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Home | Tag Archives: spec’s

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Texas Liquor Giant Spec’s Sues TABC for “Abusive” Enforcement Attempts

The state’s largest liquor chain — Spec’s Wine, Spirits and Finer Foods — is suing the Texas Alcohol Beverage Commission for “abusive regulatory overreach” over an enforcement action that dragged on for almost two years before falling apart in administrative proceedings last year, court documents show.

The federal lawsuit, filed in Houston in late August but only recently unsealed, alleges that the TABC “wrongfully and maliciously” attempted to “extort” money from Spec’s by threatening to effectively shut the company down or by making the family-owned business fork over more than $700 million in civil penalties.

The TABC, citing the pending litigation, declined to comment.

In a stinging rebuke of the TABC last year, a pair of administrative law judges said the agency failed to prove dozens of allegations and chastised the agency for failing to disclose evidence to their own witness (and the court). The judges also called out the agency for “stacking” charges, a tactic commonly used to pressure defendants into a settlement. In the end, the judges recommended no fines be assessed against the liquor chain.

Now Spec’s is seeking an unspecified amount of money for damages that include lost profits, more than $1 million in attorneys fees and harm to its reputation. The lawsuit includes a request to impose exemplary, or punitive, damages — which are three times the amount of actual damages.

“Acting under color of law, [the TABC] threatened and pursued groundless allegations and enforcement actions,” the lawsuit says. “[The TABC] intentionally trumped up false claims in knowing violation of the law.”

The lawsuit also alleges the agency provided false testimony during the spring proceedings, which were the administrative equivalent of a trial.

“This plan culminated in an attempt to perpetrate fraud on the court at the trial, which was ultimately unsuccessful,” said Spec’s lawyer Al Van Huff. “This is the type of deceitful and abusive conduct that should never be tolerated by agents of the state of Texas, and the TABC will now be required to answer for its conduct.”

In seeking to have the lawsuit dismissed, state lawyers argued in court filings that the company can’t sue because the agency is a governmental entity that enjoys “sovereign immunity” and court precedent won’t allow Spec’s to get around that.

The state argues that Spec’s already fought for and received relief from the enforcement action when the administrative law judges ruled in its favor.

“Spec’s cannot plausibly allege facts converting its administrative win into a federal claim for attorneys fees and purported lost profits,” the state argues. “Spec’s lawsuit does not assert any viable federal claim from which defendants are not wholly immune, and defendants respectfully request that this court dismiss this case in its entirety.”

Liquor chains like Spec’s must adhere to the state’s antique alcohol laws, which control virtually every aspect of the industry — from how beverages can be marketed to where they can be sold (hint: not at Walmart and Costco).

The TABC’s case against Spec’s began with an audit of the retailer’s operations in February 2013. Three years later, the agency formally alleged that Spec’s ran afoul of various technical provisions of the alcoholic beverage code, including marketing rules and restrictions on dealings with wholesalers.

Spec’s rejected a settlement offer in 2015 and fought back at the State Office of Administrative Hearings, or SOAH. By the time the case went before the SOAH judges, the TABC had threatened to yank all of Spec’s permits or impose fines of up to $713 million, according to calculations made by SOAH.

Then, during an administrative trial in early 2017, one allegation after another crumbled before the judges. And just as the enforcement case was falling apart at SOAH, the TABC found itself in the hot seat in the Texas Legislature after The Texas Tribune reported on spending controversies and abusive treatment of companies it regulates. Those scandals prompted a wave of retirements and forced departures of top agency honchos.

Ultimately, the TABC — under new leadership installed to clean up the mess at the agency — accepted the judgment of the administrative law judges in the Spec’s case and ended its enforcement action.

The agency’s executive director, Bentley Nettles, told the Tribune in early 2018 that he and the head of Spec’s, John Rydman, had explored some “creative ways to provide them with some kind of relief,” but acknowledged the company might end up suing anyway.

“I was like, ‘Well if I were in your position, I absolutely understand,” Nettles says he told Rydman. “You have to do what you have to do.”

Disclosure: Walmart Stores Inc. has been a financial supporter of The Texas Tribune, a nonprofit, nonpartisan news organization that is funded in part by donations from members, foundations and corporate sponsors. Financial supporters play no role in the Tribune’s journalism. Find a complete list of them here.

