IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 18-50299

WAL-MART STORES, INCORPORATED; WAL-MART STORES TEXAS, 

L.L.C; SAM'S EAST, INCORPORATED; QUALITY LICENSING CORPORATION,

 Plaintiffs - Appellees Cross-Appellants

v.

TEXAS ALCOHOLIC BEVERAGE COMMISSION; KEVIN LILLY, Presiding 

Officer of the Texas Alcoholic Beverage Commission; IDA CLEMENT 

STEEN, 

 Defendants - Appellants Cross-Appellees

TEXAS PACKAGE STORES ASSOCIATION, INCORPORATED, 

 Movant - Appellant Cross-Appellee

Appeal from the United States District Court

for the Western District of Texas

Before DAVIS, HAYNES, and GRAVES, Circuit Judges.

JAMES E. GRAVES, JR., Circuit Judge:

Plaintiff-Appellee Wal-Mart Stores, Incorporated and three of its subsidiaries (collectively, “Walmart”), brought 42 U.S.C. § 1983 claims against the 

Texas Alcoholic Beverage Commission and three of its commissioners (collectively, the “TABC”), to challenge four Texas statutes (Tex. Alco. Bev. Code §§ 

United States Court of Appeals

Fifth Circuit

FILED

August 15, 2019

Lyle W. Cayce

Clerk

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22.04, 22.05, 22.06, 22.16)1 that govern the issuances of permits that allow for 

the retail sale of liquor in Texas (called “package store” permits, or “P permits”). Section 22.16 prohibits public corporations from obtaining P permits in 

Texas. Walmart argued that the ban violates the dormant Commerce Clause 

of the United States Constitution and the Equal Protection Clause of the Fourteenth Amendment. Later, we granted the Texas Package Store Association’s

(“TPSA”) motion to intervene as a matter of right, in defense of the statutes.

See Wal-Mart Stores, Inc. v. Tex. Alcoholic Beverage Comm’n, 834 F.3d 562 (5th 

Cir. 2016).

We now consider the TABC and TPSA’s (“appellants”) appeal of the district court’s conclusion that the public corporation ban offends the dormant 

Commerce Clause, and Walmart’s cross-appeal of the district court’s determination that the public corporation ban does not violate the Equal Protection 

Clause. We affirm the part of the district court’s judgment rejecting Walmart’s 

Equal Protection challenge to the public corporation ban. Conversely, because 

the district court erred in its findings regarding the discriminatory nature and 

burden imposed by the public corporation ban, Walmart’s dormant Commerce 

Clause challenge to § 22.16 is remanded.

I. Facts

A.

Texas regulates the sale and importation of alcoholic beverages through 

a three-tier system that requires separate licenses and permits for producers, 

wholesalers, and retailers who meet certain eligibility requirements. See Wine 

Country Gift Baskets.com v. Steen, 612 F.3d 809, 818–19 (5th Cir. 2010) (noting 

that Texas has a three-tier system “in which producers sell to state-licensed 

wholesalers, who sell to state-licensed retailers”). Liquor retailers must obtain 

 

1 Walmart’s challenge to Tex. Alco. Bev. Code § 22.06 is not at issue on appeal.

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a separate permit for each physical location where liquor is sold for off-premises consumption. The permits authorize an unlimited volume of sales from the 

permitted location. The TABC is the state agency responsible for issuing permits and enforcing the Texas Alcoholic Beverage Code. The TPSA is the trade 

association of Texas package stores that are majority-owned by Texans.

There is one permit relevant to this appeal. P permits authorize the sale

of liquor, wine, and ale for off-premises consumption. Tex. Alco. Bev. Code § 

22.01. Texas liquor stores must hold a P permit.

At the time of this litigation, there were 2,578 active P permits issued by 

the TABC, and 574 were owned by a package store chain (a business holding 

six or more P permits). There were 21 active package store chains. Since 1944, 

package store chains have grown in size and volume of sales, although the total 

number of package stores has remained approximately the same. The package 

store chains have a significant share of the Texas market, but it is not clear 

how much. The largest package store chains control seven of the nine seats on 

the TPSA’s executive committee.

B.

Texas’ public corporation ban proscribes “any entity which is directly or 

indirectly owned or controlled, in whole or in part, by a public corporation” 

from obtaining a P permit. Tex. Alco. Bev. Code § 22.16(a). The statute defines 

a “public corporation” as a corporation “whose shares . . . are listed on a public 

stock exchange” or “in which more than 35 persons hold an ownership interest.” Id. § 22.16(b). Public corporations can hold any of the other seventy-five 

types of alcohol permits that Texas issues.

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Walmart is a retailer that is the largest public company in the world.2

Operating approximately 5,000 stores in the U.S., Walmart currently sells beer 

or wine in forty-seven states, including 668 locations in Texas, and liquor in 

thirty-one states. Walmart’s goal is to increase its sales and profits from alcoholic beverages in Texas. Walmart has plans to open liquor stores adjacent to 

some of its existing Texas retail locations. However, because it is a publicly 

traded corporation without a majority shareholder, Walmart cannot implement its plan unless the public corporation ban is invalidated.

Walmart unsuccessfully lobbied the Texas Legislature to repeal § 22.16.3

After its failed attempt to obtain a legislative remedy, Walmart sued the TABC 

in federal court to have the judiciary neutralize the public corporation ban, and 

this court subsequently granted the TPSA’s motion to intervene.

After a week-long bench trail, the district court concluded, inter alia, that

the public corporation ban: (1) has a discriminatory purpose and the ban’s burden on interstate commerce is clearly excessive when compared to the local 

benefits, and (2) does not violate the Equal Protection Clause. The district 

court enjoined the TABC from enforcing the public corporation ban. This appeal and cross-appeal followed. We consider whether the public corporation 

ban is unconstitutional under the dormant Commerce Clause and the Equal 

Protection Clause.4

 

2 As of 2018, Walmart had consolidated revenue of over $500 billion, making it the 

largest company in the world. Fortune 500 Companies 2018: Who Made the List, FORTUNE 

MAG. (May 21, 2018), http://fortune.com/global500/. 

