Wal-Mart Stores, Inc. v. Tex. Alcoholic Beverage Comm'n (313 F. Supp. 3d 751, 2018)

ROBERT PITMAN, UNITED STATES DISTRICT JUDGE

1. Wal-Mart Stores, Inc. and three of its subsidiaries (collectively, "Wal-Mart") bring suit against the Texas Alcoholic Beverage Commission and three of its commissioners (collectively, "TABC"). Wal-Mart raises a constitutional challenge to four Texas statutes, Tex. Alco. Bev. Code §§ 22.04, 22.05, 22.06, 22.16, governing the issuance of package store permits, which allow the retail sale of liquor in the state. Generally, the statutes prohibit public corporations, including Wal-Mart, from obtaining any package store permits, and prohibit other companies with diffuse ownership from obtaining more than five package store permits. Wal-Mart asserts claims against TABC pursuant to 42 U.S.C. § 1983 for violations of the dormant Commerce Clause, U.S. Const. art. I, § 8, cl. 3, and the Equal Protection Clause, U.S. Const. amend XIV, § 1. It seeks a declaration that the statutes are unconstitutional and a permanent injunction against their enforcement.

2. The Texas Package Store Association ("TPSA") was allowed to intervene as a matter of right to defend the statutes. See Wal-Mart Stores, Inc. v. Tex. Alcoholic Beverage Comm'n , 834 F.3d 562 (5th Cir. 2016).

3. On June 5-9, 2017, the Court held a bench trial. In light of the entire evidentiary record, the Court now issues the following findings of fact and conclusions of law.

FINDINGS OF FACT

I. The Parties

4. Wal-Mart is a retailer that operates approximately 5,000 stores in the United States. Wal-Mart currently sells beer or wine in forty-seven states, and liquor in thirty-one states. Wal-Mart currently sells beer and wine in Texas at 668 locations.

5. Wal-Mart is a publicly traded corporation. No person owns a majority of its stock.

6. Wal-Mart has a plan to open liquor stores adjacent to some of its existing Texas locations. These liquor stores would operate on separate premises from Wal-Mart's existing retail stores and would obtain separate package store permits to authorize the sale of liquor. Wal-Mart is prevented from implementing its plan by the statutes challenged in this lawsuit.

7. TABC is the state agency charged with issuing permits and enforcing the Texas Alcoholic Beverage Code. If Wal-Mart were to apply for a package store permit (which would allow it to sell liquor), TABC would deny Wal-Mart's application based on the challenged statutes.

8. TPSA is the trade association of Texas package stores. TPSA only accepts applications from package stores that are majority-owned by Texans.

II. Texas's Off-Premises Retail Permits

9. To sell alcoholic beverages for off-premises consumption in Texas, retailers must obtain a separate permit for each physical location where alcohol is sold. Each permit authorizes an unlimited volume of sales from the permitted location. There are four off-premises retail permits relevant to this case.

10. First, a "Package Store Permit," also referred to as a "P permit," authorizes the sale of distilled spirits (commonly referred to as "liquor"), wine, and ale for off-premises consumption. Tex. Alco. Bev. Code § 22.01. This is the permit held by liquor stores (also known as "package stores").

11. Second, a "Wine Only Package Store Permit," also referred to as a "Q permit," authorizes the sale of wine and ale for off-premises consumption. Id. § 24.01.

12. Third, a "Retail Dealer's Off-Premise License," also referred to as a "BF license," authorizes the sale of beer for off-premises consumption. Id. § 71.01.

13. Fourth, a "Wine and Beer Retailer's Off-Premise Permit," also referred to as a "BQ permit," authorizes the sales of wine, ale, and beer for off-premises consumption.

Id. § 26.01. The BQ permit is similar to the combination of the BF license and the Q permit. There are, however, some technical differences. First, a Q permit allows a retailer to sell wine with a higher alcohol content than the BQ permit. Second, unlike a BQ permittee, a Q permittee is authorized to apply for some subordinate permits that would allow the Q permittee to transport its inventory between stores and to make certain local deliveries. Large grocery stores typically hold BQ permits to authorize their sales of beer and wine.

III. The Challenged Statutes

14. Wal-Mart challenges four Texas statutes governing the issuance of package store permits. Wal-Mart argues that these statutes, individually and in concert, prevent it from selling liquor in the state, and challenges the statutes as unconstitutional under the dormant Commerce Clause and the Equal Protection Clause of the United States Constitution.

15. First, the "public corporation ban" forbids "any entity which is directly or indirectly owned or controlled, in whole or in part, by a public corporation" from holding a package store permit. Tex. Alco. Bev. Code § 22.16(a). A public corporation is defined as a corporation "whose shares ... are listed on a public stock exchange" or "in which more than 35 persons hold an ownership interest." Id. § 22.16(b). Texas does not forbid public corporations from holding any of the other seventy-five kinds of alcohol permits it issues. Moreover, Texas is the only state that bars public corporations from selling liquor solely because of their status as public corporations.

16. Second, the "five-permit limit" nominally limits a package store permittee to holding no more than five permits. Id. § 22.04. However, this permit cap is subject to a significant exception, discussed below.

17. Third, the "consanguinity exception" to the five-permit limit authorizes a consolidation process that allows many companies to circumvent the five-permit limit. Id. § 22.05. The statute provides that if "two or more persons related within the first degree of consanguinity have a majority of the ownership in two or more legal entities holding package store permits, they may consolidate the package store businesses into a single legal entity." Id. The consolidated entity "may then be issued permits for all the package stores, notwithstanding any other provision of this code." Id. The practical effect of the consanguinity exception is that the five-permit limit applies only to the following classes of package-store permittees: (1) permittees who lack an individual who owns a majority of the business, and (2) permittees whose majority owner lacks a child, sibling, or parent who is willing and able to assist with the consolidation process.

18. A fourth and final statute prohibits BQ permittees from also holding an interest in a package store permit. Id. § 22.06(a)(2). In contrast to BQ permittees, BF licensees (who sell beer) and Q permittees (who sell wine and ale) are allowed to hold package store permits. In order to open a package store, Wal-Mart would first be required to abandon its BQ permits and instead obtain BF licenses and Q permits for all of its existing retail locations that sell beer and wine.

IV. The Texas Liquor Market Is Served By Large, Competitive Package Store Chains

19. Out of a total of 2,578 active package store permits issued by TABC, 574 are owned by a package store chain (meaning, a business holding six or more package store permits). TABC Ex.-120. There are now 21 such chains. Id. The largest chain, Spec's Family Partners, holds 158 permits. Id. Since 1944, the chains have greatly increased their number of stores, and their volume of sales, even as the total number of package stores has stayed approximately the same. Tr. June 5, at 225:1-227:3, 251:13-252:6; WM Ex-130.

