Before the First Round: Defending the Dram Shop Claim from Incident to Trial The Twelfth Annual Hospitality Law Conference February 10-12, 2014 Houston, Texas David T. Denney THE LAW OFFICES OF DAVID T. DENNEY, PC 8350 N. Central Expressway, Suite 925 Dallas, Texas 75206 214.739.2900 [email protected] @david_denney © 2014 David T. Denney THE LAW OFFICES OF DAVID T. DENNEY A PROFESSIONAL CORPORATION David T. Denney 8350 N. Central Expressway, Suite 925 Dallas, Texas 75206 214.739.2900 [email protected] www.foodbevlaw.com David’s firm counsels restaurants, bars and other members of the hospitality community around the country on such matters as the formation, purchase and sale of business entities; private equity funding; commercial leases; franchising; trademark protection; employment matters; beverage alcohol licensing; and preventing foodborne illness and allergy liability. The firm also defends its clients in various types of civil litigation. David’s professional commitment to the hospitality community is highlighted by his industry-wide involvement, including: Board of Directors, GREATER DALLAS RESTAURANT ASSOCIATION; Member, NATIONAL RESTAURANT ASSOCIATION. Speaker: 2009 - 2014 HOSPITALITY LAW Conferences; 2013- 2014 Nightclub and Bar Convention and Trade Show; 2013 NATIONAL RESTAURANT ASSOCIATION Marketing Executives Group Conference; 2013 HOSPITALITY FINANCIAL AND TECHNOLOGY PROFESSIONALS Annual Convention; 2011 CLUB MANAGERS ASSOCIATION OF AMERICA Conference, 2011 RESORT HOTEL ASSOCIATION Conference, 2009 MEXICAN RESTAURANT ASSOCIATION Conference, 2009 FS/TEC Conference and 2008 DINEAMERICA Conference. David is a frequent contributor to Restaurant Startup & Growth Magazine, and has had articles featured in Nightclub & Bar Magazine, Cheers, In the Mix Magazine, QSR Magazine, Food Safety Solutions, the CMAA Newsletter and various HospitalityLawyer.com newsletters. David is an adjunct professor and member of the Professional Advisory Committee for the INTERNATIONAL CULINARY SCHOOL AT THE ART INSTITUTE OF DALLAS. David is also a Member of the COLLEGE OF THE STATE BAR OF TEXAS and the GLOBAL ALLIANCE OF HOSPITALITY ATTORNEYS. © 2014 David T. Denney TABLE OF CONTENTS I. SCOPE OF ARTICLE ..................................................................................................... 1 II. INTRODUCTION............................................................................................................. 1 III. DRAM SHOP LEGISLATION ....................................................................................... 1 A. OVERVIEW ................................................................................................................. 1 B. TEXAS DRAM SHOP ACT ........................................................................................ 2 C. TEXAS’ SAFE HARBOR PROVISION.................................................................... 3 IV. REDUCING RISK BEFORE A CLAIM ........................................................................ 4 A. COMPLAINCE WITH TEXAS’ SAFE HARBOR PROVISION .......................... 4 B. DEVELOPING POLICIES AND PROCEDURES ................................................... 6 C. INSURANCE ................................................................................................................ 7 V. DEFENDING A CLAIM .................................................................................................. 7 A. PRE-LITIGATION PLAN OF ACTION .................................................................. 7 B. WHAT TO EXPECT DURING LITIGATION ........................................................ 8 VI. CONCLUSION ................................................................................................................. 9 APPENDIX 1 © 2014 David T. Denney iii I. SCOPE OF ARTICLE1 In jurisdictions with dram shop liability laws, a person injured by an intoxicated person may sue establishments contributing to that person’s intoxication. Liability can be imposed through statutes and/or common law, depending on the jurisdiction. This article will provide an overview of dram shop laws in the Unites States with a detailed evaluation of Texas’ dram shop law and its safe harbor provision.2 Although the liability imposed varies among the different jurisdictions, there are common steps an establishment can take in order to defend against a dram shop claim before suit is even filed. This article provides a plan of action on how to reduce risk before, and immediately after, an alcohol-related accident or injury, and a look at what an establishment can expect once litigation commences. II. INTRODUCTION A "dram shop" or “dramshop” is the term historically used to describe any establishment where alcoholic beverages are sold to be consumed