SPEC‘S FAMILY PARTNERS, LIMITED, Plaintiff—Appellant, v. THE EXECUTIVE DIRECTOR OF THE TEXAS ALCOHOLIC BEVERAGE COMMISSION; ADRIAN BENTLEY NETTLES, ex officio; DEXTER K. JONES; EMILY E. HELM; JUDITH L. KENNISON; MATTHEW EDWARD CHERRY, Defendants—Appellees.
No. 19-20661
United States Court of Appeals for the Fifth Circuit
August 25, 2020
Appeal from the United States District Court for the Southern District of Texas, USDC 4:18-CV-2670
Before DAVIS, GRAVES, and DUNCAN, Circuit Judges.
Spec‘s Family Partners sued officials in the Texas Alcoholic Beverage Commission (“TABC“) after TABC investigated Spec‘s and brought a largely unsuccessful administrative action against it. We must decide whether the district court correctly concluded that various forms of immunity required dismissal of Spec‘s’ claims. We affirm in part, reverse in part, and vacate in part.
I.
Because the district court dismissed this case under
Spec‘s operates stores across Texas under the name Spec‘s Wines, Spirits & Finer Foods. In late 2012 or early 2013, TABC received a complaint that Spec‘s was engaged in various violations of state law and regulations, so it began investigating. The investigation lasted approximately three years. While the investigation was ongoing, TABC invited Spec‘s officials to a meeting at which settlement was discussed. TABC demanded over $8 million from Spec‘s to resolve violations allegedly uncovered during the investigation. Spec‘s declined.
After its investigation ended in February 2016, TABC issued Spec‘s a Notice of Violation letter alleging Spec‘s had violated various laws and regulations. TABC filed the letter with the Texas State Office of Administrative Hearings (“SOAH“), which began administrative proceedings against Spec‘s. In the SOAH action, TABC sought cancellation or suspension of all 164 permits related to Spec‘s stores. In the alternative, TABC sought civil penalties of up to $713,050,000.
While the SOAH case was pending, Spec‘s continued to submit applications to TABC. It applied for two new store permits and one change-of-address permit for an existing store. TABC placed administrative holds on all three applications, and then protested them with the SOAH. TABC also refused to grant regular renewals of existing Spec‘s licenses while the SOAH proceedings were pending.
The SOAH consolidated TABC‘s three protests with the original Spec‘s case. Ultimately, the SOAH Administrative Law Judges (“ALJs“) ruled in Spec‘s’ favor on every allegation except one involving a credit law violation. For that violation, the ALJs recommended a warning. They also recommended that the three protested applications be granted.
Spec‘s then sued several TABC officials (collectively, “Defendants“) in federal court, bringing claims under
The district court granted Defendants’ motion to dismiss, reasoning Defendants were entitled to various forms of immunity. First, it held Defendants enjoyed absolute immunity from the
II.
We review dismissal of Spec‘s’ claims de novo. See Williams ex rel. J.E. v. Reeves, 954 F.3d 729, 734 (5th Cir. 2020). “In determining immunity, we accept the allegations of the plaintiffs’ complaint as true.” Singleton v. Cannizzaro, 956 F.3d 773, 779 (5th Cir. 2020) (cleaned up). We review the district court‘s decision not to exercise supplemental jurisdiction for abuse of discretion. Brookshire Bros. Holding, Inc. v. Dayco Products, Inc., 554 F.3d 595, 601–02 (5th Cir. 2009).
Spec‘s’ arguments regarding absolute immunity fall into two groups. First, Spec‘s argues that Defendants are not entitled to immunity from claims that they took wrongful acts while the SOAH case was proceeding: namely, placing holds on Spec‘s’ applications, protesting those applications, and refusing to issue regular permit renewals.1 Second, Spec‘s contends that Defendants are not immune from its claims that, as part of their investigation, they intentionally procured false testimony to use against Spec‘s in settlement negotiations and during the SOAH proceedings.