20. Many of Texas's package store chains operate large stores with broad selections of products and hundreds of employees. E.g. , WM Ex-150; WM Ex-151; WM Ex-178. For example, Gabriel's Liquors operates a 20,000 square-foot "big box liquor close-out store" and has a 40,000 square-foot distribution warehouse. Tr. June 7 (Vol. II), at 3:4-8, 19:5-18. In 2012, Gabriel's had annual revenues of approximately $105 million, a product mix of 20,000 separate SKUs and nearly 300 employees. WM Ex-263, at 12.

21. The credible evidence demonstrates that package store chains compete vigorously. Package stores offer extensive promotions and discounts. E.g. , WM Ex-188. Package stores also compete to be the most convenient to their customers and to offer the largest selection and variety of products.

22. The credible evidence also demonstrates that package store chains have a very large share of the Texas market. Dr. Kenneth Elzinga, Wal-Mart's expert, testified that package store chains hold between 22% and 40% of the all the package store permits in each of the five most populous Metropolitan Statistical Areas ("MSAs") in the state, which together contain two-thirds of the state's population. Tr. June 5, at 242:11-244:7; WM Ex-149. This figure likely understates the market share held by package store chains, because Dr. Elzinga did not have data on the volume of spirits sold. According to one report, the four largest chains have more than 60% of the total market share of the retail liquor market in twenty-two Texas cities. Tr. June 5, at 245:18-248.

V. The Public Corporation Ban Was Enacted With the Purpose of Discriminating Against Out-of-State Retailers

23. The credible evidence shows that the public corporation ban was enacted in response to a successful dormant Commerce Clause challenge to a previous Texas law, which imposed a residency requirement that restricted alcoholic-beverage permits to Texas residents and to firms majority-owned by Texans. See Wilson v. McBeath , No. A-90-cv-736, 1991 WL 540043 (W.D. Tex. June 13, 1991), aff'd sub nom. Cooper v. McBeath , 11 F.3d 547 (5th Cir. 1994) (striking down Tex. Alco. Bev. Code § 109.53 ).

24. In May 1993, after the district court struck down the residency requirement but while the appeal was pending before the Fifth Circuit, the Texas Legislature passed House Bill 1445. That law reduced the length of time that the holder of an alcoholic-beverage permit was required to be a resident of Texas (from three years to one) and eliminated the requirement altogether for mixed beverage permits and beer-and-wine permits (but not for package store permits). See WM Ex-16 (H.B. 1445), § 6.03(k); Tr. June 7 (Vol. I), at 197:18-24. TPSA viewed the Cooper litigation as part of a "tug of war between the legislature and the federal courts over the residency requirement." Tr. June 7 (Vol. I), at 217:20-24. TPSA supported H.B. 1445. Id. at 201:3-8.

25. The purpose of H.B. 1445 was to prevent the Fifth Circuit from issuing a merits decision in Cooper. This purpose was revealed during a floor debate on an amendment proposed by Representative Mark Stiles. The Stiles Amendment would have retained the residency requirement for all permits. WM Ex-33, at 4:9-12. During the House debate on this amendment, Representative Stiles noted that the Cooper lawsuit was the "real reason" for H.B. 1445's partial elimination of the residency requirement. Id. at 8:24-25. He urged his colleagues to "try to settle [their] lawsuit" (referring to the Cooper litigation) rather than "take the whole baby and throw it out with the bath water." Id. at 10:3-4. Representative Stiles's opponents argued that H.B. 1445 would actually save most of the state's residency requirements because, by eliminating the residency requirement for mixed-beverage permits, the bill would prevent the Fifth Circuit from reaching a broader merits holding in Cooper that would strike down the residency requirement for all permits, including specifically package store permits. Id. at 6:23-7:11; 16:21-17:15. Some Representatives also stated that a "deal" had been made with the Cooper plaintiffs, in which those plaintiffs had pledged to dismiss their case if H.B. 1445 became law. Id. at 18:1-7; 8:22-23. The TPSA opposed the Stiles Amendment. Id. at 24:3-4.

26. After H.B. 1445 was passed, the Cooper plaintiffs moved to dismiss their lawsuit. 11 F.3d at 551. However, the Fifth Circuit rejected the plaintiffs' suggestion that their case was now moot. Id. The Fifth Circuit issued its Cooper decision in January 1994. On the merits, it affirmed the district court and struck down the state's residency requirement using broad language that, fairly read, applied not only to mixed-beverage permits but to all other retail permits as well. Id. at 554.

27. During the next Legislative Session, which convened in 1995, the TPSA drafted the public corporation ban. Tr. June 7 (Vol. I), at 225:12-226:24. The drafter of the bill was Fred Niemann, Jr., a lawyer and lobbyist for the TPSA who specialized in legislative affairs. Id. at 225:22-226:12, 184:9-185:22. Mr. Niemann was the only witness for the bill; he also drafted fliers to be distributed to legislators and staff explaining the bill. Id. at 237:20-24, 238:19-241:4. At his deposition, the bill's Senate sponsor confirmed TPSA's critical role in the bill's enactment, stating that he did not "dream[ ] up" the bill himself. See Armbrister Dep., at 105:6-11.

28. TPSA conceived, drafted and supported the public corporation ban because the TPSA feared that Cooper would be applied to strike down the residency requirement for package store permits. Tr. June 7 (Vol. 1), at 192:3-11, 218:20-219:4, 236:14-22. This fear was the "very, very strongest" reason why TPSA drafted the public corporation ban. Id. 237:8-9. Without the residency requirement, TPSA was "afraid" that "very large stores could disrupt what had been a very stable business climate" for TPSA's members. Id. 220:16-19, 225:8-11. TPSA feared the "Wal-Martization" of the Texas package store market. Id. 237:8-10. TPSA considered Wal-Mart to be "the poster child" for the idea that "big stores had come into Texas" and "had driven out of business most mom-and-pop and local businesses." Id. 220:20-221:6. The Legislature was aware (from Mr. Niemann's legislative testimony) that the public corporation ban was a response to the Cooper decision. WM Ex-288, at 2-3 (written testimony); WM Ex-78, at 4:11-19 (House Committee testimony); PX-63, 10:1-2 (Senate Committee testimony).

29. The credible evidence demonstrates that, if not for the Fifth Circuit striking down Texas's residency requirement, TPSA would not have proposed, and the Legislature would not have enacted, the ban on public corporations holding package store permits.

