• Kentucky's Archaic Liquor Licensing Distinctions Face Modernization
  • March 26, 2013 | Author: Mark Hervey
  • Law Firm: Dressman Benzinger LaVelle psc - Crestview Hills Office
  • This past August, in a case titled Maxwell's Pic-Pac, Inc, v. Dehner, a federal judge held that certain distinctions governing the sale and distribution of liquor in Kentucky were unconstitutional under the 14th Amendment of the United States Constitution - a potentially groundbreaking decision that could impact wine and liquor sales in the Commonwealth forever.

    Prior to this decision, KRS 243.230(5) and its accompanying regulation barred grocery stores and convenience store operators from obtaining a license to sell package liquor and wine.  Meanwhile, that same law allowed drugstores and liquor stores to obtain such a license.  The Plaintiffs in Maxwell's Pic-Pac challenged this distinction, arguing that the different treatment of grocery stores in Kentucky violated the equal protection provisions of the United States and Kentucky Constitutions.

    According to the Court, Kentucky's licensing distinctions were subject to a standard review known as "rational review" or the "rational basis test."  Under this test, a court must presume a statute's validity and must uphold a legislative classification as long as it bears a rational relation to some legitimate end.  Thus, a statute will be upheld under the rational basis test if there is any reasonably conceivable state of facts that could provide a rational basis for the classification.  Moreover, the challenging party bears the burden to negate every conceivable basis which might support the legislative classification.  Obviously, therefore, this standard is intended to be highly deferential to legislative prerogatives.

    The States suggested a few of the most likely government interests which would support its separate classification of grocers and gas stations from all other retailers for the purposes of liquor and wine licensing:

    • Stricter regulation of more potent alcoholic beverages;

    • Curbing potential abuse by limiting access to the products;

    • Keeping pricing among merchants competitive, but not so low as to promote excessive consumption;

    • Limiting the potential for underage access;

    • Limiting alcohol sales to premises where personal observation of the purchase occures; and

    • Balancing the availability of a controversial product between those who want to purchase it and those who seek to ban it.

    The Court recognized that the State may legitimately seek to limit accessibility to intoxicating spirits by the general public in order to avoid abuse.  Such interests, according to the Court, "justify tighter controls on the sale of these products, such as capping the number of retail package licenses for wine and liquor, but not beer. However, it does not explain why a grocery-selling drugstore like Walgreens may sell wine and liquor, but a pharmaceutical-selling grocery store like Kroger cannot.  This distinction would seem to have no relationship whatsoever to the control of higher-proof alcohol sales or the abuse of these products."

    The Court also addressed the argument that the licensing distinction helped to limit the accessibility of liquor and wine to underage persons.  However, the Court found that there was no rational basis for this distinction; because minors have just as much access to drugstores as they do grocery stores.

    Finally, the Court addressed what it called "the State's vaguest and yet, perhaps, most persuasive rationale": that the distinction represents a legitimate compromise, balancing the availability of a controversial product between the interests of those who want to purchase it and those who seek its outright prohibition.  Under this rationale, the State argued that "grocery stores are community gathering centers frequented by all citizens, including those diametrically opposed on the subject of alcohol beverage sales."

    The Court conceded that the Kentucky General Assembly was well within its power to prohibit liquor sales in stores that might serve as a gathering point in the community.  However, according to the Court, the State could not arbitrarily limit this prohibition to only certain community gathering centers, while allowing liquor sales in others.  Thus, even this justification for the distinction was unpersuasive.

    In closing, the Court found that the Commonwealth's 74-year old liquor-licensing distinction had become more arbitrary over time; as license-holding drugstores have become more like the grocery stores that are excluded from wine and liquor sales.  Thus, the District Court declared KRS 243.230(5) and its accompanying regulation, 804 KAR 4:270, in violation of the Equal Protection Clause of the United States Constitution - to the extent those laws and regulations prohibit grocery stores, gas stations, and others from obtaining a license to sell package liquor and wine.  However, the enforcement of the Court's Order has been Stayed, pending the State's appeal to the Six Circuit Court of Appeals in Cincinnati.

    Therefore, despite the Court's groundbreaking ruling, the status-quo remains in effect for the foreseeable future.  Nevertheless, a sea change is on the horizon for Kentucky liquor licensing.  The question is, how will the General Assembly respond?