Can a Texas alcohol commissioner own a managed investment fund that might hold alcohol-company stock?

Plain-English summary

The administrator of the Texas Alcoholic Beverage Commission asked the Attorney General a practical question for the agency's members. Section 5.05(a) of the Alcoholic Beverage Code bars anyone from serving on the commission who has a financial connection with, holds stocks or bonds in, or has a pecuniary interest in an "alcoholic beverage business." One member had handed money to an investment advisory firm that, through an unrelated broker, bought and sold stocks for the member with no day-to-day input from the member: the firm ran a multi-billion-dollar diversified portfolio for thousands of clients, the member's slice was an infinitesimal part of it, and the member only learned of changes from after-the-fact statements. The catch was that big diversified portfolios almost inevitably touch the alcohol trade somewhere, because so many large conglomerates have a tie to it (the agency noted Pillsbury then owned Steak 'N' Ale, which serves beer, Pepsi owned Pizza Hut, and all commercial airlines hold liquor permits).

The office read the bar strictly and concluded the member could not do this. Section 5.05 absolutely forbids a commissioner from holding any pecuniary interest in an alcoholic beverage business, and routing the investment through an advisory firm did not change that. The Code defines "alcoholic beverage" but not "alcoholic beverage business," so the office gave "business" its ordinary meaning (a commercial or mercantile activity) and, because conflict statutes for public officers are construed strictly, held that an "alcoholic beverage business" includes a company that deals in alcohol only incidentally, such as a corporation whose subsidiary sells beer or an airline that sells drinks. That reading fit the state's long-standing policy against official conflicts of interest and the legislature's goal of an alcohol regulator whose decisions would not be swayed by a financial stake in the industry it polices. A de minimis interest did not save it, because Texas conflict rules have been read to bar even small interests.

The office was candid that the statute fit the modern investing world poorly: when its predecessor was enacted in the 1930s, the legislature likely did not foresee diversified advisory funds or sprawling conglomerates like PepsiCo or RJR Nabisco. But the office concluded that fixing that mismatch was for the legislature, not the Attorney General.

Currency note

This opinion was issued in 1994. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

The Alcoholic Beverage Code's commission-eligibility provisions and the Government Code conflict-of-interest statutes have been amended since 1994, and the corporate examples used here reflect the business landscape of that time. Read this page for the office's reasoning on how strictly the conflict bar was read, and verify the current statute before relying on any specific rule.

What the opinion meant for those who asked

For commission members and the agency: The opinion concluded a member could not hold stock or any pecuniary interest in a company that sells alcoholic beverages, including through a managed investment fund and including a company connected to the alcohol trade only through a subsidiary or incidentally. Members in that position needed to look at how their investments were structured, because using an advisory firm did not cure the conflict.

For the legislature: The opinion flagged the mismatch between a 1930s-era bar and modern diversified investing, and said the office could not rewrite the statute to accommodate it; any fix was a legislative choice.

Common questions

Could a commission member invest through a fund that picks the stocks for them?
No. The office concluded section 5.05(a) still applied: investing through an investment advisory firm did not let a member hold a pecuniary interest in an alcoholic beverage business.

Did it matter that the member's stake was tiny?
No. The office noted that Texas conflict-of-interest rules have been construed to bar even small interests, so a de minimis stake did not avoid the prohibition.

What counts as an "alcoholic beverage business"?
A business involved in the commerce and merchandising of alcoholic beverages. Read strictly, that includes a corporation that deals in alcohol only incidentally, such as one whose subsidiary sells beer or an airline that sells drinks.

Why read the statute so broadly?
Because conflict-of-interest statutes for public officers are construed strictly, and because the legislature wanted an alcohol regulator whose decisions would not be influenced by a financial interest in the industry it regulates.

Background and statutory framework

Section 5.05(a) disqualifies from the commission anyone who has a financial connection with, holds stocks or bonds in, or has a pecuniary interest in an alcoholic beverage business. The provision was codified in 1977 (Acts 1977, 65th Leg., ch. 194) as a nonsubstantive adaptation of former Penal Code article 666-5, which the Revisor's Note said was designed to prevent conflicts of interest among the commission's members, officers, and employees. An earlier opinion had read article 666-5 to make the agency's predecessor, the Liquor Control Board, an independent body whose actions "would not be influenced by a financial interest in the industry over which it exercised jurisdiction" (Attorney General Opinion V-1259 (1951)).