30. The public corporation ban did not affect any of the incumbent package store permittees, all of whom were Texans or were majority-owned by Texans. Tr. June 7 (Vol. I), 220:2-8. TPSA was not aware of any (Texas-owned) public corporations that held package store permits in 1995. Id. at 219:18-24. Even if a Texas-owned public corporation did hold a package store permit, that corporation would have been exempted from the ban, due to the ban's grandfather clause. Id. at 258:13-25; see also Tex. Alco. Bev. Code § 22.16(f). Johnny Gabriel created two Texas-owned public corporations immediately prior to the public corporation ban taking effect. Tr. June 9 (Vol. II), at 13:4-14.

31. While TPSA's lawyer and lobbyist testified at trial that the purpose of the public corporation ban was to preserve a favorable "business climate" for TPSA's members, Tr. June 7, 220:16-19, in its formal lobbying efforts for the public corporation ban, the TPSA offered a different rationale. In its testimony to the Legislature, TPSA claimed the public corporation ban was needed to promote "accountability," or the need "to have real human beings who are easily identifiable, who are close to the business, and who ultimately bear personal responsibility for the actions of the package store." WM Ex-288, at 2-3 (written testimony); WM Ex-78, at 4:11-19 (House Committee testimony); WM Ex-63, at 10:1-2 (Senate Committee testimony).

32. TPSA presented no evidence to the Legislature of any actual problems with corporate accountability in the sale of distilled spirits or of any other product. Tr. June 7 (Vol. I), 251:8-253:5. At trial, Mr. Niemann admitted he was "speculating" when he testified to the Legislature that public corporations might be less accountable. Id. 252:2-5. The lack of any evidence is telling because public corporations had been able to obtain package store permits since 1935 (so long as they were majority Texan-owned) and because out-of-state public corporations had been allowed to hold both mixed-beverage and beer-and-wine permits since 1993. Id. at 198:14-200:15, 250:21-253:5.

33. The credible evidence suggests TPSA devised the "accountability" rationale in order to obscure the ban's discriminatory purpose. Mr. Niemann, a lawyer, was aware of the Cooper litigation and knew that the legislative history of the public corporation ban would likely be reviewed for evidence of discriminatory purpose. Id. at 253:13-254:16. Mr. Niemann admitted that he "knew that any bill might be challenged" and that his "assignment was to craft a bill which [the TPSA] felt would survive a commerce clause challenge." Id. 253:19-22. In light of the absence of any evidence in the record indicating TPSA was concerned about promoting corporate accountability and Mr. Niemann's testimony that TPSA's chief concern was maintaining the business climate created by the residency requirement, the Court concludes that the proffered "accountability" rationale was pretextual. TPSA, in its testimony to the Legislature, speculated that the public corporation ban would promote corporate accountability in order to conceal the ban's actual discriminatory purpose (to protect Texas package store owners from out-of-state competition).

34. The Senate sponsor of the public corporation ban, Senator Kenneth Armbrister, confirmed the discriminatory purpose of the law during the Senate floor debate. When asked to explain the ban's purpose, Senator Armbrister's first answer was that the ban means that "you can't have a package store inside a Walmart" and "Walmart can't own the package store." WM Ex-66, 4:8-15. Senator Armbrister later agreed with a colleague's statement that the Legislature "wanted to have somebody from Texas with the license that you get hold of to enforce the Code." Id. at 7:10-16 (emphasis added).

VI. Appeals to Discrimination Against Out-of-State Companies Prevented Repeal of the Public Corporation Ban, the Five-Permit Limit, and the Consanguinity Exception

35. Bills to repeal the five-permit limit and the consanguinity exception were introduced in 2009, 2013, and 2015. In addition, two bills introduced in 2015 would have repealed all the statutes challenged in this lawsuit, including the public corporation ban. TPSA successfully lobbied against these repeal efforts by making blatantly discriminatory arguments in testimony to the Legislature. See WM Ex-109, at 19:5-21:15 (2013 Senate testimony); WM Ex-101, at 22:11-26:5 (2009 Senate testimony); see also WM Ex-105, at 11:25-21:2 (2013 House testimony); WM Ex-97, at 12:18-14:23 (2009 House testimony).

36. In 2009, a TPSA representative testified, "[R]epealing the five store limit would open the door wide for out-of-state big box chains to enter the Texas market and use massive marketing power to displace Texas liquor stores. The profits of these corporations would then be shipped off to Arkansas and other states instead of remaining here in Texas." WM Ex-101, at 24:15-21. Similarly, in 2013, a TPSA representative testified that repeal would "open it up for [companies] outside Texas to come in and take the money right out of the state." WM Ex-109, at 24:16-19.

37. TPSA also made these discriminatory arguments in its written lobbying materials. See WM Ex-251; WM Ex-256; WM Ex-275; WM Ex-278. For example, in one piece of legislative advertising, TPSA asserted that "Wal-Mart wants to take profits that are now going to local Texas businesses, profits that are now staying in local Texas communities, and instead, Wal-Mart wants to send those profits to Bentonville, Arkansas!" WM Ex-256. In another handout, entitled "Alcohol Laws Favor and Protect Texas Liquor Stores," TPSA argued approvingly that "[t]he Alcoholic Beverage Code is biased in favor of Texas ownership of liquor stores." WM Ex-275. The TPSA handout explained that "all 2,300 liquor stores in the state are still owned by Texas residents" because of "the prohibition in the Code against a corporation with more than 35 shareholders." Id. TPSA warned that because "Wal-Mart has hundreds of thousands of shareholders ... repealing the 35-shareholder provision would allow Wal-Mart to own and operate liquor stores in Texas." Id.

VII. The Public Corporation Ban Disproportionately Affects Out-of-State Companies

38. The credible evidence demonstrates that the public corporation ban disproportionately affects out-of-state companies. The law disproportionately burdens out-of-state companies' ability to enter the Texas retail liquor market. Certainly, the statute has the effect of preventing both some in-state and some out-of-state firms from entering the Texas retail liquor market. Yet, only a very small percentage of the in-state firms that would otherwise serve this market are prevented from doing so by the public corporation ban. On the other hand, a very large percentage of the out-of-state companies that would otherwise serve this market are blocked. In fact, the credible evidence suggests that the overwhelming majority of out-of-state companies that would otherwise sell liquor in Texas cannot do so because of the public corporation ban.

39. The vast majority of package store businesses operating in Texas are owned by Texas residents. According to the TABC, there are a total of 1,765 package store firms in the state, holding a total of 2,579 permits. TABC Ex-73. Only four of those package store firms are out-of-state entities; those four firms hold a total of five permits. Tr. June 7 (Vol. I), at 102:11-103:1, 103:20-104:5; TABC Ex-32. Only thirty-seven of those package store firms are held by an entity with a single out-of-state shareholder; those thirty-seven firms hold a total of forty-eight permits. Tr. June 7 (Vol. I), at 104:6-106:3; TABC Ex-33. Thus, only around 2% of Texas package store firms and around 2% of Texas package stores have any out-of-state ownership. Ninety-eight percent of Texas package stores and Texas package store companies are wholly owned by Texans. (Of course, a package store or package store company that is not wholly owned by Texans may still be majority owned by Texans.)