3 Along with the other aforementioned statutes that we do not address at this time. 

4 The district court exercised subject matter jurisdiction over this case based on federal 

question jurisdiction under 28 U.S.C. § 1331. We have jurisdiction over this appeal pursuant 

to 28 U.S.C. § 1291. 

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II. Standards of Review

We review a district court’s judgment regarding the constitutionally of a 

statute de novo. Allstate Ins. Co. v. Abbott, 495 F.3d 151, 160 (5th Cir. 2007).

The district court’s findings of fact relevant to the constitutional question are 

reviewed for clear error. Id. Because this case involves a dormant Commerce 

Clause challenge, one threshold issue is whether the public corporation ban 

was enacted with the purpose to discriminate against interstate commerce. Id.

at 160–62. In Allstate, this court applied the Arlington5 factors to determine 

whether purposeful discrimination inspired a state legislature’s actions in violation of the dormant Commerce Clause.6 Therefore, we do the same.7 “[A] district court’s finding of fact on the question of discriminatory intent is reviewed 

for clear error.” Abbott v. Perez, 138 S. Ct. 2305, 2326 (2018). “If the district 

court’s findings are plausible in light of the record viewed in its entirety, we 

must accept them, even though we might have weighed the evidence differently 

if we had been sitting as a trier of fact.” Veasey v. Abbott, 830 F.3d 216, 229 

(5th Cir. 2016) (en banc) (quotation marks omitted). “However, when the district court’s ‘findings are infirm because of an erroneous view of the law, a remand is the proper course unless the record permits only one resolution of the 

factual issue.’” Id. (quoting Pullman–Standard v. Swint, 456 U.S. 273, 292

(1982)). In the latter case, we should reverse and render a decision. Id.

 

5 See Village of Arlington Heights v. Metropolitan Hous. Dev. Corp., 429 U.S. 252, 266–

68 (1977). 

6 Allstate, 495 F.3d at 160. 

7 Although it is debatable whether the Arlington factors should be applied when considering whether purposeful discrimination motivated legislative action in a dormant Commerce Clause case, given our well-established rule that one panel of the Fifth Circuit cannot 

overrule the prior decision of another panel, we need not consider arguments challenging 

application of the factors to this case. See Gardes Directional Drilling v. U.S. Turnkey Expl. 

Co., 98 F.3d 860, 868 (5th Cir. 1996) (citing Broussard v. Southern Pac. Transp. Co., 665 F.2d 

1387, 1389 (1982) (en banc)).

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III. Challenges

A.

The Supreme Court has long held that the Commerce Clause “prohibits 

state laws that unduly restrict interstate commerce.” Tennessee Wine & Spirits 

Retailers Ass’n v. Thomas, 139 S. Ct. 2449, 2459 (2019). This interpretation is 

known as the dormant Commerce Clause. “‘This negative aspect of the Commerce Clause’ prevents the States from adopting protectionist measures and 

thus preserves a national market for goods and services.” Tennessee Wine, 139 

S. Ct. at 2459 (quoting New Energy Co. of Ind. v. Limbach, 486 U.S. 269, 273 

(1988)).

“A statute violates the dormant Commerce Clause where it discriminates 

against interstate commerce either facially, by purpose, or by effect.” Allstate, 

495 F.3d at 160. Given that this case involves a law that regulates liquor retailers, the dormant Commerce Clause analysis must be considered in light of 

the Twenty-first Amendment. Section 2 of the Amendment grants states the 

authority to regulate the transportation, importation, possession, and use of 

alcohol within their own borders. See U.S. Const. amend. XXI, § 2.

Recently, in Tennessee Wine, the Court reaffirmed what this court had

previously concluded:8 Section 2 does not grant states the power to violate the 

“nondiscrimination principle” of the dormant Commerce Clause. 139 S. Ct. at 

2470 (citing Granholm v. Heald, 544 U.S. 460, 487 (2005)). The Court acknowledged that, under § 2, states “remai[n] free to pursue their legitimate interests” 

in addressing the health and safety risks associated with the alcohol trade. Id.

at 2472 (alteration in original) (quotation marks omitted). Therefore, “each 

variation [of law] must be judged based on its own features.” Id.

 

8 In Cooper II, this court rejected the TPSA’s assertion that Commerce Clause protections do not apply to state alcohol laws regulating the retailers and wholesalers in a threetier system. 820 F.3d at 743. 

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The Court clarified the standard for evaluating a discriminatory alcoholrelated regulation, charging courts to “ask whether the challenged [discriminatory] requirement can be justified as a public health or safety measure or on 

some other legitimate nonprotectionist ground.” Id. at 2474. The standard has 

teeth. “[M]ere speculation” or “unsupported assertions” of fact are insufficient 

to validate an otherwise discriminatory law. Id. If the “predominant effect” of 

the discriminatory law is protectionism and not “the protection of public health 

or safety,” the law is not shielded by § 2. Id. at 2474. In conducting the inquiry, 

courts must look for “concrete evidence” that the statute “actually promotes 

public health or safety,” or evidence that “nondiscriminatory alternatives 

would be insufficient to further those interests.” Id.

Section 22.16 is a facially neutral statute that bans all public corporations from obtaining P permits irrespective of domicile. Therefore, we focus on 

whether the ban was enacted with a discriminatory purpose or has a discriminatory effect on interstate commerce. 

B.

Although the district court correctly cited the Arlington framework, some 

of its discriminatory purpose “findings are infirm.” Veasey, 830 F.3d at 230

(quotation marks omitted). The record does not support “only one resolution of 

the factual issue,” as there is evidence that could support the district court’s 

finding of a purpose to discriminate, so we must remand for a reweighing of 

the evidence on that issue. Id.

“The burden of establishing that a challenged statute has a discriminatory purpose under the Commerce Clause falls on the party challenging the 

provision.” Allstate, 495 F.3d at 160. We consider the following non-exhaustive 

factors when determining whether a state legislature’s actions amount to purposeful discrimination against interstate commerce: (1) whether the effect of 

the state action creates a clear pattern of discrimination; (2) the historical 

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background of the action, which may include any history of discrimination by 

the decisionmakers; (3) the “specific sequence of events leading up” to the challenged state action, including (4) any “departures from normal procedures[;]” 

and (5) “the legislative or administrative history of the state action, including 

contemporary statements by decisionmakers.” Id. Legislators’ awareness of a 

discriminatory effect “is not enough: the law must be passed because of” that 

discriminatory effect. Veasey, 830 F.3d at 231 (applying the Arlington factors). 

