5th Circuit’s pun-filled opinion upholds CANarchy’s right to sell beer to go in Texas because it leases and does not “own” most of its breweries across the country.
When we first wrote about this matter back in February of 2021, it was to tell you that CANarchy had won a challenge to the Texas Alcoholic Beverage Commission’s interpretation of a Texas alcoholic beverage control law limiting the right of breweries to sell beer to go from their premises to those breweries that do not make more than 225,000 barrels of beer annually “at all premises wholly or partly owned, directly or indirectly,” by the brewer.
Sec. 12.052. Sales by Certain Brewers to Consumers. (a)In addition to the activities authorized by Section 12.01 (Authorized Activities), the holder of a brewer’s permit whose annual production of ale, together with the annual production of beer by the holder of a manufacturer’s license at all premises wholly or partly owned, directly or indirectly, by the permit holder or an affiliate or subsidiary of the permit holder, does not exceed a total of 225,000 barrels may sell ale produced on the brewer’s premises under the permit to ultimate consumers on the brewer’s premises… (emphasis added).
Sec. 62.122. SALES BY CERTAIN BREWERS TO CONSUMERS. (a) A brewer’s licensee whose annual production of malt beverages at all premises wholly or partly owned, directly or indirectly, by the license holder or an affiliate or subsidiary of the license holder, does not exceed 225,000 barrels may sell malt beverages produced on the brewer’s premises under the license to ultimate consumers on the brewer’s premises… (emphasis added).
The state alcohol regulator applied the law against the breweries run by CANarchy in Texas forbidding its two Texas breweries from selling beer to go at those locations. The TABC reasoned that the “owned” language in the statutes applied to “leased” breweries and CANarchy’s annual production around the country – where it leased most breweries, but did not own them – was in excess of 475,000 barrels. The brewer challenged that interpretation noting that it only owned one of its breweries and leased the rest and at the owned brewery in Michigan, it made a little over 17,000 barrels – well under the 225,000 barrel limit for owned breweries under the alcoholic beverage control laws.
The district court agreed, found for the brewer, and the alcoholic beverage regulatory body appealed. The 5th Circuit has now held for the brewery. Beer can flow in Texas.
The opinion in favor of the malt beverage brewer is loaded with beer themed puns. You can read the opinion here. For those looking to keep score in these cases regarding how oral argument went and how the opinion ultimately turned out, here is the audio from the oral argument in the matter.
The reasoning in favor of the brewer followed and agreed with CANarchy’s three main arguments: 1) that the plain meaning of owned does not include leased; 2) that the statutory provisions of the alcoholic beverage control law in the state contain other multiple provisions where “owned” and “leased” are used together, so the legislative intent must be to use that formulation where “leased” is meant to be included and there is a distinction between the words because the legislature uses them both separately; and 3) partly owned does not mean leased, it means an ownership interest of less than 100%.
Of particular interest – the 5th Circuit considered and dismissed the TABC’s assertion that ruling that owning did not mean leasing would create an absurd result that breweries must own their premises because the word “own” is used in alternating proprietorship portions of the alcoholic beverage code:
That party foul aside, the only way TABC’s allegedly absurd consequence arises is if TABC’s interpretation of sections 62.14 and 63.05 is correct. Count us skeptical. Here is the text of those statutes: “An entity is not required to own its brewing facilities if the entity operates under an alternating brewery proprietorship.” TEX. ALCO. BEV. CODE ANN. §§ 62.14(b), 63.05(b). From that language, TABC extrapolates a broad, inverse mandate that unless “[an] entity operates under an alternating brewery proprietorship,” it is required “to own its brewing facilities.” But sections 62.14 and 63.05 focus on a niche type of brewing arrangement—one TABC concedes “relatively few” Texas brewers employ—and they set forth specialized requirements an “alternating” brewer must meet in the event it does not own its brewing facilities. E.g., id. §§ 62.14(e), 63.05(e) (requiring a non-owner to post a bond as part of an alternating brewery proprietorship). No Texas court has construed sections 62.14(b) and 63.05(b), much less in the way that TABC asks us to read them. Given that the question has not been properly served up and TABC offers no authority to support its broad reading of these provisions, we decline to evaluate further the effect these relatively minor Code sections might have on the broader regulatory scheme at issue in this case.