Court Opinion

ID: 6351035
Source: CourtListenerOpinion
Date Created: 2022-06-20 00:11:53.195199+00
Date Added: 2024-06-11T09:15:54.675104
License: Public Domain

Supreme Court of Texas
                          ══════════
                           No. 22-0062
                          ══════════

                  Gabriel Investment Group, Inc.,
                             Appellant,

                                  v.

               Texas Alcoholic Beverage Commission,
                              Appellee

   ═══════════════════════════════════════
               On Certified Questions from the
      United States Court of Appeals for the Fifth Circuit
   ═══════════════════════════════════════

                       Argued March 24, 2022

      JUSTICE BLACKLOCK delivered the opinion of the Court.

      Retail liquor stores in Texas operate under “package store
permits” governed by Chapter 22 of the Alcoholic Beverage Code. In
1995, the Legislature prohibited public corporations from owning or
holding an interest in package store permits. TEX. ALCO. BEV. CODE
§ 22.16(a).   At the same time, the Legislature exempted from this
prohibition any public corporation that, as of April 1995, already had
permits or had permit applications pending. Id. § 22.16(f). The Fifth
Circuit certified the following questions about the scope of this
exemption:

      1.     If Texas Alcoholic Beverage Code Section 22.16(f)
             exempts a package store from section 22.16(a), and
             if the package store sells any, most, or all of its
             shares to a corporation that does not itself qualify
             under section 22.16(f), will the package store’s
             package store permits remain valid?
      2.     If yes to (1), can the package store validly
             accumulate additional package store permits by
             reason of section 22.16(f)?
24 F.4th 503, 508 (5th Cir. 2022).
      As is customary, the Fifth Circuit “disclaim[ed] any intention or
desire that the Court confine its reply to the precise form or scope of the
question certified.”   Id.   The parties agree we should construe the
certified questions to ask about a public corporation’s package store
permits, not a “package store’s package store permits.” We understand
the questions to ask whether section 22.16(f) continues to exempt a
public corporation if that corporation sells some or all its shares to a
non-exempt corporation, and, if so, whether the exempt corporation can
acquire additional package store permits.
      We answer both questions yes. Subsection 22.16(f) provides that
section 22.16 “shall not apply” to an exempt public corporation. TEX.
ALCO. BEV. CODE § 22.16(f). The only way to answer either certified
question “no” would be to “apply” section 22.16 to limit the rights of an
exempt public corporation.      Of course, applying section 22.16 as
contemplated in the certified questions would also apply section 22.16
to a non-exempt corporation, as the statute otherwise permits. But this
does not change the fact that section 22.16 cannot be used to restrict an

                                     2
exempt corporation’s ownership of package store permits without
“applying” the section to the exempt corporation.               Simultaneous
application of the statute to two corporations—one exempt and one
non-exempt—inescapably includes applying the statute to the exempt
corporation, in violation of section 22.16(f). Although this result may
lead to consequences many have not heretofore anticipated, we consider
it to be dictated by the statute’s text, and the Legislature is of course
free to respond to our decision as it sees fit.
                                       I.
       The Alcoholic Beverage Code heavily regulates the ownership of
package store permits. For instance, “a person may not hold or have an
interest, directly or indirectly, in more than 250 package stores or in
their business or permit.”1 Id. § 22.04(a). In a similar vein, the Alcoholic
Beverage Commission (TABC) cannot issue more than 15 permits to one
person in a calendar year, subject to exceptions. See id. §§ 22.04(c),
22.041. And no person “who holds a package store permit or owns an
interest in a package store may have a direct or indirect interest” in:
       (1) a brewer’s, retail dealer’s on-premise, or general or
       branch distributor’s license;
       (2) a wine and malt beverage retailer’s, wine and malt
       beverage retailer’s off-premise, or mixed beverage permit;
       or
       (3) the business of any of the permits or licenses listed in
       Subdivisions (1) and (2) of this subsection.

       1  “[A] person has an interest in any permit in which his spouse has an
interest; and . . . as to a corporate permittee, the stockholders, managers,
officers, agents, servants, and employees of the corporation have an interest in
the permit, business, and package stores of the corporation.” TEX. ALCO. BEV.
CODE § 22.04(b).

