Maxwell's Pic–Pac, Inc. v. Dehner

• Decision Date: 03 October 2012
• Docket Number: Civil Action No. 3:11–CV–18–H.
• Citation: 887 F.Supp.2d 733
• Parties: MAXWELL'S PIC–PAC, INC., et. al., Plaintiffs v. Tony DEHNER, et. al., Defendants.
• Court: U.S. District Court — Western District of Kentucky

887 F.Supp.2d 733

MAXWELL'S PIC–PAC, INC., et. al., Plaintiffs

v.Tony DEHNER, et. al., Defendants.

Civil Action No. 3:11–CV–18–H.

United States District Court,

W.D. Kentucky,

at Louisville.

Aug. 14, 2012.

Opinion Granting Stay Oct. 3, 2012.

Held Unconstitutional

KRS 243.230(5); 804 Ky.Admin.Regs. 4:270Christopher Wilson Brooker, M. Stephen Pitt, Merrill S. Schell, Wyatt, Tarrant & Combs LLP, Louisville, KY, for Plaintiffs.

La Tasha Buckner, Peter Frank Ervin, Kentucky Public Protection Cabinet, Frankfort, KY, for Defendants.

MEMORANDUM OPINION

JOHN G. HEYBURN, II, for District Judge.

Kentucky, like all states, extensively regulates the sale of alcoholic beverages within its borders. As part of this alcohol control scheme, Ky.Rev.Stat. § 243.230(5) and its accompanying regulation, 804 Ky. Admin. Regs. 4:270 (1982) (hereinafter sometimes referred to collectively as the “Statute”), bar grocery stores and convenience store operators, such as members of the Food With Wine Coalition (the “FWWC”) and Maxwell's Pic–Pac (collectively,“Plaintiffs”), from obtaining a license to sell package liquor and wine, while permitting drugstores and others to do so. Plaintiffs argue that this differential treatment violates the equal protection provisions of the United States and Kentucky Constitutions and that the Statute also violates the separation of powers provisions of the Kentucky Constitution.

Tony Dehner and Danny Reed, the named defendants from the Kentucky Department of Alcohol and Beverage Control (the “State”), argue the Statute is a permissible exercise of Kentucky's broad police powers to regulate liquor sales. Intervening Defendant, Liquor Outlet, LLC, d/b/a The Party Source (“Intervening Defendant” or “Party Source”) has been licensed as a retail package liquor business since 1993 and also sells staple groceries. Both sides have moved for summary judgment. They agree that no material facts are contested and that the dispute can be resolved as a matter of law.

The issues raised here are matters of considerable consequence to package liquor stores, grocers, convenience stores, gas stations, drugstores and others who are either permitted or restricted from doing business under the current package liquor regulatory scheme. The reason is that accepting Plaintiffs' arguments would cause dismantling of an important part of the regulatory scheme that has been in place for over seventy years. Mindful of this, the Court has determined to set forth a careful and comprehensive review and analysis of the relevant issues.

I.

Before addressing the substance of Plaintiffs' claims, it is instructive to review the history of alcohol control laws in Kentucky and describe the current statutory and regulatory framework.

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 (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. § 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. Carroll's 1933 Statutes Annotated, § 2554a–1 to a–47.¹

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,² the other a minority bill.³ 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.⁴ 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.⁵ 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.⁶ 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.

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.

II.

The Intervening Defendant makes several preliminary arguments which would deny Plaintiffs the ability to pursue their substantive challenges to the Statute. It argues that Plaintiffs' claims fail on the two threshold grounds of standing and a statute of limitations. The Court will discuss each in turn.

A.

The Intervening Defendant argues that neither Maxwell's Pic–Pac nor FWWC are proper parties to challenge the Statute because they fail to meet Article III's case-or-controversy requirements. See Lujan v. Defenders of Wildlife, 504 U.S. 555, 560–61, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992). Plaintiffs must establish three elements to have standing: (1) a concrete and particularized injury in fact; (2) a causal connection between the injury and the defendant's conduct; and (3) a likelihood that a favorable decision of this Court would redress the injury. Blachy v. Butcher, 221 F.3d 896, 909 (6th Cir.2000). Furthermore, when an organization, such as the FWWC, brings a suit on behalf of its members, it must demonstrate that “(a) its members would otherwise have standing to sue in their own right; (b) the interests it seeks to protect are germane to the organization's purpose; and (c) neither the claim asserted nor the relief requested requires the participation of...