicuous statement of alcohol content on labels would be a less restrictive means of achieving this distinction. [Doc. #18]. It may, indeed, be the case that the public is not keenly aware that the label classifications of beer and ale or malt liquor center on the 4% alcohol by weight mark. If this is the case, though, then the public would also be unaware of the meaning of a statement of percentage alcohol content on labels. After all, Texans understanding of what is in a bottle labeled beer whether with specific knowledge of the 4% alcohol by weight maximum or not -- has been unchanged in Texas since 1935. This is precisely why the classification (beer or ale / malt liquor) is required on the label, and why the percentage of alcohol content may additionally be placed on the label. Indeed, the Federal Register, Vol 72, No. 146 for Tuesday, July 31, 2007 (Part III, Department of the Treasury) [Ex. 4(excerpt)] contains an interesting parallel consideration to the one before the Court. There, The Alcohol and Tobacco Tax and Trade Bureau considered proposed rulemaking to amend its regulations to require a statement of alcohol content expressed as a percentage of alohol by volume on all alcohol beverage products. Id. at p. 41860. Note at 41864 (bottom of first column) how it is members of the beer industry who object to the extension of mandatory alcohol content labeling requirements on malt beverages, who then go on
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to establish that [t]he alcohol content of most beer is in a very narrow range, and consumers are generally aware of that fact. A weighted average of the alcohol content of the top 20 brands of domestic and import beer base on 2004 sales data is 4.5 percent alcohol by volume. Id. Note that this is directly in line with Texas definition of beer, as 4.5 percent alcohol by volume equates to approximately 3.8% by weight. Continuing, the Brewers Association, representing approximately 1,400 small brewers and thousands of homebrewers and beer enthusiasts, commented in support of optional alcohol content statements on beer labels, and suggested that mandatory labeling would impose unnecessary costs on the industry. Id. The Supreme Court in Rubin, 115 S.Ct. at 1593-4 made this important determination while finding the governments interest in prohibiting disclosure of alcohol content on labels fell short of the Central Hudson analysis: [R]espondent suggests several alternatives, such as directly limiting the alcohol content of beers, prohibiting marketing efforts emphasizing high alcohol strength . .. or limiting the labeling ban only to malt liquors, which is the segment of the market that allegedly is threatened with a strenght war. We agree that the availability of these options, all of which could advance the Governments asserted interest in a manner less intrusive to respondents First Amendment rights . . . These reasonable alternatives are those employed by Texas law, which expressly permits the display of alcohol content on malt beverage labels that the Court addressed in Rubin. Texas does define a limit on the alcohol content of beer, and does prohibit marketing efforts emphasizing high alcohol strength.6 It also provides that higher alcohol-containing beverages

Plaintiffs also challenge on commercial free speech grounds 16 TAC 45.79(f) and 45.82(f). While Defendants also believe that Plaintiffs have not established any concrete, particularized injury related to the prohibition of use of such words on malt beverage labels as full strength or extra strength, Defendants note that this prohibition of certain terms regarding strength of
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cannot be labeled as beer, yet provides the term ale as an alternative to the name malt liquor. It is important to note that Plaintiffs have the option to not use the term ale if it is believed to be innacurate, and, instead, could use the classification malt liquor. In their First Amended Complaint, they eshew the term as being unpopular, though in none of Plaintiffs depositions was the use, or non-use of malt liquor linked to any particular injury. 1) Some Definitions Have No Nexus To Speech In particular, the TEX. ALCOHOLIC BEV. CODE 1.04(12) and 16 TAC 45.71(10) definitions of ale or malt liquor and malt liquor are simple definitions that, themselves, have no nexus to speech interests and simply define terms as they are used later in the code or regulations. No plaintiff has demonstrated its standing to attack these definitions. 2) Protection From Vertical Integration (The Three-Tier System) Justifies Minor Restrictions Plaintiffs bemoan the fact that an application of TEX. ALCOHOLIC BEV. CODE 102.07 (Prohibited Dealings With Retailer or Consumer) has been considered as prohibiting any manufacturer or distributor from advertising or publicizing the location of products sold by the manufacturer or distributor. Though Plaintiffs describe this as disallowing breweries from informing consumers about where their products can be purchased at retail [Pl. Amended Complaint [Doc. #27 at p.14] it is important to consider three things: 1) once a product is in the possession of a retailer, it is the retailers product, and no longer the manufacturer or distributors product. [See Ex. 1, pp.14-15; Ex. 3, pp.9-10]; 2) allowing manufacturers and distributors to identify particular retail outlets to consumers is clearly confering on the retailer a benefit or thing