The challenger must show that the discriminatory effect was “a substantial or 

motivating factor” leading to the enactment of the statute. Id. (quotation marks 

omitted). If the challenger meets that burden, defendants must “demonstrate 

that the law would have been enacted without this factor.” Id.

First, the district court properly found that Texas has a clear history of 

discriminating against out-of-state alcohol retailers. From the passage of its 

Liquor Control Act in 1935, Texas had prohibited out-of-state individuals and 

companies from owning package stores. In Cooper v. McBeath, this court invalidated Texas laws imposing durational residency requirements on alcohol retail store owners. 11 F.3d 547 (5th Cir. 1994) (Cooper I). While Cooper I was 

pending, the Texas Legislature enacted House Bill 1445, in an attempt to moot 

the Cooper I litigation. The bill repealed the residency requirements at issue 

in the case. Texas kept durational residency requirements for other permits. 

Soon after the governor of Texas signed the bill, the Cooper I plaintiffs moved 

to dismiss the appeal as moot. However, this court denied the motion and issued an opinion striking down the residency requirements, with language 

broad enough to apply to all the alcohol permits. Id. at 550–51, 554. Despite 

the Cooper I decision, Texas enforced durational residency requirements as applied to P permits for another twelve years—stopping enforcement only after 

the practice was permanently enjoined by a federal district court. S. Wine & 

Spirits of Texas, Inc. v. Steen, 486 F. Supp. 2d 626, 633 (W.D. Tex. 2007). The 

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evidence relied on by the district court was “not long past history.” Veasey, 830 

F.3d at 232. Texas decisionmakers have a history of discrimination.9

Addressing a second factor, the district court erred in finding that the 

legislative history of § 22.16 includes direct evidence of a purpose to discriminate against interstate commerce. The district court made much of the fact 

that § 22.16 was enacted in 1995, one year after Cooper I. A lawyer and lobbyist 

who worked on behalf of the TPSA drafted the corporation ban. The TPSA, 

which had vigorously defended the residency requirements struck down by this 

court, later admitted that there was a fear that “large stores could disrupt what 

had been a very stable business climate” and there could be a “Wal-Martization” of the Texas package store market. Further, the Texas legislature was 

aware that, but for the Cooper I decision, the TPSA would not have suggested 

and supported the public corporation ban.

Based largely on those findings regarding the conduct and motivations 

of the TPSA, the district court concluded that the Texas legislature enacted the 

public corporation ban with the same protectionist motivations. This despite 

the provision’s drafter testifying that he told legislators the purpose of the bill 

was accountability. He was the only witness at the committee hearings and 

told the legislators that the purpose of the bill was to promote accountability, 

or “to have real human beings who are easily identifiable, who are close to the 

business, and who ultimately bear personal responsibility for the actions of the

package store.” Years later—at trial—he admitted that he “knew that any bill 

[enacted] might be challenged” and that his “assignment was to craft a bill 

which . . . would survive a commerce clause challenge.” The district court determined that the “TPSA’s chief concern was maintaining the business climate 

 

9 Walmart also argues that actions taken by the TPSA evidence a history of discrimination. However, the actions of the TPSA do not control this inquiry. 

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created by the residency requirement,” and that the legitimate rationales concerning accountability were “pretextual.” However, in Veasey, we reiterated 

that overreliance on “post-enactment testimony” from actual legislators is 

problematic, and not “the best indicia of the Texas Legislature’s intent.” Veasey, 830 F.3d at 234. In light of Veasey, after-the-fact statements made by a 

non-legislator are certainly not sufficient indicia of legislative intent. 

The district court did not find evidence connecting any Texas legislator 

to the conclusion that the accountability rationale was pretextual. The only 

comments from a Texas legislator the district court relied on were made by 

state Senator Kenneth Armbrister. When asked to explain the purpose of the 

public corporation ban, Armbrister stated that the ban meant “you can’t have 

a package store inside a Walmart” and “Walmart can’t own the package store.”

As the district court noted, during the senate floor debate on Senate Bill 1063 

(which became § 22.16), Armbrister agreed with state Senator Henderson’s remark that the Legislature “wanted to have somebody from Texas with a license 

that you could get ahold of . . . to enforce the code.” 

However, the district court did not provide the context of the senators’ 

statements. Armbrister and Henderson were engaged in a discussion about the 

motivation for the public corporation ban when Armbrister stated that the purpose was to have a better way to “track” package store owners. Specifically, 

Armbrister stated, “I think what” both “the industry . . . and the [TABC] was 

trying to do is a better tracking system, because . . . you’ve got large-scale corporations that operate . . . it all ties in to(sic) the operation phase.” Henderson 

replied by explaining that a corporation could own a package store by obtaining 

the permit through a local licensee (presumably because Texas previously had 

enforceable durational-residency requirements), referring to the mechanism 

employed by corporations as a “fake-a-roo.” Next, Armbrister attempted to explain some exemptions to the ban when Henderson replied that the “fake-a-

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roo” was used because the legislators previously wanted only people from 

Texas to hold P permits “to enforce the code.” 

Significantly, Henderson asked Armbrister, “It’s not the bill . . . that 

keeps foreign ownership from coming in and . . . getting licenses, that kind of 

thing?” (emphasis added). To which Armbrister answered, “No. Those . . . both 

those bills are still pending in committee.” Henderson replied, “Good. Thank 

you.” Near the close of the floor debate, the Texas Senate voted to pass the bill. 

The floor debate was devoid of discriminatory remarks directed toward out-ofstate competition generally. The transcript reveals that there were entirely 

separate bills being advanced to address foreign owners. Moreover, the “Explanations and Arguments” in support of Senate Bill 1063 indicate that the reason 

for the ban was to ensure that owners were known to the community and “could 

be held accountable for responsible operation.” The document further states, 

“Courts have recently struck down . . . Texas resident law saying that it penalized out of state citizens” but there remained a need to have a human who is 

easily identifiable and responsible for the actions of a given package store business. The legislative history is merely “evidence of a legislative desire to treat 

differently two business forms . . . a distinction based not on domicile but on 

business form.” Allstate, 495 F.3d at 161.

