Court Opinion

ID: 4129871
Source: CourtListenerOpinion
Date Created: 2017-02-18 00:57:27.634152+00
Date Added: 2024-06-11T14:31:29.658813
License: Public Domain

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                                       Mate of lltexas
DAN MORALES
 ATTORNEY
      GENERAL                           December 12,1994

     Mr. Doyne Bailey                               Opiion No. DM-3 10
     Administrator
     Texas Alcoholic Beverage Commission            Re: Whether section 5.05(a) of the Texas
     P.O. Box 13127                                 Alcoholic Beverage Code prohibits a
     Austin, Texas 78711-3127                       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

                                               p.   1654
Mr. Doyne Bailey - Page 2                   (DM-310)

           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 codifiedat section 5.05 of the AlcoholicBcvzrage
Code,providedin pertinentpart as follows:

               No person shall be eligible for appointment,nor shall hold the office of
           memberoftheBoard,....whohasanymnnMionwilhanyassociation,firm,
           person,or corporationengagedin or conductingany alcoholicliquor businessof
           any kind or who holds stocks or bonds therein, or who has pecu&~~ inter&
           therein.

                                             p. 1655
Mr. Doyne Bailey - Page 3                   (DM-310)

entered. The court explained the rationale behind a statute codifying the state’s long-
standiilg 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’SNm             NEW
COUXSTE DICTIONARY190 (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 long-
standing policy against conflicts of interest as well as the legislative intent to create, in the

                                            p.   1656
Mr. Doyne Bailey - Page 4                     (DM-310)

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).

        2Weconcedethat the legislature,when it enactedthe statutorypmdecemortosection5.05ofthe
Alcoholic Beverage Code in 1935, probablydid not consider imestment vebiclca aucb as inwstment
adviamy tirms. Nor did it probably envision corporationswith subsidiaries involved in multiple
oxnmercial activities,such as DepsiCoor RJRNabisco. We feel, however,that the propersolution to the
problemyou raise is one that the legislaturemustdevise.

         ‘We note two provisionsin chapter572 of the Govemme.ntCode that may be applicableto the
situation you posit. See Gov’t Cede 88 572.058(a) (mquiring offiar who is member of board or
commission haying policy directionover stateagencypubliclyto disclose any personalor privateintereat
in measure,proposal,or decision pending beforeboardor commission and to refrainfrom participating
aud voting in decision), 572.051(4) (prohibitingstate officer from mahing “personalitmestmentsthat
could reasonablybe ucpeaed to createa substantialcontbctbehvoen [his] privateinterestand the public
interest”);see also id. 5 572.002(12) (defining“stateofficer”as, amongotherthings, “appointedofficer”),
(l)(D) (defining “appointedof&r” to include memberof commission). Section 5.05 of the Alcoholic
BeverageCc& specitically applies to membersof 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
GovernmentCode, section 5.05 controls. See 2B .SUTHEFLAND,        STATUTORY CONSTIUJCT~ON  g 51.02, at
121 (Stb cd. 1992).

                                                p.   1657
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