40. Dr. Elzinga's analysis of Texas's largest alcoholic beverage retailers also provides credible evidence that the public corporation ban disproportionately burdens out-of-state companies. The ten largest package store chains in Texas's five most populous MSAs are all Texas-owned, with a single exception in Dallas (Total Wine & More). Tr. June 6, at 45:14-20; WM Ex-173. By contrast, the ten largest beer-and-wine retailers in these same MSAs are evenly split between Texas retailers and out-of-state retailers. Tr. June 6, at 40:9-41:4, 41:22-42:6, 46:8-48:24; WM Ex-173. Because beer, wine and spirits are related markets, and because the public corporation ban does not apply to beer or wine permits, Dr. Elzinga credibly concluded that the dominance of Texas-owned firms in the package store market is the result of the challenged statute. Tr. June 6, at 49:6-11.

41. Dr. Elzinga also credibly testified about the mechanism by which the public corporation ban excludes out-of-state entrants. Dr. Elzinga identified twenty-eight out-of-state firms that might enter the Texas package store market, if the challenged statutes were removed. These are firms that (1) sell spirits in states other than Texas, or sell beer or wine in Texas; and (2) have over $1 billion in annual revenues. Tr. June 6, at 49:12-52:4, 56:11-57:14. All twenty-eight of these firms are likely entrants, and all twenty-eight are blocked by the public corporation ban. Id. at 50:13-24; PX-174. None of TABC's or TPSA's expert witnesses identified any additional likely out-of-state entrant (other than Total Wine & More) that is not blocked by the law.

42. Indeed, the weight of the available evidence indicates that very few out-of-state firms with fewer than thirty-five shareholders are realistic potential entrants to the Texas market. Expanding into even a neighboring state requires capital and scale. See Tr. June 6, at 56:11-57:14. Firms with the required capital and scale are almost always firms that have diffuse ownership. See id. It follows that the out-of-state companies that are most likely to enter the Texas retail liquor market-those with the necessary capital and scale-are the same companies that are blocked by the public corporation ban.

43. Dr. Elzinga identified only three Texas-based firms that otherwise would be likely to enter the package store market but which are blocked from doing so because they are publicly traded. Tr. June 6, at 52:25-53:18; WM Ex-175. He identified another three in-state firms that are likely blocked, but, because they are privately held, their exact number of owners is unknown. Id. On cross-examination, he acknowledged a handful of other in-state companies that might be barred by the challenged statute. Regardless of the exact number (which is impossible to measure with precision), it is clear that there are only a handful of potential in-state entrants barred by the public corporation ban. The handful of barred in-state entrants is dwarfed by the nearly two thousand Texas-owned firms already serving the package store market. It follows that a very small percentage of potential in-state entrants are blocked by the challenged statutes.

44. TABC and TPSA rely on the testimony of Dr. Devrim Ikizler, one of TPSA's experts, to argue that the public corporation ban does not disproportionately affect out-of-state companies. See Tr. June 9 76:6-79:6; TPSA Ex-47. Having considered this testimony, the Court finds it unpersuasive. Dr. Ikizler compares the top ten package store permit holders (which hold between 15 and 160 permits each) to the BQ permit holders (beer and wine retailers) that have a comparable number of permits. He found that 90% of the package store permittees with between 15 and 160 permits are in-state companies, whereas 94% of BQ permittees with between 15 and 160 permits are in-state companies. The problem with this testimony is that beer and wine retailers tend to hold many more permits than package store companies. One reason for this is that beer and wine retailers are not subject to Texas's separate premises requirements, which means that many businesses (for example, convenience stores) are eligible to sell beer and wine but not liquor. Consequently, Dr. Ikizler's analysis compares the very largest package store firms to a set of relatively small beer and wine retailers, without accounting for the fact larger companies are more likely to be from out of state. Moreover, with regard to the effect the public corporation ban has on out-of-state companies, the remainder of Dr. Ikizler's testimony errs by asking whether the number of Texas companies in the retail liquor market is comparable to Texas's share of the population or Texas's share of the Top 100 retailers nationwide. E.g. , TABC Ex-48. This is not the appropriate method of assessing whether a statute disproportionately affects interstate commerce. See infra Section X.C.

45. In some instances, the effects of a law on interstate commerce can be easily measured by comparing the composition of the market before the law's introduction to the composition of the market after the law is in place. Here, Texas enforced its unconstitutional residency requirement for more than ten years after the introduction of the public corporation ban. It is thus impossible to know with certitude what the package store market would look like without the public corporation ban and without the residency requirement. However, the credible evidence suggests that, without the public corporation ban, a substantially larger share of the firms participating in the Texas retail liquor market would be from out of state. Because we know that, with the public corporation ban, the market is overwhelmingly served by companies wholly owned by Texans, it follows that the ban has blocked the majority of potential out-of-state entrants. At the same time, it is clear that the ban has blocked only a handful of potential in-state entrants. For that reason, the Court concludes that the public corporation ban disproportionately burdens out-of-state companies.

VIII. The Challenged Statutes May Affect the Price, Convenience, and Consumption of Liquor

46. The consumption of alcohol can contribute to a numerous health problems including liver disease, heart disease, strokes, and cancer, and is associated with numerous other social ills, including drinking and driving, child and spousal abuse, homicides, and suicides. Tr. June 8 (Vol. II), at 18:22-20:13; Tr. June 8 (Vol. I); at 87:3-88:1. The economic costs resulting from excessive drinking are substantial. Tr. June 8 (Vol. I), at 88:2-89:1.

47. Alcohol consumption is responsive to price. There is broad consensus that increasing the price of alcohol is an effective way to reduce the consumption of alcohol and the harms and externalities associated with alcohol consumption. Tr. June 8 (Vol. I), at 29:19-25, 85:10-86:3. Additionally, policies limiting the number of retail outlets selling alcohol can be effective in reducing alcohol consumption, and greater outlet density is associated with an increase in the harms and externalities associated with alcohol consumption. Tr. June 6, at 170:12-17, 175:1-19, 178:2-6; Tr. June 8 (Vol. II), at 28:13-31:2.

