DAN MORALES 

ATTORNEY GENERAL 

QBffice of tip !ZIttornep @eneral 

Mate of lltexas 

December 12,1994 

Mr. Doyne Bailey 

Administrator 

Opiion No. DM-3 10 

Texas Alcoholic Beverage Commission 

P.O. Box 13127 

Austin, Texas 78711-3127 

Re: Whether section 5.05(a) of the Texas 

Alcoholic Beverage Code prohibits a 

member of the Texas Alcoholic Beverage 

Commission from investing money through 

an investment advisory firn& which, using 

an unrelated broker, may invest the money 

in wrporations that engage in the sale of 

alcoholic beverages (RQ-555) 

Dear Mr. Bailey: 

On behalf of the members of the Texas Alcoholic Beverage Commission (the 

“wmmission”), you have asked us to interpret section 5.05 of the Alcoholic Beverage 

Code (the “code”). Section LOS(a) provides as follows: 

No person may be appointed to or serve on the commission, or 

hold an office under the commission, or be employed by the 

commission, who: 

(1) has any financial connection with a person engaged in 

an alcoholic beverage business; 

(2) holds stocks or bonds in an alcoholic beverage business; 

or 

(3) has a pecuniary interest in an alcoholic beverage 

business. 

We understand that one of the members has 

placed a sum of money with an investment advisory firm which, 

through an unrelated broker, makes investments on [the member’s] 

behalf Stocks are purchased in street name for [the member’s] 

benefit. [The member] exercisers] no control in the ordinary course 

over which stocks the investment firm instructs the broker to buy or 

sell. The firm manages a multi-billion dollar diversified portfolio for 

thousands of clients. The same stocks are purchased for each client. 

[The member’s] holdings are an infinitesimal percentage of the total 

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Mr. Doyne Bailey - Page 2 (DM-3 10) 

portfolio. The firm does not consult with [the member] about what 

stocks to buy or sell. . [The member] know[s] about [the] 

portfolio changes only when [the member] receive[s] an after-the.- 

fact statement regarding [the memba’s] holdings and their value. 

. . 

The problem is complicated by the fact that hundreds of major 

corporate conglomerates have, at least arguably, some indirect 

connection to “the alcoholic beverage business.” Pilsbwy, for 

example, owns Steak ‘N’ Ale restaurants, which serve not only steak 

but beer. The alcohol sales constitute a minute 6action of Pilsbury’s 

revenues. Pepsi owns Pizza Hut, which serves beer. All commercial 

airlines hold alcoholic beverage permits. 

The legislature codified section 5.05 in 1977. See Acts 1977, 65th Leg., ch. 194, 

5 1, at 397. The legislature intended the wtication to be a nonsubstantive adaptation of 

article 666-5 of the Penal Code’ (see id. 9 7, at 558), which, according to the Revisor’s 

Note to section 5.05 of the code, the legislature designed “to prevent wntlicts of interest 

among members, officers, and employees of the commission.” This office considered 

article 666-5 in Attorney General Opinion V-1259 (1951). The opinion stated that in 

article 666-5 the legislature devised a statutory scheme under which the Liquor Control 

Board (the predecessor to the wmmission) was “an independent agency whose actions 

would not be intluenckd by a financial interest in the industry over which it exercised 

jurisdiction.” Attorney General Opinion V-1259 at 5. 

Indeed, this state has a long-standing policy prohibiting a state officer or employee 

fkom having any interest, financial or otherwise, direct or indirect, or from engaging in a 

business transaction or professional activity that substantially wnfiins with the proper 

discharge of his or her duties in the public interest. 60 TEX. JUR. 3D Public Oflcers md 

Employees $ 144, at 561 (1988). The legislature has enacted several statutes that wdii 

this long-standing policy. See, e.g., Gov’t Code $ 572.051; Local Gov’t Code 

3 171.003(a); Tax Code $41.69. The Texas Court of Civil Appeals discussed the policy 

in Meyers v. Walker, 276 S.W. 306 (Tex. Civ. App.--Eastland 1925, no tit). Meyers 

involved city officials who had a pecuniary interest in a contract into which the city 

*Fomm anick 6664 of the Penal Code, now codified at section 5.05 of the Alcoholic Bcvzrage 

Code, provided in pertinent part as follows: 

No person shall be eligible for appointment, nor shall hold the office of 

memberoftheBoard,....whohasanymnnMionwilhanyassociation,firm, 

person, or corporation engaged in or conducting any alcoholic liquor business of 

any kind or who holds stocks or bonds therein, or who has pecu&~~ inter& 

therein. 

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Mr. Doyne Bailey - Page 3 (DM-310) 

entered. The court explained the rationale behind a statute codifying the state’s longstandiilg policy as follows: 

Cur lawmakers were wise in trying not only to remove temptation 

but to place the public official even above the suspicion of 

wrongdoing. The idea of keeping the public in the wntldence of the 

official would bring co-operation and loyalty in the administration of 

government and enforcement of law, and these principles underlie the 

security of our government. 

Id. at 307. We recognize that Meprs involved a contract baleen a governmental body 

and a private corporation and is therefore diGrent from the situation you descrii. We 

believe, however, that the wurt’s discussion of the policy behind a statute prohiiiting 

wnfhcts of interest is instructive. 

