This ought to be interesting.
On the same day merger talk surfaced regarding the world’s two biggest beer companies, a small Dallas brewery announced its own effort to shake up the industry in Texas.
Deep Ellum Brewing Co. launched the crowd-funded “Operation Six-Pack to Go” on Wednesday and said it had filed a federal lawsuit this week attempting to accomplish what multiple efforts in the Texas Legislature have failed to do: Give in-state breweries the right to sell their beverages directly to consumers for off-premise consumption.
While such sales are allowed at wineries, distilleries and brewpub restaurants, brewery visitors must drink any beer they buy before they leave.
John Reardon, the Deep Ellum founder leading the latest charge to allow these so-called dock sales, said antiquated laws hinder growth in the state’s rapidly expanding craft-beer industry. He and other craft brewers have long contended that to-go sales would provide startups with extra capital to expand and give all brewers a powerful marketing tool as people who visit the breweries take their product home and share with friends.
The lawsuit, filed in federal court in Austin against the Texas Alcoholic Beverage Commission and its three commissioners, calls the ban unconstitutional.
“The U.S. Constitution prohibits a state from creating irrational and arbitrary distinctions between similarly situated entities,” the lawsuit reads. “Texas, however, does just that by creating distinctions between various types of alcoholic beverage producers, which in turn harm those directly involved, including Texas businesses, citizens and tourists, and ultimately the Texas economy.”
Danielle Teagarden, a Seattle-based attorney who specializes in brewery law, said in these types of lawsuits states must provide some “rational” reason for the different treatment and show that it helps meet a legitimate state goal, such as facilitating taxation or maintaining orderly operation of the market. She said it is not a high standard and states have successfully defended their laws.
“It just has to move the dial a little bit toward that goal,” said Teagarden, who writes and edits the Brewery Law Blog.
The craft brewers should not expect any support from the wholesalers, said Rick Donley, president of the Beer Alliance of Texas, which represents some of the state’s biggest distributors.
Donley worked closely with craft brewers in 2013 to develop a package of successful bills that, among other things, gave production breweries the right to sell a limited amount of beer on site as long as it is poured and consumed there. This March, when the craft brewers returned to Austin in hope of lifting the ban on dock sales, Donley fought back strenuously. On Wednesday, he again insisted that the laws are not harming the craft segment of the industry.
“My god, they’re growing at 20 percent (annually),” he said. “Most companies would love to have that kind of growth.”
Donley said the crafts should wait until the 2-year-old reforms have been in place long enough to see their full impact in the marketplace before trying to further tinker with the three-tier system.
“We have done everything in the world, bending over backward to help craft brewers,” Donley said. “They’re just never satisfied. … They want more, more, more.”
Teagarden, the legal expert, noted that in 2011 a federal judge in Austin ruled against an importer that made similar claims about the different ways breweries and wineries are treated. However, Judge Sam Sparks said the company had failed to provide any evidence the TABC reasons were not rational. The regulators do not have the burden of proof, he wrote.
In another aspect of that same case, the plaintiffs claimed victory because Sparks overturned a TABC requirement that beer be labeled either “Beer” or “Ale,” a distinction that had no scientific basis and was often cited by out-of-state breweries as a reason they could not afford to do business in Texas.
At the time, fellow plaintiff Jester King Brewery of Austin highlighted one of the judge’s comments regarding the failed part of the lawsuit: “The State of Texas is lucky the burden of proof was on (the plaintiffs) for many of its claims, or else the Alcoholic Beverage Code might have fared even worse than it has.”
You can go here if you’d like to contribute to the crowdfunding effort for the lawsuit. There was another lawsuit filed in state court in December 2014 over the requirement for microbreweries to give away their territorial distribution rights for free. I don’t know where that stands right now, but keep it in mind when you read Rick Donley’s words about what a bunch of whiners the microbrewers are, as opposed to those paragons of virtue the distributors and big brewers who are only just trying to hold on to the advantages they’ve always had. We’ll see what the court makes of this one.