The office set that bar against the state's broader policy that a public officer must not hold an interest, direct or indirect, that conflicts with the faithful discharge of public duties, a policy codified in statutes like Government Code section 572.051, Local Government Code section 171.003(a), and Tax Code section 41.69, and explained in Meyers v. Walker, 276 S.W. 306, 307 (Tex. Civ. App.—Eastland 1925, no writ), which praised laws that place an official "even above the suspicion of wrongdoing." Section 1.03 of the Code directs that its provisions be construed liberally to protect public welfare, health, peace, temperance, and safety. Because the Code defines "alcoholic beverage" (section 1.04(1)) but not "alcoholic beverage business," the office took "business" by its common meaning (Gov't Code § 311.011(a); Alco. Bev. Code § 1.02), and, applying strict construction to officer-conflict statutes, swept in corporations connected to alcohol only through a subsidiary or incidentally. The office noted that chapter 572 of the Government Code contains related disclosure and abstention provisions (Gov't Code §§ 572.058(a), 572.051(4), 572.002), but concluded that the more specific section 5.05 controls over chapter 572 to the extent of any conflict.

Citations

Statutory provisions discussed:

• Alco. Bev. Code § 5.05(a) (commission eligibility; no financial connection, stock, or pecuniary interest in an alcoholic beverage business)
• Alco. Bev. Code § 1.04(1) (definition of "alcoholic beverage"), § 1.02 (Code Construction Act applies), § 1.03 (liberal construction)
• Gov't Code § 311.011(a) (words construed by common usage); §§ 572.058(a), 572.051, 572.002 (state-officer disclosure and conflict provisions)
• Local Gov't Code § 171.003(a); Tax Code § 41.69 (other conflict-of-interest statutes)
• Acts 1977, 65th Leg., ch. 194 (codification of section 5.05 from former Penal Code article 666-5)

Case discussed:

• Meyers v. Walker, 276 S.W. 306, 307 (Tex. Civ. App.—Eastland 1925, no writ)

Attorney General opinions discussed:

• V-1259 (1951); JM-671 (1987)

Secondary authority discussed:

• 60 Tex. Jur. 3d Public Officers and Employees § 144 (1988); Webster's Ninth New Collegiate Dictionary 190 (1990); 2B Sutherland, Statutory Construction § 51.02 (5th ed. 1992)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/dan-morales/dm-0310
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1994/dm0310.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain — the linked PDF is authoritative.

Office of the Attorney General
State of Texas

DAN MORALES
ATTORNEY GENERAL

December 12, 1994

Mr. Doyne Bailey
Administrator
Texas Alcoholic Beverage Commission
P.O. Box 13127
Austin, Texas 78711-3127

Opinion No. DM-310

Re: Whether section 5.05(a) of the Texas Alcoholic Beverage Code prohibits a member of the Texas Alcoholic Beverage Commission from investing money through an investment advisory firm which, using an unrelated broker, may invest the money in corporations 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 "commission"), you have asked us to interpret section 5.05 of the Alcoholic Beverage Code (the "code"). Section 5.05(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] exercise[s] 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 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 member's] holdings and their value.

. . . .

The problem is complicated by the fact that hundreds of major corporate conglomerates have, at least arguably, some indirect connection to "the alcoholic beverage business." Pillsbury, for example, owns Steak 'N' Ale restaurants, which serve not only steak but beer. The alcohol sales constitute a minute fraction of Pillsbury'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, § 1, at 397. The legislature intended the codification to be a nonsubstantive adaptation of article 666-5 of the Penal Code[1] (see id. § 7, at 558), which, according to the Revisor's Note to section 5.05 of the code, the legislature designed "to prevent conflicts 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 commission) was "an independent agency whose actions would not be influenced 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 from having any interest, financial or otherwise, direct or indirect, or from engaging in a business transaction or professional activity that substantially conflicts with the proper discharge of his or her duties in the public interest. 60 Tex. Jur. 3d Public Officers and Employees § 144, at 561 (1988). The legislature has enacted several statutes that codify this long-standing policy. See, e.g., Gov't Code § 572.051; Local Gov't Code § 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 writ). Meyers involved city officials who had a pecuniary interest in a contract into which the city entered. The court explained the rationale behind a statute codifying the state's long-standing policy as follows:

Our 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 confidence 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 Meyers involved a contract between a governmental body and a private corporation and is therefore different from the situation you describe. We believe, however, that the court's discussion of the policy behind a statute prohibiting conflicts of interest is instructive.