There is no direct evidence of a discriminatory purpose in the legislative 

history; Plaintiffs rely on circumstantial evidence. The motivations and lobbying efforts of the TPSA are not direct evidence of legislative purpose. An admission that the drafter sought to create a law that would survive a constitutional challenge is not evidence of a discriminatory legislative purpose. There 

are no “stray protectionist remarks” in the legislative history, and even if there 

were, such remarks “are insufficient to condemn” an otherwise nondiscriminatory statute. Id.

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Turning to a third factor, the district court failed to apply the “presumption of legislative good faith” in finding that the sequence of events that led to 

the enactment of § 22.16 evidences a discriminatory purpose. Perez, 138 S. Ct. 

at 2324. In line with the district court, Walmart relies on the Texas Legislature’s failed attempt to moot Cooper I during the 1993 session and the Legislature’s enactment of the public corporation ban during the 1995 session. The 

TABC argues that it is irrelevant that the corporation ban was enacted in response to Cooper I. TPSA argues that the district court’s conclusion based in 

part on post-Cooper I conduct is inconsistent with controlling case law.

In Perez, the Supreme Court made it clear that “[t]he allocation of the 

burden of proof and the presumption of legislative good faith are not changed 

by a finding of past discrimination.” Id. at 2324. Past discrimination is merely 

one potential evidentiary source. Id. The district court specifically found that 

“if not for the Fifth Circuit striking down Texas’s residency requirement, TPSA 

would not have proposed, and the Legislature would not have enacted, the ban 

on public corporations holding package store permits.” 

While that finding might be true, there are problems with concluding 

those events evidence a purpose to discriminate. As stated previously, the 

TPSA’s motivations and actions are not sufficient indicia of legislative intent.

As a result, the only remaining evidence is the Texas Legislature’s actions in 

support of a discriminatory purpose during Cooper I. The district court flipped 

“the evidentiary burden on its head” based only on the recent history of discrimination. Id. at 2325. More than requiring Walmart to present specific 

events evidencing a discriminatory purpose connected to the public corporation 

ban, the district court placed the burden on appellants to provide evidence that 

the Texas Legislature had a true “change of heart” with respect to the residency requirements while enacting a ban that affects public corporations irrespective of location. Id. at 2326. 

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The burden flip was especially problematic because the district court’s 

findings arguably indicate that the Legislature sought to comply with the demands of the dormant Commerce Clause. The district court noted that Texas 

did not stop enforcing durational residency requirements as applied to package 

store owners until 2007, more than twelve years after § 22.16 was enacted. 

This also meant that the public corporation ban was enforced against Texas 

corporations while Texans still believed it was proper to deny would-be package store owners from outside the state. As far as the record reveals, Texas 

corporations were the only companies affected by the public corporation ban 

for at least a decade after it was enacted.10 In any event, the district court

committed clear error by failing to apply a presumption of good faith to the 

enactment of the public corporation ban.

The previously noted errors are further compounded because the district 

court misapplied the first Arlington factor. The first factor asks whether “a 

clear pattern of discrimination emerges from the effect of the state action.” Allstate, 495 F.3d at 160. The district court found that the corporation ban had 

the “effect of barring nearly all out-of-state companies with the scale and capabilities necessary to serve the Texas retail liquor market.” That finding does 

not answer the relevant question. For this dormant Commerce Clause inquiry, 

the question is: Does the legislative action affect Walmart based on its status 

as an out-of-state public corporation? See Allstate, 495 F.3d at 160–61. This 

error highlights a general flaw throughout the district court’s findings.

 

10 The public corporation ban does have a “grandfather clause” that exempts corporations that held a P permit before the day the statute was enacted. Tex. Alco. Bev. Code. § 

22.16(f). Because Texas enforced durational residency requirements for package store owners 

until 2007, the exempted corporations are Texas-based firms. This clause arguably provides 

some evidence of an effort by the Legislature to benefit in-state corporations, which the court 

can consider along with other evidence in this case. 

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The evidence indicates that the Legislature intended to ban public corporations from obtaining P permits after the state lost its ability to enforce the 

durational residency requirements for other permits. Based on the optics, the 

district court made several assertions without considering a critical point: Under the law of the Fifth Circuit, evidence that legislators intended to ban potential permittees based on company form alone is insufficient to meet the purpose element of a dormant Commerce Clause claim. See Allstate, 495 F.3d at 

161–62 (rejecting Allstate’s discriminatory purpose argument because the evidence indicated only a desire to treat business forms differently, without regard to location); Ford Motor Co. v. Texas Dep’t of Transp., 264 F.3d 493, 500–

01 (5th Cir. 2001) (rejecting discriminatory purpose argument because “the 

legislative history indicate[d] the legislature’s intent to prevent manufacturers 

from utilizing their superior market position to compete against dealers in the 

retail car market”); see also Exxon Corp. v. Maryland, 437 U.S. 117, 125 (1978)

(rejecting claims of disparate treatment because the statute did “not discriminate against interstate goods” or favor local companies over interstate companies). Section 22.16 bans public corporations from obtaining P permits irrespective of location. The ban’s effect on all public corporations provides strong 

evidence that the Legislature did not purposefully discriminate against out-ofstate corporations.11

While the district court committed several errors in finding that the Legislature adopted the public corporation ban with a purpose to discriminate 

against interest commerce, the record also contains circumstantial evidence 

that could support such a finding. As acknowledged, Texas has a history of 

 

11 The application of the first Arlington factor underscores why it is debatable whether 

the factors should be applied in the dormant Commerce Clause context. Under Allstate, Ford, 

and Exxon, a statute can create an obvious and significant barrier against out-of-state economic actors and, nevertheless, not evidence a discriminatory purpose. Good drafting can 

render the first Arlington factor hollow. 

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discriminating against out-of-state alcohol retailers. That history has significant “probative value in connection” with the discriminatory purpose inquiry. 

Veasey, 830 F.3d at 232. However, affirming the district court’s finding of a 

purpose to discriminate based on the history alone would create an odd result. 

