The (Third) Party Rocks On

When the regular session ended with neither a bang nor a whimper we were so relieved that the Jack Martin & Associates folks, and their treasured clients, had escaped with only minor cuts and bruises that most of us made a bee line for more temperate climes like cockroaches running from the light. (Some evidence that a merciful God is at work in the universe may be inferred from the fact that the high passion and low drama of Special Session 1 and Special Session 2 don’t have anything to do with liquor regulation.) But, while we were dandling our toes in various recreative and therapeutic waters, our friends at the Commission were back home, hard at work on their mission of pulling the People’s freight. In particular, being the dedicated Sisypheans that they are, they have pushed the third party service provider rock a little higher up the regulatory hill. The current eructation of that effort is brand new Marketing Practices Advisory MPA-056. Here is a link to the bulletin.

Since we wrote to you all last April about this and since you all are such alert auditors of this blog, we know that you remember that a “third party service provider” – at least in this context – is an unlicensed entity or person who provides the kinds of services to Wineries and Direct Shippers that help them better market and sell their wines to consumers. Although there is a host of such services, the Commission staff is staying focused on two: “advertising and payment processing services.”

The staff explained that the regulatory rocks they are trying to navigate around are making sure that unlicensed people don’t do things that require a license and making sure that licensed people don’t turn control of their businesses over to unlicensed people. The statutory expressions of those concerns are Sections 11.06(a) and 109.53 of the Texas Alcoholic Beverage Code, quoted at length in the bulletin. The good news is that the Commission staff thinks that permit holders can hire people to provide those two services without offense to the rule of law in Texas. Specifically, third party providers can advertise wines and provide consumers with information about the wines; can process consumer orders by forwarding them to the “permit holder” for acceptance or rejection and can collect purchase money from the consumer. Of course the touchstone of legality in all these activities is that “the permit holder remains in control of the product and of every stage of the transaction.”

There really isn’t any bad news here; just some trip wires to watch out for and a passel full of questions. Money handling is the first tripwire. Initially, the Commission staff thought it would be alright for the third party to collect the purchase price, extract its fee, and send the balance on to the permit holder. Now the staff thinks differently. They quote the California Advisory for the proposition that, while the third party may collect the funds, it must send the funds to the permit holder for disbursement. (Which is just what third party service providers in the restaurant management business have been doing – with agency blessing – since bubblegum was the big new thing.) Secondly, the third party cannot “store wine in its distribution center or ship wine directly to the consumer” because only permit holders can do that in Texas.Finally, under the “watch your toes!” category, the staff believes that there “should be a written agreement” between permit holder and third party provider. The staff simply cannot see how “the permit holder can assure that it retains control over the activities of the third party provider” without a written contract.Now it’s a well known fact that around here we think that, given current environment and regulator attitudes, anyone who enters into this business without a clear and specific written contract is what the Irish eloquently refer to as an “eejit.” (And if you go to the trouble of having a contract, you might as well live up to it.)

However, there is a note here that gives us pause. It has been our understanding that at least since the Pilgrims drug their soggy, sea sick, psalm singing, carcasses up on to Plymouth Rock and became the first Yankees, the rule of law in this country is that Citizens are not obliged to “assure” the government of anything. Rather, it is incumbent on the government to prefer only such charges as are supported by adequate evidence sustainable in a court of law. Because we hold our friends at the Commission in such high regard, we know they think this, too, and so won’t be throwing charges around based on suspicion or the lack of a warm and bathetic feeling of “assurance.”Here’s something else that raises a question in our minds: Direct Shippers are, by definition, located outside Texas. Where they store their wine, and from whence it is shipped, is a matter of the law of the states where those activities take place. Texas, wonderful and sovereign as it is, has no power to condemn, condition, or control conduct occurring in another state.

(This isn’t just us. The Supreme Court thinks so, too.) We have long been assured by the Commission that Texas is a “bump the dock” state, by which, they mean that a Winery must take possession of a product before shipping it on to a consumer. (Never mind that possession isn’t an essential element of ownership. We should probably let that dog snore on for the moment.) So, we’re not sure about what beast of violation is slain by the staff’s opinions on third party storage and shipping. But dark alleyways notwithstanding, all remains reasonably well in this quarter. This advisory simply represents the staff’s current thinking.

More to the point, in conversation TABC Administrator Sherry Cook says exactly what a reasonable and prudent regulator would say under the same or similar circumstances: that MPA-056 is part of the larger work in progress on this issue; that there will indeed be further discussions among staff and with interested parties; that there will no doubt be further publications and even “clarifications.” So this advisory is a good and helpful way marker on the road to reasonable regulation in this area and not the terminus of the staff’s intellectual journey.So lift a glass to the good public servants who toil on our behalf for their past efforts and for the hope that wisdom and justice will grace their future efforts.Meanwhile, stay tuned, Citizens. We’ll keep you posted.