48. In enacting the public corporation ban, the Texas Legislature could have reasonably believed that allowing public corporations to sell liquor in the state would lead to large corporations entering the market, increasing the total supply of liquor and putting downward pressure on prices. Similarly, the Texas Legislature could have reasonably believed that allowing public corporations to sell liquor in the state would lead to more companies selling liquor at retail, increasing the total number or retail outlets selling liquor in the state. Additionally, the Texas Legislature could have reasonably believed that public corporations are likely to be larger and have access to more capital than other retailers, and consequently enjoy a scale advantage that would allow them to sell liquor at a discount. Tr. June 8 (Vol. I), at 98:2-7; Tr. June 9 (Vol. II), at 201:21-24; 201:24-25.

49. However, to the extent that the public corporation ban has an effect on the price or availability of liquor in Texas, this outcome could be achieved through alternative measures, including the imposition of an excise tax or through regulatory measures that directly control how and where liquor can be sold and how many outlets are allowed to sell liquor. Specifically, excise taxes are widely used to reduce alcohol consumption and their efficacy is commonly accepted. All five experts testified to the efficacy of excise taxes. Tr. June 5, at 261:2-262:12 (Elzinga); Tr. June 6, at 61:18-63:12; 117:21-119:8; 225:22 to 226:11; 241:8-245:17 (Elzinga); Tr. June 8 (Vol. I), at 69:1-70:10 (Chaloupka); Tr. June 8 (Vol. II), at 24:1-26:1 (Gruenewald); Tr. June 9 (Vol. II), at 49:9-20, 129:6-130:14 (Ikizler); Tr. June 9 (Vol. II), at 182:14-19 (Magee).

IX. The Challenged Statutes Do Not Promote Corporate Accountability

50. The credible evidence demonstrates that public corporations are not less accountable than firms with fewer than 35 owners. Dr. Elzinga testified that the ten largest BQ permittees (including Wal-Mart) had fewer TABC violations per store than did the ten largest P permittees. Tr. June 6, at 32:6-38:21. Moreover, he testified that there is no support in the academic literature for the notion that public corporations are less accountable to regulators than privately held corporations. Id. at 33:12-34:21. To the contrary, the literature indicates public corporations tend to be very concerned with compliance and reputation. Dr. Elzinga's opinion was not rebutted by the TABC's or the TPSA's experts.

51. TABC already holds public corporations accountable for their sales of beer and wine at retail, for their sales of spirits in hotels, and for their sales of mixed beverages in bars and restaurants. Tr. June 7 (Vol. I), at 162:15-163:12; 172:13-25. Neither TABC nor TPSA has shown a single instance in which the state has been unable to contact or hold accountable a public corporation.

CONCLUSIONS OF LAW

X. Dormant Commerce Clause

52. The United States Constitution affords Congress the power to "[t]o regulate Commerce ... among the several States." U.S. Const. art. I, § 8, cl. 3. "The Supreme Court has long recognized that this provision has a necessary, logical corollary: If Congress has the power to regulate commerce among the states, then the states lack the power to impede this interstate commerce with their own regulations." Dickerson v. Bailey , 336 F.3d 388, 395 (5th Cir. 2003). The "dormant Commerce Clause" serves as "a substantive restriction on permissible state regulation of interstate commerce." Dennis v. Higgins , 498 U.S. 439, 447, 111 S.Ct. 865, 112 L.Ed.2d 969 (1991).

53. A state regulation can violate the dormant Commerce Clause in one of two ways. First, a law is presumptively invalid if "it discriminates against interstate commerce either facially, by purpose, or by effect." Allstate Ins. Co. v. Abbott , 495 F.3d 151, 160 (5th Cir. 2007) (citing Bacchus Imports, Ltd. v Dias , 468 U.S. 263, 270, 104 S.Ct. 3049, 82 L.Ed.2d 200 (1984) ). A law that so discriminates "is valid only if the state 'can demonstrate, under rigorous scrutiny, that it has no other means to advance a legitimate local interest.' " Id. (quoting C & A Carbone, Inc. v. Town of Clarkstown , 511 U.S. 383, 392, 114 S.Ct. 1677, 128 L.Ed.2d 399 (1994) ). Second, a law that does not directly discriminate against interstate commerce violates the dormant Commerce Clause only if it imposes a burden on interstate commerce that "is 'clearly excessive' in relation to the putative local benefits." Id. (quoting Pike v. Bruce Church , Inc. , 397 U.S. 137, 142, 90 S.Ct. 844, 25 L.Ed.2d 174 (1970) ). This more deferential standard of review for laws that burden but do not discriminate against interstate commerce is known as the Pike balancing test.

54. Wal-Mart argues that the public corporation ban, the five-permit limit, and the consanguinity exception discriminate against interstate commerce in both their purpose and their effect. Alternatively, Wal-Mart argues that the statutes fail Pike balancing.

55. The Court concludes that the public corporation ban was enacted with discriminatory intent: one of the legislature's primary purposes in passing the ban was to exclude out-of-state companies from participating in the Texas retail liquor market. Neither TABC nor TPSA argues that the ban can survive the rigorous scrutiny applied to discriminatory statutes. The ban's discriminatory purpose renders it inconsistent with the dormant Commerce Clause and therefore unconstitutional.

56. However, the Court cannot conclude that the public corporation ban has a discriminatory effect. Admittedly, the ban disproportionately affects out-of-state companies. It serves to exclude from the Texas retail liquor market the vast majority of potential out-of-state entrants. Consequently, the market is served almost exclusively by in-state companies. Yet, the public corporation ban nominally treats similarly situated in-state and out-of-state companies equally. Under controlling precedent, this is sufficient to avoid a finding of discriminatory effect.

57. Wal-Mart also argues that the public corporation ban fails the Pike balancing test. The Court agrees. The weight of the evidence suggests that the statutes impose on interstate commerce a burden that is clearly excessive relative to the laws' putative benefits. Thus, even if the statute is not so discriminatory as to warrant strict scrutiny, it nonetheless fails under the more deferential standard of review applied to laws that incidentally burden interstate commerce.

58. Finally, the Court declines to find that either the five-permit limit or the consanguinity exception independently offend the dormant Commerce Clause. The available evidence is insufficient to conclude that either statute burdens interstate commerce.

A. The Purpose of the Public Corporation Ban Is to Discriminate Against Out-of-State Companies

59. A state regulation violates the dormant Commerce Clause if it "discriminates against interstate commerce ... by purpose." Allstate , 495 F.3d at 160 (citing Bacchus Imports, Ltd. v. Dias , 468 U.S. 263, 270, 104 S.Ct. 3049, 82 L.Ed.2d 200 (1984) ). In determining whether a law purposefully discriminates against interstate commerce, the Fifth Circuit uses the four factors set forth in Arlington Heights , which include: "(1) whether a clear pattern of discrimination emerges from the effect of the state action; (2) the historical background of the decision, which may take into account any history of discrimination by the decisionmaking body; (3) the specific sequence of events leading up to the challenged decision, including departures from normal procedures; and (4) the legislative or administrative history of the state action, including contemporary statements by decisionmakers." Id. (citing Village of Arlington Heights v. Metro. Housing Dev. Corp. , 429 U.S. 252, 266-268, 97 S.Ct. 555, 50 L.Ed.2d 450 (1977) ). Here, all four Arlington Heights factors demonstrate that the purpose of the ban was to discriminate against out-of-state companies.