States should be able to respond to a court deeming one of its laws unconstitutional. In addition, the present inquiry is further complicated because Texas 

enforced durational residency requirements against would be P permit holders 

for years after the public corporation ban was enacted. In this context, overreliance on the history alone would be a mistake. In line with Veasey,12 and the 

Supreme Court’s analysis in Perez, the history of discrimination should be

weighed “with any other direct and circumstantial evidence of th[e] Legislature’s intent.” Perez, 138 S. Ct. at 2327.

The district court committed errors in its findings with respect to the 

other Arlington factors. The appropriate action is to remand the discriminatory 

purpose issue for reconsideration in light of this opinion. See Veasey, 830 F.3d 

at 235 (explaining that discriminatory intent is a factual matter that, when set 

aside for an error of law, should be remanded for further proceedings).

C.

Moving on in the dormant Commerce Clause analysis, the district court 

found that the public corporation ban does not have a discriminatory effect.13

The district court reached that determination by following Allstate,14 Ford,15

 

12 830 F.3d at 232 (noting that “relatively contemporary examples of discrimination 

identified by the district court are limited in their probative value in connection with discerning the Texas Legislature’s intent”). 

13 The district court also acknowledged its “odd” result, finding the public corporation 

ban has a discriminatory purpose but not a discriminatory effect. As stated in Section III.B 

of this opinion, that result was partially attributable to the district court’s misapplication of 

the first Arlington factor. However, it also highlights the logical inconsistency that might 

result from applying the Arlington factors in a dormant Commerce Clause case. 

14 495 F.3d 162–63 (relying on Exxon and rejecting discriminatory effect argument). 

15 264 F.3d at 500–02 (relying on Exxon and rejecting discriminatory effect argument). 

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and Exxon.16 Exxon is the controlling dormant Commerce Clause case for considering a facially neutral statute that bans particular companies from a retail 

market. In Exxon, oil companies brought a dormant Commerce Clause challenge to invalidate a Maryland statute prohibiting producers and refiners of 

petroleum products from operating retail service stations in the state. The oil 

companies argued that the statute had the effect of protecting in-state independent dealers from out-of-state competition. Exxon, 437 U.S. at 125. The 

plaintiffs relied on the fact that the burden of the prohibition fell solely on interstate companies. Id.

The Supreme Court rejected the argument and explained that because 

“the burden of [a] state regulation falls on some interstate companies does not, 

by itself, establish a claim of discrimination against interstate commerce.” Id.

at 126. The Court’s reasoning was based on the following factors: (1) The prohibition did not restrict interstate dealers in the retail market; (2) did not restrict the flow of interstate goods; (3) did not place added costs on interstate 

goods; and (4) did not distinguish between in-state and out-of-state retailers in 

the market. Id. The Court declared that the absence of those factors “distinguishe[d] th[e] case from those in which a State has been found to have discriminated against interstate commerce.” Id. A burden on some interstate companies is not a violation if “in-state [retailers] will have no competitive advantage over out-of-state [retailers].” Id.

In Ford, this court considered Exxon and rejected the plaintiff’s discriminatory effect argument. The case involved a Texas statute that banned automobile manufacturers from obtaining a license to become car dealers in the 

state. This court explained that a statute should be examined by “its effect on 

similarly situated business entities.” Ford, 264 F.3d at 501. Ford had failed to 

 

16 437 U.S. at 125–26 (rejecting argument that statute had a discriminatory effect). 

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show that the Texas statute in question “discriminate[d] according to the extent of a business entity’s contacts with the State. . . . [B]ut rather [showed 

discrimination] on the basis of Ford’s status as an automobile manufacturer.” 

Id. at 502. It was irrelevant whether Ford is domiciled in Texas or Michigan. 

Id. Either way, Ford was proscribed from entering the Texas automobile retail 

market. The statute, however, did not discriminate against independent automobile dealers seeking to enter the Texas market. Id. Even if the statute “prevent[ed] manufacturers from utilizing their superior market position to compete against dealers in the retail car market[,]” the statute did not have a discriminatory effect on interstate commerce. Id. at 500. A statute can have a 

discriminatory effect if it provides a “competitive advantage to in-state interests vis-à-vis similarly situated out-of-state interests.” Id. at 501 (emphasis 

added).

Allstate is the most recent of the controlling cases.17 Allstate, which controlled approximately 15% of the automobile insurance market in Texas, initiated a plan to enter the auto body repair business by acquiring Sterling Collision Centers, Inc. (“Sterling”). Sterling was a multi-state chain of repair shops, 

including 15 shops in Texas. 495 F.3d at 155. Allstate believed it could minimize expenses for unnecessary or overpriced repairs, and eventually started 

funneling repair opportunities to Sterling instead of other local repair shops.

Id. Texas later passed a bill that barred insurers from acquiring an interest in 

 

17 In Churchill Downs Inc. v. Trout, this court acknowledged that, “[i]n cases where 

the challenged statutes are facially neutral, the Supreme Court has evinced a reluctance to 

take an expansive view of the concept of ‘discriminatory effects.’” 589 F. App’x 233, 236 (5th 

Cir. 2014). This court noted that the Court reached the conclusion in Exxon by using a narrow 

definition of “substantially similarly entities.” Id. The Court has been mostly reluctant to find 

that a facially neutral statute has a discriminatory effect. See id. (discussing Minnesota v. 

Clover Leaf Creamery Co., 449 U.S. 456, 458 (1981), in which the court upheld a faciallyneutral statute); id. at n.7 (citing Erwin Chemerinsky, Constitutional Law 447 (4th ed. 2011)

(citing Clover Leaf as an additional example of a case where “discriminatory impact” did not 

invalidate a facially neutral statute)). 

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auto body shops.18 Id. at 156. Allstate later filed suit, arguing in part that the 

bill violated the dormant Commerce Clause. Allstate chiefly argued that the 

bill was part of a coordinated political effort to hurt its Sterling venture and to 

maintain the market dominance of local Texas body shops. Id. The district 

court rejected the claim. Id. at 157.