The district court ruled that absolute immunity shields Defendants from both claims. We agree that Defendants enjoy absolute immunity from the claims regarding their allegedly wrongful acts taken while the SOAH case was proceeding. But we disagree that Defendants are absolutely immune from the claim that they intentionally concealed information from a TABC auditor during the investigation. We therefore affirm in part and reverse in part the district court‘s judgment on this issue.
A.
“[P]rosecutors are absolutely immune from liability under
- the need to assure that the individual can perform his functions without harassment or intimidation;
- the presence of safeguards that reduce the need for private damages actions as a means of controlling unconstitutional conduct;
- insulation from political influence;
- the importance of precedent;
- the adversary nature of the process; and
- the correctability of error on appeal.
Id. (citing Beck, 204 F.3d at 634). “No one factor is controlling.” Id.
B.
Spec‘s’ complaint alleges that, while TABC‘s original SOAH case was proceeding, Defendants2 wrongfully placed holds on three permit applications, protested those applications, and refused to renew existing permits. Applying the Butz factors,
First, we examine “the need to assure that the [Defendants] can perform [their] functions without harassment or intimidation.” Id. Defendants are tasked under Texas law with comprehensively regulating the alcoholic beverage industry. See
Second, we look for “the presence of safeguards that reduce the need for private damages actions as a means of controlling unconstitutional conduct.” Id. at 631. Spec‘s alleges that the combined SOAH proceedings included discovery, hearings, and written decisions—all characteristics of judicial proceedings. See id. at 633 (finding sufficient safeguards in, inter alia, requirements of a hearing, evidence, and written decision); Beck, 204 F.3d at 635 (looking to similar safeguards); O‘Neal, 113 F.3d at 66 (same). Taking these allegations as true, we conclude that procedural safeguards were both available and applied in this case.
Third, we examine TABC‘s insulation from political influence. Disraeli, 489 F.3d at 631. Under Texas law, TABC is “composed of five members, who are appointed by the governor with the advice and consent of the senate.”
Fourth, we examine the importance of precedent. Disraeli, 489 F.3d at 631. Spec‘s makes no allegations or argument about whether TABC was bound by internal precedent. We therefore find “no reason ... to conclude that [TABC] would be unlikely to follow its own precedent.” Id. at 633; see also Beck, 204 F.3d at 636 (concluding “the absence of this factor is not dispositive” where “the record does not reveal whether the Board abided by internal precedent“).
Fifth, we inquire into the adversarial nature of the process. Disraeli, 489 F.3d at 631. Spec‘s’ complaint says nothing about the presence or absence of adversarial process respecting the holds, protests, or refusals to renew permits. As already noted, however, all these actions were combined with the existing SOAH proceedings “for purposes of discovery, hearing on the merits, and final decisions.” Such proceedings are adversarial. See
Lastly, we ask whether any errors were correctable on appeal. Id. at 631. Spec‘s’ complaint says nothing about its appeal rights from the contested aspects of the administrative hearings. But we again emphasize that TABC‘s actions were combined with the underlying SOAH case and were reviewed on the merits. Thus, Spec‘s was free to—and did—challenge the grounds for the holds and protests before the ALJs. With the exception of a single credit law violation, Spec‘s prevailed in their challenge, and the ALJs also recommended that the protested permits be granted. Further, Spec‘s could appeal any denial of its applications to renew existing permits. See
The Butz factors thus strongly suggest that Defendants’ challenged conduct was akin to prosecutors intimately involved in judicial proceedings and therefore “entitled to absolute immunity from suit.” Disraeli, 489 F.3d at 632. Defendants were discharging their statutory mandate to regulate the alcoholic beverage industry. The challenged acts—administrative holds, protests, and decisions regarding renewal permits—were related to, and arose out of the same alleged conduct as, the underlying SOAH case. This point is underscored by Spec‘s’ allegations that the SOAH combined all the issues into a single consolidated case and that the bases for the underlying SOAH case and the protests were the same.