Author: JAY ROOT – The Texas Tribune

Texas Liquor Agency Rebuked after Investigation of Spec’s

Leaders at the Texas Capitol love to bash what they call out-of-control bureaucrats at city halls and in Washington, D.C., but a recent case pitting the Texas Alcoholic Beverage Commission against Spec’s Wines, Spirits & Finer Foods looks like state regulatory overreach on steroids.

After an investigation of the state’s largest liquor retailer, the TABC sought to yank permits for all 164 of the company’s stores — which would effectively shut it down — or hit Spec’s with fines of up to $713 million, according to court documents filed last week. The agency also put the company’s expansion plans on ice by freezing Spec’s new permit applications during the three-year probe, records show.

What did Spec’s, a family-run company based in Houston, do to deserve the business equivalent of the death penalty? That’s what a couple of Texas administrative law judges wondered last week.

They poured out the TABC like stale beer in a blunt 151-page ruling. The judges said TABC failed to prove dozens of allegations, rebuked agency lawyers for failing to disclose evidence to their own witness (and the court) and called out the agency for “stacking” charges, a tactic commonly used to pressure defendants into a settlement.

In the end, the multi-year prosecution and an eight-day March administrative law hearing — similar to a trial — turned up evidence that Spec’s may have paid a $778 invoice from a wine supplier a day or two late in 2011 under the complicated liquor “credit law” spelling out when payments for booze must be made.

The sum total of the sanctions recommended by the judges: a warning, and no fines.

TABC spokesman Chris Porter said the penalties described by the judges “are the maximum available penalties for the alleged violations under the Alcoholic Beverage Code,” and added that “TABC never seriously pursued the listed sanctions and did not seek to levy such heavy fines or cancel all the permits for all 164 Spec’s stores.”

The judges have given Spec’s the green light to start expanding in Texas again. Spec’s, meanwhile, is on the hook for “north of a million dollars” in legal fees, court fees and other costs, said Al Van Huff, the company’s attorney. That doesn’t count the scrapped plans to expand and grow at time when out-of-state chains like Total Wines are adding outlets in Texas.

“It’s an abuse of power,” Van Huff said. “How did you waste all this agency’s time and the taxpayers’ money by prosecuting a case of this magnitude against somebody and the end result is the guy gets a warning for a late payment that happened five years ago? They should have to explain their behavior to somebody.”

Spec’s is expecting the TABC to ask the State Office of Administrative Hearings to reconsider at least some of the judges’ findings. If that doesn’t happen, the regulatory agency has some discretion to change the proposed decision. But that would likely trigger more legal wrangling — this time in state district court.

Porter, the TABC spokesman, said because the case remained open, the agency could not comment on the specific allegations or disclose what steps it would take next. But he said the TABC is required under law to “issue citations if an investigation uncovers evidence of an alleged violation” and that whatever the outcome, “the agency believes in the ideals of due process and rule of law.”

Van Huff said Spec’s is considering its own legal options, which could include a lawsuit against an agency already in the hot seat at the Legislature after a series of spending controversies and reports of abusive treatment of companies it regulates. Last week, newly-appointed TABC Chairman Kevin Lilly, tapped by Gov. Greg Abbott to help clean up the embattled agency, visited the TABC’s Austin headquarters, where he reviewed the personnel files of senior staff and conducted a series of closed-door meetings with them.

Abbott’s office expressed concern about TABC’s handling of the Spec’s case and other matters.

“The governor continues to be deeply concerned about the pattern of practice at TABC,” said Abbott spokeswoman Ciara Matthews. “The governor’s office is actively working with newly-appointed Chairman Lilly, who has been conducting a top-to-bottom review of all personnel and operations to reform TABC.”

Spec’s lawyer was particularly critical of the TABC’s auditing and investigations chief, Dexter Jones, who oversaw the Spec’s investigation, and TABC General Counsel Emily Helm. Van Huff alleged Helm abused her power in early 2016 by offering to get three new permit applications approved for Spec’s President John Rydman if the company would agree to settle the existing cases.

According to court documents, the TABC said denying the new permits was justified because Spec’s threatened the “general welfare, health, peace, morals and safety” of Texans due to the concerns raised in the agency’s probe.