60. First, "a clear pattern of discrimination emerges from the effect of the" public corporation ban. Id. The ban has had the effect of barring nearly all out-of-state companies with the scale and capabilities necessary to serve the Texas retail liquor market. See supra Section VII. Over 98% of Texas package stores and Texas package store companies are 100% Texas-owned. Id. Since Texas ceased enforcing its unconstitutional residency requirement, only one significant out-of-state company has entered the Texas market. Id.

61. Second, there is an undeniable "history of discrimination by the decisionmaking body." Allstate , 495 F.3d at 160. The Texas Legislature, through a variety of laws (collectively, the "residency requirement"), has expressly prohibited out-of-state persons and companies from owning package stores since the passage of the Liquor Control Act. In 1994, the Fifth Circuit found that the residency requirement, at least as applied to a different type of liquor permit not at issue here, was discriminatory and inconsistent with the dormant Commerce Clause. Cooper , 11 F.3d at 555-56. Nonetheless, Texas continued to enforce the residency requirement as applied to package store permits for another twelve years, ceasing enforcement only when it was permanently enjoined by a federal district court. Wine & Spirits of Texas, Inc. v. Steen , 486 F.Supp.2d 626, 633 (W.D. Tex. 2007). To this day, the residency requirement remains on the books. E.g. , Tex. Alco. Bev. Code § 109.53.

62. Third, the "specific sequence of events leading up to the challenged decision" evinces discriminatory purpose. Allstate , 495 F.3d at 160. Specifically, the proximate cause of the Legislature's decision to enact the public corporation ban was the Fifth Circuit's decision invalidating the residency requirement. See supra Section V. If not for the Cooper decision, the public corporation ban would never have been conceived, drafted or enacted. Id. The Legislature attempted to strike a deal to moot the Cooper appeal and thus avoid a broad ruling that would jeopardize the enforceability of all its residency requirements. Id. After this strategy failed, the Legislature enacted the public corporation ban in the very next session. Id.

63. Fourth, "the legislative ... history of the state action" includes direct evidence of discriminatory purpose. Allstate , 495 F.3d at 160. The Senate sponsor of the public corporation ban agreed that the purpose of the ban is to make sure that package stores are owned by "somebody from Texas" and to guarantee that "you can't have a package store inside a Wal-Mart." WM Ex-66, at 4:8-15, 7:10-15. The lobbyist who drafted the bill and served as its sole witness testified that the purpose of the public corporation ban was to preserve the "stable business climate" created by the residency requirement. Tr. June 7 (Vol. I), at 225:8-11. No reasonable inference can be drawn from these statements other than that the Legislature enacted the public corporation ban with the purpose of preventing out-of-state companies from entering the market in the event that the courts extended Cooper to invalidate the residency requirement as applied to package store permits.

64. Having reviewed the available evidence in light of the four Arlington Heights factors, the Court concludes that the purpose of the public corporation ban is to discriminate against out-of-state retailers in order to protect locally owned package stores.

65. This conclusion finds additional support from TPSA's reliance on expressly discriminatory arguments in its lobbying efforts to prevent the Legislature from repealing the public corporation ban. See supra Section VI. For example, one handout created by the TPSA for the purpose of lobbying stated that "all 2,300 liquor stores in the state are still owned by Texas residents" in part because of "the prohibition in the Code against a corporation with more than 35 shareholders." WM Ex-275. TPSA's consistent reliance on protectionism as its central argument against repeal efforts provides circumstantial evidence that in 1995 when TPSA drafted and lobbied for the public corporation ban it was motivated by a desire to protect Texas-owned package stores from out-of-state competition. Similarly, these statements provide some circumstantial evidence that TPSA offered and the Legislature acted on protectionist arguments when drafting and enacting the public corporation ban.

66. TPSA argues that much of the evidence of discriminatory purpose can be construed as evidence of intent to discriminate against large companies, not out-of-state companies. The Court is not persuaded. As explained above, the weight of the evidence indicates the Legislature specifically intended to exclude out-of-state companies in order to benefit incumbent, locally owned package stores. Moreover, TPSA's insistence that the public corporation ban was motivated by concerns about the role of large businesses is belied by TPSA's repeated efforts to defend the consanguinity exception, which serves to remove any cap on the growth of most locally-owned package store companies. If the Legislature, in enacting the ban, was motivated primarily by a desire to limit the size of package store companies, it is difficult to conceive why it would maintain a provision that prevents the imposition of a limit on the size of most package store companies.

67. The Legislature's discriminatory purpose in enacting the public corporation ban is sufficient to trigger strict scrutiny. The Fifth Circuit has repeatedly said so. Allstate , 495 F.3d at 160 (citing Bacchus Imports , 468 U.S. at 270, 104 S.Ct. 3049 ) (emphasis added) ("A statute violates the dormant Commerce Clause where it discriminates against interstate commerce either facially, by purpose, or by effect."); Int'l Truck & Engine Corp. v. Bray , 372 F.3d 717, 725 (5th Cir. 2004) (emphasis added) ("A court may find discrimination based on evidence of discriminatory effect or discriminatory purpose."); see also Churchill Downs Inc. v. Trout , 589 Fed.Appx. 233, 234 (5th Cir. 2014) (quoting Allstate , 495 F.3d at 160 ). Moreover, multiple federal courts of appeals have found a law to violate the dormant Commerce Clause on the basis of discriminatory purpose alone. See S. Dakota Farm Bureau , 340 F.3d at 596-97 ; Waste Mgmt. Holdings, Inc. v. Gilmore , 252 F.3d 316, 341, 345 (4th Cir. 2001). Absent some controlling clarification to the contrary, the Court is compelled to apply strict scrutiny in light of its finding that the public corporation ban was enacted with discriminatory purpose.