For these reasons, we conclude that Defendants were functioning in quasi-prosecutorial roles as the State‘s advocate in a way “intimately associated with” judicial proceedings. See Imbler, 424 U.S. at 431; Burns, 500 U.S. at 486. Defendants are thus entitled to absolute immunity from the
C.
We disagree, however, with the district court‘s conclusion that Defendants are entitled to absolute immunity from Spec‘s’ claim that they intentionally concealed information from a TABC auditor. Spec‘s alleges that Kennison “and other representatives of the TABC” concealed documents from Kathy Anderson, a TABC auditor, to obtain testimony from her that Spec‘s had violated the Texas Alcoholic Beverage Code. Kennison did this even though she knew the documents did not establish any violation by Spec‘s. TABC then used Anderson‘s testimony (1) as leverage to try and force Spec‘s to pay a large sum to settle the investigation, and (2) as a basis for supplementing its allegations against Spec‘s in the SOAH proceedings. Spec‘s further alleges that “the TABC and their counsel” withheld information regarding applicable grace periods from Anderson to prompt her to incorrectly testify that the grace periods did not exist. TABC then attempted to use this incorrect testimony to leverage a settlement from Spec‘s.
These acts fall outside the scope of absolute immunity. “[A]cts undertaken by a prosecutor in preparing for the initiation of judicial proceedings or for trial, and which occur in the course of his role as an advocate for the State, are entitled to the protections of absolute immunity.” Buckley, 509 U.S. at 273. But “non-testimonial pretrial actions, such as the fabrication of evidence, are not within the scope of absolute immunity because they are not part of the trial.” Castellano v. Fragozo, 352 F.3d 939, 958 (5th Cir. 2003) (en banc).
Here, Spec‘s alleges that “Ms. Kennison (and other representatives of the TABC) concealed” relevant evidence from the TABC auditor, prompting her to give false testimony. The testimony was obtained during the investigation and was used as settlement leverage and as a basis for filing additional charges against Spec‘s in
In sum, the district court correctly concluded Defendants are entitled to absolute immunity from Spec‘s’ claims that they wrongfully placed administrative holds and protested Spec‘s’ applications and wrongfully refused to renew existing permits during the SOAH proceedings. However, contrary to the district court‘s conclusion, Defendants are not entitled to absolute immunity from Spec‘s’ claims that, during the investigation, they concealed evidence from a TABC auditor in order to get false testimony to be used as settlement leverage and as an evidentiary basis for filing additional charges against Spec‘s in the SOAH proceeding.8
IV.
The district court also held that sovereign immunity bars the
A.
Sovereign immunity generally “bars private suits against nonconsenting states in federal court.” City of Austin v. Paxton, 943 F.3d 993, 997 (5th Cir. 2019). This immunity extends both to the state and to “agencies acting under its control.” Puerto Rico Aqueduct & Sewer Auth. v. Metcalf & Eddy, Inc., 506 U.S. 139, 144 (1993). The Supreme Court‘s decision in Ex parte Young, 209 U.S. 123 (1908), established a narrow exception to that immunity for “suits for injunctive or declaratory relief against individual state officials acting in violation of federal law.” City of Austin, 943 F.3d at 997 (quoting Raj v. La. State Univ., 714 F.3d 322, 328 (5th Cir. 2013)). Determining if the exception applies involves “a straightforward inquiry into whether the complaint alleges an ongoing violation of federal law and seeks relief properly characterized as prospective.” Va. Off. for Protection & Advocacy v. Stewart, 563 U.S. 247, 255 (2011) (cleaned up) (quoting Verizon Md. Inc. v. Pub. Serv. Comm‘n of Md., 535 U.S. 635, 645 (2002)).
B.