Section 1.03 of the code mandates that we liberally wnstrue its provisions to 

protect the welfme, health, peace., temperance, and safety of the people of the state. On 

its face, section 5.05 absolutely prohibits a member of the commission from having rmy 

financial connection with a person engaged in an alcoholic beverage business, holding uqy 

stocks or bonds in an alcoholic beverage business, or having cmy pecuniary interest in an 

alcoholic beverage business. In our opinion, section 5.05 thus precludes a wmmissioner 

from investing in an “alcoholic beverage business,” even if the wmmissioner accomplishes 

the investment through an investment advisory firm. 

Accordingly, we must determine the meaning the legislature intended to attach to 

the phrase “alwhohc beverage business” in the context of section 5.05. The code does 

not dehe the term, although it defines “alwholic beverage” as “alcohol, or any beverage 

wntaining more than one-half of one percent of alcohol by volume, which is capable of 

use for beverage purposes, either alone or when diluted.” Alw. Bev. Code 8 1.04(l). 

“‘Business” implies a commercial or mercantile activity. See WEBSTER’S Nm NEW 

COUXSTE DICTIONARY 190 (1990) (defining “business”); see ulso Gov’t Code 

5 311.01 l(a) (stating that words used in code shah be wnstrued according to common 

usage); Alw. Bev. Code 5 1.02 (stating that Code Construction Act applies to 

wnstruction of each provision in code). Thus, an “alwholic beverage business” is a 

business involved in the wmmerce and merchandising of alcoholic beverages. 

Furthermore, because we must strictly construe the language of the statute (see Meyers, 

276 SW. at 306, 307 (stating that statutory provisions concerning state officer’s interest 

generally are construed strictly)), we include within the scope of “aiwholic beverage 

business” a corporation that engages only incidentally in the commerce and merchandising 

of alcoholic beverages, such as a corporation whose subsidiary engages in the sale of beer 

or an airline that sells alcoholic beverages. 

We believe this interpretation of the statute is consistent with the state’s longstanding policy against conflicts of interest as well as the legislative intent to create, in the 

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Mr. Doyne Bailey - Page 4 (DM-3 10) 

Alcoholic Beverage Commission, “an independent agency whose actions would not be 

intluenced by a financial interest in the industry over which it exercised jurisdiction.” See 

Attorney General Opinion V-1259 at 5. If we construed section 5.05 to permit a member 

of the commission to hold stocks or any other pecuniary interest in a corporation that 

engages in the sale of alcoholic beverages, even if such sales are conducted by one of the 

corporation’s subsidiaries or if the sales are incidental to the corporation’s primary 

business, the member would be required to pass regulations that may a&ct the 

corporation’s profits and, ultimately, the return on the wmmissioner’s investment.s See 

Attorney General Opinion JM-671(1987) at 3. Moreover, although the member’s interest 

in the corporation involved in the alcoholic beverage business may be de minimis, the 

state’s rules against wntlict of interest have been wnstrued to prohibit small interests.s 

See id. (and sources cited therein). 

2We concede that the legislature, when it enacted the statutory pmdecemo rtosection5.05ofthe 

Alcoholic Beverage Code in 1935, probably did not consider imestmen t vebiclca aucb as inwstment 

adviamy tirms. Nor did it probably envision corporations with subsidiaries involved in multiple 

oxnmercial activities, such as DepsiCo or RJR Nabisco. We feel, however, that the proper solution to the 

problem you raise is one that the legislature must devise. 

‘We note two provisions in chapter 572 of the Govemme.nt Code that may be applicable to the 

situation you posit. See Gov’t Cede 88 572.058(a) (mquiring offiar who is member of board or 

commission haying policy direction over state agency publicly to disclose any personal or private intereat 

in measure, proposal, or decision pending before board or commission and to refrain from participating 

aud voting in decision), 572.051(4) (prohibiting state officer from mahing “personal itmestments that 

could reasonably be ucpeaed to create a substantial contbct behvoen [his] private interest and the public 

interest”); see also id. 5 572.002( 12) (defining “state officer” as, among other things, “appointed officer”), 

(l)(D) (defining “appointed of&r” to include member of commission). Section 5.05 of the Alcoholic 

Beverage Cc& specitically applies to members of the umuuission; thus, to the extent of any contlict 

bchveen section 5.05 of the Alcoholic Beverage Code and the provisions in chapter 572 of the 

Government Code, section 5.05 controls. See 2B .SUTHEFLAND, STATUTORY CONSTIUJCT~ON g 51.02, at 

121 (Stb cd. 1992). 

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Mr. Doyne Bail9 - Page 5 (DM-310) 

SUMMARY 

Section 5.05(a) of the Texas Alcoholic Beverage Code prohibits 

a member of the Texas Alcoholic Beverage Commission from 

investing money in any corporation that engages in the sale of 

alcoholic beverages, even if the member makes the investment 

through an investment advisory 6rm. Additionally, section 5.05(a) 

prohibits a member of the Texas Alcoholic Beverage Commission 

from investing in a corporation whose sole contact with the alcoholic 

beverage business is through a subsidiary or for which the sale of 

alcoholic beverages is purely incidental to the corporation’s primary 

business. 

mrswd~om~--. 

DAN MORALES 

Attorney General of Texas 

JORGE VEGA 

Fii Assistant Attorney General 

DREW T. DLJRHAh4 

Deputy Attorney General for Criminal Justice 

JAVIBR AGUILAR 

Special Assistant Attorney General 

RENEA HICKS 

State Solicitor 

SAIUH J. SHIRLEY 

Chair, Opiion Committee 

Prepared by Kymberly K. Oltrogge 

Assistant Attorney General 

p. 1658