Case: 21-50322 Document: 00516184627 Page: 1 Date Filed: 01/28/2022
United States Court of Appeals
for the Fifth Circuit United States Court of Appeals
Fifth Circuit
FILED
January 28, 2022
No. 21-50322
Lyle W. Cayce
Clerk
In the Matter of Gabriel Investment Group,
Incorporated and Gabriel GP, Incorporated.
Debtors,
Gabriel Investment Group, Incorporated,
Appellant,
versus
Texas Alcoholic Beverage Commission,
Appellee.
Appeal from the United States District Court
for the Western District of Texas
USDC No. 5:20-CV-1244
Before King, Costa, and Willett, Circuit Judges.
Don R. Willett, Circuit Judge:
Ever since Prohibition ended in 1933, states have enacted a byzantine
patchwork of rules regulating alcohol. It took a global pandemic to ease some
of them. During the early coronavirus lockdown, when on-site dining was off
limits, the renowned marquee outside El Arroyo, an Austin Tex-Mex
hotspot, posted this playful plea: “Now would be a good time to legalize
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No. 21-50322
drive-up margaritas.” The Texas Legislature obliged, and alcohol-to-go is
now legal in the Lone Star State.1
More entrenched booze rules, however, remain on the books. For
example, retail liquor store sales remain strictly regulated in Texas. One
bright-line restriction is that retailers must hold a “package store permit” to
sell liquor at retail. And since 1995, Texas law has banned publicly traded
corporations from obtaining such a permit. As with many Texas liquor laws,
however, there’s a carveout for preferred players. Under certain
circumstances, a package store organized as a public corporation can hold the
required permit.
Today’s dispute poses a spinoff question: What happens to the permit
if an exempt corporation is sold to a non-exempt corporation? For the reasons
discussed below, we CERTIFY to the Supreme Court of Texas.
I
A
Texas regulates retail alcohol sales through the Texas Alcoholic
Beverage Code.2 And the Code does not treat all sales the same. Relevant
here, it subjects sales of “liquor”—an “alcoholic beverage, other than a malt
beverage, containing alcohol in excess of five percent by volume, unless
otherwise indicated”3—to special rules. Chief among them: liquor retailers
1
See Act of May 3, 2021, ch. 6, sec. 5, § 32.155, 2021 Tex. Gen. Laws ___.
2
See Tex. Alco. Bev. Code § 1.06 (“Unless otherwise specifically provided
by the terms of this code, the . . . sale . . . of alcoholic beverages shall be governed
exclusively by the provisions of this code.”).
3
Id. § 1.04(5).
2
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must hold a “package store permit.”4 And not all retailers are allowed to hold
one.
Before 1995, the door for public corporations to hold package store
permits was wide open. The Texas Legislature slammed that door shut,
though, with its 1995 Amendments to the Code.5 Part of the 1995
Amendments, now codified under Section 22.16(a), expressly state that “[a]
package store permit may not be owned or held by a public corporation, or by
any entity which is directly or indirectly owned or controlled, in whole or in
part, by a public corporation, or by any entity which would hold the package
store permit for the benefit of a public corporation.”6 What is a public
corporation? Under Section 22.16(b), “any corporation or legal entity whose
shares or other evidence of ownership are listed on a public stock exchange,”
or “any corporation or other legal entity in which more than 35 persons hold
an ownership interest in the entity.”7
To enforce the Code, the Legislature turned to the Texas Alcoholic
Beverage Commission.8 The Code charges the Commission with deciding
which retailers to “grant” or “refuse” new package store permits, and which
retailers get theirs “suspend[ed]” or “cancel[ed].”9 Sometimes, though, a
4
Id. § 22.01.
5
See Act of May 23, 1995, ch. 480, 1995 Tex. Gen. Laws 3202 (codified as amended
at Tex. Alco. Bev. Code ch. 22).
6
Tex. Alco. Bev. Code § 22.16(a).
7
Id. § 22.16(b).
8
See id. § 5.31(a) (charging the Commission to “inspect, supervise, and regulate
every phase of the business of . . . selling . . . alcoholic beverages”).
9
Id. § 5.35.
3
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public corporation can still get past the Commission—but only if the public
corporation is on the right list.