68. When a law discriminates against interstate commerce, courts apply the "strictest scrutiny." Oregon Waste Sys. Inc. v. Dep't of Envt'l Quality , 511 U.S. 93, 101, 114 S.Ct. 1345, 128 L.Ed.2d 13 (1994). "If a restriction on commerce is discriminatory, it is virtually per se invalid." Id. at 99, 114 S.Ct. 1345. A discriminatory law "is valid only if the state 'can demonstrate, under rigorous scrutiny, that it has no other means to advance a legitimate local interest.' " Allstate , 495 F.3d at 160 (quoting C & A Carbone , 511 U.S. at 392, 114 S.Ct. 1677 ). Here, neither TABC nor TPSA argues that the public corporation ban satisfies this burden. Thus, the Court concludes that the public corporation ban-enacted with the purpose of discriminating against interstate commerce-violates the dormant Commerce Clause.

B. The Public Corporation Ban Does Not Have a Discriminatory Effect

69. A state regulation also violates the dormant Commerce Clause if it "discriminates against interstate commerce ... by effect." Allstate , 495 F.3d at 160 (citing Bacchus Imports , 468 U.S. at 270, 104 S.Ct. 3049 ). The parties disagree as to the appropriate test to measure discriminatory effect. Wal-Mart argues that a law has a discriminatory effect if it disproportionately benefits in-state interests at the expense of out-of-state interests. See Churchill Downs , 589 Fed.Appx. at 237 (recognizing that evidence indicating a law "disproportionately affects out-of-state companies" is evidence of discriminatory effect). TABC and TPSA argue that even if a law disproportionately affects out-of-state companies, there can be no discriminatory effect unless the law differentiates between similarly situated in-state and out-of-state companies. See Allstate , 495 F.3d at 163 ("A state statute impermissibly discriminates only when it discriminates between similarly situated in-state and out-of-state interests.").

The question is thus whether a court can properly find a discriminatory effect when a law treats similar in-state and out-of-state companies equally but as a practical matter disadvantages out-of-state interests.

70. Wal-Mart's position draws some support from Supreme Court precedent. In Hunt v. Washington State Apple Advertising Commission , the Supreme Court considered the constitutionality of a North Carolina statute that required all closed containers of apples shipped into the state to bear "no grade other than the applicable U.S. grade or standard." 432 U.S. 333, 335, 97 S.Ct. 2434, 53 L.Ed.2d 383 (1977). At the time, many states other than North Carolina had implemented their own grading systems. Id. Among those states was Washington State, the nation's largest producer of apples with its apples accounting for nearly 50% of all apples shipped in interstate commerce. Id. at 336, 97 S.Ct. 2434. The Supreme Court applied heightened scrutiny to the statute because it raised the cost of doing business in the North Carolina market for out-of-state apple growers and therefore discriminated against them. Id. at 351-352, 97 S.Ct. 2434. The Court acknowledged "the statute's facial neutrality," but nonetheless found a discriminatory effect because the statute's "practical effect" was to burden out-of-state growers. Id. at 350-352, 97 S.Ct. 2434 ; see also Bacchus Imports , 468 U.S. 263, 104 S.Ct. 3049, 82 L.Ed.2d 200 (1984) (finding a Hawaii tax exemption for certain wines to have a discriminatory effect because as a practical matter those wines were more common in Hawaii).

71. Wal-Mart's position that a disproportionate impact on out-of-state companies is a sufficient basis to find a discriminatory effect is bolstered by persuasive authority from two federal courts of appeals. In Cachia v. Islamorada , the Eleventh Circuit considered a municipal ordinance banning all "formula restaurants," defined to include most chain restaurants and fast food restaurants. 542 F.3d 839, 840-841 (11th Cir. 2008). The ordinance was facially neutral and affected both in-state and out-of-state companies. Id. at 842. Put differently, the ordinance blocked many in-state restaurants and allowed many out-of-state restaurants. Id. Nonetheless, the court determined that the ordinance had a discriminatory effect because it operated as "an explicit barrier to the presence of national chain restaurants." Id. The court reasoned that "[w]hile the ordinance does not facially discriminate between in-state and out-of-state interests, its prohibition of restaurants operating under the same name, trademark, menu or style is not evenhanded in effect, and disproportionately targets restaurants operating in interstate commerce." Id. at 844. Relying on Hunt , the court found that the ordinance had "the practical effect of discriminating against interstate commerce" and instructed the district court to apply heightened scrutiny.

72. Similarly, in Family Winemakers of California v. Jenkins , the First Circuit considered the constitutionality of a Massachusetts statute that allowed only small wineries (defined as producing 30,000 gallons or less of wine a year) to obtain a "small winery shipping license." 592 F.3d 1, 4 (1st Cir. 2010). The holder of such license could sell wine by shipping directly to consumers, through wholesaler distribution, or through retail distribution. Id. Large wineries, on the other hand, were forced to choose between either shipping directly to consumers or using wholesaler distribution. Unlike small wineries, the law did not allow them to do both, and it did not allow them, under either option, to sell directly to retailers. Id. While the law did not expressly differentiate between in-state and out-of-state wineries, the court found discriminatory effect, because it "significantly alter[ed] the terms of competition between in-state and out-of-state wineries to the detriment of the out-of-state wineries that produce 98 percent of the countries wine." Id. at 11. While the law did not outright bar any winery from distributing in Massachusetts, the court concluded that its "ultimate effect" was to "artificially limit the playing field in [the] market in a way that enables Massachusetts's wineries to gain market share against their-out-state competitors." Id.

73. Hunt , Cachia , and Family Winemakers all instruct that a law discriminates against interstate commerce if it has the practical effect of disproportionately advantaging in-state interests at the expense of out-of-state interests. And the Fifth Circuit has acknowledged that evidence indicating a law "disproportionately affects out-of-state companies" is evidence of discriminatory effect. See Churchill Downs , 589 Fed.Appx. at 237. If this were this appropriate standard, the Court would easily find that the public corporation ban has a discriminatory effect: the available evidence suggests that the ban's effects are felt disproportionately by out-of-state companies, which are largely barred from selling liquor in Texas. See supra Section VII; infra Section X.C.

74. But TABC and TPSA point to a contrary line of cases that define discriminatory effect much more narrowly. In at least three controlling cases, higher courts have upheld state regulations as consistent with the dormant Commerce Clause because the regulations treat similarly situated in-state and out-of-state companies the same, even when those regulations disproportionately affect out-of-state companies.

75. In Exxon v. Governor of Maryland , the Supreme Court upheld a state law, which prohibited companies that produce or refine petroleum products from also operating retail gas stations, over the plaintiff's objection that the law disproportionately affects out-of-state petroleum companies. 437 U.S. 117, 98 S.Ct. 2207, 57 L.Ed.2d 91 (1978). The majority reasoned that the Commerce Clause does not protect "the particular structure or methods of operation in a retail market." Id. at 127, 98 S.Ct. 2207. The Exxon Court concluded that the ban on refiners owning retail gas stations was permissible because it did not "distinguish between in-state and out-of-state companies in the retail market." Id. "The fact that the burden of a state regulation falls on some interstate companies does not, by itself, establish a claim of discrimination against interstate commerce." Id.