                                       3
Id. § 22.06.
       In 1995, the Legislature added the following restriction regarding
public corporations:
       A package store permit may not be owned or held by a
       public corporation, or by any entity which is directly or
       indirectly owned or controlled, in whole or in part, by a
       public corporation, or by any entity which would hold the
       package store permit for the benefit of a public corporation.

Id. § 22.16(a).   The statute defines “public corporation” as: “(1) any
corporation or other legal entity whose shares or other evidence of
ownership are listed on a public stock exchange; or (2) any corporation
or other legal entity in which more than 35 persons hold an ownership
interest in the entity.” Id. § 22.16(b).2
       The prohibition on public-corporation involvement with package
store permits never covered all public corporations.           Instead, it
contained two exemptions. First, “[t]his section shall not apply to a
package store located in a hotel.” Id. § 22.16(d). Second, the exemption
at issue here provides:
       (f) This section shall not apply to a corporation:
               (1) which was a public corporation as defined by this
               section on April 28, 1995; and
               (2) which holds a package store permit on April 28,
               1995, or which has an application pending for a
               package store permit on April 28, 1995; and
               (3) which has provided to the commission on or
               before December 31, 1995, a sworn affidavit stating

       2Throughout this opinion, we use the term “public corporation” in the
same slightly unconventional way the Legislature used it in section 22.16.

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              that such corporation satisfies the requirements of
              Subdivisions (1) and (2).
Id. § 22.16(f).
       Gabriel Investment Group, Inc. (GIG) sells liquor at 45 stores in
Texas under the trade names “Gabriel’s” and “Don’s & Ben’s Liquor.”
See 24 F.4th at 504; 630 B.R. 216, 217 (W.D. Tex. 2021). GIG has been
around since the 1940s but was not incorporated until April 13, 1995.
24 F.4th at 504. A little over a week after incorporating, and just before
the statutory deadline in subsection (f), GIG applied for a package store
permit. TABC issued the permit in August 1995. Id. In December 1995,
GIG filed an affidavit with TABC attesting that it met the requirements
of section 22.16(f).      Id.    The parties agree that GIG satisfied
section 22.16(f)’s requirements and is thus covered by the subsection (f)
exemption.
       In September 2019, GIG filed for Chapter 11 bankruptcy. As part
of its bankruptcy plan, GIG proposed to divide itself into two distinct
entities: (1) a privately held corporation that would continue operating
as a chain of 32 Texas liquor stores,3 and (2) a public corporation that
would continue, as GIG, to own and acquire package store permits under
the subsection (f) exemption. 622 B.R. 213, 215–16 (Bankr. W.D. Tex.
2020); 630 B.R. at 218–19. Irrespective of the details of the proposed
transaction, the parties agree we should assume that the public
corporation known as GIG that may emerge from bankruptcy will

       3The private corporation is irrelevant to our resolution of the certified
questions.

                                       5
remain the very same public corporation known as GIG that qualified
for the subsection (f) exemption in 1995.4
       GIG has proposed to sell all or part of its shares to another public
corporation, apparently a major publicly traded company. 630 B.R. at
219. Again, the parties ask us to assume that, after any such sale, GIG
will remain a public corporation with an ongoing corporate identity
distinct from that of its shareholder(s). GIG’s value, of course, depends
in large part on its continuing ability to acquire and maintain package
store permits. See id. GIG therefore asked TABC if a stock sale to a
public corporation that was not exempt under subsection (f) would affect
GIG’s exemption. See id. TABC answered that GIG would no longer
enjoy the protections of subsection (f) if it sold shares to a non-exempt
public corporation. See id.
       After receiving this answer, GIG sought a declaration against
TABC from the federal bankruptcy court that:
       (1) GIG is and will remain exempt from the
       public-corporation ban set forth in section 22.16(a)
       regardless of whether any future direct or indirect owner(s)
       of all or any portion of the issued and outstanding stock of
       GIG is itself a public corporation; and (2) the rights and
       privileges associated with GIG’s section 22.16(f) exemption
       from the public-corporation ban will continue unimpaired
       following any acquisition of all or any portion of GIG’s
       issued and outstanding stock.

       4  The post-bankruptcy public corporation has been denominated
“Legacy GIG,” but because the parties agree we should treat it as identical to
the GIG corporation that qualified for the subsection (f) exemption in 1995, we
will refer to it simply as GIG.