On appeal, the plaintiffs argued that the bill had a discriminatory effect 

because it favored in-state companies and would shift some services from outof-state providers to in-state providers. 495 F.3d at 162. Relying principally on 

Exxon, this court rejected the discriminatory effect argument, stating that “[a] 

statute impermissibly discriminates only when it discriminates between similarly situated in-state and out-of-state interests.” Id. at 163.

In the present case, the public corporation ban treats in-state and outof-state public corporations the same. Neither in-state nor out-of-state public 

corporations may obtain a P permit or own a package store. There are “no barriers whatsoever to out-of-state” companies obtaining P permits so long as they 

are not a public corporation as defined by the statute. Allstate, 495 F.3d at 163. 

Further, § 22.16 does not “prohibit the flow of interstate [liquor retail products], place additional costs upon [out-of-state retailers], or distinguish between in-state and out-of-state companies in the retail market.” Id. (quotation 

marks omitted). “[T]he absence of any of these factors fully distinguishes this 

case from those in which a State has been found to have discriminated against 

interstate commerce.” Id. (quotation marks omitted). As the district court 

noted, Texas-based public corporations are prohibited from selling liquor in the 

state. Meanwhile, several companies owned by out-of-state residents have entered the Texas liquor retail market, including one of the ten largest liquor

 

18 The bill also included a grandfather clause that exempted facilities already open for 

business at the time. Allstate, 495 F.3d at 157 n.6. 

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retailers in the state.19 Despite the fact that the public corporation ban undoubtedly blocks some economic actors from entering the Texas liquor retail 

market,20 we agree with the district court that the ban does not have a discriminatory effect on interstate commerce.21

Because the district court committed clear error in finding that § 22.16 

was enacted with a purpose to discriminate against interstate commerce, and

given that we have concluded that the facially neutral ban does not have a 

discriminatory effect, we must remand this case for reconsideration of whether 

the ban was enacted with a discriminatory purpose.

 

19 Fine Wines & Spirits of North Texas, LLC is owned by a Maryland resident. 

20 See Ford, 264 F.3d at 512 (Jones, J., concurring) (concurring because Exxon is controlling but noting the barrier to retail competition from out-of-state). 

21 There is a tension, however, between the Court’s analysis in Exxon and dicta from 

its recent opinion in Tennessee Wine. 139 S. Ct. 2449. The case involved a set of Tennessee 

laws that placed durational-residency requirements on those seeking to obtain or renew a 

license to operate a liquor store in the state. Id. at 2456. One of the provisions provided that 

a corporation could not obtain a license to operate a liquor store unless all its stockholders 

are residents of Tennessee. Id. at 2457. The Sixth Circuit had previously found that provision 

facially discriminatory and affirmed that it violated the dormant Commerce Clause. Byrd v. 

Tennessee Wine & Spirits Retailers Ass’n, 883 F.3d 608, 626, 628 (6th Cir.), cert. granted, 139 

S. Ct. 52 (2018), and aff’d sub nom. Tennessee Wine, 139 S. Ct. 2449. The provision was not 

at issue in Tennessee Wine, but the majority commented on its discriminatory nature and its 

practical effect. The Court referred to the 100-percent-resident shareholder requirement as 

a “blatant” violation of the Commerce Clause. Id. at 2457. The Court also noted that the 

practical effect of the provision was that “no corporation whose stock is publicly traded may 

operate a liquor store in the State.” Id. But the Court did not say more on that point. Concluding the opinion, the majority added that “the predominant effect” of the 100-percentresident shareholder provision was to protect members of the Tennessee Wine and Spirits 

Retailers Association from out-of-state competition. Id. at 2476. The dicta in that opinion 

leaves many questions to be answered. Was the predominant effect of the provision protectionism because it was facially discriminatory or because of its practical effect? The Tennessee laws were all facially discriminatory, so the Court never conducted a discriminatory effect 

analysis. As this court has previously noted, “jurisprudence in the area of the dormant Commerce Clause is, quite simply, a mess.” Churchill Downs, 589 F. App’x at 235. Because of the 

ambiguity in the dicta from Tennessee Wine, we decline to conclude that the Court meant to 

alter the discriminatory effect analysis when specifically considering a general public corporation ban. Exxon remains the controlling Supreme Court precedent. 

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D.

The district court analyzed another means by which it concluded could 

invalidate a statute under the dormant Commerce Clause even if the statute 

did not discriminate facially, in purpose or in effect. The district court concluded that “a law that does not directly discriminate against interstate commerce” can still violate the dormant Commerce Clause if it imposes a burden 

on interstate commerce that is “clearly excessive” in relation to the “putative 

local benefits.” Pike v. Bruce Church, Inc., 397 U.S. 137, 142 (1970)). The district court determined that § 22.16 violates the dormant Commerce Clause under the Pike test. We conclude that remand is needed on this ground as well. 

A court should consider: (1) whether the law burdens interstate commerce;22 (2) whether there is a “legitimate local interest” in the law;23 and (3) 

when both are present, if the extent of the burden should be tolerated based on 

the local interest involved, including if the interest “could be promoted as well

with a lesser impact on interstate activities.”24 The inquiry is known as the 

Pike balancing test. Churchill Downs, 589 F. App’x at 237. When applying the 

Pike test in this context, “[a] statute imposes a burden when it inhibits the flow 

of goods interstate.” Allstate, 495 F.3d 151. Having already held that the public 

corporation ban was enacted with a purpose to discriminate, the district court 

further concluded that “the burden imposed on [interstate] commerce” by the 

public corporation ban “is clearly excessive in relation to the putative local benefits.” Pike, 397 U.S. at 142.

 

22 Pike, 397 U.S. at 142. 

23 Id.

24 Id. (emphasis added). 

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Appellants argue that the Pike test does not apply to a nondiscriminatory 

regulation of alcohol beverage retailing under the Twenty-first Amendment.25

Walmart contends that the controlling case law is clear that Pike can be applied to alcohol-related laws despite the Twenty-first Amendment.

