Kentucky’s
solid status at both the top and the base of America’s bourbon pyramid makes
the state a fitting setting for constitutional challenges to laws regulating
the sale of liquor and wine at grocery and convenience stores.

At
the end of last year, a federal district court judge found in favor of a group
of grocery stores calling themselves the Food
With Wine Coalition
, and held that the Kentucky’s statute, Ky. Rev. Stat. 243.230(5),
barring grocery and convenience stores from selling wine and liquor, was
unconstitutional as a violation the rights granted to the plaintiffs by the
equal protection clause of the 14th Amendment.  You can read that opinion here.

Kentucky
appealed the decision and the main briefs have been filed.  With one outstanding optional brief due next
week, the briefing is complete and the appellate court will set an oral
argument hearing.

This
is an interesting case.  The issues don’t
involve the regular commerce clause constitutional challenges.  They’re a direct attack against the liquor
control regulations as having no rational basis… the implications are
far-reaching (although few would admit it) that other alcohol regulations or
regulatory schemes could find themselves with similar challenges if the
appellate court upholds the district court’s decision.  We’re going to take some time to analyze the
arguments in the different appellate briefs in a few entries over the next few
weeks.

But
before we start that, I wanted lay the historical background for the district
court’s decision.  This was so important
to the rational basis determination that the court spent several pages
describing the historical context for the Kentucky law banning grocery and
convenience stores from selling wine and liquor, and that history is a good
read:

“For most of the nineteenth century,
“the natural status of the situation . . . was tha[t] anybody had the
right to sell liquors anywhere, to anybody, and at any time.” Bd. of
Trs. of Town of New Castle v. Scott
, 125 Ky. 545, 101 S.W. 944, 948, 30 Ky.
L. Rptr. 894 (Ky. 1907). By the time of Kentucky’s constitutional convention in
1891, liquor traffic was “regarded as one of the most serious evils of the
age.” Id. The new state constitution allowed individual counties
and smaller localities to regulate, or completely ban, sales of
“spiritous, vinous, or malt liquors through the procedure of local option
elections.” KY. Const. Section 61.

“Soon after ratification of the Eighteenth
Amendment
to United States Constitution in 1919, Kentucky amended
its own constitution to prohibit the manufacture, sale, or transportation of
intoxicating liquors, implicitly repealing § 61. Ky. Const. § 226a. Three years
later, the Kentucky General Assembly passed the Rash-Gullion Act, an
enforcement statute for § 226a.

“A decade’s experience with Prohibition
under the Rash-Gullion Act and its federal counterpart, the Volstead Act, left
the state “infested with bootleggers . . . corruption and crime, no revenue,
no control, disrespect for law and  general demoralization.” Ky.
Liquor Control Comm., Report of the Liquor Control Comm. 3-4 (1933). The
bootleggers’ only competition was “the combination of the easy doctor and
the easy druggist,” as a retail sale could be made upon a physician’s
prescription. Id. at 4-5. No doubt in light of this experience,
Kentuckians voted to ratify the Twenty-first
Amendment
in November 1933. Id. at 4.

“The December 5, 1933 ratification of the
Twenty-first Amendment repealed the Eighteenth Amendment and marked the end of
Prohibition. But it left Kentucky in a temporary bind. The Kentucky
Constitution still prohibited alcohol traffic and sales, and circumstances made
it impossible to submit an amendment of § 226a
for a vote of the people until the November 1935 election. Forrest Revere
Black, Is an Immediate Liquor Program for Kentucky Within the Scope of
Constitutional Possibilities?
, 22 Ky. L.J. 191, 192 (1933-1934). To find a
temporary fix, Governor Ruby Laffoon appointed a committee to recommend
legislation for the interim period before § 226a
could be repealed.

“The Governor’s committee drafted two
proposed bills – one supported by the majority of the committee, the other a
minority bill. The Kentucky General Assembly adopted neither in whole. Instead,
it enacted the Kentucky Alcohol Control Act of 1934, which repealed the Rash-
Gullion Act and provided for permits and taxes for limited package and
on-premise, by-the-drink alcohol sales. It required that all such sales, at
least ostensibly, be for medicinal purposes but did not require a prescription.
See, Ky. Stat. § 2554b-17 and b-18; § 2554b-27. The Act did not restrict
the types of premises that could hold a “retailer’s permit” for
package sales. Ky. Stat. § 2554b-16.

“In November 1935, Kentucky voters approved
a repeal of § 226a and reenacted § 61,
the local option election provision that § 226a had implicitly repealed. Ky
Const. § 61 (LexisNexis 2002) Compiler’s Notes. Three years later, the General
Assembly enacted the Alcohol Beverage Control Law, 1938 Ky. Acts 48, which
repealed the 1934 Kentucky Alcohol Control Act and established the basic
statutory framework that exists today. (Eventually, about 90 of Kentucky’s 120
counties outlawed the sale and consumption of alcoholic beverages by county
local option. The historic prohibition of alcoholic consumption throughout the
state survived and thrived for decades through a conspiracy of convenience
among ministers and bootleggers, each of whom had their own reasons for
supporting the status quo. See John Ed Pearce, Divide and Dissent:
Kentucky Politics, 1930-1963
(1987).) It included the first iteration of
the present-day § 243.230(5), which provided:

“No Retailer Package License or
Retail Drink License shall be issued for any premises used as or in connection
with the operation of a grocery store or filling station. “Grocery
Store” shall be construed to mean any business enterprise in which a
substantial part of the commercial transaction consists of selling at retail
products commonly classified as staple groceries. “Filling Station”
shall be construed to mean any business enterprise in which a substantial part
of the commercial transactions consists of selling gasoline and lubricating oil
at retail.”

“Id. at 102. The existing legislative records contain no hint whatsoever
of the rationale behind the Statute’s classification. Perhaps the General
Assembly sought to extend the status quo under which drugstores had sold
alcohol ostensibly only for medicinal purposes throughout Prohibition. We do
not know. In any event, the Statute today contains the same basic provisions.
 In its current form, the
Statute reads:

“No retail package or drink license
for the sale of distilled spirits or wine shall be issued 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 and lubricating oil.”

Ky. Rev. Stat. Ann. § 243.230(5)
(LexisNexis 2005).

“Nearly fifty years after the Alcohol
Beverage Control Law’s enactment, the Alcohol Beverage Control Board, pursuant
to its powers under Ky. Rev.
Stat. § 241.060(1)
, promulgated a regulation to address confusion
caused by an absence of definitions for “staple groceries” and for
“substantial part of the commercial transaction” in § 243.230(5).
Historical Notes to 804 Ky. Admin. Regs. 4:270 (1982). The regulation provides:

“Section 1. For the purpose of
enforcing KRS
243.230(5)
“substantial part of the commercial
transaction” shall mean ten (10) percent or greater of the gross sales
receipts as determined on a monthly basis.

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“Section 2. For the purpose of enforcing
KRS 243.230(5) staple groceries shall be defined as any food or food product
intended for human consumption except alcoholic beverages, tobacco, soft
drinks, candy, hot foods and food products prepared for immediate
consumption.”

“804 Ky. Admin. Regs.
4:270. The regulation was promulgated as originally proposed, with the
exception of adding “candy” to the list of items excluded from the
“staple groceries” definition after a public hearing.”

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