alcohol content are mirrored in Federal law: 27 CFR 7.29(f) (Labeling and Advertising of Malt Beverages; Labeling Requirements for Malt Beverages; Prohibited Practices).
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of value, which implicates vertical integration; and, 3) there is no alleged prohibition on retailers regarding advertising the brands of products it sells. 3) Alternative Argument Rregarding Beer Exclusivity Below 4% Alcohol By Weight Should this Court find that any party has standing to challenge the definition of beer found in the TEX. ALCOHOLIC BEV. CODE 1.04(15), and should the Court also not find that Defendants have justified its propriety under the Central Hudson test, Defendants advance the following argument regarding the statutory interpretation of the TEX. ALCOHOLIC BEV. CODE 1.04(15): Article II, section 1(c) of the 1935 Act defined Beer as follows: (c) The wordbeer as hereinafter used in this Act and for the purpose of this Article, shall mean any malt beverage containing one-half (1/2) of one percent (1%) or more of alcohol by volume and not more than four per centum (4%) of alcohol by weight. The term malt liquor was not defined by the 1935 Act, but the term appeared in the local option election section of the Act in describing the levels of alcoholic beverages voters might approve for sale in their area, including legalizing the sale of vinous and malt liquors that do not contain alcohol in excess of four per cent (4%) . . . The term ale was not in the original Act. The next legislative session, in 1937, saw an emphasis on addressing gaps in regulation of the flow of alcohol: H.B. 5 sought to re-define and prohibit the operation of an open saloon, (essentially a bar) and the laws were expanded to address the abuse of medicinal liquors. Whereas the original 1935 Act contained a provision restricting the dispensing and prescription

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of medicinal liquors,7 the legislature in 1937 sharpened the restrictions, including reducing the amount of medicinal alcohol a doctor could prescribe from a quart to a pint per day. And in Article II of the Act, which dealt with licensing beer manufacturers, two notable changes were made. First, in section 2, the legislature removed all question as to what could be sold as a beverage containing between 1/2 and 4% alcohol by weight in Texas: The manufacture, sale, distribution, and transportaion of beer is hereby authorized within the State of Texas . . . . It shall be unlawful to manufacture, sell, barter, or exchange within this State any beverage containing alcohol in excess of on-half of one per cent by volume and not more than four (4) per cent of alcohol by weight except beer. (emphasis added) With this exclusivity provision regarding beer installed in the code, the 45th Texas legislature made an addendum to the definition of beer: The term beer means a malt beverage containing on-half of one per cent or more of alcohol by volume and not more than four (4) per cent of alcohol by weight, and shall not be inclusive of any beverage designated by label or otherwise by any other name than beer. (emphasis added). Flashing forward to the present, the prohibitions against open saloons are long gone, all of the licensing and regulatory provisions regarding medicinal liquors have been struck, and the exclusivity portion of the manufacturers license (i.e. that the only alcoholic beverage that can be manufactured or sold in Texas between and 4% of alcohol by weight is beer) was long-ago removed from the manufacturers license statute, and moved to 101.66 amd in 1993 was amended to include wine coolers and spirit coolers. Now, retailers legally sell innumerable alcoholic beverage[s] as defined under the code as any beveage containing more than a

Article 1, sec. 15(n)

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percent of alcohol by volume, which, in addition to beer can include mixed beverages spirit coolers and wine coolers within that to 4% alcohol content range. But when beer was moved from Article II of the Code (at the head of the section addressing the licensing of beer manufacturers) over to the general definitions in Article I (now TEX. ALCOHOLIC BEV. CODE 1.04) it appears to have been isolated from the relevant revisions to the statute.over the years, and is even out of alphabetical order within the definitions. The tail end of the 1937-revised definition of beer still states: . . . and does not include a beverage designated by label or otherwise by a name other than beer. With none of its statutory context remaining, this part of the definition makes absolutely no sense. The Texas Code Construction Act is instructive on how to treat this definitional anomoly. TEX. GOVT CODE 311.023 states that in construing a statute, whether or not the statute is considered ambiguous on its face, a court may consider the: (1) (2) (3) (4) Object sought to be attained; Circumstances under which the statute was enacted; Legislative history; Common law or former statutory provisions, including laws on the same or similar subjects; (5) Consequences of a particular construction; . . . Moreover, TEX. GOVT CODE 312.005 instructs that [i]n interpreting a statute, a court shall diligently attempt to ascertain legislative intent and shall consider at all times the old law, the evil, and the remedy. Finally, TEX. GOVT CODE 311.021 states the Texas Legislatures intention that in enactment of statutes, it is presumed that compliance with the state and United States constitutions is intended, as is a just and reasonable result. Accordingly, should the Court find standing by the Plaintiffs and that the definition of beer in TEX. ALCOHOLIC BEV. CODE 1.04(15) has not been justified in its present form under
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the Central Hudson test, Defendants seek an appropriate interpretation of TEX. ALCOHOLIC BEV. CODE 1.04(15) under the factors of code construction set out by the Texas Legislature, and for this Court to interpret the definition of beer in accordance with its first definition, prior to the 1937 amendment: The wordbeer as hereinafter used in this Act and for the purpose of this Article, shall mean any malt beverage containing one-half (1/2) of one percent (1%) or more of alcohol by volume and not more than four per centum (4%) of alcohol by weight. Such a construction then reduces the challenges to the beer/ale labeling provisions to challenges to the TABC Administrative Rules, and to a state administrative law matter rather than a Federal Constituttional claim. C) COMMERCE CLAUSE Plaintiffs complaint baldly alleges that Texas definitions of beer and ale or malt liquor,(and labeling class distinctions between the two) create an unconstitutional burden on interstate commerce.8 State regulations violate the dormant Commerce Clause by discriminating against or unduly burdening foreign or interstate commerce See, e.g., Or. Waste Sys., Inc., 511 U.S. 93, 98 (1994) (Interstate Commerce Clause). Regulations that facially discriminate are virtually per se invalid, Camps Newfound/Owatonna, Inc., 520 U.S. 564, 575 (1997)(explaining that discriminatory regulations are strictly scrutinized); whereas regulations that merely burden commerce are valid unless the burden imposed on such commerce is clearly excessive in relation to the putative local benefits. Or. Waste Sys., Inc., 511 U.S. at 99. In the context of the Interstate Commerce Clause, if a state regulation is found to be nondiscriminatory, the court examines the nature of the local interest and whether alternative

