After three years of waiting, Texas craft brewers are raising their steins to celebrate Texas district court Judge Karin Crump’s recent declaration that part of the Texas Alcoholic Beverage Code is unconstitutional.
Prior to a change in the law by Texas legislators in 2013, craft brewers owned distribution rights of their products. Breweries could negotiate with distributors for money in exchange for the distributor’s exclusive right to sell the brewery’s product in a defined territorial area. Agreements were written so both sides would benefit from the transaction, and the brewer could negotiate at arm’s length.
That all changed virtually overnight after passage of Senate Bill 639. Part of that bill added a section to the Texas Alcoholic Beverage Code that made it illegal for brewers to accept payment for any agreement that set forth “territorial rights.” It was codified as Section 102.75(a)(7) of the Texas Alcoholic Beverage Code.
Essentially, the law made it illegal for brewers to negotiate with distributors and obtain any valuable consideration for distribution rights. If the brewery obtained money for its distribution rights, it stood to lose its license.
Not only could brewers not obtain any money for their distribution rights, but the distributors could buy and sell them as they saw fit, enjoying any profit that resulted from the popularity of a craft brewer’s product.
The law resulted in a massive transfer of property rights from the brewer to beer distributors. Though the value of these rights was difficult to measure, experts say it was most likely in the millions of dollars.
The brewers were not about to let this go unchallenged. Shortly after the bill became law, Austin brewers Live Oak, Revolve, and Peticolas brought suit against the Texas Alcoholic Beverage Commission challenging the constitutionality of that statute under the Texas Constitution.
The brewers were aided by the Institute for Justice, a Libertarian legal organization based in Arlington, Virginia.
Attorneys for the brewers argued the law violated due process guarantees of Article I, Section 19, of the Texas Constitution. That provision of the Texas Bill of Rights states that no citizen of Texas “shall be deprived of life, liberty, property, privileges or immunities … except by the due course of the law of the land.”
After about two years of litigation, the brewers finally obtained a final judgment on Aug. 25 in which the trial court declared that transferring brewers’ distribution rights for their products was unconstitutional.
“The Texas Constitution prohibits the legislature from passing laws that enrich one business at the expense of another,” explained the brewers’ attorney, Matt Miller. ”This ruling is a victory for every Texas craft brewery and the customers who love their beer."
The TABC has 30 days to appeal the ruling, should it choose to do so. No word from the TABC on that issue had been announced at time of publication.
Andrew Greenwell is a lawyer with a civil trial and appellate practice with a focus on commercial litigation. He was listed as a Super Lawyer in 2011-12 and 2014-15 and a Best Lawyer since 2005.
