Several times in the past year the U.S. Fifth Circuit Court of Appeals has asked the Texas Supreme Court for its opinion on a matter of first impression or significant ambiguity in Texas law. The procedure is called a “certified question,” and a federal appellate court will resort to it upon a determination of three factors: “(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 (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” (citing 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)).

Pursuant to this test, the Fifth Circuit has recently certified questions related to product liability, the anti-indemnity statute, and SB 8 (the so-called “Fetal Heartbeat” bill). This week another such question rolled in (Gabriel Investment Group v. Texas Alcoholic Beverage Commission (No. 22-0062) this one involving the always politically sensitive subject of Texas’ regulation of liquor sales. While the question itself may seem relatively specific and thus insignificant to the general business community, the fact that it implicates an important regulatory scheme rooted in the post-prohibition environment of the 1930s—and one that restricts competition in a lucrative industry—should heighten interest in SCOTX’s review.

The question is straightforward. Under the 1995 amendments to the Texas Alcoholic Beverage Code, the Legislature barred public corporations from owning a package store permit. The amendments defined a “public corporation” to include a publicly traded entity or an entity in which more than 35 persons hold an ownership interest. Two such corporations (as well as publicly owned hotels in a separate exemption) were grandfathered by the amendments, Gabriel Investment Group and Sarro Corp., which together own or control about 500 package stores in Texas. The question arose when Gabriel declared bankruptcy and considered selling all or part of the business to a publicly traded company. Gabriel sued the TABC for a declaration of whether the grandfather clause permitted it to transfer valid permits to a public company. The TABC took the position that the grandfather clause only governs the ownership of the entity that holds the permits, and that if Gabriel sold them to a public company, the agency would cancel them. The bankruptcy judge agreed. Gabriel appealed to the Fifth Circuit.

As Justice Willett pointed out in his certification request, no Texas precedent exists on the question, and as a matter of statutory construction, the case could go either way. He also noted that the answer to the question will dramatically affect the value of Gabriel’s business, as well as the integrity of the Legislature’s carefully crafted regulatory approach. SCOTX has taken great pains to interpret statutes with a keen awareness of legislative prerogative in public policy matters, and we expect that to be the case here. In any event, statutory construction cases of any sort should be of great interest to TCJL members because, if nothing else, the next statute that gets up to SCOTX may be their own.

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