We agree with the district court that Spec‘s’
We also agree with the district court that Spec‘s’ claims for injunctive and declaratory relief are barred by sovereign immunity. Spec‘s seeks a declaration that Defendants violated its rights and that TABC‘s interpretations of various statutes and rules are incorrect. It also seeks an injunction prohibiting TABC and its officials from repeating the various acts Spec‘s alleges violated its rights. But Spec‘s does not allege that TABC or its officials are currently engaged in any of those behaviors or that any such actions are imminent. It is undisputed that the investigation and SOAH proceedings forming the basis of the allegations in this case are completed. The injunctive relief sought focuses on past behavior but does not allege an “ongoing violation of federal law.” See Stewart, 563 U.S. at 255. Spec‘s has therefore failed to allege a claim that falls within the Ex parte Young exception, and its claims for injunctive and declaratory relief are barred by sovereign immunity. See Williams, 954 F.3d at 737 (Young exception “focuse[s] on cases in which a violation of federal law by a state official is ongoing as opposed to cases in which federal law has been violated at one time or over a period of time in the past“). We therefore affirm on this issue.
V.
Spec‘s also sought a declaration that
A.
The Sherman Act forbids unreasonable restraints of trade. Ohio v. Am. Express Co., 138 S. Ct. 2274, 2283 (2018); see
For acts that are not clearly exercises of state sovereign power, the Court has established two requirements relevant to state-action immunity. California Retail Liquor Dealers Ass‘n v. Midcal Aluminum, Inc., 445 U.S. 97, 105 (1980). “First, the challenged restraint must be one clearly articulated and affirmatively expressed as state policy; second, the policy must be actively supervised by the State itself.” Id. (internal quotation marks omitted). These dual requirements are known as the ”Midcal test.”
However, “[s]ome defendants are not subject to both prongs of Midcal review.” Earles v. State Bd. of Certified Pub. Accountants of La., 139 F.3d 1033, 1040 (5th Cir. 1998). For example, in Town of Hallie v. City of Eau Claire, 471 U.S. 34, 46–47 (1985), the Supreme Court held that municipalities are not subject to the “active supervision” requirement. Id. at 46–47. The Court also observed that “[i]n cases in which the actor is a state agency, it is likely that active state supervision would also not be required.” Id. at 46 n.10. We subsequently held in two cases that the state or public agency at issue was not subject to the “active supervision” requirement. See Green v. State Bar, 27 F.3d 1083, 1087 (5th Cir. 1994); Benton, Benton & Benton v. La. Pub. Facilities Auth., 897 F.2d 198, 203 (5th Cir. 1990).
The Supreme Court‘s most recent statement of the state-action immunity test is Dental Examiners, which applied both Midcal prongs to a state board of dental examiners, the majority of which were required to be practicing dentists. Dental Examiners, 574 U.S. at 500, 504–06. In applying both prongs, the Court emphasized that the state had “delegate[d] control over a market to a nonsovereign actor.” Id. at 505. “State agencies,” the Court explained, “are not simply by their governmental character sovereign actors for purposes of state-action immunity.” Id. To qualify, the agency must have “more than a mere facade of state involvement” because the rationale underlying state action immunity requires “the states [to] accept political accountability for anticompetitive conduct they permit and control.” Id.
Thus, as summarized by one of our sister circuits, there are basically “three approaches to analyzing a state-action defense.” Edinboro College Park Apartments v. Edinboro Univ. Found., 850 F.3d 567, 572 (3d Cir. 2017). First, true state action is ipso facto exempt from antitrust scrutiny. Dental Examiners, 574 U.S. at 504; Hoover v. Ronwin, 466 U.S. 558, 568 (1984) (“Where the conduct at issue is in fact that of the state legislature or supreme court, we need not address the issues of ‘clear articulation’ and ‘active supervision.‘“). Second, acts by a typical state agency or municipality are entitled to state-action immunity if “the conduct is pursuant to a ‘clearly articulated and affirmatively expressed state policy’ to replace competition with regulation.” Hoover, 466 U.S. at 568–69 (quoting Cmty. Commc‘ns Co. v. City of Boulder, 455 U.S. 40, 54 (1982)); see also Town of Hallie, 471 U.S. at 46–47. Third, for acts by private parties, or by state “agencies” composed of individuals who participate in the market they regulate, we apply both Midcal requirements—we ask both whether the acts were taken pursuant to a clearly articulated state policy and whether the acts were supervised by the state. See Dental Examiners, 574 U.S. at 506; see also Veritext Corp. v. Bonin, 901 F.3d 287, 292–93 (5th Cir. 2018) (applying both Midcal prongs where regulatory board consisted of market participants).