Van Huff said he told Helm that the allegations against Spec’s were “hyper-technical violations of the code” that had nothing to do with health and safety. Helm’s response, he said, was: “If Spec’s could be our real friend instead of our fake friend and settle this case then we can let (Rydman) have his permits.”

An email seeking comment from Helm went unanswered. Porter, the agency spokesman, said Helm “disputes the wording of this quote” and “any assertion of unlawful conduct.”

“Such settlements are offered (often multiple times) during the course of any administrative case in which TABC is involved,” Porter said. “This is a common, lawful practice for any administrative or civil court case.”

Flimsy charges fell apart

The case against Spec’s started with an audit of the retailer’s operations that began in February 2013. Two years later, Van Huff and Rydman, Spec’s president and owner, were summoned to TABC headquarters and given a “settlement agreement” proposing to fine the retailer $8.6 million, cancel 16 of its liquor store permits and agree to “enhanced oversight” for two years.

Once Rydman and Van Huff started looking through the allegations, Van Huff said they knew there was no way they were going to settle.

The TABC claimed Spec’s had illegally accepted millions of dollars in payments from both a wholesaler and a competing liquor store. A liquor retailer such as Spec’s generally can’t receive money from those entities under the state’s byzantine alcohol regulations, adopted after Prohibition was lifted in the 1930s, that strictly control who can own what piece of the alcohol business.

In both cases, Spec’s said it could easily explain the payments TABC auditors discovered. In the case of the wholesaler, Spec’s had accidentally paid an invoice twice, so the money coming back into its account from a wholesaler was merely a refund of an overpayment; in the case of the competing liquor store, Spec’s was legally purchasing the store and using its merchant accounts during the transition process, Van Huff said.

A phone call could have cleared up those supposed infractions, he said.

“Instead of the auditor who was doing the investigation seeing something questionable and then asking us to explain it, they just made it an allegation in this settlement agreement as the basis for us to agree to write a check and to agree to all these settlement terms,” Van Huff said.

A turning point in hearing

The same dynamic — scandalous-sounding charges that didn’t survive a cursory check of the evidence — played out repeatedly during the March hearing. During the proceedings, TABC officials attempted to convince the court that Spec’s engaged in a pattern of behavior so egregious that it deserved to have all of its liquor permits canceled, the court said.

But one allegation after another crumbled before the judges. TABC’s star in-house witness, Houston-based auditor Kathy Anderson, alleged Spec’s engaged in illegal price negotiations for wine. Her proof? Emails between a wholesaler and a wine maker discussing what price Spec’s might want to charge. But Spec’s didn’t participate in that email exchange.

“She agreed that there was no evidence Spec’s accepted the terms,” the judges noted in tossing the allegation. “She also admitted that there was no documentary evidence that Spec’s actually purchased any of the products.”

Even more damaging to TABC was Anderson’s claim that one of Spec’s wholesalers, United Wine & Spirits, had “admitted” to violations that implicated Spec’s in a scheme to skirt liquor laws designed to keep alcohol manufacturers, wholesalers and retailers all in separate lanes. The supposed proof: an agreed-to “waiver order” — basically an acceptance of punishment — that United Wine & Spirits signed. That order was cited like a King’s X over and over in TABC’s case against Spec’s.

A long string of allegations relying on that document collapsed when Van Huff asked Anderson if she had read the settlement agreement attached to the waiver order — which stated that United agreed to pay a fine to “resolve the contested allegations” but did not admit guilt. She said she was not aware of that stipulation.

This was the gotcha moment of the trial.

Van Huff asked Anderson: “We now see that the TABC agreed … that this wouldn’t be construed as an admission by United, correct?”

Anderson: “Correct.”

Van Huff: “So each and every time you refer to the waiver order and say it was United Wines & Spirits’ admission of wrongdoing that reflects poorly on Spec’s, that was all incorrect, wasn’t it?

Anderson: “It appears so.”

Van Huff: “Thank you. We’ll take that as a yes, right?

Anderson: “Yes.”

Anderson’s admission came within the first few hours of the proceedings. It went downhill from there.

