MUNICIPAL REGULATION OF ALCOHOLIC BEVERAGES*

1. MUNICIPAL REGULATION OF ALCOHOLIC BEVERAGES* (*or “No, Mr. Mayor, we really can’t stop that keg party by rezoning the property!”) Presented by: Kevin B. Laughlin Nichols, Jackson, Dillard, Hager & Smith, L.L.P. Dallas, Texas Texas APA Conference 2009 Texas Chapter of the American Planning Association El Paso, Texas February 4-7, 2009

6. BEFORE THE TEXAS ALCOHOLIC BEVERAGE CODE: THE TEXAS LIQUOR CONTROL ACT • Prior to September 1, 1977, alcoholic beverages were regulated by the Texas Liquor Control Act. • Several courts held under Liquor Control Act that cities were not pre-empted from enforcing their zoning ordinances that placed certain restrictions on sale of alcoholic beverages.

7. City of Clute v Linscomb, 446 S.W.2d 377 (Tex.Civ.App.--Houston [1st Dist] 1969, no writ) The Court held: • The zoning laws of the State had no relation to the regulation of liquor businesses • The Liquor Control Act was not intended as limitation of the police powers of cities granted under the Home-Rule Amendment to the State Constitution • City’s ordinance was not dependent on the state statute for its validity, since the statute stated that all incorporated cities and towns were authorized to designate certain zones in their jurisdiction where the sale of beer could be prohibited • Nothing in Liquor Control Act which took away from the City the right to zone areas for liquor sales.

8. T&R Associates, Inc. v City of Amarillo, 688 S.W.2d 622(Tex. App.--Amarillo 1985, writ ref’d, n.r.e.) City denied an SUP to sell alcoholic beverages without food sales. In ruling for the City, without addressing anything on pre-emption, the Court held: • The denial of a specific use permit for the location of an alcoholic beverage establishment was a proper exercise of the City’s police power • It is well established that the regulation of the sale of alcoholic beverages through zoning ordinances is a proper exercise of a City’s police power. • The issuance of a specific use permit constitutes an amendment to the zoning ordinance and such action is presumed valid absent a clear abuse of discretion. • The granting of a specific use permit was discretionary, and the denial of the specific use permit for an alcoholic beverage establishment was within the City’s powers and discretion.

9. Louder v Texas Control Board, 214 S.W.2d 336(Tex.Civ.App.--Beaumont 1948, writ ref’d n.r.e.) City relied upon a general comprehensive zoning ordinance which prohibited the sale of beer in a commercial zoning district. The Court determined…. • the Liquor Control Act was manifestly one of restriction, not one of enlargement of the sale of intoxicating liquors. • the Act was in no way intended as a limitation of the City’s police powers granted to it under the home-rule amendments of the Constitution. • Court stated that to construe the state statutes limiting the powers of the City in zoning ordinances affecting the sale of liquor, would be, as far as liquor zoning was concerned, to repeal many other provisions of the statute giving broad governing powers to home-rule cities.

11. Texas Alcoholic Beverage Code • Effective September 1, 1977 • Non-substantive codification of Texas Liquor Control Act • As enacted, contained Section 1.06

12. Tex. Alco. Bev .Code §1.06 Sec. 1.06.  CODE EXCLUSIVELY GOVERNS. Unless otherwise specifically provided by the terms of this code, the manufacture, sale, distribution, transportation, and possession of alcoholic beverages shall be governed exclusively by the provisions of this code.

13. Courts still hold no pre-emption !(but just wait)

14. Young, Wilkerson & Roberts v City of Abilene,704 S.W.2d 380(Tex. App.- Eastland 1985, writ ref’d n.r.e.) In the face of a direct argument regarding pre-emption, the Court held: • The cases holding that the old Liquor Control Act did not pre-empt city authority to control locations of alcoholic beverage sales through zoning were still good law. • A zoning ordinance requiring structures with on-premise consumption of alcohol be located at least three hundred (300) feet from any lot in a residential district, did not conflict with the Tex. Alco. Bev. Code regulations governing the sale of alcoholic beverages near schools, churches or hospitals because… • The ordinance imposed restrictions which applied to any lot in addition to the state restrictions applicable to churches, public schools and public hospitals

15. Abilene Oil Distributors vCity of Abilene, 712 S.W.2d 644(Tex.App.--Eastland 1986, writ ref’d n.r.e.) • City zoning ordinance required permittees to be further from schools than the 300 feet set out in Tex. Alco. Bev. Code §109.33. • Court affirmed judgment upholding the ordinance. • Court stated that despite the fact that the City system of measurement required a liquor store to be farther away from a public school than was required by state law, the ordinance was still valid even if inconsistent with the Code if the ordinance imposed higher standards.