We apply this state-action framework to Spec‘s’ Sherman Act claims.
B.
Spec‘s first argues that
C.
Spec‘s next contends that Defendants violated the Sherman Act by placing holds on Spec‘s’ applications, denying renewals during the SOAH proceedings, and seeking to cancel or suspend Spec‘s’ existing permits. We disagree. Each of these acts qualifies for state-action immunity.
First, the challenged acts are subject to only Midcal‘s “clear articulation” prong. There are no allegations that Defendants are nonsovereign actors regulating markets in which they participate. As we have already observed, Texas law prohibits TABC officials and employees from having financial interests in the industry they regulate. See
The dispositive question is whether the challenged acts were “affirmatively expressed as state policy.” Midcal, 445 U.S. at 105 (quoting City of Lafayette v. La. Power & Light Co., 435 U.S. 389, 410 (1978)). ”Midcal‘s clear articulation requirement is satisfied where the displacement of competition is the inherent, logical, or ordinary result of the exercise of authority delegated by the state legislature.” Dental Examiners, 574 U.S. at 506–07 (cleaned up) (quoting F.T.C. v. Phoebe Putney Health Sys., Inc., 568 U.S. 216, 229 (2013)).
That standard is met here. The Texas Alcoholic Beverage Code vests TABC with comprehensive regulatory authority. See
Finally, Spec‘s challenges the district court‘s decision to decline supplemental jurisdiction over its remaining state-law malicious prosecution claim. The district court did so after dismissing all of Spec‘s’ federal claims. “[D]istrict courts may decline to exercise supplemental jurisdiction over a claim ... if ... the district court has dismissed all claims over which it has original jurisdiction.”
* * *
The district court correctly determined that Defendants are entitled to absolute immunity from Spec‘s’
AFFIRMED in part; REVERSED in part; VACATED in part; REMANDED for further proceedings consistent with this opinion.
Notes
This section provides in relevant part:
(a) The commission may exercise all powers, duties, and functions conferred by this code, and all powers incidental, necessary, or convenient to the administration of this code. It shall inspect, supervise, and regulate every phase of the business of manufacturing, importing, exporting, transporting, storing, selling, advertising, labeling, and distributing alcoholic beverages, and the possession of alcoholic beverages for the purpose of sale or otherwise. It may prescribe and publish rules necessary to carry out the provisions of this code.
(b) The commission shall:
(1) protect the public safety by deterring and detecting violations of this code;
(2) promote legal and responsible alcohol consumption;
(3) ensure fair competition within the alcoholic beverage industry;
(4) ensure consistent, predictable, and timely enforcement of this code;
(5) ensure a consistent, predictable, and timely licensing and permitting process;
(6) promote and foster voluntary compliance with this code; and
(7) communicate the requirements of this code clearly and consistently.
These sections provide, in full:
(c) A person may not be a member of the commission or act as the general counsel to the commission if the person is required to register as a lobbyist under Chapter 305, Government Code, because of the person‘s activities for compensation on behalf of a profession related to the operation of the commission.
(d) A person may not be a member of the commission and may not be a commission employee employed in a “bona fide executive, administrative, or professional capacity,” as that phrase is used for purposes of establishing an exemption to the overtime provisions of the federal Fair Labor Standards Act of 1938 (29 U.S.C. Section 201 et seq.), if:
(1) the person is an officer, employee, or paid consultant of a Texas trade association in the field of alcoholic beverages; or
(2) the person‘s spouse is an officer, manager, or paid consultant of a Texas trade association in the field of alcoholic beverages.