Case Information

*1 QBffice of tip !ZIttornep @eneral Mate of lltexas DAN MORALES December 12,1994 ATTORNEY GENERAL Opiion No. DM-3 10

Mr. Doyne Bailey Administrator Re: Whether section 5.05(a) of the Texas

Texas Alcoholic Beverage Commission Alcoholic Beverage Code prohibits a P.O. Box 13127 member of the Texas Alcoholic Beverage Austin, Texas 78711-3127

Commission from investing money through an investment advisory firn& which, using an unrelated broker, may invest the money in wrporations that engage in the sale of alcoholic beverages (RQ-555) Dear Mr. Bailey:

On behalf of the members of the Texas Alcoholic Beverage Commission (the “wmmission”), you have asked us to interpret section 5.05 of the Alcoholic Beverage Code (the “code”). Section LOS(a) provides as follows:

No person may be appointed to or serve on the commission, or hold an office under the commission, or be employed by the commission, who:

(1) has any financial connection with a person engaged in an alcoholic beverage business;

(2) holds stocks or bonds in an alcoholic beverage business; or

(3) has a pecuniary interest in an alcoholic beverage business.

We understand that one of the members has

placed a sum of money with an investment advisory firm which, through an unrelated broker, makes investments on [the member’s] behalf Stocks are purchased in street name for [the member’s] benefit. [The member] exercisers] no control in the ordinary course over which stocks the investment firm instructs the broker to buy or sell. The firm manages a multi-billion dollar diversified portfolio for thousands of clients. The same stocks are purchased for each client. [The member’s] holdings are an infinitesimal percentage of the total p. 1654

Mr. Doyne Bailey - Page 2 (DM-3 10)

portfolio. The firm does not consult with [the member] about what stocks to buy or sell. . [The member] know[s] about [the] portfolio changes only when [the member] receive[s] an after-the.- fact statement regarding [the memba’s] holdings and their value. . .

The problem is complicated by the fact that hundreds of major corporate conglomerates have, at least arguably, some indirect Pilsbwy, for connection to “the alcoholic beverage business.” example, owns Steak ‘N’ Ale restaurants, which serve not only steak but beer. The alcohol sales constitute a minute 6action of Pilsbury’s revenues. Pepsi owns Pizza Hut, which serves beer. All commercial airlines hold alcoholic beverage permits.

The legislature codified section 5.05 in 1977. See Acts 1977, 65th Leg., ch. 194, 5 1, at 397. The legislature intended the wtication to be a nonsubstantive adaptation of article 666-5 of the Penal Code’ (see id. 9 7, at 558), which, according to the Revisor’s Note to section 5.05 of the code, the legislature designed “to prevent wntlicts of interest among members, officers, and employees of the commission.” This office considered article 666-5 in Attorney General Opinion V-1259 (1951). The opinion stated that in article 666-5 the legislature devised a statutory scheme under which the Liquor Control Board (the predecessor to the wmmission) was “an independent agency whose actions would not be intluenckd by a financial interest in the industry over which it exercised jurisdiction.” Attorney General Opinion V-1259 at 5.

Indeed, this state has a long-standing policy prohibiting a state officer or employee fkom having any interest, financial or otherwise, direct or indirect, or from engaging in a business transaction or professional activity that substantially wnfiins with the proper discharge of his or her duties in the public interest. 60 TEX. JUR. 3D Public Oflcers md Employees $ 144, at 561 (1988). The legislature has enacted several statutes that wdii this long-standing policy. See, e.g., Gov’t Code $ 572.051; Local Gov’t Code 3 171.003(a); Tax Code $41.69. The Texas Court of Civil Appeals discussed the policy in Meyers v. Walker, 276 S.W. 306 (Tex. Civ. App.--Eastland 1925, no tit). Meyers involved city officials who had a pecuniary interest in a contract into which the city

*Fomm anick 6664 of the Penal Code, now codified at section 5.05 of the Alcoholic Bcvzrage Code, provided in pertinent part as follows:

No person shall be eligible for appointment, nor shall hold the office of memberoftheBoard,....whohasanymnnMionwilhanyassociation,firm, person, or corporation engaged in or conducting any alcoholic liquor business of any kind or who holds stocks or bonds therein, or who has pecu&~~ inter& therein.

Mr. Doyne Bailey - Page 3 (DM-310)

entered. The court explained the rationale behind a statute codifying the state’s long- standiilg policy as follows:

Cur lawmakers were wise in trying not only to remove temptation but to place the public official even above the suspicion of wrongdoing. The idea of keeping the public in the wntldence of the official would bring co-operation and loyalty in the administration of government and enforcement of law, and these principles underlie the security of our government.

Id. at 307. We recognize that Meprs involved a contract baleen a governmental body and a private corporation and is therefore diGrent from the situation you descrii. We believe, however, that the wurt’s discussion of the policy behind a statute prohiiiting wnfhcts of interest is instructive.

