The Texas Supreme Court recently interpreted the Texas Dram Shop Act in an opinion that will affect lawsuits against sellers of alcoholic beverages brought by persons who claim their injuries resulted from alcohol having been served to an obviously intoxicated person.

The Dram Shop Act

Until about 20 years ago, Texas law did not impose any liability on sellers of alcohol who “over-served” intoxicated patrons. The Texas statute known as the Dram Shop Act (Act) became law in 1987. Under this statute, a provider of alcoholic beverages can be liable for damages in a civil suit on proof that:

(1) at the time the provider sold or served the alcohol it was apparent to the provider that the recipient was obviously intoxicated to the extent he presented a clear danger to himself and others, and

(2) the intoxication of that individual proximately caused the damages suffered.

In addition to civil liability for commercial providers of alcohol, the Act also provides that the Texas Alcoholic Beverage Commission (TABC) can revoke the alcohol permit of a provider who violates the above provisions.

Texas courts have held the Act does not require that the provider actually witnessed intoxicated behavior or that the provider had a subjective intent to serve an intoxicated person. Instead, courts require evidence that intoxicated behavior was visible and could have been easily observed. The standard for finding the customer was obviously intoxicated is an objective one, that is, what a reasonably prudent person would have observed. The fact that an individual was intoxicated can be proven by testimony of persons who did observe intoxicated behavior. It can also be proven by circumstantial evidence, such as the amount of alcohol consumed or a blood alcohol level measured some time later, coupled with an expert opinion that the individual would have had slurred speech and staggering walk at the time he was served additional alcohol. Defendants sometimes offer expert testimony that a heavy drinker could have developed tolerance and would not have shown evidence of intoxication despite considerable consumption.

The majority of the published court opinions dealing with the Texas Dram Shop Act were written in lawsuits involving vehicle accidents. Many of those lawsuits were brought by third persons injured by a drunken driver, such as passengers in another car, passengers in the car driven by the drunken driver, or pedestrians struck by the drunken driver’s car. Some of the lawsuits were brought by the drunken driver herself for injuries sustained in a single vehicle accident. The fact that the drunken driver received a ticket or was convicted of a crime in connection with the accident does not bar a lawsuit against the provider of alcohol. In addition to persons injured in auto accidents, other claimants under the Act have been persons assaulted by an intoxicated patron on the provider’s premises or shortly after leaving those premises. Some suits have been brought by employees of a provider who allege the provider required them to consume alcohol.

Under the Texas proportionate responsibility scheme, a jury could assign some percentage of responsibility to the intoxicated person for her own or others’ injuries and a jury could assign some percentage of responsibility to an injured passenger based on his negligence in getting into a car to be driven by an intoxicated person. However, such findings do not necessarily relieve the alcohol provider of liability.

The Safe Harbor

There is a way for a bar, restaurant, hotel, convenience store, or other seller of alcoholic beverages to entirely avoid liability under the Texas Dram Shop Act even if its employee’s actions violated the Act. To take advantage of this “safe harbor,” the employer must meet a three-part test:

(1) the employer required its employees to attend a TABC approved “seller training program;”

(2) the employee actually attended the program; and

(3) the employer did not directly or indirectly encourage the employee to violate the Act.

In its recent interpretation of the above provisions of the Act, the Texas Supreme Court defined the burden of proof on each of the three elements and clarified the standard for a finding on the third element. Prior to the March 28, 2008 opinion in 20801, Inc. v. Parker, the lower courts had often required the provider to establish all three elements, including “proving a negative” for the third element. The supreme court held that the provider has the burden of proof on the first two elements but the plaintiff has the burden to prove the provider did in fact directly or indirectly encourage a violation of the Act.

In earlier opinions, the lower courts had recognized that encouragement “may take many subtle forms,” and the courts had found evidence of encouragement in a written policy suggesting serving watered-down drinks to intoxicated patrons and in the failure to enforce policies stating that serving intoxicated patrons was cause for dismissal. The supreme court rejected the argument that negating the third element requires a provider knowingly encouraged violation of the Act. Instead, the court held that a provider must act, or fail to act, at least negligently. This means (a) the provider did something that a person of ordinary prudence would not have done under the same or similar circumstances, or (b) the provider failed to do something a person of ordinary prudence would have done under the same or similar circumstances. The court gave as examples of negligence a provider failing to punish over-service, or setting an excessively high minimum sales quota, or himself serving obviously intoxicated persons and, thus, modeling inappropriate behavior.

The court stated the Act does not require a provider to have a formal policy against over-service and, if a provider does have a formal policy, the Act does not require a provider to prove enforcement of the policy on the occasion in question. However, the court also noted the existence of a policy would be a relevant circumstance in determining whether a provider negligently encouraged its employees to serve obviously intoxicated persons.

The plaintiff in 20801, Inc. v. Parker claimed that when he attended the grand opening of a Slick Willie’s Family Pool Hall in Harris County in Nov. 1999 he was served 10 to 15 free drinks, including two drinks given to him by the manager. The plaintiff began to argue with another patron and was asked to leave, and then was punched by the other patron in the parking lot, causing him to fall and strike his head on the pavement. The supreme court noted that in most cases a plaintiff will be able to argue that a provider’s encouragement to over-serve was established by behavior over a period of time, rather than any one specific act or omission, but that Parker would have difficulty making such an argument since the incident occurred on the bar’s opening night.

Another important holding in this opinion was that a manager can be a “vice-principal” of his employer and therefore the conduct of the manager is the conduct of the employer. This means that any encouragement by a vice-principal manager is encouragement by the employer provider. It also means that if a vice-principal manager served the alcohol, the “safe harbor” provision would not apply because the manager would not be an employee within the terms of the provision.

Compliance with Requirements

At least 42 states have statutes similar to the Texas Dram Shop Act, although some states do not permit the intoxicated person to sue for his own injuries and some states impose a cap on the amount of damages. Lawsuits under these statutes often arise from vehicle collisions involving serious physical injury and even loss of life. Therefore, the jury verdicts can be very large. All commercial providers of alcoholic beverages should become familiar with the law of each state in which they do business to minimize civil liability and avoid sanctions by the state agencies. They should also review their liability insurance to be sure it complies with any state requirements and provides sufficient coverage.

Providers of alcohol in Texas should endeavor to be within the “safe harbor” by following these guidelines:

  • Require employee training.
  • Confirm that employees have attended training.
  • Maintain documentation of that training.
  • Review any existing written policies and ensure they do not in any way encourage over-serving of alcohol.
  • Be vigilant in supervising the servers.

The proper perspective should be that any loss of revenue from the drinks not served will be more than offset by the savings on legal fees and damage awards and by the prevention of injuries that might result from serving an obviously intoxicated person.