Lawyers handling dram shop cases must be thoroughly familiar with the Texas Dram Shop Act’s safe-harbor provision and the cases interpreting it, because the application of the provision can be outcome-determinative.

In El Chico Corp. v. Poole (1987), the Texas Supreme Court recognized that the foreseeable likelihood of causing injury by serving alcohol to an obviously intoxicated person is as great as one would expect from releasing a rattlesnake in a shopping mall. That same year, the Texas Legislature enacted the dram shop act to protect “the welfare, health, peace, temperance, and safety of people of the State.”

The dram shop actestablishes an exclusive cause of action against a provider of alcoholic beverages if, at the time the provision occurred, it was apparent to the provider that the person being provided with the alcoholic beverage was “obviously intoxicated to the extent that he presented a clear danger to himself and others,” and the intoxication of the person was a proximate cause of the damages suffered.

The act’s safe-harbor provision, however, allows providers to escape liability under certain circumstances: An employee’s actions “shall not be attributable to the employer” if the employer requires its employees to attend a seller-training program approved by the Texas Alcoholic Beverage Commission (TABC), the employee actually has attended such a training program, and “the employer has not directly or indirectly encouraged the employee to violate such law.”

Although the dram shop act states that “the employee” must have attended a TABC-approved program, there is authority for the proposition that “all employees” on duty need certification. In Perseus Inc. v. Canody (1999), the 4th Court of Appeals in San Antonio characterized its analysis of the safe-harbor defense in that case as an analysis of whether the provider “proved that all employees on duty on the night in question were in fact TABC certified.” (emphasis added).

Courts of appeals have found all sorts of behavior to constitute direct and indirect encouragement to over-serve patrons. In Cianci v. M. Till Inc. (2000), the 11th Court of Appeals in Eastland found that a server’s testimony that a manager told her to keep serving alcohol to obviously intoxicated patrons until the manager “made the decision on whether they needed to be served or not” created a fact issue on encouragement.

In Pena v. Neal, Inc. (1995), the 4th Court found that a convenience store’s failure to install camera monitors, to require store employees to report repeated instances of customer intoxication and after-hours loitering, and to enforce a rule requiring the termination of any employee permitting alcohol consumption on the premises defeated the convenience store’s assertion of a safe-harbor defense in a motion for summary judgment.

In I-Gotcha Inc. v. McInnis (1995), the 2nd Court of Appeals in Fort Worth found that the evidence supported a jury’s finding that a topless bar directly or indirectly encouraged its employees to violate the law. There were no written rules requiring waitresses to check IDs and to cut off drinkers who were over-served, there were no limits on the number of shots of alcohol a patron could be served, there no written guidelines requiring that intoxicated patrons be provided with alternate transportation or time to sober up, and the club took no steps to counter a known problem with underage drinkers being attracted to the club by the topless dancers.

Not Good Enough

Courts of appeals consistently reject providers’ blanket, generic assertions of non-encouragement. In Gonzalez v. South Dallas Club (1997), the 13th Court of Appeals in Corpus Christi found that summary judgment evidence of weekly discussions of conformance with applicable liquor regulations was inconclusive because “a statement which merely tracks the language of the affirmative defense is insufficient to prove the lack of such encouragement to violate the law.”

Likewise, in Pena v. Neal Inc. (1995), the 4th Court found that an affidavit from the provider’s president stating that neither the president nor anyone else associated with the provider directly or indirectly encouraged an employee to violate the Texas Alcoholic Beverage Code or to sell alcoholic beverages to an intoxicated person was insufficient to support a safe harbor defense because it stated “mere conclusions,” not facts.

The Texas Supreme Court interpreted the act’s safe harbor provision for the first time in 20801 Inc. v. Parker (2008). According to the decision, John Parker alleged that, over the course of an evening, employees of Slick Willie’s pool hall, including a manager, served him 10 to 15 free alcoholic beverages. The pool hall’s manager asked Parker to leave after Parker became involved in a fight with another patron in the bar. The other patron then assaulted Parker in the bar’s parking lot, causing Parker to strike his head on the pavement and sustain serious brain injuries.

Slick Willie’s moved for summary judgment on the basis of the act’s safe-harbor provision, among other grounds. Slick Willie’s argued that, to avoid the safe-harbor provision, the plaintiff bears the burden to prove that the employer directly or indirectly encouraged its employees to violate the law, and that direct or indirect encouragement requires a showing that the employer acted knowingly or, where a conscious failure to act is alleged, with conscious indifference.

The Parker court reasonedthat, in enacting the safe-harbor provision, the Legislature balanced a “carrot” that gives providers an incentive to ensure that their employees complete beneficial server training against “the Legislature’s concern that an employer might exploit this protection from liability by encouraging its employees to violate the law, increasing its profits while defeating the statute’s purpose.”

The court decided that, once a provider shows that it requires its employees to attend a seller-training program approved by the TABC and that the employee actually attended, the plaintiff bears the burden of showing that the employer directly or indirectly encouraged the employee to over-serve.

The court noted, “Although encouragement generally is intentional, it is possible, under certain circumstances, for providers to negligently encourage their employees to violate the law.” Consequently, a plaintiff can show encouragement through “circumstantial evidence that the provider engaged in behavior that a reasonable provider should have known would constitute encouragement,” such as himself serving obviously intoxicated patrons, failing to punish over-service or setting an excessively-high sales quota without regard to the number of patrons.

Although there is no per-se requirement that the provider institute a formal policy against over-service, the court observed that the existence of such a policy would be “a relevant circumstance” in determining whether a provider negligently encouraged its employees to over-serve. The court also found that the act’s safe-harbor provision would not cover the alleged actions of Slick Willie’s manager in over-serving Parker because the manager would be a vice-principal, not “an employee” under the terms of that provision.

The Legislature gave providers a safe harbor defense in the Dram Shop Act but then limited that defense. Lawmakers empowered plaintiffs to defeat the defense by showing that a provider directly or indirectly encouraged its employees to serve obviously intoxicated patrons. The reported cases teach attorneys that the hurdle plaintiffs must clear to create a fact issue on provider encouragement is relatively low and that plaintiffs may use a wide range of circumstantial evidence as evidence of a provider’s encouragement.