Section 1.03 of the code mandates that we liberally construe its provisions to protect the welfare, 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 any financial connection with a person engaged in an alcoholic beverage business, holding any stocks or bonds in an alcoholic beverage business, or having any pecuniary interest in an alcoholic beverage business. In our opinion, section 5.05 thus precludes a commissioner from investing in an "alcoholic beverage business," even if the commissioner accomplishes the investment through an investment advisory firm.

Accordingly, we must determine the meaning the legislature intended to attach to the phrase "alcoholic beverage business" in the context of section 5.05. The code does not define the term, although it defines "alcoholic beverage" as "alcohol, or any beverage containing more than one-half of one percent of alcohol by volume, which is capable of use for beverage purposes, either alone or when diluted." Alco. Bev. Code § 1.04(1). "Business" implies a commercial or mercantile activity. See Webster's Ninth New Collegiate Dictionary 190 (1990) (defining "business"); see also Gov't Code § 311.011(a) (stating that words used in code shall be construed according to common usage); Alco. Bev. Code § 1.02 (stating that Code Construction Act applies to construction of each provision in code). Thus, an "alcoholic beverage business" is a business involved in the commerce and merchandising of alcoholic beverages. Furthermore, because we must strictly construe the language of the statute (see Meyers, 276 S.W. at 306, 307 (stating that statutory provisions concerning state officer's interest generally are construed strictly)), we include within the scope of "alcoholic 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 Alcoholic Beverage Commission, "an independent agency whose actions would not be influenced 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 affect the corporation's profits and, ultimately, the return on the commissioner's investment.[2] 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 conflict of interest have been construed to prohibit small interests.[3] See id. (and sources cited therein).

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 firm. 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.

DAN MORALES
Attorney General of Texas

JORGE VEGA
First Assistant Attorney General

DREW T. DURHAM
Deputy Attorney General for Criminal Justice

JAVIER AGUILAR
Special Assistant Attorney General

RENEA HICKS
State Solicitor

SARAH J. SHIRLEY
Chair, Opinion Committee

Prepared by Kymberly K. Oltrogge
Assistant Attorney General

[1] Former article 666-5 of the Penal Code, now codified at section 5.05 of the Alcoholic Beverage Code, provided in pertinent part as follows: "No person shall be eligible for appointment, nor shall hold the office of member of the Board, . . . . who has any connection with any association, 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 pecuniary interest therein."

[2] We concede that the legislature, when it enacted the statutory predecessor to section 5.05 of the Alcoholic Beverage Code in 1935, probably did not consider investment vehicles such as investment advisory firms. Nor did it probably envision corporations with subsidiaries involved in multiple commercial activities, such as PepsiCo or RJR Nabisco. We feel, however, that the proper solution to the problem you raise is one that the legislature must devise.

[3] We note two provisions in chapter 572 of the Government Code that may be applicable to the situation you posit. See Gov't Code §§ 572.058(a) (requiring officer who is member of board or commission having policy direction over state agency publicly to disclose any personal or private interest in measure, proposal, or decision pending before board or commission and to refrain from participating and voting in decision), 572.051(4) (prohibiting state officer from making "personal investments that could reasonably be expected to create a substantial conflict between [his] private interest and the public interest"); see also id. § 572.002(12) (defining "state officer" as, among other things, "appointed officer"), (1)(D) (defining "appointed officer" to include member of commission). Section 5.05 of the Alcoholic Beverage Code specifically applies to members of the commission; thus, to the extent of any conflict between section 5.05 of the Alcoholic Beverage Code and the provisions in chapter 572 of the Government Code, section 5.05 controls. See 2B Sutherland, Statutory Construction § 51.02, at 121 (5th ed. 1992).