16. Now, to quote one of my favorite commentators, “And now, the rest of the story…” Paul Harvey

17. Tex. Alco. Bev. Code §109.57 • Sec. 109.57.  APPLICATION OF CODE; OTHER JURISDICTIONS. • (a)  Except as is expressly authorized by this code, a regulation, charter, or ordinance promulgated by a governmental entity of this state may not impose stricter standards on premises or businesses required to have a license or permit under this code than are imposed on similar premises or businesses that are not required to have such a license or permit. • (b)  It is the intent of the legislature that this code shall exclusively govern the regulation of alcoholic beverages in this state, and that except as permitted by this code, a governmental entity of this state may not discriminate against a business holding a license or permit under this code.

18. Tex. Alco. Bev. Code §109.57 • (c)  Neither this section nor Section 1.06 of this code affects the validity or invalidity of a zoning regulation that was formally enacted before June 11, 1987, and that is otherwise valid, or any amendment to such a regulation enacted after June 11, 1987, if the amendment lessens the restrictions on the licensee or permittee or does not impose additional restrictions on the licensee or permittee. For purposes of this subsection, "zoning regulation" means any charter provision, rule, regulation, or other enactment governing the location and use of buildings, other structures, and land. • (d)  This section does not affect the authority of a governmental entity to regulate, in a manner as otherwise permitted by law, the location of: (1)  a massage parlor, nude modeling studio, or other sexually oriented business; or (2)  an establishment that derives 75 percent or more of the establishment's gross revenue from the on-premise sale of alcoholic beverages.

19. Tex. Alco. Bev. Code §109.57 (e)  A municipality located in a county that has a population of 2.2 million or more and that is adjacent to a county with a population of more than 400,000 or a municipality located in a county with a population of 400,000 or more and that is adjacent to a county with a population of 2.2 million or more may regulate, in a manner not otherwise prohibited by law, the location of an establishment issued a permit under Chapter 32 or 33 if: (1)  the establishment derives 35 percent or more of the establishment's gross revenue from the on-premises sale or service of alcoholic beverages and the premises of the establishment are located in a dry area; and (2)  the permit is not issued to a fraternal or veterans organization or the holder of a food and beverage certificate.

20. TEXAS LEGISLATURE TO CITIES….. CAN YOU HEAR US NOW?

21. So what did the courts have to sayto all of this? Courtney v. City of Sherman, 792 S.W. 2d 135 (Tex. App. - Dallas 1990, writ denied.) • City of Sherman had pre-1987 zoning ordinance that was amended twice post-1987 that required private clubs to have gross receipts for food service equal to or greater than sales of alcoholic beverages. • Alcoholic Beverage Code only required that food service be “adequate” for members and guests.

22. Courtney v. City of Sherman, 792 S.W. 2d 135(Tex. App. - Dallas 1990, writ den’d.) • Under §109.57, trial court invalidated the two post-1987 amendments, but upheld the pre-1987 amendment based on Sec. 109.57(c) • Court of Appeals said “no” to the original ordinance as well as the two amendments, holding that even the original ordinance was invalid because it went beyond the scope of regulation allowed under the zoning authority granted to cities in Chapter 211 of the Texas Local Government Code and, thus, invalid under TABC Sec. 1.06.

23. Courtney v. City of Sherman, 792 S.W. 2d 135(Tex. App. - Dallas 1990, writ den’d.) The Court went on to say: In our view, the legislature has attempted to preempt the field concerning private club regulation. The City's ordinance, which imposes upon the private club the requirement that it procure as much or more revenues from the sale of food as it does from the service of alcohol, is in direct conflict with the Code. By zoning ordinance, the City has attempted to make more onerous the requirements of operating a private club than required under the Code. If the ordinance were allowed to stand, the result would be to make illegal that which is legal under the laws of the State of Texas. Courtney, 792 S.W.2d at 137-138.