                                      6
622 B.R. at 216.     GIG and TABC filed cross-motions for summary
judgment on this question.
      The bankruptcy court sided with TABC. Id. at 221. GIG appealed
to the district court, which affirmed. 630 B.R. at 217. The court held
that only corporations that satisfy subsection (f) can own or control a
package store permit. See id. at 228. Thus, “the exemption does not
extend to a public corporation that directly or indirectly owns or controls
an entity that holds a [] permit or would benefit from the [] permit, even
if the entity that holds the [] permit is exempt.” Id. GIG appealed. The
Fifth Circuit certified the questions quoted above. 24 F.4th at 508. We
accepted the certified questions.
                                    II.
                                    A.
      This statutory-interpretation dispute requires us to focus on
section 22.16 of the Alcoholic Beverage Code, reproduced here in full:
      (a) A package store permit may not be owned or held by a
      public corporation, or by any entity which is directly or
      indirectly owned or controlled, in whole or in part, by a
      public corporation, or by any entity which would hold the
      package store permit for the benefit of a public corporation.
      (b) For purposes of this section, a public corporation means:
             (1) any corporation or other legal entity whose
             shares or other evidence of ownership are listed on a
             public stock exchange; or
             (2) any corporation or other legal entity in which
             more than 35 persons hold an ownership interest in
             the entity.
      (c) Before the commission may renew a package store
      permit, an individual who is an owner or officer of the
      permittee must file with the commission a sworn affidavit

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      stating that the permittee fully complies with the
      requirements of this section.
      (d) This section shall not apply to a package store located
      in a hotel.
      (e) Any package store permittee who is injured in his
      business or property by another package store permittee or
      by any other person by reason of anything prohibited in
      this section may institute suit in any district court in the
      county where the violation is alleged to have occurred to
      require enforcement by injunctive procedures and to
      recover triple damages plus costs of suit including
      reasonable attorney’s fees.
      (f) This section shall not apply to a corporation:
             (1) which was a public corporation as defined by this
             section on April 28, 1995; and
             (2) which holds a package store permit on April 28,
             1995, or which has an application pending for a
             package store permit on April 28, 1995; and
             (3) which has provided to the commission on or
             before December 31, 1995, a sworn affidavit stating
             that such corporation satisfies the requirements of
             Subdivisions (1) and (2).
      The first certified question asks whether subsection (f)’s
exemption remains operative if an exempt public corporation sells its
shares to a non-exempt public corporation. The answer is yes.
      Subsection (f)’s reference to “[t]his section,” which “shall not
apply” to an exempt corporation, can only mean the entirety of
section 22.16. Section 22.16(f) therefore exempts a public corporation
that meets its requirements, such as GIG, from all of section 22.16,
including all three of subsection (a)’s prohibitions. The only way to
restrict GIG’s rights as suggested by TABC is to “apply” subsection (a)’s
prohibitions to GIG, which subsection (f) prohibits. If we simply do what

                                    8
subsection (f) instructs and refrain from “applying” subsection (a) to
GIG, there is nothing else in the statute authorizing any restriction of
GIG’s rights. Only by applying subsection (a) to GIG—in violation of
subsection (f)—can section 22.16 be used to deprive GIG of its permits if
it sells shares to a public corporation.
      Nothing in the statutory text limits the subsection (f) exemption,
other than the requirements needed to obtain the exemption in the first
place. See id. § 22.16(f). As written, the exemption protects the public
corporations that qualified for it from any of the consequences of
section 22.16. The two exempt corporations that qualified in 1995 surely
had many shareholders or multiple owners at the time, and it would
have been expected that these shares could change hands over the years.
Yet the Legislature did not include any limitation on ownership of
shares in exempt corporations.             Instead, it declared only that
section 22.16 “shall not apply” to these corporations. Still, TABC seeks
to do just that. It would apply section 22.16 to GIG by using subsection
(a) to invalidate GIG’s permits if GIG sells shares to another public
corporation.5
      TABC nevertheless argues that a non-exempt public corporation’s
interest in an exempt corporation remains prohibited despite
subsection (f)’s protections for exempt corporations. According to TABC,
subsection (f) exempts public corporations that meet its requirements
only from the restrictions on public corporations in subsection (a). It

      5  All of this assumes, as we are told to assume, that GIG will remain
the same, distinct “corporation” after bankruptcy and after the sale of its
shares to another entity.

