James E. Pepper’s Fraud Previews The Taft Decision.

There’s a rule in the law that when you ask for an injunction, you can’t have been a bad guy too.  In 1893 when James E. Pepper tried to protect his “Old Pepper” brand, he learned this rule the hard way.

The events described in Krauss v. Jos. R. Peebles’ Sons Co., 58 F. 585 (S.D. Ohio 1893) all take place after James Pepper went bankrupt in 1877 and lost his father’s distillery in Versailles, Kentucky – the famed “Old Oscar Pepper Distillery” where Old Crow was born – to Labrot & Graham.  They also take place after Pepper unsuccessfully sued Labrot & Graham (here’s my Pepper v. Labrot & Graham post).

After losing his father’s distillery and losing the right to use the “Old Oscar Pepper” name, James Pepper built a new distillery in Lexington, Kentucky.  He started distilling there in May 1880 and designed this new shield trademark, which he printed on gold paper for labels:

As many new whiskey distillers know, starting a new distillery has high front-end expenses with a long wait before any whiskey is fit to sell.  Perhaps to account for this reality, Pepper sold newly-filled barrels to the Jos. R. Peebles’ Sons Co., a large Cincinnati grocer and liquor dealer, for aging and bottling, and kept other barrels in his own warehouse.

Then, after six years of aging, Pepper was ready to sell his first run of bourbon in 1886.  Peebles was also selling (and had been selling) this bourbon under the “Old Pepper” brand, but after Pepper got into the bottling business, he supplied the gold shield labels to Peebles and other bottlers.  Pepper also continued bulk barrel sales to Peebles after 1886, through 1893, when Pepper decided make Otto Krauss his sole distributor, and contracted with Kraus to sell him 30,000 cases per year, plus 1,000 barrels of bourbon and 500 barrels of rye per year.

Peebles still had a large supply of Old Pepper bourbon, so it continued to bottle and sell it, using the same labeling it had always used.  Krauss took exception (and I’ve read separately that James Pepper was a silent partner with Krauss), and sued Peebles in the spring of 1893, asking for an injunction to prohibit Peebles from labeling its bottles as “Old Pepper.”

The judge for the case was none other than William Howard Taft, Sixth Circuit Judge from 1892-1900, before his single term as President (1908 – 1912) and eventual service as United States Supreme Court Chief Justice (1921 – 1930).  Whiskey fans most likely know him as President Taft for his “Taft Decision” in 1909, which clarified the Pure Food & Drug Act and finally answered the question “What is whiskey?” by defining “straight,” “blended” and “imitation” whiskey.

Circuit Judge Taft found some disturbing evidence in the case that might have influenced his “Taft Decision” as President 16 years later.  Evidence was presented showing, despite Pepper’s labels and guarantees to the public, that at least since December 1891 he had been buying bourbon from other distilleries and blending it with his own bourbon – all the while still guaranteeing to the public that it was distilled by him, as genuine and unadulterated Old Pepper.

The percentages varied each month, but Judge Taft recited the exact percentage of “foreign” whiskey that Pepper blended into his bottles of Old Pepper on a monthly basis over the course of 19 months.  It was often over 50% foreign whiskey, with a high of 66% foreign whiskey in one month, and an average of over 1/3 of every bottle being foreign whiskey over that period.  Judge Taft took Pepper and Krauss to task.  He recited all of the express guarantees contained all over the Old Pepper label that it was pure, unmixed with other whiskey, that the bottle contained nothing but Old Pepper bourbon distilled at the James E. Pepper Distillery in Lexington, by James Pepper himself.  Judge Taft ruled that this was “a false representation, and a fraud upon the purchasing public,” and “the public are entitled to a true statement as to the origin of the whisky, if any statement is made at all.”

So Krauss and Pepper could not stop Peebles from using the Old Pepper trademarks because Krauss and Pepper were themselves engaged in fraud.  I’d be willing to bet that this 1893 decision influenced President Taft in 1909 when he defined the standards for labeling whiskey.  In fact, in 1909 President Taft wrote that through his decision, “the public will be made to know exactly the kind of whisky they buy and drink…”  That’s an admirable goal that we’re still working toward today, as we’re faced with similar resistance from a few producers and non-distiller producers, along with sometimes lax enforcement of existing laws by TTB.  James Pepper might have fared better today with TTB than he did in 1893 against Taft.