Wal-Mart Stores, Inc. v. Texas Alcoholic Beverage Commission

Case: 16-50041 Document: 00513645654 Page: 1 Date Filed: 08/22/2016
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
August 22, 2016
No. 16-50041
Lyle W. Cayce
Clerk
WAL-MART STORES, INCORPORATED; WAL-MART STORES TEXAS,
L.L.C.; SAM’S EAST, INCORPORATED; QUALITY LICENSING
CORPORATION,
Plaintiffs—Appellees,
v.
TEXAS ALCOHOLIC BEVERAGE COMMISSION, et al.,
Defendants,
TEXAS PACKAGE STORES ASSOCIATION, INCORPORATED,
Movant—Appellant.
Appeal from the United States District Court
for the Western District of Texas
Before KING, JOLLY, and ELROD, Circuit Judges.
JENNIFER WALKER ELROD, Circuit Judge:
The Texas Package Stores Association (“the Association”), a trade group
representing holders of permits allowing liquor retailing in the state of Texas,
seek to intervene in a lawsuit between Wal-Mart and the Texas Alcoholic
Beverage Commission (“the Commission”). Wal-Mart alleges that the
regulatory system administered by the Commission operates exclusively for
the benefit of the Association’s members in violation of the Equal Protection,
Commerce, and Comity Clauses of the United States Constitution. The
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Association seeks to intervene in defense of the regulatory system. Because the
Association satisfies the relevant requirements, we REVERSE and GRANT the
Association’s motion to intervene as of right.
I.
Texas has a comprehensive licensing and regulatory scheme governing
the sale of alcoholic beverages. See Tex. Alco. Bev. Code §§ 22.01–22.17. Only
holders of a package store permit are allowed to market liquor at retail prices
to consumers for off-premises consumption. Tex. Alco. Bev. Code § 22.01. Texas
severely restricts ownership of package store permits. No individual or
corporation may own more than five package store permits except that persons
“related within the first degree of consanguinity” may consolidate legal entities
under their control regardless of the number of permits held by those entities
and may continue to hold as many permits in the combined entity as were held
by the separate predecessor entities, Tex. Alco. Bev. Code §§ 22.04, 22.05.
Public corporations are prohibited from owning package store permits and
franchised businesses are effectively prohibited from holding permits. Tex.
Alco. Bev. Code §§ 22.15, 22.16.
Wal-Mart’s complaint alleges that this system is a protectionist scheme
enacted for the benefit of existing permit holders. After the district court
denied the Commission’s motion to dismiss, and three months after Wal-Mart
filed its Answer, the Association moved to intervene in the lawsuit. At the time
the Association moved for intervention, discovery had opened but Wal-Mart
had produced no documents and no depositions had been taken. The district
court denied the Association’s motion to intervene.
The Association appeals.
II.
Rule 24(a) permits a party to seek intervention as of right while Rule
24(b) allows a party to seek permissive intervention. Fed. R. Civ. P. 24. “A
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ruling denying intervention of right is reviewed de novo.” Texas v. United
States, 805 F.3d 653, 656 (5th Cir. 2015) (quoting Edwards v. City of Houston,
78 F.3d 983, 995 (5th Cir. 1996)). “Although the movant bears the burden of
establishing its right to intervene, Rule 24 is to be liberally construed.” Id.
(internal quotation marks omitted). “Federal courts should allow intervention
when no one would be hurt and the greater justice could be attained.” Sierra
Club v. Espy, 18 F.3d 1202, 1205 (5th Cir. 1994) (internal quotation marks
omitted).
To obtain intervention as of right, an intervenor must satisfy a four-
prong test:
(1) the application . . . must be timely; (2) the applicant must have
an interest relating to the property or transaction which is the
subject of the action; (3) the applicant must be so situated that the
disposition of the action may, as a practical matter, impair or
impede his ability to protect that interest; (4) the applicant’s
interest must be inadequately represented by the existing parties
to the suit.
Texas, 805 F.3d at 657 (quoting New Orleans Pub. Serv., Inc. v. United Gas
Pipe Line Co., 732 F.2d 452, 463 (5th Cir. 1984)).
The timeliness inquiry “is contextual; absolute measures of timelines
should be ignored.” Espy, 18 F.3d at 1205. Timeliness “is not limited to
chronological considerations but ‘is to be determined from all the
circumstances.’” Stallworth v. Monsanto Co., 558 F.2d 257, 263 (5th Cir. 1977)
(quoting United States v. U.S. Steel Corp., 548 F.2d 1232, 1235 (5th Cir. 1977)).
Because the Association sought intervention before discovery progressed and
because it did not seek to delay or reconsider phases of the litigation that had
already concluded, the Association’s motion was timely. 1 See Flying J. Inc. v.