24. BUT ALL IS NOT LOST!!!

25. West End Pink, Ltd. v. City of Irving, 22 S.W.3d 5(Tex. App. – Dallas, 1999, pet. den’d.) • Restaurant serving alcohol for on-premise consumption subject to zoning that required food sales receipts to be equal to or greater than 60% of gross sales. • Ordinance was adopted by city in 1981. • Annual inspection found restaurant food sales not as required under zoning ordinance. • City revoked certificate of occupancy following show cause hearing.

26. West End Pink, Ltd. v. City of Irving, 22 S.W.3d 5(Tex. App. – Dallas, 1999, pet. den’d.) • Plaintiff challenged City’s ordinance arguing pre-emption under Sec. 1.06 and Sec. 109.57. • Court agreed in general with plaintiff BUT… • Held that Validation Statutes passed by Texas Legislature in 1985, 1987, 1989, cured any invalidity and allowed ordinance to survive.

27. Keys to Victory in West End Pink, Ltd. • The ordinance was a pre-June 1987 ordinance that had not been amended. • Section 109.57 generally exempts pre-June 1987 ordinances from the pre-emption issue. • Because legislature could have passed the law in the first instance to adopt such an ordinance, it had legal authority to validate the ordinance. • Subsequent validation statutes were written to expressly exclude from coverage ordinances that would conflict with TABC §1.06 and §109.57.

28. Aero Meridian Associates DP, d/b/a Morton Plaza, v.City of Denison, Texas, 2007 WL 2900536 (E.D. Tex.). • Recent case involving pre-1987 SUP ordinance. • Plaintiff was denied an SUP for private club in dry area after city council applied the standards contained in its ordinance. • Court relied largely on West Texas Pink, Ltd., and the keys to victory, i.e was only enforcing standards existing in a pre-June 1987 ordinance that had not been amended and had been validated by the Texas Legislature.

29. Caution about Aero Meridian The case is an unreported federal district court opinion that was not appealed to the Fifth Circuit. BUT The court’s opinion has a good discussion about the preemption of pre-1987 zoning ordinances that might be helpful when trying to enforce your SUP process relating to alcoholic beverage sale locations.

30. SO WHAT IS THE MORAL OF THIS STORY SO FAR? • Unless the Alcoholic Beverage Code specifically allows local regulation, new ordinances attempting to regulate alcoholic beverages are highly suspect and likely invalid. • Ordinances adopted prior to June 1987 have a higher likelihood of being enforceable if they were not in conflict with the old Liquor Control Act or the Alcoholic Beverage Code as found by prior case law. • Amendments to Pre-June 1987 zoning ordinances are suspect and will likely be reviewed by the court as a new Post-June 1987 ordinance.

31. AND NOW YOU KNOW THE REST OF THE STORY. GOOD DAY!

32. So what about some specific do’s and don’ts?

33. Some Thou Shalt Nots…. Some Pre-TABC Cases and Attorney General Opinions: • City may not adopt ordinance requiring licensee to obtain a local beer sales license. Munoz v. City of San Antonio, 318 S.W. 2d 741 (Tex. Civ. App. – San Antonio, 1959, writ dism’d) • City cannot prescribe lesser penalty for violating prohibited acts under the Code than what the Code proscribes. Op. Tex. Atty. Gen. C-754 (1966) • Ordinance requiring closing of package stores on certain holidays in which Liquor Control Act allowed sales and to close at 8:00 p.m. on days where the Act allowed operations until 9:00 p.m. held invalid. Royer v. Ritter, 531 S.W. 2d 448 (Tex. Civ. App. – Beaumont 1975, writ ref. n.r.e.)

34. EVEN MORE THOU SHALT NOTS… • Municipality may not adopt an ordinance prohibiting the possession of open container of alcoholic beverage in motor vehicles. Op. Tex. Atty. Gen. JM-112 (1983) • Rejecting the argument that the Code does not regulate “consumption” by holding that “consumption” necessarily requires “possession” and that the local regulation of “possession” of an alcoholic beverage is pre-empted, the Attorney General held that a municipality may not adopt an ordinance prohibiting the consumption of alcoholic beverages by people operating motor vehicles. Op. Tex. Atty. Gen. JM-619 (1987) • An ordinance prohibiting consumption of alcoholic beverages on certain public sidewalks would be preempted if enacted. Tex. Atty. Gen. Letter Opinion LO-88-46 (1988) (citing Op. Tex. Atty. Gen. JM-112 and JM-619) • An ordinance prohibiting people under the age of 21 from entering a place that sells alcoholic beverages unless accompanied by a parent or adult guardian would be pre-empted. Tex. Atty. Gen. Letter Opinion LO-88-56 (1988) (citing Op. Tex. Atty. Gen. JM-112 and JM-619)