When the TABC called United Wine & Spirits executives to the stand, the executives quickly threw TABC under the bus, testifying that although they disputed the agency’s charges, they agreed to pay the TABC $100,000 to “make the case go away.” They calculated it would be cheaper and easier than fighting it out.

“Not all witnesses called by (TABC) Staff provided testimony helpful to Staff’s case,” the judges said in a footnote. “In fact, when called to testify for the Commission, the testimony of the witnesses from United Wine directly contravened Staff’s case.”

The judges also ruled that the TABC “failed to reveal the contents” of United Wine & Sprits’ settlement agreement “to its own witness and to the (administrative court).”

And they determined that — “contrary to (TABC’s) contention that the charges are not stacked” — the agency piled one allegation on top of another in a controversial practice that uses the same evidence for multiple charges.

“This is what they do. They intimidate people,” said Dick Wills, a former TABC licensing supervisor for the Gulf Coast region who is now a liquor industry consultant. He served as an expert witness for Spec’s during the proceedings. “People should be fired over this. This is the most egregious case I’ve ever seen filed by the TABC. The most, bar none.”

Case takes its toll

The TABC’s legal Waterloo is helping to lift the cloud that has been hanging for three years over Spec’s, launched with a single store in 1962 by Rydman’s father-in-law, Spec Jackson. After the company branched out into upscale wines and gourmet food, it went on to become the largest liquor retailer in Texas and the second-largest family owned alcohol retailer in the nation, according to Rydman.

Rydman, who began working at Spec’s in 1972, took the stand during the trial and recounted how the probe has taken a toll on his business. He said the company hasn’t been able to expand for three years, and earlier this year a landlord threatened to cancel a lease because he was unable to renew a permit.

“This whole process has cost my company a tremendous amount of money,” Rydman told a TABC lawyer during the proceedings. “And people throughout the industry chuckling at us, laughing at us, and afraid to do things with us, afraid to talk to us because they don’t want to get tainted and have y’all come after them.”

Read related Tribune coverage:

  • Amid a controversy over travel to fancy resorts and other spending controversies, the head of the Texas Alcoholic Beverage Commission, Sherry Cook, announced she was stepping down from her job effective May 23. [link]
  • For more than three hours, top TABC officials were grilled by House members for misusing state resources, taking trips to Hawaii on the taxpayers’ dime, mixing vacation with state duties, misreporting who has been assigned which state-owned vehicles, and cozying up to the very industry they’re supposed to be regulating. [link]

Author:  JAY ROOT – The Texas Tribune

River Oaks Properties continues $200m expansion in El Paso; 420 new jobs expected

River Oaks Properties, the oldest commercial real estate development and management firm in the El Paso area, announced Tuesday their continued expansion in El Paso, and now into Horizon City. This growth is a continuation of their $200 million investment that was announced in 2014.

During the first half of 2016, River Oaks Properties will develop a total of six retail centers equaling 136,800 sq. ft. of retail space that will generate approximately 420 new jobs for the El Paso market–two of the six centers will come online by March 2016.

Eastlake Marketplace 2
Eastlake Marketplace 13001 Eastlake Blvd in Horizon

The new retail centers River Oaks will be building in 2016 are:  Shops at Dieter Village located at 1505 George Dieter, Tierra Del Norte II located at 2301 B N. Zaragoza, Shops on the Loop Phase II located at 2204 Joe Battle, Eastlake Marketplace located at 13001 Eastlake Blvd (their first Horizon City project), Las Tiendas de Zaragoza Phase II located at 3590 N. Zaragoza and Sunfire Village located at 2106 Zaragoza.

“The success of North Hills Power center that River Oaks recently opened in northeast El Paso has generated larger results than expected, with some retailers reaching record sales,” said Adam Frank, President of River Oaks Properties. “This lets us know that we are on the right path, and that our centers are meeting a need for our community.”

Opening soon to River Oaks projects on the eastside are Spec’s, Petco and a second Sprouts location.

This $200 million investment in the development of retail centers includes recruiting new retailers to El Paso. Just last week, River Oaks had a very large presence at the International Council of Shopping Centers (ICSC), in Dallas, Texas, where they met with several brokers and presented their El Paso projects to prospective national retailers.

Author: Barracuda PR

 

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