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.

The history of bourbon is full of legends, boasts, puffery and even outright lies, all in an effort to promote a brand and make a sale in a highly competitive craft.  Today’s false advertising and consumer protection laws have largely eliminated the lies, but who takes the all-time prize for false bourbon advertising?  James Pepper certainly seemed to stretch the truth; Paxton Bros. and the H.E. Pogue Distillery entered into a sourcing contract that a federal court held was “the perpetuation of fraud on the public;” and some unscrupulous whiskey rectifiers routinely defrauded the public until reined in by the Bottled-In-Bond Act and the Pure Food and Drug Act.

But one brand stands far above the rest as the ultimate fraudulent advertiser:  The Duffy Malt Whiskey Company.  To quote Lionel Hutz, Duffy’s advertising may be “the most blatant case of false advertising since … The NeverEnding Story.”  The Simpsons, Episode 67 (“New Kid on the Block”).  Nov. 12, 1992.

Walter B. Duffy (1840-1911) took over his family’s distillery, The Rochester Distilling Company, in the 1870’s.  By the early 1880’s, Duffy was advertising his Duffy’s Malt Whiskey not only as a tonic that “Makes The Weak Strong,” but also as a cure for all sorts of diseases.  Consumption, influenza, bronchitis, indigestion, and practically old age itself were claimed to be no match for Duffy’s Malt Whiskey.

Duffy quickly over-extended his company, and he was forced into bankruptcy in November 1886.  The collapse of the Duffy Malt Whiskey Company and the appointment of a prominent Receiver were widely reported The New York Times and other established newspapers, and lawsuits were filed as debts were resolved.  But just as James Pepper and Col. E. H. Taylor, Jr. emerged stronger from their own financial troubles, Duffy turned his company around, albeit with more false advertising.  Here are a few samples:

This last example led to litigation because Duffy’s sent The Chicago Sunday Tribunethe wrong picture (it’s unclear whether intentionally, or not, or whether the testimonial was fabricated, or not).  In Peck v. Tribune Co., 214 U.S. 185 (1909) (written by none other than Justice Oliver Wendell Holmes, Jr.), the Supreme Court of the United States reversed two lower court decisions that had dismissed the libel claims of the plaintiff – the subject of the photograph – who claimed that she was not a nurse, and, moreover, she never drank Duffy’s Malt Whiskey (nor any spirit), and she never, under any circumstances, would recommend its use.

The opinion of the Seventh Circuit to some extent, but more so Justice Holmes’s opinion, give insight into the growing temperance movement as the country grew closer to national prohibition.  For a much better account of Duffy’s outlandish advertising and how it contributed to the eventual success of the temperance movement, be sure to read Whiskey Women: The Untold Story of How Women Saved Bourbon, Scotch, and Irish Whiskey, by Fred Minnick, at pp. 57-58.

In the meantime, Duffy’s revitalized company was so strong that he was able to withstand and prosper during the Panic of 1893, and by 1900 he had formed the New York and Kentucky Company which acquired the George T. Stagg Company and the Kentucky River Distillery (previously, and better, known as The Carlisle Distillery) in Frankfort, which together are now the Buffalo Trace Distillery.  Col. E. H. Taylor, Jr., in particular, was disgusted that someone who he considered to be a disreputable rectifier had come to own Taylor’s former prized distilleries.

While owning these historical Kentucky sites, Duffy continued to market his Duffy’s Malt Whiskey for its claimed medicinal benefits.  Through the early 1900’s, the challenge to Duffy’s false advertising was building.  Samuel Hopkins Adams wrote an exposé of so-called “patent medicines” (elixirs sold as medical cures, but without any actual curative benefit) in 1905 entitled “The Great American Fraud” in Collier’s Weekly.

While Adams stated that it was “impossible” for him to name all of the patent-medicine frauds, and that he “can touch on only a few,” Duffy’s Malt Whiskey was egregious enough that he identified it by name:  “Duffy’s Malt Whiskey is a fraud, for it pretends to be a medicine and to cure all kinds of lung and throat diseases.”  Adams acknowledged that “[f]rom its very name one would naturally absolve Duffy’s Malt Whiskey from fraudulent pretense” because, at the time, the word “malt” conveyed medicinal qualities, so he was sure to reference a ruling by the Supreme Court of New York that Duffy’s Malt Whiskey was not a medicine.

The New York court had been considering whether or not Duffy’s was a medicine or a whiskey due to certain tax issues, and in Cullinan, as State Commissioner of Excise of the State of New York v. Paxon (1905), it heard expert testimony on that issue.  Experts noted the alcoholic content of Duffy’s and testified that a “search was made for added medicinal ingredients with negative results.”  Instead, they concluded that Duffy’s “is simply sweetened whiskey.”  Accordingly, the court declared that Duffy’s Malt Whiskey was a liquor, not a medicine.

Adams also refuted some of Duffy’s ringing endorsements, such as the “Clergymen Endorse” advertisement above.  Adams uncovered that one of the clergy pictured simply ran a “Get-Married Quick Matrimonial Bureau” and was paid $10.00 for his picture; another was a “Deputy Internal Revenue Collector” and racehorse owner, whose actual photograph was not used in the advertisement; and the third clergy was forced to resign by his congregation after they learned of his endorsement.  Adams also discovered that Duffy’s employees tricked some physicians into providing testimonials, for example by misrepresenting that they would not be used in advertising.  Ultimately, “The Great American Fraud” helped lead to the passage of the Pure Food and Drug Act in 1906.  This movement, along with the temperance movement and growing sophistication in medical knowledge, spelled eventual doom for Duffy’s.

Today’s claims of false advertising are tame by comparison.  Some people believe that Diageo’s product placement of Bulleit Bourbon on Deadwood (the HBO western series set in the 1870’s) constitutes false advertising because Bulleit was not introduced as a brand until 1999.

Others contend that bourbon brands that don’t distill or age their own bourbon engage in false advertising when they hide the true nature of their business and tout their Master Distillers (who don’t actually oversee any distillation).  Michter’s is often on the receiving end of this criticism.

However these recent criticisms are viewed, at least we’re not being sold snake oil, and at least mendacious rectifiers adding things like tobacco juice, pepper sauce or potentially harmful adulterations to simulate age, color and flavor in our bourbon is a thing of the past (remember, some rectifiers had scruples and were simply blenders, or only added safe products, like brown sugar, prune juice, honey, tea and wintergreen).  So Cheers to Walter B. Duffy for his outrageously false advertising, which helped set the wheels in motion for bourbon we can enjoy today.