The Supreme Court has not considered the issue. Further, none of our 

sister circuits have struck down a state regulation of liquor under Pike while 

also concluding that the Twenty-first Amendment applied. See Lebamoff Enterprises, Inc. v. Huskey, 666 F.3d 455, 467 (7th Cir. 2012) (Hamilton, J., concurring) (“What we do not find is a case applying Pike balancing and holding 

that a non-discriminatory state alcohol law flunks.”). Compare Baude v. Heath, 

538 F.3d 608 (7th Cir. 2008) (striking down statute that was discriminatory in 

effect while citing Pike without addressing the Twenty-first Amendment) with

Lebamoff, 666 F.3d at 468 (Hamilton, J., concurring) (“The Baude opinion does 

not, however, provide a persuasive basis for applying Pike balancing to nondiscriminatory state alcohol laws.”). Application of Pike in the face of § 2 of the

Twenty-first Amendment is questionable in light of the Court’s recent declaration that states “remai[n] free to pursue” legitimate interests aimed at regulating the ill-effects and risks associated with the alcohol trade. Tennessee 

Wine, 139 S. Ct. at 2472 (alteration in original) (quotation marks omitted).26

 

25 The TPSA asserts that Walmart failed to litigate Pike in the district court. However, 

Pike was either cited or raised by the parties numerous times during the district court proceedings. Walmart did not waive the Pike issue. 26 This is also true in light of the Court’s acknowledgement that three-tier systems for 

the control and distribution of alcohol are “unquestionably legitimate.” Granholm, 544 U.S. 

at 488–89 (quotation marks omitted). Various nondiscriminatory laws passed under threetier systems place at least some burden on interstate commerce. Pike balancing might be 

decisive in many cases. See Lebamoff, 666 F.3d at 469 (Hamilton, J., concurring). Granting 

courts the power to substitute a legislature’s policy considerations with its own when considering nondiscriminatory alcohol-related laws seems to be in direct tension with state power 

granted by § 2. Such tension lends support for Justice Scalia’s contention that the Pike “inquiry is ill suited to the judicial function and should be undertaken rarely if at all.” CTS Corp. 

v. Dynamics Corp. of Am., 481 U.S. 69, 95 (1987) (concurring).

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However, in Tennessee Wine, the Court “reiterate[d] that the Commerce 

Clause by its own force restricts state protectionism.” 139 S. Ct. at 2461 (emphasis added). While that is an ambiguous statement from a case involving a 

facially discriminatory provision, it is a signal that we need not get ahead of 

the Court by concluding that Pike balancing cannot be applied to a facially

neutral regulation of alcohol retailing.27 So we proceed with the test.

The inquiry ends at our first step in the analysis. The district court determined that the public corporation ban places a substantial burden on interstate commerce because it protects package stores owned by Texas residents 

from out-of-state market entrants. The district court relied on evidence that 

98% of the package stores in Texas are owned by in-state residents. Additionally, Walmart provided evidence that numerous out-of-state companies would 

enter the Texas liquor retail market if the ban was not in place. Appellants 

argued that the ban places an equal burden on in-state companies, presenting 

evidence that the number of publicly traded companies domiciled in Texas that 

are barred by the ban is roughly proportional to Texas’ share of the national 

population and national economy. The district court rejected appellants’ evidence and declared that “assessing disparate impact requires the Court to 

measure the effect the public corporation ban has on the in-state and out-ofstate companies that would otherwise serve the market if not for the ban.”

There is no authority which supports that conclusion. 

The district court’s analysis overlooks the controlling precedent. In 

Exxon, the Court instructed that the Commerce “Clause protects the interstate

 

27 The Court has cited Pike in dormant Commerce Clause cases involving alcohol-related laws. See Brown-Forman Distillers Corp. v. New York State Liquor Auth., 476 U.S. 573, 

579 (1986) (evaluating the constitutionality of state’s lowest-price affirmation provision of 

alcohol control law); Bacchus Imports, Ltd. v. Dias, 468 U.S. 263, 270 (1984) (considering the 

constitutionality of a liquor excise tax). In the absence of controlling authority, we will not 

exempt an entire category of laws from the Pike test. 

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market, not particular interstate firms.” Exxon, 437 U.S. at 128 (emphases 

added). The Court explained that interstate commerce is not “subjected to an 

impermissible burden” because some potential participants are shifted out of 

the in-state market. Id. at 127.28 As noted in Allstate, “[t]he Supreme Court 

has ‘rejected the notion that the Commerce Clause protects the particular 

structure or methods of operation in a . . . market.’” Allstate, 495 F.3d at 163–

64 (quoting CTS Corp., 481 U.S. at 93–94). In that case, this court rejected the 

assertion that there was a substantial burden on interstate commerce, in part 

because the Texas law in question did not prohibit interstate economic actors 

from entering the in-state market. Id. at 164 (rejecting assertion that a company’s inability to expand imposes a burden on interstate commerce). Similar

to Allstate, appellants in the present case have provided evidence that several 

package stores in Texas are owned and operated by out-of-state residents. See 

id. (finding the same).

The district court should have considered evidence addressing the public 

corporation ban’s effect on the flow of interstate goods, or how the ban affects 

the flow of the potential market participant’s goods to the Texas liquor retail 

market. See id. at 163 (“A statute imposes a burden when it inhibits the flow 

of goods interstate.”); Ford, 264 F.3d at 503 (finding the plaintiff “failed to 

demonstrate that [the statute] will burden commerce by inhibiting the flow of 

interstate goods”); see also Exxon, 437 U.S. at 126 n.16 (“If the effect of a state 

 

28 Walmart incorrectly asserts that Lewis v. BT Inv. Managers, Inc., informs the Pike

inquiry in this case. 447 U.S. 27 (1980). The Court made it clear that the prohibition in that 

case discriminated among similarly situated business entities according to their contact with 

the local state economy. See id. at 42 (“It follows that [the statue] discriminates among affected business entities according to the extent of their contacts with the local economy. The 

absence of a similar discrimination between interstate and local producer-refiners was a most 

critical factor in Exxon.”) (emphasis in original). The Court determined that the statute had 

a discriminatory effect but concluded that it failed the Pike test. Id. Again, Exxon, Ford, and 

Allstate are controlling in this case. 

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regulation is to cause local goods to constitute a larger share, and goods with 

an out-of-state source to constitute a smaller share, of the total sales in the 

market . . . the regulation may have a discriminatory effect on interstate commerce.”). The record is devoid of such evidence. Therefore, a remand is necessary to allow the trial court to find facts for proper application of the Pike test.29

We vacate the portion of the district court’s judgment that the public 

corporation ban violates the dormant Commerce Clause because remand is 

warranted on two separate grounds. 

