McLane Drops TX Tied-House Suit

FILED JUNE 6, 2018

In an unexpected turn of events, Berkshire Hathaway's food distribution subsidiary McLane Company has withdrawn its challenge to Texas' tied house laws.

BACKGROUND. McLane has been angling to get an alcohol distributor license in Texas for years. It applied for one in 2011 but then pulled the application, later claiming the TABC gave it the impression that its ownership structure was a problem because Berkshire Hathaway also owns share in the retail tier. Note, this wasn't a formal denial and Texas Alcoholic Beverage Commission (TABC) disagrees with that account.

[Sidebar: Texas' One Share Rule purportedly states that a single overlapping share of stock ownership between tiers, whether direct or indirect, is in violation of the state's tied-house laws. Note, TABC claims this rule doesn't exist, but having read the beverage code, McLane's interpretation seems reasonable.]

McLane did not take kindly to this set of circumstances.

A THORN IN TABC' SIDE. The distributor subsequently inundated the TABC with information requests to see if anyone was receiving special privilege. Just check out this excerpt from a September 2017 Austin American-Statesman report:

"We are talking this side of a million sheets of paper," TABC general counsel Emily Helm said in 2017. Likely because McLane requests included all communications between the agency and the Legislature "since the beginning of time."

Then the distributor joined forces with the Texas Association of Business (TAB) to file a federal lawsuit against the TABC in an attempt to eliminate the One Share Rule [see WSD 06-27-2016]. But the case never made much progress.

So McLane tried another tactic.

In November 2016, the company formally protested the renewal of Core-Mark Midcontinent's liquor license in Texas because Core-Mark, one of the largest distributors of consumer goods in North America, is owned by institutional investors such as Vanguard and T. Rowe Price, which also own share in international alcohol retailers and suppliers like Nordstrom and Molson Coors.

But the TABC renewed Core-Mark's license anyway [see WSD 03-29-2018]. TABC's logic was that the strict regulations on mutual funds like T. Rowe Price "mitigate any risk of tied-house issues." The TABC suggests that tied-house laws are confined to relationships between industry businesses, "not external ownership by non-industry entities," and institutional investors do not 'deal with' a retailer or a consumer in the same way that a bev alc supplier would deal with a retailer.

WHEN LAST WE LEFT OFF two months ago, McLane attorney Brett Charhon, a managing partner at Charhon Callahan Robson & Garza, was not optimistic that the TABC would grant McLane a license to distribute in light of the agency's decision on Core-Mark. He said McLane would be exploring whether the TABC has the authority to "silence Texas citizens from raising concerns about TABC's conduct."

Meanwhile, TABC spokesman Chris Porter told WSD: "Until an application is received, the agency can't determine whether it would be approved or denied."

The question is will McLane apply again? You'll recall, TABC has an entirely new set of leadership since the last time they applied [see WSD 03-14-2018]. But Berkshire Hathaway also acquired a majority stake in Pilot Flying J truck stops late last year, which likely complicates matters further.

We were unable to get an update from McLane by press time, but stay tuned.

Until later,
Your Editors

Emily Pennington -
Sarah Barrett -

"To be normal is the ultimate aim of the unsuccessful." -- Carl Jung

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