                                     9
does not, however, protect exempt public corporations from the
consequences of being the “entity” controlled or held by a public
corporation in subsection (a).      Under this reading, a non-exempt
corporation cannot have an interest in any permit-holding entity,
including an exempt corporation.         Stated another way, an exempt
corporation in which a non-exempt corporation has an interest cannot
hold a package store permit.
      This last way of stating TABC’s position demonstrates why we
must disagree with it.       Yes, subsection (a) does prohibit public
corporations from holding package store permits or having an interest
in entities that do.       But subsection (f) unqualifiedly exempts
corporations like GIG from subsection (a), which “shall not apply” to
them. TABC, however, reads the statute to mean that ownership of an
exempt corporation by a non-exempt corporation prohibits the exempt
corporation from having a permit. In this way, TABC would “apply”
subsection (a) not just to the non-exempt corporation, but also to the
exempt one.       Indeed, subsection (a) operates directly on the
permit-holding “entity,” which loses its permits if it becomes owned by
a public corporation or holds the permit for the benefit of a public
corporation. Treating GIG as the “entity” in subsection (a) and then
taking its permits away because of who owns its shares ineluctably
“applies” subsection (a) to GIG, in direct violation of subsection (f).
      In abstract terms, subsection (a) states the rule, while
subsection (f) states an exception to the rule.      No exceptions to the
exception are stated. Naturally, then, we must look to the exception to
determine the true scope of the rule. We would not normally look to the

                                    10
rule to determine the true scope of the exception. Indeed, the exception
changes the rule altogether. This is why we call such exceptions “carve
outs.” The exception changes the rule by “carving” a piece out of it. The
carved-out piece of the rule is no longer part of the rule. There is a new,
post-exception rule.      And we need not worry much that the
post-exception rule causes results that are inconsistent with the original
rule. Of course it does. That is what exceptions do.
      This is no less true just because applying subsection (a) to GIG,
as TABC would do, also involves applying subsection (a) to a non-exempt
corporation, which would otherwise be allowed. When subsection (a) is
applied   to   both    GIG   and   a      non-exempt   public   corporation
simultaneously, the exception and the rule cannot both be followed. In
such an instance, we apply the exception as a limitation on the rule.
That is the exception’s function in the statute. We do not apply the rule
as a limitation on the exception. When the exception and the rule
conflict, the exception takes priority.
      Thus, it is no objection to say that applying subsection (f) as GIG
proposes causes subsection (a) to no longer achieve what it seems, in
isolation, designed to achieve. Of course the exception limits the efficacy
of the rule. Again, that is what exceptions do. We should not artificially
limit the exception in an effort to achieve the original rule’s purposes.
The exception here is straightforward. Section 22.16 “shall not apply”
to exempt corporations like GIG. If we simply apply that exception as it
is stated, as an unqualified limitation on the application of
subsection (a) to GIG—rather than look for reasons not to do so because
of the consequences—it becomes clear that GIG cannot be treated as

                                    11
either the “entity” or the “public corporation” in subsection (a). Putting
either label on GIG “applies” subsection (a) to GIG, which we cannot do.
True, the exception interferes with how the rule would otherwise apply
to public corporations that own a stake in GIG, but that is because of
how the exception is written. We do not limit the exception to serve the
rule.
        TABC contends that reading subsection (f) to allow exempt
corporations owned by non-exempt corporations to hold permits would
change subsection (f) to read “[t]his section shall not apply to a permit
held by a corporation.” TABC points to subsection (d)’s exemption for
package stores in hotels. It argues that, because each package store
must have a permit, the exemption of specific package stores in
subsection (d) demonstrates that the Legislature knew how to exempt a
package store’s permits, which it did not do in subsection (f). In effect,
TABC argues that subsection (a) can be applied to GIG’s permits without
applying it to GIG.
        We are unconvinced. Whether or not the various elements of the
statute are thought of as operating directly on permits, permit-holders,
or public corporations, it remains true that applying subsection (a) as
TABC proposes would apply subsection (a) to GIG. The crux of the
dispute, perhaps, is what it means for a statute to “apply” to someone.
We see no way to avoid the straightforward sense in which using a
statute to take away a person’s legal rights is “applying” the statute to
that person. Section 22.16 cannot be applied to rescind a package store
permit without also “applying” the statute to the entity holding the
permit. The permit is a legal “privilege” held by the corporation. See id.