Pl. Am. Complaint [Doc. #27] at pp. 13-14.

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means could achieve that interest with less impact on interstate commerce. Nat'l Solid Waste Mgmt. Ass'n, 389 F.3d 491, 501 (5th Cir. 2004). If a legitimate local purpose is found, then the question becomes one of degree. And the extent of the burden that will be tolerated will of course depend on the nature of the local interest involved, and on whether it could be promoted as well with a lesser impact on interstate activities. Id. (quoting Pike, 397 U.S. at 142, 90 S.Ct. 844). It is unclear how Texas statutory and regulatory definitions and labeling are to have demonstrably burdened interstate commerce, however it is equally clear under the standing standards articulated, above, that none of the Plaintiffs in the case have standing to pursue such claims. Only the most speculative claims of interstate commercial affect have been mentioned in this case (such as the belief that out of state beer manufacturers would rather not bother with Texas regulations), however such conclusory statements attributed to non-parties should hardly serve as a substitute for an actual or concrete injury. Defendants stand on the legitimacy of the local interests in these laws and regulations, as stated above, and their low impact on interstate commerce. Additionally, Plaintiffs assert that the designation under Title 3 of the Code, of foreign breweries as the first American source of supply for their products . . . is an unconstitutional burden on interstate commerce.9 First American Source is defined in TEX. ALCOHOLIC BEV. CODE 37.10 and applies only to wine and distilled spirits. It does not apply to beer or ale as they are malt beverages under Texas law. Again, it is patently unclear what standing Plaintiffs have to maintain this claim, or how this code provision could be said to be an impermissible burden on interstate commerce.
9

Pl. Am. Complaint [Doc. #20] at p.15.

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D) SUPREMECY CLAUSE\ Plaintiffs allege the same statutory and regulatory claims that were an unconstitutional burden on interstate commerce also contravene applicable federal law and [are therefore, a violation of the Supremecy Clause.10 However, this argument is equally unavailing. Presuming Plaintiffs are referring to Title 27 CFR 7.24(a),(d),(e) dealing with Class and Type for labeling purposes, it must be noted that 27 CFR 7.20(a) (Application) mandates such class and type labeling applies only to the extent that the law of such State imposes similar requirements. Second, the number and types of permits required by Texas law do not contravene or conflict with the federal statutory requirement of a federal basic permit, but are allowed pursuant to the authority of the 21st Amendment, and are harmonious with the federal statutes regulations. Plaintiff will not be able to show otherwise. E) EQUAL PROTECTION The Equal Protection challenges raised by Plaintiffs are to be reviewed by this Court in accordance with a rational basis test. Under this standard, a legislative classification will be upheld if there is a rational relationship between the disparity of treatment and some legitimate governmental purpose. Heller v. Doe, 509 U.S. 312, 320, (1993). Because all legislation classifies its objects, differential treatment is justified by any reasonably conceivable state of facts. Id. Legislation need not pursue its permissible goal by using the least restrictive means of classification; consequently, the Equal Protection Clause is not violated merely because the classifications made ... are imperfect. Johnson v. Rodriguez, 110 F.3d 299, 306 (5th Cir.), cert. denied, 118 S.Ct. 559 (1997) (quotation omitted). As referened earlier by this Court, equal
10

Pl. Am. Complaint [Doc. #20] at pp.14-15.