76. The Fifth Circuit has twice relied on Exxon to uphold statutes that arguably disproportionately affect out-of-state companies. In Ford Motor Corp. v. Texas Department of Transportation , the court considered a statute which, as interpreted, prohibited automobile manufacturers from selling vehicles directly through their website. 264 F.3d 493, 498 (5th Cir. 2001). The court stated that discrimination under the dormant Commerce Clause does not "include all instances in which a law, in effect, burdens some out-of-state interest while benefitting some in-state interest." Id. at 500. Rather, for a law to have a discriminatory effect it must provide "for differential treatment based upon their contacts with the State." Id. at 501. Ultimately, the court upheld the law at issue because Ford "failed to show that ... in practical effect, [the law] discriminates according to the extent of a business entity's contacts with the State." Id. at 501. Similarly, in Allstate Insurance Co. v. Abbott , the Fifth Circuit upheld a law prohibiting insurance companies from obtaining an interest in a body shop, notwithstanding the plaintiff's argument that the law disproportionately affects out-of-state insurers. 495 F.3d 151 (5th Cir. 2007). The Court determined that Exxon was controlling.

77. Exxon , Ford , and Allstate allow for the possibility that a law that is not facially discriminatory may still have a discriminatory effect if it disproportionately impacts out-of-state companies. For example, the Supreme Court in Exxon acknowledged, at least in a footnote, that "[i]f the effect of a state regulation is to cause local goods to constitute a larger share, and goods with an out-of-state source to constitute a smaller share, of the total sales in the market ... the regulation may have a discriminatory effect on interstate commerce." Exxon , 437 U.S. at 126 n.16, 98 S.Ct. 2207 ; but see Allstate , 495 F.3d at 162 (affording minimal weight to this footnote). But the clear implication of these cases is that a finding of discriminatory effect requires something close to facial discrimination. After all, it would seem that a facially neutral statute by definition treats similarly situated entities equally.

78. In light of the fact that the public corporation ban does not expressly differentiate between companies based on their ties to Texas, the Court is skeptical that a finding of discriminatory effect is appropriate. That said, there is arguably a basis to distinguish Exxon , Ford , and Allstate. Those cases involved narrow regulations that may have disproportionately affected out-of-state companies but did not serve to bar most out-of-state companies from entering the market. For example, in Exxon , the record showed that "there are several major interstate marketers of petroleum that own and operate their own retail gasoline stations ... who compete directly with the Maryland independent dealers, [and] are not affected by [the regulation at issue] because they do not refine or produce gasoline." 437 U.S. at 125-126, 98 S.Ct. 2207. Similarly, in Allstate , the record was "unclear" as to "how the new regulations would affect any shift in the current level of business presently enjoyed by out-of-state suppliers of body shops to in-state shops." 495 F.3d at 163. Here, the record shows that the challenged statutes bar the majority of potential out-of-state entrants to the Texas retail liquor market. Consequently, the market is overwhelmingly served by in-state firms. Unlike in Exxon and Allstate , the challenged statutes do not simply bar a few particular interstate companies from entering the Texas retail liquor market; rather, they bar nearly all potential out-of-state entrants, affecting the interstate market as a whole. See Exxon , 437 at 117, 98 S.Ct. 2207 (stating that the dormant Commerce Clause "protects the interstate market, not particular interstate firms"). But ultimately, the Court is not satisfied that this distinction, one only of degree, provides an adequate basis to depart from Exxon , Ford , and Allstate 's counsel.

79. The Court concludes that Exxon , Ford , and Allstate preclude a finding of discriminatory effect. Those cases instruct that a law does not discriminate in effect unless the law differentiates between similarly situated in-state and out-of-state companies on the basis of the companies' ties to the state. The public corporation ban does not. Public corporations are banned from the market whether or not they are based in Texas or owned by Texans. Similarly, corporations with fewer than thirty-five shareholder are allowed to sell liquor in the state whether or not they are based in Texas or owned by Texans. The record indicates some Texas companies are blocked from selling liquor in the state, and, conversely, at least one significant out-of-state company has successfully entered the Texas market. Thus, the Court finds that while the public corporation ban was enacted with discriminatory purpose, it does not have a discriminatory effect as defined by controlling precedent.

C. The Public Corporation Ban Fails Pike Balancing

80. A law that does not directly discriminate against interstate commerce may still offend the dormant Commerce Clause if it fails the Pike balancing test. Pike provides a standard for assessing state laws that regulate "even-handedly" but nonetheless impose "incidental" burdens on interstate commerce. Pike , 397 U.S. at 142, 90 S.Ct. 844 ; see also Wyoming v. Oklahoma , 502 U.S. 437, 455 & n.12, 112 S.Ct. 789, 117 L.Ed.2d 1 (1992) (quoting Brown-Forman Distillers Corp. v. New York State Liquor Authority , 476 U.S. 573, 579, 106 S.Ct. 2080, 90 L.Ed.2d 552 (1986) ) (explaining that "a less strict scrutiny is appropriate" when a law "has only indirect effects on interstate commerce").

81. The Pike balancing test has three steps. First, a court must determine whether the challenged regulation incidentally burdens interstate commerce. Pike , 397 U.S. at 142, 90 S.Ct. 844. Second, a court asks whether the regulation has "putative local benefits." Id. Finally, the court must weigh the local benefits of the regulation against the burdens the regulation places on interstate commerce. Id. A law reviewed under Pike balancing "will be upheld unless the burden imposed on such commerce is clearly excessive in relation to the putative local benefits." Id.

82. There is no clear standard for determining whether a law incidentally burdens interstate commerce. See Churchill Downs , 589 Fed.Appx. at 235 ("We note that the jurisprudence in the area of the dormant Commerce Clause is, quite simply, a mess. It has failed to produce a readily discernible standard for distinguishing between statutes that have discriminatory effects and those that merely create incidental burdens."); see also Wyoming , 502 U.S. at 455 n.12, 112 S.Ct. 789 (quoting Brown-Forman Distillers , 476 U.S. at 579, 106 S.Ct. 2080 ) ("[T]here is no 'clear line' separating close cases on which scrutiny should apply."). The Fifth Circuit has stated that "[a] statute imposes a burden when it inhibits the flow of goods interstate." Allstate , 495 F.3d at 163 (citing Ford , 264 F.3d at 503 ). Elsewhere, the Fifth Circuit has stated that Pike balancing applies to laws that have a "disparate impact on interstate commerce," defined as placing "burdens on interstate commerce that exc