1 Because the district court’s only discussion of timeliness took place as part of its
permissive intervention analysis, and because the standards for timeliness under the two
paths for intervention differ, we decide the question of timeliness de novo. See Stallworth,
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Van Hollen, 578 F.3d 569, 572 (7th Cir. 2009) (concluding intervention after
final judgment was timely because intervenor sought only to appeal and not to
re-litigate issues already resolved); Espy, 18 F.3d at 1205–06 (concluding
intervention to appeal after entrance of injunction was timely because
inadequacy of representation did not become apparent until then even though
intervenor had actual knowledge of suit).
We are also satisfied that the Association has an interest relating to the
subject of the action and that disposition of the action may impair or impede
the Association’s ability to protect that interest. The Association asserts that
the “property or transaction that is the subject of the action” in this case is the
regulatory system governing package stores including the licenses held by the
Association’s members. Wal-Mart’s case is premised on the argument that the
system exists solely and illegally for the benefit of the Association—the lawsuit
is premised on the assumption that the Association’s members are the
beneficiaries of this regulatory system.
Although “[t]here is not any clear definition of the nature of the
‘interest . . .’ that is required for intervention of right,” our precedent has set
guiding principles that dictate the outcome of this case. 7C Charles Alan
Wright, et al., Federal Practice and Procedure § 1908.1 (3d ed. 2007). 2 The
touchstone of the inquiry is whether the interest alleged is “legally
protectable.” New Orleans Pub. Serv., Inc. v. United Gas Pipe Line Co.
(NOPSI), 732 F.2d 452, 464 (5th Cir. 1984) (en banc). “[A]n interest is sufficient
if it is of the type that the law deems worthy of protection, even if the intervenor
558 F.2d at 263 (“[T]he district court should apply a more lenient standard of timeliness if
the would-be intervenor qualifies for intervention under section (a) than if he qualifies for
intervention under section (b).”).
2 “The ‘interest’ test is primarily is primarily a practical guide to disposing of lawsuits
by involving as many apparently concerned persons as is compatible with efficiency and due
process.”Nuesse v. Camp, 385 F.2d 694, 700 (D.C. Cir. 1967).
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does not have an enforceable legal entitlement or would not have standing to
pursue her own claim.” Texas, 805 F.3d at 659.
Because we must assess whether the Association has a “legally
protectable” interest, we find helpful a recent decision holding that the
Association—participating in a similar challenge to the regulatory system as
an intervenor—has standing to continue that lawsuit without the participation
of the Commission. Cooper v. Tex. Alcoholic Beverage Comm’n, 820 F.3d 730,
737 (5th Cir. 2016). Because the direct holding of Cooper is that the Association
can legally protect this regulatory system, it likely has an interest in the
subject matter of this litigation. 3
Even without the guidance provided by Cooper, our precedent dictates
that the Association has a legally protectable interest in the regulatory scheme
because, according to Wal-Mart, the Association is the scheme’s beneficiary.
This puts the Association in a position comparable to other successful
intervenors in our circuit. For example, in Texas, women who potentially
qualified for deferred action status sought to intervene in a lawsuit challenging
the federal government’s policies for granting deferred action. 805 F.3d at 660.
We permitted the intervention because the women were the “intended
beneficiaries” of the policy under challenge even though the intervenors had
neither applied for nor received the benefit. Id. We have also held that “public
spirited” civic organizations that successfully petition for adoption of a law may
intervene to vindicate their “particular interest” in protecting that law. City of
Houston v. Am. Traffic Solutions, Inc., 668 F.3d 291, 294 (5th Cir. 2012). Under
3 We have previously suggested that “a movant who shows standing is deemed to have
a sufficiently substantial interest to intervene.” LULAC v. City of Boerne, 659 F.3d 421, 434
n.17 (5th Cir. 2011) (quoting Meek v. Metro. Dade Cty., 985 F.2d 1471, 1480 (11th Cir. 1993),
abrogated on other grounds Dillar v. Chilton Cnty. Comm’n, 495 F.3d 1324, 1331–32 (11th
Cir. 2007))
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American Traffic Solutions and Texas, the Association has an interest in
protecting its legally prescribed market.
Our conclusion is in keeping with those of our sister circuits, which
recognize that associations representing licensed business owners have a right
to intervene in lawsuits challenging the regulatory scheme that governs the
profession. In one such lawsuit the Second Circuit concluded that “clearly the
[association] ha[s] an interest in the transaction which is the subject of the
action” because “[t]here can be no doubt that the challenged
prohibition . . . affects the economic interests of members of the pharmacy
profession. Pharmacists also have an interest in a regulation which they claim
is designed to encourage ‘the continued existence of independent local drugstores
by the prevention of destructive competition . . . .’” N.Y. Pub. Int. Research Grp,
Inc. v. Regents of Univ. of State of N.Y., 516 F.2d 350, 351–52 (2d. Cir. 1975)
(quoting Urowsky v. Board of Regents, 349 N.Y.S.2d 600, 603 (N.Y. Sup. Ct.