on the premises. Traditionally, these establishments sold alcoholic drinks by the dram, which is a small unit of liquid, measuring one eighth of a fluid ounce. Dram shop laws3 are intended to deter establishments from selling alcohol to patrons who are already inebriated, or to minors, by allowing third parties who have been injured or damaged as a result of the establishment’s service (or over-service) to said individuals. Courts must decide how to apportion responsibility for the injury between the server and the patron. The common law rule in most states is that the consumption of alcohol, and not the service of it, is the proximate cause of alcohol-related injuries, which is generally still the rule today. However, similar to most other third-party torts, dram shop laws provide innocent third parties an opportunity to seek recovery for their damages from an extremely profitable industry. III. DRAM SHOP LEGISLATION A. OVERVIEW OF DRAM SHOP LAWS Forty-two states in the U.S. have some sort of dram shop liability law, with the exceptions being: Delaware, District of Columbia, Kansas, Louisiana, Maryland, Nevada, Nebraska, South Dakota, and Virginia.4 Dram shop liability varies widely among the 1 This article would not have been possible without the efforts of Ashley Ahn, an associate of the firm, who pulled the laboring oar so mightily on this paper that all the author had to do was sit back in the boat and drink beer. 2 The author is in Texas, as is the Hospitality Law Conference. 3 The purpose of this article is to aid commercial entities in defending against dram shop liability, which is distinct from the laws governing “social host” liability applied to non-commercial, private citizens. 4 See Appendix I; Dram Shop and Social Host Liability, (June 2012), available at http://www.madd.org/laws/law-overview/Dram_Shop_Overview.pdf. © 2014 David T. Denney 1 forty-two states but, generally, an establishment may be held liable if a plaintiff proves that 1) the establishment sold alcohol to the patron, 2) proximate cause between the alcohol sale and intoxication, 3) patron was visibly intoxicated at the time of the sale, and 4) that intoxication of the patron caused injury to a third party. Both common law and state statutes may apply depending on the specific circumstances of each case. Many jurisdictions bar “first-party actions,” or recovery sought by the intoxicated person, to reinforce the notion that the consumption of alcohol is the proximate cause of the injury, not the service of alcohol. California’s dram shop law further limits liability to minors, and thus does not apply to over-serving alcohol to adults.5 1. Visibly Intoxicated The majority of states require a “visibly” or “obviously” intoxicated standard, allowing recovery when the defendant knew, or should have known, that the patron was intoxicated. Implementing an objective standard makes sense in order to deter servers from claiming ignorance of the intoxication as a defense. Exactly what sort of conduct “visibly” or “obviously” intoxicated entails differs among jurisdictions. Some states have attempted to address this problem by defining specific physical tests such as "significantly uncoordinated physical action or significant physical dysfunction."6 Massachusetts broadly views visibly intoxicated as "drunk, loud and vulgar" behavior.7 In Texas, a patron must be so obviously intoxicated that he presents a clear danger to himself and others.8 In contrast, Illinois’s dram shop law does not require any knowledge that the patron was intoxicated.9 Thus, every establishment who sold the patron alcohol, whether or not he was intoxicated at the time, is subject to some degree of liability. Further, one Illinois court allowed a lawsuit against a company that dropped off self-serve barrels of beer at a union picnic.10 B. TEXAS DRAM SHOP ACT Texas’ DRAM SHOP ACT allows a plaintiff to recover from an establishment upon proof that: (1) at the time the provision occurred it was apparent to the provider that the individual being sold, served, or provided with an alcoholic beverage was obviously intoxicated to the extent that he presented a clear danger to himself and others; and 5 CAL. BPC. CODE §25602-25602.1 6 § 537.53, RSMo 1985 7 Cimino v. The Milford Keg, Inc., 385 Mass. 323 (1981). 8 TEX. ALCO. BEV. CODE § 2.02 9 235 Ill. Comp. Stat. § 5/6-21 10 Peterson v. Jack Donelson Sales Co., 4 Ill.App.3d 792 (2nd Dist. 1972). © 2014 David T. Denney 2 (2) the intoxication of the recipient of the alcoholic beverage was a proximate cause of the damages suffered.11 In order for a plaintiff to succeed on his cause of action under the Texas Dram Shop Act, he must prove that, at the time the alcohol was provided, the patron who later caused damage was obviously intoxicated