                                   12
§ 11.03. Restricting or taking it away under the authority of section
22.16 would concretely affect the rights of the exempt corporation in a
way that surely amounts to “applying” section 22.16 to the corporation,
which in GIG’s case violates subsection (f).
      TABC asks the Court to construe any ambiguity in its favor in
order to give effect to the Legislature’s instruction that the Alcoholic
Beverage Code be liberally construed in favor of temperance and to
prevent “subterfuge ownership” of permits. Id. § 109.53. We decline to
do so for a few reasons.
      First, the statute is not ambiguous. The parties dispute the scope
of subsection (f). But when it comes to ambiguity, the inquiry is not
whether the statutory language creates unexpected results, “but rather
whether the statutory language itself is ambiguous.” Sw. Royalties, Inc.
v. Hegar, 500 S.W.3d 400, 406 (Tex. 2016) (citation omitted).          As
discussed above, the statutory text “has a plain and unambiguous
meaning about the particular dispute in the case” that is “coherent and
consistent,” Robinson v. Shell Oil Co., 519 U.S. 337, 340 (1997)
(quotation omitted), and not subject to “multiple understandings.” Sw.
Royalties, 500 S.W.3d at 406. The statute is thus not ambiguous.
      Second, section 109.53’s stated purpose—avoiding subterfuge
ownership—does not affect the issue in dispute. Because section 109.53
is part of the text enacted into law, we do not disregard it as we would a
statement of purpose plucked from legislative history. Instead, such a
textual indication of purpose can help to “determin[e] which of various

                                   13
permissible meanings the dispositive text bears.”6 But in this instance,
the textual indication of purpose has no obvious consequence.
       Subterfuge means “an artifice employed to escape censure or the
force of an argument, or to justify opinions or conduct; an evasion.”
Subterfuge, WEBSTER’S INTERNATIONAL DICTIONARY (2d ed. 1953).
Concerns about subterfuge ownership would come into play when it is
unclear who actually owns or controls a permit. In a case like this one,
such an inquiry might look to whether GIG’s apparent ownership of a
permit is merely a subterfuge shielding the true identity of shadowy
figures pulling the strings. Here, however, there is no uncertainty as to
ownership or control of the permit. GIG clearly owns permits. It wants
another, non-exempt, public corporation to own its shares. We are given
no indication that this arrangement would somehow shield the identity
of the non-exempt, public corporation or give rise to any other kind of
“subterfuge.” If GIG owns the permits and another public corporation
controls the permits by virtue of its controlling stake in GIG, there is no
subterfuge.     All involved, including TABC, will be aware of the
arrangement and will know who to hold responsible.7

       6  ANTONIN SCALIA & BRYAN A. GARNER, READING LAW: THE
INTERPRETATION OF LEGAL TEXTS 218 (2012); accord, e.g., Sw. Royalties, 500
S.W.3d at 405 (“If an undefined term has multiple common meanings, it is not
necessarily ambiguous; rather, we will apply the definition most consistent
with the context of the statutory scheme.”).
       7 The identity of a publicly traded company’s major shareholders is
freely available information posted on the SEC’s website.                       See
https://www.sec.gov/edgar/searchedgar/companysearch.html.           Relative to
publicly traded companies, private companies can more easily structure
themselves to shield the identity of their owners. It is therefore difficult to see
how section 22.16’s prohibition on publicly traded corporations holding