35. AND EVEN MORE THOU SHALT NOTS… • Because it had the effect of prohibiting the sale of alcoholic beverages in non-residential areas…which is preempted, city ordinances prohibiting sale of alcoholic beverages within 300 feet of residentially-zoned areas are pre-empted. Dallas Merchants and Concessionaires Assoc. et al v. City of Dallas, 852 S.W. 2d 489 (Tex. 1993) • An ordinance adopted as a health regulation with the goal of inhibiting the spread of the HIV virus requiring business that sells alcoholic beverages for on-premises consumption to make condoms available for sale at the counter or restroom vending machines pre-empted because it would impose stricter standards on licensed establishments than on similar business that do not sell alcoholic beverages. Op. Tex. Atty. Gen. DM-229 (1993)[This is a post- Dallas Merchants and Concessionaires Assoc. opinion.] • Without expressing an opinion on the validity of any such ordinance under Federal constitutional issues, city is not preempted from adopting an ordinance banning the sale of all beverages in glass containers, but cannot single out in such an ordinance the sale of alcoholic beverages. Op. Tex. Atty. Gen. GA-0110 (2003) • Even though the Texas Alcoholic Beverage Code does not specifically regulate “bring your own bottle” (BYOB) establishments, because the Code preempts the regulation of possession and consumption of alcoholic beverages, a city cannot adopt an ordinance regulating possession or consumption of an alcoholic beverage in an establishment operating on a BYOB-basis. Op. Tex. Atty. Gen. GA-0561 (2007)

36. With all that cities can’t regulate, what CAN they regulate?

37. Thou Mayest…. • A city may prohibit the sale of liquor in its residential areas through its charter. Tex. Alco. Bev. Code § 109.31. “Liquor” is defined as “... any alcoholic beverage containing alcohol in excess of four percent by weight, unless otherwise indicated.” • A city may prohibit the sale of beer in residential areas by charter or ordinance. Tex. Alco. Bev. Code Ann. § 109.32. A city may also regulate the sale of beer in other areas and prescribe the hours in which it may be sold. • A municipality may regulate the sale of wine for off-premises consumption pursuant to Tex. Alco. Bev. Code §26.04, which states: [t]he restrictions in [the Texas Alcoholic Beverage Code] relating to beer as to the application of local restrictions ... apply to the sale of alcoholic beverages by a wine and beer retailer’s off-premise permittee.

38. THOU ALSO MAYEST… • A city may seek from the TABC an order prohibiting open containers or the public consumption of alcoholic beverages in central business districts; provided, however, the Commission’s order cannot prohibit possession or consumption in a motor vehicle, a building not owned by the city, a residential structure, or a licensed premises located in the central business district. Tex. Alco. Bev. Code §109.35; • Pursuant to Tex. Alco. Bev. Code §109.36(b), a city may adopt regulations prohibiting the possession of an open container or the consumption of an alcoholic beverage on a public street, public alley, or public sidewalk within 1000 feet of the property line of a homeless shelter or substance abuse treatment center that is not located in a central business district. • [1] "Homeless shelter" means a supervised publicly or privately operated shelter or other facility that is designed to provide temporary living accommodations to individuals who lack a fixed regular and adequate residence. Tex. Alco. Bev. Code §109.36(a)(2). • [2] "Central business district" means a compact and contiguous geographical area of a municipality used for commercial purposes that has historically been the primary location in the municipality where business has been transacted. Tex. Alco. Bev. Code §109.36(a)(1).