Section 1.03 of the code mandates that we liberally wnstrue its provisions to protect the welfme, health, peace., temperance, and safety of the people of the state. On its face, section 5.05 absolutely prohibits a member of the commission from having rmy financial connection with a person engaged in an alcoholic beverage business, holding uqy stocks or bonds in an alcoholic beverage business, or having cmy pecuniary interest in an alcoholic beverage business. In our opinion, section 5.05 thus precludes a wmmissioner from investing in an “alcoholic beverage business,” even if the wmmissioner accomplishes the investment through an investment advisory firm.

Accordingly, we must determine the meaning the legislature intended to attach to the phrase “alwhohc beverage business” in the context of section 5.05. The code does not dehe the term, although it defines “alwholic beverage” as “alcohol, or any beverage wntaining more than one-half of one percent of alcohol by volume, which is capable of use for beverage purposes, either alone or when diluted.” Alw. Bev. Code 8 1.04(l). “‘Business” implies a commercial or mercantile activity. See WEBSTER’S Nm NEW COUXSTE DICTIONARY 190 (1990) (defining “business”); see ulso Gov’t Code 5 311.01 l(a) (stating that words used in code shah be wnstrued according to common usage); Alw. Bev. Code 5 1.02 (stating that Code Construction Act applies to wnstruction of each provision in code). Thus, an “alwholic beverage business” is a business involved in the wmmerce and merchandising of alcoholic beverages. Furthermore, because we must strictly construe the language of the statute (see Meyers, 276 SW. at 306, 307 (stating that statutory provisions concerning state officer’s interest generally are construed strictly)), we include within the scope of “aiwholic beverage business” a corporation that engages only incidentally in the commerce and merchandising of alcoholic beverages, such as a corporation whose subsidiary engages in the sale of beer or an airline that sells alcoholic beverages.

We believe this interpretation of the statute is consistent with the state’s long- standing policy against conflicts of interest as well as the legislative intent to create, in the *4 (DM-3 10) Mr. Doyne Bailey - Page 4

Alcoholic Beverage Commission, “an independent agency whose actions would not be intluenced by a financial interest in the industry over which it exercised jurisdiction.” See Attorney General Opinion V-1259 at 5. If we construed section 5.05 to permit a member of the commission to hold stocks or any other pecuniary interest in a corporation that engages in the sale of alcoholic beverages, even if such sales are conducted by one of the corporation’s subsidiaries or if the sales are incidental to the corporation’s primary business, the member would be required to pass regulations that may a&ct the corporation’s profits and, ultimately, the return on the wmmissioner’s investment.s See Attorney General Opinion JM-671(1987) at 3. Moreover, although the member’s interest in the corporation involved in the alcoholic beverage business may be de minimis, the state’s rules against wntlict of interest have been wnstrued to prohibit small interests.s See id. (and sources cited therein).

2We concede that the legislature, when it enacted the statutory pmdecemo rtosection5.05ofthe Alcoholic Beverage Code in 1935, probably did not consider imestmen t vebiclca aucb as inwstment adviamy tirms. Nor did it probably envision corporations with subsidiaries involved in multiple oxnmercial activities, such as DepsiCo or RJR Nabisco. We feel, however, that the proper solution to the problem you raise is one that the legislature must devise.

‘We note two provisions in chapter 572 of the Govemme.nt Code that may be applicable to the situation you posit. See Gov’t Cede 88 572.058(a) (mquiring offiar who is member of board or commission haying policy direction over state agency publicly to disclose any personal or private intereat in measure, proposal, or decision pending before board or commission and to refrain from participating aud voting in decision), 572.051(4) (prohibiting state officer from mahing “personal itmestments that could reasonably be ucpeaed to create a substantial contbct behvoen [his] private interest and the public interest”); see also id. 5 572.002( 12) (defining “state officer” as, among other things, “appointed officer”), (l)(D) (defining “appointed of&r” to include member of commission). Section 5.05 of the Alcoholic Beverage Cc& specitically applies to members of the umuuission; thus, to the extent of any contlict bchveen section 5.05 of the Alcoholic Beverage Code and the provisions in chapter 572 of the Government Code, section 5.05 controls. See 2B .SUTHEFLAND, STATUTORY CONSTIUJCT~ON g 51.02, at 121 (Stb cd. 1992).

Mr. Doyne Bail9 - Page 5 (DM-310)

SUMMARY Section 5.05(a) of the Texas Alcoholic Beverage Code prohibits a member of the Texas Alcoholic Beverage Commission from investing money in any corporation that engages in the sale of alcoholic beverages, even if the member makes the investment through an investment advisory 6rm. Additionally, section 5.05(a) prohibits a member of the Texas Alcoholic Beverage Commission from investing in a corporation whose sole contact with the alcoholic beverage business is through a subsidiary or for which the sale of alcoholic beverages is purely incidental to the corporation’s primary business.

mrswd~om~--.

DAN MORALES Attorney General of Texas JORGE VEGA

Fii Assistant Attorney General

DREW T. DLJRHAh4

Deputy Attorney General for Criminal Justice

JAVIBR AGUILAR

Special Assistant Attorney General

RENEA HICKS

State Solicitor

SAIUH J. SHIRLEY

Chair, Opiion Committee

Prepared by Kymberly K. Oltrogge

Assistant Attorney General