The Latest Texas Litigation Involving the Three-Tiered System

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Texas courts have seen their fair share of litigation involving the state's three-tiered alcohol distribution system, which forbids any tier from owning even a minimal ownership interest in any other tier. MyStatesman.com reports on another recent federal case about the state's three-tiered system, in which the judge said the system was "absurd" but that he was legally bound by it:

"In a decision that even the judge who wrote it conceded was ridiculous, a Texas court this month concluded the state’s Byzantine liquor laws prohibit most publicly traded companies from doing business here, including such giants as Anheuser-Busch and Molson Coors Brewing. Experts say the ruling could upend Texas’ $40 billion booze industry.

Administrative Law Judge Robert Jones Jr., acknowledged his legal conclusion — that a large alcohol distributing company in business for years was technically ineligible for a state liquor license — made little sense. “The ALJ sympathizes with the absurdity of the outcome in this case,” he wrote.

But, the judge added, he had little choice in the matter. State lawmakers had failed to clean up vague laws to prevent cross-ownership among alcohol manufacturers, distributors and retailers — potentially defined by as little as one person owning a single share of stock each in companies in different sectors of the booze business...

Yet identifying and maintaining the boundaries has become increasingly complicated as corporate structures have grown more sophisticated. Regulators have struggled to identify where to draw cross-ownership lines, particularly with publicly traded companies boasting multiple layers of ownership and millions of investors. Individuals within giant pension funds can own shares in both alcohol manufacturers and retailers without even realizing it.

In the meantime, the number of businesses seeking Texas alcohol permits has soared, straining regulators’ resources. the commission now processes about 87,000 applications annually. Last year, it received approximately 17,000 new applications requiring the commission to vet the ownership of each business to ensure no tier boundaries were being crossed..."

Read more about the entire saga here.