E.

The district court also determined that the public corporation ban does 

not violate the Equal Protection Clause because the ban is rationally related 

to the state’s legitimate purpose of reducing the availability and consumption 

of liquor throughout Texas. Walmart argues that (1) heightened scrutiny 

should apply to the ban because the law imposes an “absolute deprivation” of 

a benefit due to the applicant’s supposed wealth; and (2) the ban has the hallmarks of “animus” against public corporations. Walmart adds that the ban is 

also irrational. Appellants argue that the public corporation ban is an economic 

regulation that is not subject to heightened review and clearly survives rational basis review. We agree with the latter. 

Under the Equal Protection Clause of the Fourteenth Amendment, “[n]o 

State shall . . . deny to any person within its jurisdiction the equal protection 

of the laws.” U.S. Const. amend. XIV, § 1. Walmart has failed to provide support for its assertion that a general ban on public corporations warrants heightened scrutiny.30 Walmart is not a member of a protected class and the public 

 

29 The district court also found that the public corporation ban is rationally related to 

a legitimate state interest. However, because there is not a sufficient factual record to weigh 

against the state interest, we do not consider the issue at this time. A remand is warranted. 

30 Walmart’s contention, that the ban was enacted with animus toward public corporations generally and animus toward Walmart specifically, may be true. However, Walmart 

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corporation ban does not infringe upon a fundamental right. Therefore, we apply a rational basis review. Hines v. Alldredge, 783 F.3d 197, 202–03 (5th Cir. 

2015). “Under this standard, a legislative classification ‘must be upheld 

against equal protection challenge if there is any reasonably conceivable state 

of facts that could provide a rational basis for the classification.’” Glass v. Paxton, 900 F.3d 233, 244–45 (5th Cir. 2018) (quoting FCC v. Beach Commc’ns, 

Inc., 508 U.S. 307, 313 (1993)). The parties challenging the “presumption of 

validity” granted to legislative classifications must negate every conceivable 

basis which might support the legislation. Id. at 245. 

Rational basis review is fact intensive. The review “places no affirmative 

evidentiary burden on the government, [but] plaintiffs may nonetheless negate 

a seemingly plausible basis for the law by adducing evidence of irrationality.” 

St. Joseph Abbey v. Castille, 712 F.3d 215, 223 (5th Cir. 2013). While a “hypothetical rationale” is acceptable, it “cannot be fantasy.” Id. The government 

action “must rationally relate to the state interests it articulates.” Id. “[W]e 

will examine the State[’s] rationale informed by the setting and history of the 

challenged rule.” Id.

The district court determined that the public corporation ban is conceivably related to Texas’ legitimate purpose to reduce the availability and consumption of liquor. On appeal, Walmart contends that this conclusion was 

made up of “hypothetical . . . lawful links.” Walmart adds that allowing the ban 

would “justify banning any group the Legislature might conceivably believe 

 

has failed to provide a single case indicating that heightened scrutiny should be applied to 

such an Equal Protection Claim. Walmart cites Bishop v. Smith. 760 F.3d 1070, 1099–1100 

(10th Cir. 2014) (Holmes, J., concurring). However, Bishop did not involve an application of 

heightened scrutiny based on animus toward corporations. Walmart has also failed to provide 

support for its contention that a corporation’s perceived wealth warrants inclusion in a protected class. 

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would be more successful at retail” and the hypothetical is “contrary to basic 

economic truth.” Walmart’s pleas are unavailing. 

Walmart does not dispute that Texas has a legitimate interest in regulating the consumption of liquor and limiting the effects of liquor-related externalities. The state could believe that excluding public corporations reduces 

both the total number of package store firms and overall liquor consumption, 

driving up prices. Relatedly, it is more than reasonable to assume that the 

state believed that public corporations have the capital and scale to offer liquor 

well below current prices. In fact, that assumption was included in Walmart’s 

argument that the public corporation ban keeps liquor prices “artificially high” 

and forces consumers to pay “non-competitive prices.” Walmart’s own arguments support the district court’s conclusion. Walmart has not negated the 

theory that excluding public corporations from the liquor retail market increases prices. We conclude that there is a rational basis for Texas’ decision to 

ban all public corporations from obtaining P permits. The public corporation 

ban does not violate the Equal Protection Clause.

F.

While this appeal was pending, the governor of Texas signed into law 

House Bill 1545. Section 82 of the bill raises the five P permit limit created by 

Tex. Alco. Bev. Code § 22.04, to 250 P permits. A permittee may obtain up to 

15 original P permits each year, and an unlimited number of permits purchased from already-existing stores. Section 85 of the bill repeals Tex. Alco. 

Bev. Code § 22.05, the consanguinity exception to the five-permit limit. The bill 

takes effect on September 1, 2019. Tex. H.B. 1545, §§ 82, 84. Walmart now 

seeks to withdraw its challenges to §§ 22.04 and 22.05, and has requested that 

we vacate the district court’s judgment in its favor with respect to those challenges. The parties agree that we should vacate the district court’s judgment 

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in Walmart’s favor with respect to those challenges.31 Accordingly, we do not 

address Walmart’s challenges to §§ 22.04 and 22.05. The challenges are withdrawn. Remand is warranted in this case, and we leave for the district court to 

consider in the first instance whether the judgment in favor of Walmart with 

respect to §§ 22.04 and 22.05 should be vacated.

IV. Conclusion

For the reasons stated above, the district court’s judgment enjoining enforcement of § 22.16 is VACATED. The district court’s judgment that § 22.16 

does not violate the Equal Protection Clause is AFFIRMED. The district court’s 

judgment that § 22.16 offends the dormant Commerce Clause is VACATED 

and REMANDED for further proceedings consistent with this opinion.

 

31 Walmart did not file a motion but made its request in a Federal Rule of Appellate 

Procedure 28(j) letter submitted to this court on June 17, 2019. On June 19, 2019, the TPSA 

submitted a response to the 28(j) letter agreeing with Walmart. The TABC submitted a response on June 20, 2019, agreeing that the district court’s judgment should be vacated.

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