When the Legislature enacted Section 22.16, it expressly excluded
two types of public corporations from Section 22.16(a)’s flat prohibition on
public corporations owning or controlling package store permits. The first
were hotels.10 The second were corporations that qualified for a so-called
“Grandfather Clause.” That is, under Section 22.16(f), any corporation:
(1) which was a public corporation as defined by this section on
April 28, 1995; and
(2) which holds a package store permit on April 28, 1995, or
which has an application pending for a package store permit on
April 28, 1995; and
(3) which has provided to the commission on or before
December 31, 1995, a sworn affidavit stating that such
corporation satisfies the requirements of Subdivisions (1) and
(2).11
According to the parties, two—and only two—public corporations qualify for
the Grandfather Clause today. One of them is Gabriel Investment Group,
Inc.12
10
See id. § 22.16(d) (“This section shall not apply to a package store located in a
hotel.”).
11
Id. § 22.16(f).
12
The other is Sarro Corp., a corporation affiliated with GIG.
4
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B
GIG sells liquor in 45 package stores throughout South Texas.
Though it traces its historical roots to the late 1940s, GIG itself was not
incorporated until April 13, 1995. At inception it had 41 shareholders. On
April 25, three days before the magic date in Section 22.16’s Grandfather
Clause, GIG applied for a package store permit. The Commission issued
GIG the permit a few months later, on August 15.
Sometime that December, GIG filed an affidavit with the
Commission. In the affidavit, GIG averred that it met the Grandfather
Clause’s requirements. The Commission marked the affidavit as received on
December 22. GIG has since consistently claimed that the Grandfather
Clause exempts it from Section 22.16, and the Commission has consistently
issued GIG package store permits.
So it went until 2019, when GIG filed for Chapter 11 bankruptcy
protection. As part of its reorganization plan, GIG explored selling itself to
another public corporation. But questions abounded. If GIG sold all or some
of its shares to a public corporation, would GIG remain exempt from Section
22.16 under the Grandfather Clause? If so, could GIG continue to grow its
collection of package store permits after the sale?
GIG sued the Commission to find out, requesting declaratory
judgment in its favor. The bankruptcy court, after reviewing dueling motions
for summary judgment, concluded that the answer to both questions is no.
GIG now appeals.
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II
A
The bankruptcy court framed GIG’s questions aptly: “this would
make a great moot court question and law students could spend many hours
researching, writing briefs and arguing this and it would be a very close
issue.” We agree.
On the one hand, GIG insists the answer to both its questions is yes.
As it correctly notes, Texas courts read statutes by “look[ing] first to the
‘plain and common meaning of the statute’s words.’”13 And if the statute is
“unambiguous,” then “its plain meaning will prevail.”14 Turning to Section
22.16, then, GIG makes a simple argument: the Grandfather Clause
expressly provides that “[t]his section”—Section 22.16—“shall not apply”
to a corporation satisfying its three-prong test;15 GIG satisfies the
Grandfather Clause’s three-prong test; therefore, all of Section 22.16—to
include its prohibition against public-corporation ownership or control,
under Section 22.16(a)16—does not apply to GIG. Period. Full stop. End of
discussion.
GIG’s argument certainly has an appeal of simplicity to it. And, as
GIG further notes, other sections of the Code reinforce its reading. The
Code generally requires package stores to operate on separate premises from
13
In re J.J.R.S., 627 S.W.3d 211, 220 (Tex. 2021) (citation omitted).
14
Leland v. Brandal, 257 S.W.3d 204, 206 (Tex. 2008).
15
Tex. Alco. Bev. Code § 22.16(f) (emphasis added).
16
Id. § 22.16(a).
6
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other kinds of businesses.17 But there is an exception. Under Section 11.50,
some holders of package store permits who had them “issued on or before
April 1, 1971[] . . . may continue to operate a package store on premises
comprising a portion of a building” without the kinds of physical-separation
requirements the Code otherwise requires.18 And in Section 11.50, the
Legislature expressly provided that its exception would no longer apply after
any “change in ownership,” with a limited exception. 19 Section 22.16’s
Grandfather Clause, though, has no such change-in-ownership exception.20
On the other hand, the Commission insists the answer to GIG’s two
questions is no. It argues structure: that 22.16(a)’s public-corporation
prohibition is permit specific, while the Grandfather Clause is corporation
specific. Indeed, Section 22.16(a) does expressly provide that “[a] package
store permit may not be owned or held . . . by any entity which is directly or
indirectly owned or controlled, in whole or in part, by a public corporation,
or by any entity which would hold the package store permit for the benefit of
17
See id. § 22.14(a) (“The premises of a package store shall be completely
separated from the premises of other businesses by a solid, opaque wall from floor to ceiling,
without connecting doors, shared bathroom facilities, or shared entry foyers.”).
