Michael Peticolas capped off his law practice last year so he could do what he really loves: brew fresh craft beer and sell it to bars. But he is finding out that the law is as important an ingredient in his business recipe as hops and barley. And, thanks to his own lawyering and the work of some kindred spirits in Austin, the legal landscape for Lone Star State brewers might just change.
A combination of city, state and federal laws — some dating back to the Prohibition era — come into play when an entrepreneur sets up a brewery, Peticolas says. Although a few of those laws are as ridiculous as they are frustrating, a businessperson must follow them to the letter to avoid costly mistakes.
As an example, Peticolas points to a zoning fight involving the 4,200-square-foot warehouse space he leased to launch the Peticolas Brewing Co., one of the first new breweries Dallas has seen in decades.
After researching Dallas zoning laws and comparing them to the Texas Alcoholic Beverage Code, he concluded he had to petition the Dallas City Council for a zoning change in the industrial area where his brewery is located, and he succeeded.
“I had to change the law here to be able to manufacture alcohol,” says Peticolas during an interview inside his brewery, where huge tanks and vats will be installed soon.
In November, Peticolas plans to start cranking out hundreds of barrels of beer, many of them based on centuries-old European recipes such as those for Kolsch, a medium-bodied Southern German brew that dates back to the 14th century. But he won’t be able to label them as he chooses.
That’s because Texas Alcoholic Beverage Code §1.04 requires him to label malt beverages that contain less than 4 percent alcohol by weight (ABW) as “beer” and those with more than 4 percent ABW as “ale” or “malt liquor.”
Regardless of what the Texas law says, to a connoisseur ale is a malted beverage with a fruity taste, because it is made with apple, pear or pineapple compounds, he says. “But if I make a pale ale, if it’s 2.9 percent [ABW], I can’t call it an ale. But that’s what it is,” Peticolas says. “The beer fan is totally confused. It has a lot of consumer confusion. And it’s frustrating as a brewer.”
“Texas is the only state where they make this distinction between beer and ale by 4 percent alcohol,” Peticolas says of the law.
Peticolas also is frustrated by Texas Alcoholic Beverage Code §102.07, which he says the Texas Alcoholic Beverage Commission (TABC) has interpreted to prevent breweries, but not wineries, from advertising their products.
But a pair of beer-loving lawyers in Austin who represent a craft brewery and others in a federal suit may clear some of the hurdles faced by Peticolas and his fledgling company.
Jim Houchins and Pete Kennedy represent alcoholic beverage distributor Authentic Beverages Co., Jester King Craft Brewery and Zax, a restaurant licensed to serve alcoholic beverages, in their challenge to certain sections of the alcoholic beverage code as they relate to the production of beer.
Houchins is an Austin solo whose love of craft beers dates back decades. In 1978, his former company, Manneken-Brussel Imports Inc., became the first U.S. company to import Belgium’s Duvel products into this country. Duvel is known for its strong pale ale brand.
“I can remember back in 1978 when we started with Duvel. We always had to struggle with the labels. You can’t have the word ‘beer’ to get it in to Texas,” Houchins says.
“That’s how many years I’ve been dealing with these problems. And when you’re dealing with the TABC and stay in their good graces, you’re loathe to do anything about it,” says Houchins.
Kennedy practices First Amendment law when he’s not brewing craft beer (which is made in small batches) in his kitchen or drinking it in one of Austin’s many brew pubs.
“I first took note of these regulations by looking at a small brewery’s website. This brewery said, ‘We’d like to tell you where to buy our beer, but we can’t’ and linked to a TABC regulation. When I saw that, as a First Amendment lawyer, I said, ‘That can’t possibly be constitutional,’ ” notes Kennedy, a partner in Austin’s Graves Dougherty Hearon & Moody.
Houchins asked Kennedy to help him change the laws on behalf of Jester King and the other plaintiffs. “I figured this was a good one to challenge the . . . free-speech regulations, which I think are unconstitutional,” Kennedy says. “For me, the top of the list is: You can’t tell consumers where to buy it. I can’t think of another product where you can’t tell the consumer where to buy it.”
Last year, the plaintiffs filed Authentic Beverages Co., et al. v. Texas Alcoholic Beverage Commission , which is before U.S. District Judge Sam Sparks of Austin. The plaintiffs brought the suit under 42 U.S.C. §1983 to challenge several laws involving the labeling and advertising of alcoholic beverages, which they allege is commercial speech protected by the First Amendment.
In an Oct. 19 motion for summary judgment, the plaintiffs allege that §1.04 “does not advance any substantial government interest and actually requires mislabeling. . . . If the goal is informing consumers of malt beverages’ alcohol content, as TABC claims, current Texas law does little or nothing to advance that goal.” [See the plaintiffs' motion for summary judgment.]
The plaintiffs also attack §102.07′s advertising ban on equal protection grounds, because “Texas law gags breweries and distributors, but not wineries.”
The TABC shot back in its Oct. 20 motion for summary judgment, writing that many of the laws date back to the 1930s, when the Texas Legislature regulated the production and sale of beer after Prohibition ended. [See the defendant's motion for summary judgment.]
“The State’s interest delineates high alcohol content malt beverages — not the few ales that may be brewed with under 4% alcoholic content by weight and theoretically may want to be labeled Ale because of the method of its fermentation. The State’s interest in providing a simple labeling system to alert industry members, tax collectors/law enforcement and consumers to a beverage’s status as a higher alcohol content malt beverage directly advances its interest in minimizing the instances of over consumption of alcohol, efficiently collecting taxes, and providing maximum flexibility to local communities to determine the level of wet-dry status of their jurisdictions,” the state argues regarding §1.04.
As for §102.07′s advertising prohibition, “The Texas Legislature examined the Texas wine producing industry, and made statutory changes to increase the impact of that industry on the state’s economy. This rationale also includes a clear desire by the Legislature to foster the economic agricultural aspects of grape production in Texas,” the TABC notes.
Texas Assistant Attorney General James “Beau” Eccles, who represents the TABC in Authentic Beverages Co. , did not return a telephone call seeking comment. Carolyn Beck, director of communication and governmental relations for the TABC, declines comment about the suit.
Peticolas says if the plaintiffs win, it will give his new business a fighting chance at success, too.
“And that’s why I’m so excited about this lawsuit,” Peticolas says. “They are taking it straight to federal court and out of the hands of the Legislature.”