39. Thou Definitely Mayest… • A city may continue to regulate the location of massage parlors, nude modeling studios, and other sexually oriented businesses. Tex. Alco. Bev. Code §109.57(d)(1). • Furthermore, because the Code regulates only the manufacture, sale, distribution, transportation, and manufacture of alcoholic beverages, it does not preempt a city’s power to regulate secondary activities occurring on the premises by zoning ordinances, such as regulating sexually oriented businesses. MJR’s Fare of Dallas, Inc. v. City of Dallas, 792 S.W.2d 569, 576 (Tex. App. – Dallas 1990, writ denied); Robinson v. City of Longview, 936 S.W.2d 413 (Tex. App.- Tyler 1996, no writ); Hang On, Inc. v. City of Arlington, 65 F.3d 1248 (5th Cir. 1995). • A city may regulate the location of establishments that derive seventy-five percent (75%) or more of their gross revenue from on-premise sale of alcoholic beverages. Tex. Alco. Bev. Code §109.57(d)(2)

40. Distance Regulations The Alcohol Beverage Code expressly allows cities to adopt regulations regarding sales near: • Schools, Churches, and Public Hospitals (Tex. Alco. Bev. Code §109.33) • Daycare and Childcare Facilities (Tex. Alco. Bev. Code §109.331)

41. Schools, Churches, and Public HospitalsTex. Alco. Bev. Code §109.33 Some definitions first, or not……….. • TABC does not define what constitutes a “public school.” The most recent Attorney General Letter Opinion summarizes on the subject opines that “an institution is a ‘public school’ for purposes of Section 109.33(a)(1) of the TABC if it is supported, in whole or in part, by public funds.” Tex. Atty. Gen. LO-96-134 (1996). • A “private school” is defined by the Code as a private school, including a parochial school, that (1) offers a course of instruction for students in one or more grades from kindergarten through grade 12 and (2) has more than 100 students enrolled and attending courses at a single location. Tex. Alco. Bev. Code §109.33(i) • The TABC does not define “public” hospital either. Absent a statutory definition, must look to the common meaning of the word or phrase. A “public” hospital is commonly understood to be a hospital that is supported by public funds and would be consistent with the definition of “public school.”

42. Where’s the front door?

43. Stubbs v. Liquor Control Board, 166 S.W.2d 178(Tex. Civ. App. – Dallas, 1942, writ ref. want merit) • Licensee attempted to argue that the main exterior door leading to the worship center, which was located around the corner and more than 300 feet from the front door of the store, was the only front door. • Door to the church Sunday School building was almost directly across the street and within 300 feet of store front door. • Court held that the correct measurement was to the door to the church’s Sunday School building entrance. • “Any door leading into the church or saloon is a front door; in other words, it is held that a church or saloon may have several front doors and may face upon two or more streets.”Stubbs, 166 S.W.2d at 180

44. So what are therestricted distances? TABC Sec. 109.33(a): A city or county may adopt an ordinance or order, respectively, prohibiting the sale of all alcoholic beverages within: • three hundred (300) feet of a church, public or private school, or public hospital, with a couple of exceptions; • subject to certain exceptions in the statute, one thousand (1,000) feet of a public school if the commissioners court or the governing body receives a request for the board of trustees of a school district under Section 38.007 of the Election Code (which is limited to school districts the majority of which are located in cities with a population of 900,000 or more); • subject to certain exceptions in the statute, one thousand (1,000) feet of a private school if the county commissioners court or city council receive a request from the governing body of the private school

45. So how are the distances measured?

46. Churches and Public Hospitals The first sentence of Tex. Alco. Bev. Code §109.33(b) reads as follows: (b)  The measurement of the distance between the place of business where alcoholic beverages are sold and the church or public hospital shall be along the property lines of the street fronts and from front door to front door, and in direct line across intersections.

47. Robinson v City of Dallas, 198 S.W.2d 821(Tex. Civ. App.-Austin 1946 writ ref.) At issue: • Whether or not to measure from the front door of the package store or the closest exterior door of the store, and • Whether or not to take the measurements all the way to the corner of the property before crossing the street to reach the door.

48. Court holds “red line wins.”

49. Ezell v. Tex. Alcohol Bev. Comm’n 528 S.W.2d 888(Tex. Civ. App. –Ft. Worth 1975, no writ) Following Robinson, court followed the blue line.

50. Distance fromPublic or Private Schools (b)….The measurement of the distance between the place of business where alcoholic beverages are sold and the public or private school shall be: (1) in a direct line from the property line of the public or private school to the property line of the place of business, and in a direct line across intersections; or (2) if the permit or license holder is located on or above the fifth story of a multistory building, in a direct line from the property line of the public or private school to the property line of the place of business, in a direct line across intersections, and vertically up the building at the property line to the base of the floor on which the permit or license holder is located.