Maxwell's Pic-Pac, Inc. v. Dehner

• Decision Date: 10 April 2014
• Docket Number: Nos. 12–6056,12–6182.,12–6057,s. 12–6056
• Citation: 739 F.3d 936
• Parties: MAXWELL'S PIC–PAC, INC; Food with Wine Coalition, Inc., Plaintiffs–Appellees/Cross–Appellants, v. Tony DEHNER, in his official capacity as Commissioner of the Kentucky Department of Alcoholic Beverage Control; Danny Reed, in his official capacity as the Distilled Spirits Administrator of the Kentucky Department of Alcoholic Beverage Control, Defendants–Appellants/Cross–Appellees, LiquorOutlet, LLC, d/b/a The Party Source, Intervenor–Appellant/Cross–Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

739 F.3d 936

MAXWELL'S PIC–PAC, INC; Food with Wine Coalition, Inc., Plaintiffs–Appellees/Cross–Appellants,

v.Tony DEHNER, in his official capacity as Commissioner of the Kentucky Department of Alcoholic Beverage Control; Danny Reed, in his official capacity as the Distilled Spirits Administrator of the Kentucky Department of Alcoholic Beverage Control, Defendants–Appellants/Cross–Appellees,LiquorOutlet, LLC, d/b/a The Party Source, Intervenor–Appellant/Cross–Appellee.

Nos. 12–6056, 12–6057, 12–6182.

United States Court of Appeals,Sixth Circuit.

Argued: Nov. 19, 2013.

Decided and Filed: Jan. 15, 2014.

Rehearing En Banc Denied Apr. 10, 2014.^*

Negative Treatment Reconsidered

KRS 243.230(7); 804 Ky.Admin.Regs. 4:270.

ARGUED:Peter F. Ervin, Public Protection Cabinet, Frankfort, Kentucky, for Appellants–Cross/Appellees Dehner & Reed. Kevin L. Chlarson, Middleton Reutlinger, Louisville, Kentucky, for Appellant/Cross–Appellee Liquor Outlet. M. Stephen Pitt, Wyatt, Tarrant & Combs, LLP, Louisville, Kentucky, for Appellees–Cross/Appellants. ON BRIEF:Peter F. Ervin, La Tasha Buckner, Public Protection Cabinet, Frankfort, Kentucky, for Appellants–Cross/Appellees Dehner & Reed. Kevin L. Chlarson, Kenneth S. Handmaker, Loren T. Prizant, Middleton Reutlinger, Louisville, Kentucky, for Appellant/Cross–Appellee Liquor Outlet. M. Stephen Pitt, Christopher W. Brooker, J. Brooken Smith, Wyatt, Tarrant & Combs, LLP, Louisville, Kentucky, for Appellees–Cross/Appellants. Anthony S. Kogut, Willingham & Coté, P.C., East Lansing, Michigan, for Amicus Curiae.

Before: COOK and STRANCH, Circuit Judges; CARR, District Judge. ^*

OPINION

COOK, Circuit Judge.

A Kentucky statute prohibits businesses that sell substantial amounts of staple groceries or gasoline from applying for a license to sell wine and liquor. Ky.Rev.Stat. § 243.230(7). A regulation applies this provision to retailers that sell those items at a rate of at least 10% of gross monthly sales. 804 Ky. Admin. Regs. 4:270. Harmed by the statute, Maxwell's Pic–Pac (a grocer) and Food With Wine Coalition (a group of grocers) sued administrators of the Kentucky Department of Alcoholic Beverage Control; The Party Source (a liquor store) intervened as a defendant. The grocers alleged that the statute irrationally discriminates against them in violation of their state and federal equal-protection rights. They also alleged that the statute violates (1) state separation-of-powers principles by granting the administrative board unfettered discretion to define the law and (2) state and federal due-process rights by vaguely defining its terms. The district court granted summary judgment to the grocers on the federal equal-protection claim but rejected the others. All parties appeal.

Because the statute conceivably seeks to reduce access to high-alcohol products, and because the statute offends neither separation of powers nor due process principles, we REVERSE the district court's judgment on the federal equal-protection claim and AFFIRM on the remainder.

I.

In the decades before 1920, the free market for alcohol in the United States begot political corruption, prostitution, gambling, crime, and poverty. (R. 40–19, Erickson Expert Report at 4.) National manufacturers built saloons near factories to attract workers, saturating neighborhoods with alcohol suppliers. The manufacturers funded advertising campaigns, fueling high consumption, and bribed politicians away from crackdowns. The country thus constitutionalized the prohibition of alcohol. Effective in 1920, the 18th Amendment banned the “manufacture, sale, or transportation of intoxicating liquors” in the United States. U.S. Const. amend. XVIII.

