Texas Appellate Court Upholds Alcohol Regulation

Institute for Justice · December 15, 2015

Austin, Texas—Bad news for Texas craft breweries and their fans: It might take a little longer for the state’s breweries to expand into new markets. Today, the Texas Third Court of Appeals reversed a trial court decision that struck down a 2013 law that made it illegal for brewers to receive compensation for their distribution rights. The law, enacted after beer distributors persuaded the Texas Legislature to force craft brewers to surrender their valuable distribution rights for free when contracting with distributors, has forced brewers to give up millions of dollars of value in the businesses they are trying to grow, while at the same time allowing distributors to sell those rights to another distributor and pocket the money. A group of Texas brewers teamed up with the Institute for Justice (IJ) in 2014 to challenge the law in state court and plan to appeal today’s decision to the Texas Supreme Court.

“It is well established that the Texas Constitution protects economic liberties, and these rights do not cease to exist when the government begins licensing and regulating individuals and businesses,” said Arif Panju, managing attorney for IJ’s Texas office. “Every business in Texas should be concerned with the court’s ruling in this case. It is dangerous and we will ask the Texas Supreme Court to reverse.”

“For the last 21 years, I’ve poured my life into this business,” said Chip McElroy, president of Live Oak Brewing. “I’m proud to have been part of the Texas craft beer Renaissance. When Texas passed this law, not only was I prohibited from sitting at a negotiating table to sell my own distribution rights—but it took my beer off the shelves in cities across Texas where Live Oak beer would otherwise be available.”

IJ Senior Attorney Paul Sherman said, “Texas’s prohibition on selling distribution rights was written by distributors, for distributors, at the expense of brewers. That sort of naked wealth transfer is unconstitutional. We will be asking the Texas Supreme Court to reverse today’s decision and ensure that all business owners in Texas receive the constitutional protection they are entitled to.”

IJ is representing Austin-based Live Oak Brewing; Revolver Brewing, located in Fort Worth; and Peticolas Brewing in Dallas.

A Texas state judge struck down the law in August 2016.