18
See id. § 11.50 (providing the other criteria for the exception to apply).
19
See id. § 11.50(a) (“This section does not apply to a permit if a . . . change in
ownership has occurred, by majority stock transfer or otherwise, except by devise or
descent where the holder of the permit died on or after April 1, 1971.”). GIG also points
us to another of the Code’s provisions, Section 28.04, which also expressly treats changes
in ownership as disqualifying under its grandfather clause. See id. § 28.04(a) (barring mixed
beverage permit renewals “held by a corporation . . . if the commission or administrator
finds that legal or beneficial ownership of over 50 percent of the stock of the corporation
has changed since the time the original permit was issued”).
20
See, e.g., Mosley v. Tex. Health & Human Servs. Comm’n, 593 S.W.3d 250, 259
(Tex. 2019) (“That the legislature has spoken clearly when . . . [making exceptions]
suggests that silence . . . does not [provide an exception] . . . .”).
7
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a public corporation.”21 In contrast, the Grandfather Clause expressly
provides that Section 22.16 “shall not apply to a corporation” meeting its
three-part test.22 According to the Commission, then, GIG is free to sell its
shares to whomever it likes. There’s only one catch: If GIG sells its shares
to a public corporation, then its package store permits become invalid.
Like GIG, the Commission is not without additional support for its
argument. It argues that GIG’s reading would rewrite the Grandfather
Clause, making it read that Section 22.16 “shall not apply to a permit held by
a corporation” that satisfies its three-prong test;23 that Section 22.16(d)’s
express exemption for “a package store located in a hotel” counsels
interpreting changes of ownership for hotels differently than corporations
covered only under the Grandfather Clause;24 and that the Grandfather
Clause’s statutory “context” belies looking to the Code’s other grandfather
clauses to support GIG’s interpretation.25
We are, of course, in the day-to-day business of resolving textual
ambiguities; this is our wheelhouse. But, as the bankruptcy court noted, this
is no moot-court competition. The stakes here are very real. The
Commission represented below that holding for GIG would eviscerate an
“important consumer protection.” And a transferable license likely has
significant economic value. Further, we are not the final arbiters of Texas
21
Tex. Alco. Bev. Code § 22.16(a) (emphasis added).
22
Id. § 22.16(f) (emphasis added).
23
See In re Ford Motor Co., 442 S.W.3d 265, 284 (Tex. 2014) (orig. proceeding)
(“[Courts] cannot rewrite the statute under the guise of interpreting it.”).
24
Tex. Alco. Bev. Code § 22.16(d).
25
See Marx v. Gen. Revenue Corp., 568 U.S. 371, 381 (2013) (“The force of any
negative implication . . . depends on context.”); accord Forest Oil Corp. v. El Rucio Land &
Cattle Co., Inc., 518 S.W.3d 422, 429 (Tex. 2017).
8
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law.26 That role belongs to the Supreme Court of Texas.27 So the bigger
question, at least at this point, is whether we should decide GIG’s questions.
B
The Texas Rules of Appellate Procedure provide that “[t]he Supreme
Court of Texas may answer questions of law certified to it by any federal
appellate court if the certifying court is presented with determinative
questions of Texas law having no controlling Supreme Court precedent.” 28
Our diligent state-court colleagues “are partners in our shared duty
‘to say what the law is’—equal partners, not junior partners.”29 And as we
recently observed, “federal-to-state certification is prudent when
consequential state-law ground is to be plowed.”30
Specifically, we look to three factors in deciding whether to certify:
1. the closeness of the question and the existence of sufficient
sources of state law;
2. the degree to which considerations of comity are relevant in
light of the particular issue and case to be decided; and
26
See C.I.R. v. Bosch’s Estate, 387 U.S. 456, 465 (1967) (“[S]tate law as announced
by the highest court of the State is to be followed. . . . [T]he underlying substantive rule
involved is based on state law and the State’s highest court is the best authority on its own
law.”).