                                        14
       Section 109.53’s instruction to construe the statute against
“subterfuge ownership” tells us nothing about who may own a permit,
so long as there is no concealment or evasion in the ownership. The task
of defining who may own a permit belongs to section 22.16. Because
there is no “subterfuge ownership” proposed here, and because section
22.16 is perfectly clear on its own, section 109.53’s purpose provision
makes no difference to this case.
       Third, TABC’s purposive reading would push section 22.16’s
otherwise clear text beyond its reasonable limits.           Under TABC’s
reading, an exempt publicly traded corporation would lose its exempt
status as soon as one of its shares was traded—by anyone—to a
non-exempt public corporation. This loss in status would occur even
though such a corporation does not control who owns its stock.
Section 22.16(b) expressly defines “public corporation” to include those
with shares “listed on a public stock exchange.” If we accept TABC’s
reading, such a publicly traded corporation’s exemption would vanish if
even a single share of its stock were acquired by an entity that is itself
owned even in part by a non-exempt public corporation. The exempt
corporation could not control—and might not even know—whether its
exemption survived. And any non-exempt corporation could torpedo the

package store permits advances the statutory goal of eliminating “subterfuge
ownership” at all, since there is little way for a public company to hide its
ownership. It is perhaps easier to see how excluding publicly traded
corporations advances the goals of avoiding diffuse ownership and reducing the
potential for market dominance by very large firms. Neither of these goals is
stated in section 109.53, however.

                                     15
exempt corporation’s permits merely by acquiring one of its shares. We
find such an understanding of section 22.16 highly implausible.8
        Finally, even under TABC’s view of the statute, subsection (f)’s
exemption for public corporations like GIG is already in tension with
TABC’s concerns about “subterfuge ownership.”             The two exempt
corporations, using the advantages available to public companies, could
have acquired hundreds of liquor stores and come to dominate the Texas
market much like TABC fears they now will. The exempt corporations
could have grown to be veritable Walmarts, in theory. They did not do
so, but this was not because TABC could have stopped it using
section 22.16. Thus, even as TABC construes it, subsection (f) opened
the door to the kind of public-corporation-dominated scenario TABC
claims we must avoid. The Legislature’s decision to leave the door open
to the unpredictable futures of the exempt public corporations was just
as much a part of the statute’s “purpose” as any other provision of the
Code.
        If GIG’s unusual corporate structure relative to other permit
holders had enabled it to grow to dominate the landscape, the
Legislature could have responded to address concerns about the exempt
corporations’ diffuse ownership or their market dominance.               The
opposite seems to have happened, however, and GIG is now in
bankruptcy. This history does not demonstrate that public corporations
have an inherently unfair edge in the liquor retail business. Of course,

        8We recognize, of course, that GIG is not a publicly traded company,
but section 22.16 would operate the same way if GIG were so traded. The
statute does not contemplate a different outcome for different kinds of public
corporations; it prescribes a single rule for all public corporations.

                                     16
some public corporations are better managed than others. Whether the
law should further shield the Texas market from well-managed public
corporations is a question for the Legislature.
       TABC’s concerns about public-corporation involvement in the
liquor-store business are not concerns about what will happen if Texas
allows public corporations to run liquor stores. We already do, and one
of them is in bankruptcy. The agency’s real concern seems to be that, if
well-managed, a public corporation could change the face of the liquor
retail business in Texas. That may be true, but it was just as true in
1995 when the Legislature exempted two public corporations from
section 22.16’s restrictions.    Whatever the motivations may be for
allowing two unthreatening public corporations to operate while
excluding more successful public corporations, such an arrangement
does not reflect a principled objection to “subterfuge ownership.” In any
event, the Legislature can act in response to any acquisition of GIG’s
stock by another public corporation, if it chooses to do so.
       We answer the first certified question yes.9
                                     B.
       As for the second certified question, TABC offers no argument
that we can answer the second question “no” if the answer to the first

       9 Again, our analysis assumes GIG will remain the same, distinct public
corporation that qualified for the exemption in 1995. We do not comment on
any other scenario or on other potential changes to GIG that could interfere
with its ongoing legal authority to hold package store permits. See Janvey v.
GMAG, L.L.C., 592 S.W.3d 125, 128 (Tex. 2019) (observing that the Court
typically “provide[s] answers solely as to the status of Texas law on the
questions asked”) (quoting Interstate Contracting Corp. v. City of Dallas, 135
S.W.3d 605, 620 (Tex. 2004)).

                                     17
question is “yes.” Because the parties agree that our answer to the first
question dictates our answer to the second, we need not address the
second question any further. We answer the second certified question
yes.

                                        James D. Blacklock
                                        Justice

OPINION DELIVERED: June 17, 2022

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