1973)) (emphasis added). In another lawsuit challenging state liquor licensing
regulations, a federal court in Massachusetts concluded that the intervening
association’s had a sufficient interest in the litigation because
[e]limination of § 15’s three license limit will affect MassPack
members themselves, potentially enabling them to get licenses for
more than three stores, and, more importantly for them, may
change the number and nature of their competitors. MassPack’s
interest in this case is not a general one; the regulation in question
governs its members directly, and their interests are different from
those of the general public or of any business outside of the liquor
retail sector. Indeed ‘preserving the right of small, independent
liquor dealers to do business’ is one of the recognized purposes of
the three license restriction.
Mass. Food Ass’n v. Sullivan, 184 F.R.D. 217, 221–22 (D. Mass. 1999) (quoting
Johnson v. Martignetti, 375 N.E.2d 290, 297 (Mass. 1978)) (emphasis added).
Most recently, Judge Posner, writing for a unanimous Seventh Circuit panel,
permitted intervention by an association of independent gas station owners
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precisely because they sought to preserve legislation that limited competition.
Flying J., 578 F.3d at 572 (“Wisconsin’s ‘Unfair Sales Act’ is special-interest
legislation and the special interest is that of retailers who wish, naturally
enough, to limit price competition. They are the statute’s direct beneficiaries
. . . .”).
Wal-Mart argues that NOPSI forecloses the Association’s intervention,
but its argument misreads the law and facts of that case. NOPSI did not create
a bar preventing all intervention premised on “economic interests.” Such a rule
would be inconsistent with Supreme Court precedent permitting intervention
based on economic interests. See, e.g., Bryant v. Yellen, 447 U.S. 352, 366–67
(1980) (allowing intervention by individuals who might be able buy land “at
prices below the market value for irrigated lands” depending on the outcome
of the underlying litigation); Cascade Nat. Gas Corp. v. El Paso Nat. Gas Co.,
386 U.S. 129, 135–36 (1966) (allowing intervention by gas company into an
antitrust dispute between the government and the company’s supplier because
that dispute would affect its access to product). Our own cases applying NOPSI
have not imposed anything approaching the broad bar Wal-Mart advances.
Those cases have instead suggested that an economic interest is not
sufficiently direct when the intervenor’s interest will only be vindicated by a
separate legal action 4 or, as in NOPSI, when the intervenor’s relationship is
too removed from the dispute. After NOPSI, we have continued to hold that
economic interests can justify intervention when they are directly related to
See, e.g., Ross v. Marshall, 456 F.3d 442, 443 (5th Cir. 2006) (citing NOPSI to allow
4
intervention by insurer into lawsuit against insured because insurer’s interest was not
“contingent on the outcome of a subsequent lawsuit”); SEC v. Funding Res. Grp., 233 F.3d
575, *4 n.9 (5th Cir. 2000) (citing NOPSI to deny intervention to victims of a Ponzi scheme
that may become insolvent due to litigation); SEC v. Stanford Int’l Bank, Ltd., 429 F. App’x
379, 381–82 (5th Cir. 2011) (citing NOPSI to deny intervention to potential creditor because
interest “relate solely to the [defendant’s] ability to satisfy a judgment for claims that are not
related to the case”).
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the litigation. Espy, 18 F.3d at 1207 (allowing intervention by lumber
companies whose income may be affected by changes in federal land
management policy).
Our holding in NOPSI also dealt with a purely private dispute. Two
publicly-traded corporations—a supplier of natural gas and an energy
company that purchased the supplier’s gas—disagreed about the
interpretation of a contract. 732 F.2d at 454. NOPSI expressly did not involve
any state or federal regulations governing the market for gas sales. Id. at 456
n.3. A class of electrical customers including the mayor and city of New
Orleans 5 sought to intervene in the case, arguing that they were third-party
beneficiaries of the disputed contract. The court held against the intervenors
because it concluded they were not the real party in interest—the rights they
asserted were actually NOPSI’s rights and the contract was not actually a
third-party beneficiary contract entitling them to assert their own rights. 6 Id.
at 464–65.
5 The mayor and city intervened in their private capacities as electrical customers. At
the time NOPSI was decided, the city had no regulatory authority over electricity sales in
New Orleans. Id. at 462.