27
Tex. Const. art. V, § 3 (“The Supreme Court shall exercise the judicial
power of the state except as otherwise provided in this Constitution. . . . [I]ts
determinations shall be final except in criminal law matters.” (emphasis added)); see also
Brown v. Allen, 344 U.S. 443, 540 (1953) (Jackson, J., concurring) (“We are not final
because we are infallible, but we are infallible only because we are final.”).
28
Tex. R. App. P. 58.1.
29
McMillan v. Amazon.com, Inc., 983 F.3d 194, 202 (5th Cir. 2020) (quoting
Marbury v. Madison, 5 U.S. (1 Cranch) 137, 177 (1803)).
30
Id.
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3. practical limitations on the certification process: significant
delay and possible inability to frame the issue so as to
produce a helpful response on the part of the state court.31
“This case checks every box.”32
The first factor—the closeness of the question and the existence of
sufficient sources of state law—weighs in favor of certification. Above, we
previewed the primary competing arguments of the parties. Both parties have
solid textual and structural support for their positions. Likewise, the
Commission does not challenge GIG’s contention that the disputes in this
case are questions of first impression in any court. With no on-point caselaw
to guide us, “any Erie guess would involve more divining than discerning.”33
But “why speculate when we can certify, letting state-court handiwork
supplant federal-court guesswork?”34
The second factor—the degree to which considerations of comity are
relevant in light of the particular issue and case to be decided—similarly
weighs in favor of certification. The Legislature enacted its general ban on
public corporations owning or controlling package store permits in 1995, over
26 years ago. According to the parties, only two public corporations—GIG
and Sarro Corp., who is not a party to this case—qualify for Grandfather
Clause treatment. That may not seem like many. But when you factor in that
GIG and Sarro could control up to 500 package stores between the two of
31
Silguero v. CSL Plasma, Inc., 907 F.3d 323, 332 (5th Cir. 2018), certified question
accepted (Oct. 26, 2018), certified question answered, 579 S.W.3d 53 (Tex. 2019).
32
McMillan, 983 F.3d at 202.
33
Id.
34
Id.
10
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them,35 it threatens to blow a Texas-sized hole in the careful balance that the
Legislature created.36
The third factor—practical limitations on the certification process—
also weighs in favor of certification. The questions that GIG asks are purely
legal. And we are untroubled by any potential delay. “[B]y long tradition, the
Texas Supreme Court graciously accepts and prioritizes certified questions
from this circuit.”37 Just over a year ago, we certified a products-liability
question in McMillan v. Amazon.com, Inc. to the Supreme Court of Texas.38
The Court issued its scholarly opinion exactly three months after hearing
argument.39 Should the Court accept today’s certification, we have zero
doubt it will speak with similar sharpness and swiftness.40
35
Cf. Tex. Alco. Bev. Code § 22.04(a) (“A person may not hold or have an
interest, directly or indirectly, in more than 250 package stores or in their business or
permit.”).
36
See Ritchie v. Rupe, 443 S.W.3d 856, 880 (Tex. 2014) (“As we consider existing
statutory remedies, we are mindful of the principle that, when the Legislature has enacted
a comprehensive statutory scheme, we will refrain from imposing additional claims or
procedures that may upset the Legislature’s careful balance of policies and interests.”
(citation omitted)).
37
McMillan, 983 F.3d at 203.
38
Id.
39
See Amazon.com, Inc. v. McMillan, 625 S.W.3d 101 (Tex. 2021).
40
Again, “[n]o pressure.” McMillan, 983 F.3d at 203 n.51; see also McMillan, 625
S.W.3d at 105 n.5 (“Challenge accepted.”).
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III
“By any measure, this case hits the certification bull’s-eye,” posing
close, weighty questions of first impression.41 Accordingly, we CERTIFY
the following questions of state law to the Supreme Court of Texas:
1. If Texas Alcoholic Beverage Code Section 22.16(f) exempts
a package store from Section 22.16(a), and if the package
store sells any, most, or all of its shares to a corporation that
does not itself qualify under Section 22.16(f), will the
package store’s package store permits remain valid?
2. If yes to (1), can the package store validly accumulate
additional package store permits by reason of Section
22.16(f)?
We disclaim any intention or desire that the Court confine its reply to the
precise form or scope of the question certified.
QUESTIONS CERTIFIED.
41
McMillan, 983 F.3d at 203.
12