Judge sides with TABC in Gabriel’s fight
A company affiliated with the Gabriel’s Liquor store chain has lost a bankruptcy court fight over whether it can transfer its shares to a publicly traded company despite a state law that bans public corporations from holding package-store permits.
Chief U.S. Bankruptcy Judge Ronald B. King on Monday denied Gabriel Investment Group Inc.’s (GIG) motion for a ruling in its favor. He instead sided with the Texas Alcoholic Beverage Commission on its motion for summary judgment.
GIG had sued the agency in February, seeking a court ruling allowing it to sell its shares to a public company. TABC had opposed the request.
“In my opinion, the clear language of
(the Texas Alcoholic Beverage Code) allows Gabriel as a grandfathered corporation to receive a permit but if it, as an entity, is owned or controlled by a public corporation, it cannot,” King ruled.
GIG, Gabriel’s Liquor and Don’s & Ben’s Liquor filed for bankruptcy protection in September 2019, blaming competition from big-box wine and
spirit stores. The businesses had been operated by the politically connected Gabriel family for more than 70 years.
As part of a reorganization plan confirmed by the judge in August, the bankrupt companies were consolidated into a single entity and then split into two.
Omega Capital Group LLC, led by James R. Pfirrmann and Ron Heller, would own about 31 liquor stores and associated licenses and permits as part of the plan. The deal, valued at $6 million to $7 million, was slated to close Monday.
The assets and permits of the store at 810 S. Gen. McMullen Drive went to an entity called Legacy GIG. Its new owners include Omega, Blake-Wilder Companies LLC of St. Petersburg, Fla., and existing shareholders.
Legacy GIG also retained the lawsuit GIG filed against the TABC. GIG alleged the TABC was blocking efforts to sell company shares to Walmart or any other publicly traded company. A Walmart spokeswoman earlier this year denied any interest in acquiring the shares.
State law bars public corporations from operating liquor stores. Apublic corporation is defined as any company that trades on a public stock exchange or has more than 35 owners.
GIG, which has more than 35, has held grandfathered rights to operate liquor stores, however.
A lot potentially hung in the balance with King’s decision. The public company exemption could be worth “a substantial amount of money (excess of $10,000,000) or very little,” the creditors committee said in a May court filing.
“We plan to file an appeal as we believe it’s a crystal clear case,” said GIG President Jim Call in an emailed statement. “As the new owners of Gabriel Investment Group, effective today, we certainly plan to reach out to the TABC and the attorney general’s office
first. If there is a reasonable outcome that gets everyone a win, we would rather do that before spending Texas residents’ money on legal costs and time.”
Nothing prevents the shares from being sold to a private company.
Allowing the sale of GIG shares to a public company would render the ban on ownership of package-store permits by public companies “meaningless,” TABC argued in its motion for summary judgment.
GIG’s interpretation of the statute “would provide a back-door avenue for any public corporation to own and operate stores in Texas through GIG’s (packagestore) permits,” the TABC
said in the Sept. 3 court filing. “This would give GIG greater rights than all other (package-store) permit holders who are prohibited from doing so because of the … ban.”
GIG argued in its motion for summary judgment that the ban on public corporation ownership shouldn’t apply to a corporation covered by the grandfathering provision.
In his ruling, King recounted the history of liquor sales in Texas since Prohibition. When Texas began regulating liquor sales, the state Legislature sought to protect small package-store owners from out-of-state businesses. Federal courts set that aside
as discriminatory.
In 1995, the state Legislature and the Texas Package Stores Association sought to amend state law to limit package-store permits to owners that were not public corporations, King said. A grandfather clause was added to the bill to allow Gabriel’s and other similarly situated companies to have more than 35 shareholders and still be eligible to own package-store permits.
The purpose of the law was intended to ensure the owners of package stores are “personally accountable for the operations of the business,” King said.