Spec’s owner Lindy Rydman, president John Rydman and their daughter Lisa Rydman at the flagship store in Houston. The state’s largest liquor store chain is suing the Texas Alcohol Beverage Commission. Michael Stravato for The Texas Tribune
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.”
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