Prohibition, it turned out, bred a new kind of lawlessness. (R. 40–19, Erickson Expert Report at 4.) Though reducing alcohol consumption, Prohibition, poorly enforced, spawned a violent and unruly organized crime industry to satisfy appetites for alcohol. The country recognized Prohibition as an extreme response to the dangers of alcohol and, with the 21st Amendment, repealed the 18th Amendment in 1933. U.S. Const. amend. XXI § 1. The 21st Amendment also expressly granted each state the right to regulate alcohol use within its borders. See id. § 2.

In establishing their regulatory systems, the states relied on a study by Raymond Fosdick and Albert Scott. (R. 40–19, Erickson Expert Report at 5.) Fosdick and Scott argued that a regulatory system must limit access to products with high alcohol content, such as liquor. Raymond B. Fosdick & Albert L. Scott, Toward Liquor Control ix (Center for Alcohol Policy 2011) (1933). To this end, according to the study, license law should restrict the number and character of places selling liquor. Id. at 30. Analogizing the saloon-on-every-corner problem to the prevalence of gas stations in the modern world, Fosdick and Scott emphasized the danger of selling liquor at gas stations. Id. at 29. “[E]very automobile today is an argument against liquor ...” Id. at 86.

In line with these principles, Kentucky banned most grocery stores and gas stations from selling wine and liquor. After the repeal of Prohibition, the General Assembly established a licensing system in 1938 that 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 transaction consists of selling gasoline and lubricating oil at retail.

1938 Ky. Acts c. 2 art. II § 54(8) (codified as Ky. Stat. § 2554b–154(8) (1939)). This basic distinction between grocery stores/gas stations and other retailers exists today. Currently, the state offers two basic alcohol licenses for retail sales—a generic malt beverage license and a wine-and-liquor license-and caps the number of wine-and-liquor licenses available. (R. 40–19, Erickson Expert Report at 8.) The current statute reads:

No quota retail package license or quota retail drink license for the sale of distilled spirits [liquor] 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. § 243.230(7). In 1982, almost 50 years after the original statute, the Alcohol Beverage Control Board promulgated a regulation defining the terms of the statute. SeeKy.Rev.Stat. § 241.060(1)(granting the board authority to promulgate reasonable administrative regulations). The regulation provides:

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

Section 2. For the purpose of enforcing [the statute] 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. Together, § 243.230(7) and the regulation prevent retailers like Maxwell's Pic–Pac and the grocers comprising Food With Wine Coalition (jointly, “the grocers”) from competing for a wine-and-liquor license.

Agreeing on the pertinent facts, each party to this suit moved for summary judgment, which the district court granted to the grocers on their federal equal-protection claim. The court concluded that no rational reason explains “why a grocery-selling drugstore like Walgreens may sell wine and liquor, but a pharmaceutical-selling grocery store like Kroger cannot.” The court expressly denied relief on the state separation-of-powers claim, concluding that the statute, neither vague nor overbroad, constitutionally delegates legislative authority to the administrative agency.

II.

On appeal, Kentucky and The Party Source contend that a rational basis—reducing access to products with high alcohol content—supports distinguishing grocery stores and gas stations from other retailers, and thus the statute complies with the Equal Protection Clause. The grocers face a high burden to convince us otherwise. For this type of legislation, “[t]he general rule is that legislation is presumed to be valid and will be sustained if the classification drawn by the statute is rationally related to a legitimate state interest.” City of Cleburne v. Cleburne Living Ctr., 473 U.S. 432, 440, 105 S.Ct. 3249, 87 L.Ed.2d 313 (1985); Northville Downs v. Granholm, 622 F.3d 579, 586 (6th Cir.2010). We must uphold an economic regulation “if there is any reasonably conceivable state of facts that could provide a rational basis for the classification.” F.C.C. v. Beach Commc'ns, Inc., 508 U.S. 307, 313–14, 113 S.Ct. 2096, 124 L.Ed.2d 211 (1993); Smith v. Botsford Gen. Hosp., 419 F.3d 513, 520 (6th Cir.2005). Though Kentucky law occasionally subjects economic policies to stricter standards, see Elk Horn Coal Corp. v. Cheyenne Res., 163 S.W.3d 408, 418–19 (Ky.2005), the grocers contend only that the statute lacks a rational basis.

The state indisputably maintains a legitimate interest in reducing access to products with high alcohol content. According to Fosdick and Scott, “states must use their control systems to steer society to lower alcohol form[s] of products.” Fosdick & Scott, supra, at ix. Products with high alcohol content exacerbate the problems caused by alcohol, including drunken driving. See id. at 86. The state's interest applies not only to the general public; minors, inexperienced and impressionable, require particular vigilance. And the state's interest applies to abstinent citizens who, morally...