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protection is not a license for courts to judge the wisdom, fairness, or logic of legislative choices. F.C.C. v. Beach Commcns, Inc., 508 U.S. 307, 313 (1993). Furthermore, on a rational basis review, a classification in a statute . . . comes to [the court] bearing a strong presumption of validitiy . . ., and those attacking the rationality of the legislative classification have the burden to negative every conceivable basis which might support it. Id. at 314 (internal citations and quotations omitted). Though Plaintiffs seeem to dwell on the apparent unfairness of the limited statutory exeptions to the strict application of the three tier system given to various participants in the liquor control system, the rationality of the legislatures classifications can be clearly seen in those statutes that created the exceptions. 1) TEX. ALCOHOLIC BEV. CODE 108.09 In 2005, the Texas Legislature (via S.B. 1137) added this section, allowing wineries to include information in the winerys advertising that informs the public of where the winerys products may be purchased. Plaintiffs contend that this stands in contrast to TEX. ALCOHOLIC BEV. CODE 102/07, which would not allow manufacturers or distributors of malt beverages to engage in the same behavior of identifying a retailer of the products manufactured or distributed by them. As the Bill Analysis for S.B. 1137 makes abundantly clear, the Texas Legislature examined the Texas wine producing industry, and made statutory changes to increase the impact

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of that industry on the states economy. [Ex. 5]. This rationale also includes a clear desire by the Legislature to foster the economic agricultural aspects of grape production in Texas.11 2) TEX. ALCOHOLIC BEV. CODE 16.01(5) This Code provision allows wineries to sell wine to ultimate consumers for consuption on the winery premises or in unbroken packages for off-premises consumption, within an annual limit. Wheras the Texas Legislature in 1979 amended the code (via S.B. 1252) with the purpose of extending authoritiy to winery permit holders to include sales to ultimate consumers, [Ex. 6], the Legislatures rationale is more readily evidenced in more recent amendments regarding sales of wine to ultimate consumers, namely the 2001 H.B. 892. The background and purpose of amendments to the code to this bill illustrate the Legislatures desire to grow the Texas wine industry and increase Texas grape production. [Ex. 7] 3) TEX. ALCOHOLIC BEV. CODE 74.01(2) In 1993, the Texas Legislature (via H.B. 1425) created a brewpub license to allow for the manufacture of malt beverages which could then be sold on premises to an ultimate consumer, as well as to sell food. The Bill Analysis for H.B. 1425 reveals that the Legislature considered that brew pubs were licensed in 37 states, that in many cases brew pubs had become tourist attractions, and that most brew pubs were built in conjunction with a restaurant to provide a family atmosphere. [Ex. 8].

11

As an aside, Ronald Extract of Jester King Brewery confirmed in his deposition that the grains and hops used in brewing are not grown in Texas. [Ex. 3, p.8]
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4) TEX. ALCOHOLIC BEV. CODE 12.05 and 62.12 In 1979, S.B. 419 was passed with the particular intent of more strictly patterning the beer industry after the three-tier system utilized by the liquor industry.12 Indeed, the legislature sought to reverse the trend of a dwindling number of breweries in Texas by creating more separation between these remaining larger brewers and distributors.13 To foster the growth of breweries, for small brewers (under 75,000 barrels per year in production), the legislature carved out an allowance that they could have the same rights as a distributor and created these sections of the Code. 14 PRAYER For all the reasons stated herein, Defendants pray that Plaintiffs case be, in all things, dismissed Respectfully submitted, GREG ABBOTT Attorney General of Texas DANIEL T. HODGE First Assistant Attorney General BILL COBB Deputy Attorney General for Civil Litigation DAVID C. MATTAX Director of Defense Litigation ROBERT B. O KEEFE Chief, General Litigation Division

12 13 14

See Bill Analysis of 66th Texas Legislature S.B. 419 [Ex. 9]. Id. See Id, and S.B. 419 (enrolled); TEX. ALCOHOLIC BEV. CODE 12.05 and 62.12
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/s/_James Beau Eccles JAMES BEAU ECCLES Texas Bar No. 00793668 JAMES C. TODD Texas Bar No. 20094700 Assistant Attorneys General Office of the Attorney General General Litigation Division -019 P. O. Box 12548, Capitol Station Austin, Texas 78711 Phone No. (512) 463-2120 Fax No. (512) 320-0667 ATTORNEYS FOR DEFENDANTS

CERTIFICATE OF SERVICE I hereby certify that a true and correct copy of the foregoing document has been delivered via ECFS on this the 19th day of October, 2011, to:

James O. Houchins Law Office of James O. Houchins P.O. Box 40028 Austin, Texas 78704 Attorney for Plaintiff

Peter D. Kennedy Graves, Dougherty, Hearon & Moody, P.C. 401 Congress Ave., Ste 2200 Austin, Texas 78701 /S/ James Beau Eccles

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