Remnants of Prohibition Still Sting Kentucky Grocers.

The United States Court of Appeals for the Sixth Circuit on Wednesday upheld a post-prohibition-era statute that prohibits grocers and gas stations from selling liquor.  In Maxwell’s Pic-Pac, Inc. v. Dehner, Nos. 12-6056/6057/6182, (6th Cir. Jan. 15, 2014) (available at http://www.ca6.uscourts.gov/opinions.pdf/14a0015p-06.pdf), the court reversed the local federal district court’s decision which had invalidated the statute. 

 States might be expected to protect their laws from challenges.  In this case, however, it appears as if the real source of the effort to save the regulation was a direct competitor of grocers that stood to lose market share if grocers were allowed to sell liquor and wine – Liquor Outlet d/b/a The Party Source.  The named defendant, Tony Dehner, is the Commissioner of the Kentucky Department of Alcoholic Beverage Control, and he represented the interests of the Commonwealth.  Just as ministers and bootleggers enjoyed a conspiracy of convenience in Kentucky in the 1930’s (90 of Kentucky’s 120 counties outlawed the sale and consumption of alcohol under local option laws), Liquor Outlet allied with ABC to prevent grocers from selling liquor.

In reading the court’s file, it became clear that the history of pre-Prohibition corruption and depravity, lawlessness during Prohibition, and relative peace under regulation after Repeal all played a significant role in the parties’ arguments and in the court’s decision.  Many of us are aware that state liquor control laws vary widely, but we’re often unaware that our respective state’s liquor control laws arose out of the remnants of Prohibition.

In the 1800’s, in Kentucky and elsewhere, “anybody had the right to sell liquors anywhere, to anybody, and at any time.”  Bd. of Trs. of Town of New Castle v. Scott, 101 S.W. 944 (Ky. 1907).  This lack of regulation helped fuel the temperance movement and led to a perception of liquor as a societal evil, so by 1891 Kentucky’s Constitution allowed its counties to regulate (or even ban) liquor sales. 

Liquor Outlet hired an expert witness to testify that before Prohibition, liquor had led to political corruption, prostitution, gambling, crime, poverty and family destruction.  Prohibition created its own problems, though, which were often worse.  The district court noted that Prohibition left Kentucky “infested with bootleggers … corruption and crime, no revenue, no control, disrespect for law and general demoralization.”  It was an unmitigated disaster.

Along with the repeal of Prohibition, the Twenty-First Amendment allowed states to regulate the sale of alcoholic beverages.  John D. Rockefeller, Jr. financed a major study used by the states in developing their respective regulations.  Initially, Kentucky’s regulatory framework did not restrict the types of premises that could sell package liquor.  But in 1938, Kentucky enacted a new statute that, in essence, still exists today.  Kentucky decided on a regulatory structure that required licensure (and limited the number of licenses), and it prohibited licenses for “any premises used as or in connection with the operation of any business in which a substantial part of the commercial transaction consists of selling at retail staple groceries or gasoline or lubricating oil.”  So, grocers and gas stations have been prohibited from selling wine and liquor for over 75 years.

A small grocer, Maxwell’s Pic-Pac, decided that Kentucky’s regulatory structure discriminated against grocers without any reasonable or justifiable basis.  Under Kentucky’s regulatory framework, for example, a grocery-selling drugstore (like CVS or Walgreens) can sell liquor, but a pharmaceutical-selling grocery store cannot.  Similarly, a big-box “party store” can sell grocery items along with liquor, but a grocery store still cannot sell liquor.  The district court agreed and in August 2012 it ruled in favor of Pic-Pac.

Predictably, Kentucky and Liquor Outlet appealed.  The Sixth Circuit concluded that it is reasonable for Kentucky to choose to prohibit the sale of liquor in certain places, such as places where “the community must come together.”  Sounding like the temperance-movement activists, Liquor Outlet argued that grocery stores and gas stations posed a greater risk of “exposing” citizens to alcohol, and that more minors work at grocery stores, so they too would be “exposed” to alcohol.

Liquor Outlet (and its expert) also argued that Kentucky must be allowed to use regulations to steer society to lower-alcohol beverages and to reduce exposure of alcohol to impressionable or abstinent citizens, and that limiting the types of places that sell alcohol plausibly satisfies that public policy.  Still, overly-broad alcohol control laws have been struck down previously in Kentucky and in other states.  For example, in Commonwealth of Ky. ABC Bd. v. Burke, 481 S.W.2d 52 (Ky. 1972), the court invalidated a provision of the Alcohol Beverage Control Act that prohibited women from being bartenders and from drinking at a bar.  The Sixth Circuit did not discuss Burke, and rejected Pic-Pac’s challenge.

This regulation is partly just academic since many national chain grocers in Kentucky have separate adjacent liquor stores.  Of course, this really results in the law only being applicable to small or independent grocers like Pic-Pac.  In those stores, the temperance movement still has a foothold.