Judge Says Banning Brewers From Selling Distribution Rights Violates Texas Constitution

Live Oak Brewing Co. of Austin, Peticolas Brewing Co. of Dallas and Revolver Brewing
Live Oak Brewing Co. of Austin, Peticolas Brewing Co. of Dallas and Revolver Brewing
Photo by Steve Rainwater via Flickr Creative Commons

In what may end up being a major win for the craft beer industry, Travis County district judge Karin Crump ruled on Thursday, August 25, that arrangements that prohibit brewers from selling distribution rights violate the Texas Constitution.

It’s unfortunately too late for craft brewers who signed away exclusive distribution rights after Senate Bill 639 passed in 2013. The bill, among other things, said brewers could not “accept payment in exchange for an agreement setting forth territorial rights.” Conversely, distributors are entirely able to sell rights to other distributors. In other words, they were the only ones who could profit from the sale of distribution rights, not the brewers.

According to Watchdog.org, attorney Matt Miller argued on behalf of Institute For Justice, which represented plaintiffs Live Oak Brewing Co. of Austin, Peticolas Brewing Co. of Dallas and Revolver Brewing in Granbury. Their stance was that SB 639 “deprived the creators of the product from realizing its full value.”

The basis for the argument was Section 19 of Article 1 of the Texas Constitution, which states, “No citizen of this State shall be deprived of life, liberty, property, privileges or immunities, or in any manner disfranchised, except by the due course of the law of the land.”

Despite last week's court ruling against SB 639 in favor of small breweries like Peticolas, the Texas attorney general's office has 30 days in which to file an appeal.
Despite last week's court ruling against SB 639 in favor of small breweries like Peticolas, the Texas attorney general's office has 30 days in which to file an appeal.
Photo by David Hale Smith

The real question, of course, is why SB 639 passed in the first place. According to Watchdog.org, Miller said, “Courts are going to have to take a serious look at whether or not there is some real-world connection to some governmental or public interest,” and “The case of the craft brewers was little more than protectionism on behalf of a handful of companies that control almost all of the beer distribution in Texas.”

Houston and Dallas are home to five of the largest distributors in the United States, including number two-ranked Silver Eagle Distributors and number three-ranked Ben E. Keith Beverages. Reportedly, lobbying group The Wholesale Beer Distributors of Texas persuaded Republican state senator John Carona of Dallas to introduce SB 639. At the time, he was the chairman of the Senate Committee on Business and Commerce. According to website Follow The Money, The Wholesale Beer Distributors of Texas has given Carona $54,000 and donated $3,319,932 to political interests overall.

Now, it’s a matter of waiting to see if the Texas attorney general’s office, which represents the Texas Alcoholic Beverage Commission, is going to file an appeal. It has 30 days in which to do so. 

This is not the only issue facing craft brewers when it comes to doing business in Texas. Selling beer in large aluminum cans called crowlers was forbidden last year by the TABC, which doesn't view it as simply a technological improvement on glass growlers and says it in fact constitutes "repackaging beer," which is not allowed. One of our sister publications, the Dallas Observer, reported earlier this month that Grapevine Brewery is no longer distributing its beers and has "linked arms with Deep Ellum Brewing Company in a lawsuit against unfair (and what we consider to be unconstitutional) practices which currently prevent production breweries from selling beer to go from our taprooms."

The court battles are likely to continue for as long as brewers believe their rights are being infringed on by laws that heavily favor distributors. 


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