The History of the (Currently) Unconstitutional Kentucky Statute Prohibiting Grocery Stores and Convenience Stores From Selling Liquor and Wine

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.

A 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) (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.

“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.”