6 Wal-Mart puts great weight on NOPSI’s declaration that the intervenor’s had only
an “economic interest” in the lawsuit. Id. at 470. Properly put in context, this language in
NOPSI actually strengthens the Association’s claim. We held that the NOPSI intervenors’
interest was insufficient not because it was economic but because it could not be directly tied
to the contract dispute between NOPSI and its supplier. Id. (“The risk of economic harm to
the City essentially arises from the regulatory ‘gap’ which generally leaves NOPSI free to
contract as it wishes.”). All of the interests they asserted were derivative of NOPSI’s
contractual rights. Id. The Association, by contrast, asserts its own interest—its exclusive
enjoyment of a legally protected market
There is no regulatory gap in the present lawsuit—there is a directly and tightly
regulated market that will be significantly disrupted if Wal-Mart prevails. The NOPSI
intervenors were merely private consumers arguing that a private contract dispute might
change the price of a commodity they purchased. In the instant case, the underlying lawsuit
attacks not a private contract but a comprehensive system of state law and the intervenors
are threatened not with a minor change but with the threatened end of their viability.
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We conclude our “interest” analysis where we began. NOPSI and our
subsequent cases insist that the core of our interest analysis asks whether an
interest is “legally protectable.” NOPSI, 732 F.2d at 463–64. Often, this is a
tautological exercise—a party may intervene if its interest is legally
protectable and its interest is legally protectable if it can intervene—but in the
case at bar we need not speculate. Cooper strongly suggests that the
Association can legally protect its interest in defending the regulatory scheme.
732 F.2d at 464–465; see also LULAC 659 F.3d at 434 n.17. Our independent
analysis confirms that, even absent Cooper, the Association has a legally
protectable interest as the intended beneficiary of a government regulatory
system.
Having concluded that the Association has an interest that may be
impaired by the present lawsuit, we are also satisfied it has met its minimal
burden to demonstrate inadequate representation. Because intervention
necessarily occurs before the litigation has been resolved, the Association need
only show that “the representation may be inadequate.” Texas, 805 F.3d at 662.
The Association has satisfied its “minimal” burden to establish that its interest
is not adequately represented. Edwards v. City of Houston, 78 F.3d 983, 1005
(5th Cir. 1996). Our jurisprudence imposes two presumptions of adequate
representation, “when ‘the would-be intervenor has the same ultimate
objective as a party to the lawsuit’ [and] ‘when the putative representative is a
governmental body or officer charged by law with representing the interests of
the [intervenor].’” Texas, 805 F.3d at 661–62 (quoting Edwards, 78 F.3d at
1005) (first alteration added). Even assuming, arguendo, that either of the two
presumptions of adequate representation applies, the Association has shown
“adversity of interest” and “that its interest is in fact different from that of the
[governmental entity] and that the interest will not be represented by [it].”
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Texas, 805 F.3d at 661 (quoting Edwards, 78 F.3d at 1005). 7 The Association
has offered several reasons that the Commission’s representation may be
inadequate. The Commission seeks to defend all portions of the litigation,
which limits the range of arguments it can advance, while the Association does
not seek to defend the Hotel Exception. 8 The Association intends to seek a
declaratory judgment that the regulatory scheme is constitutionally valid; the
Commission merely seeks to defend the present suit and would accept a
procedural victory. The Association argues that its interests—protecting its
members’ businesses—are narrower than the Commission’s broad public
mission. It highlights arguments that the Commission cannot make given the
differences in the objectives of the Commission and the Association. 9 Given the
broad policy favoring intervention in our precedent, we are satisfied that the
Association has demonstrated that it may be inadequately represented in the
lawsuit.
III.
Because we conclude that the Association is entitled to intervention as
of right, we do not address the district court’s denial of permissive intervention.
Because the Association has a protectable interest that may be impaired or
injured by the outcome of the lawsuit between Wal-Mart and the Commission
7 After the district court denied the present motion, we clarified that the government-
representative presumption does not inherently apply whenever a state or federal agency is
a party. See Entergy Gulf States of La., L.L.C. v. EPA, 817 F.3d 198 (5th Cir. 2016).
8 The hotel exception allows hotels owned by publicly traded corporations to hold
liquor permits. Tex. Alco. Bev. Code § 22.16. All other publicly traded corporations are
prohibited from owning liquor permits. Id.
9 Cf. Trbovich v. United Mine Workers of Am., 404 U.S. 528, 539 (1972) (“[T]he
Secretary has an obligation to protect the vital public interest in assuring free and democratic
union elections that transcends the narrower interest of the complaining union member.”);
Texas, 805 F.3d at 663 (Jane Does’ personal interests are narrower than those of the federal
government); Brumfield, 749 F.3d at 346 (Louisiana had broader interest in maintaining “its
relationship with the federal government” not shared by intervenors); Espy, 18 F.3d at 1207
(“The government must represent the broad public interest, not just the economic concerns
of the timber industry.”).
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and because the Association has shown that the Commission may not
adequately represent its interests, we REVERSE the district court’s denial of
the Association’s motion to intervene.
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