Any discussion of bourbon justice would be incomplete without considering the failed experiment of National Prohibition. Whiskey was seen by the temperance movement as a societal evil, and whiskey is always part of the romanticization of the organized crime that thrived during Prohibition. Despite those distractions, bourbon continued to develop substantive law during Prohibition, including the underpinnings of what Americans see as basic law and order today. The primary stories of Prohibition have already been told; the radical Carrie Nation, the gangster Al Capone, and perhaps most interestingly, the doomed genius “pharmacist, lawyer, [and] bootlegger” George Remus.1 Bourbon lawsuits tell a story with finer points. The history of American lawsuits follows the building disdain for liquor (including among judges with agendas), reveals how National Prohibition affected interstate commerce, and shows how current-day regulations are influenced by Prohibition period sentiment.
While popular belief may think of Prohibition as the period between January 1920 and December 1933, “local option” laws prohibited the sale of liquor decades earlier. Two of the most interesting bourbon lawsuits that tell the story of these trends involve judicial hostility toward bourbon distillers and the development of laws designed to ensure that defendants receive fair judges and fair trials. As early as 1908, the Wathen family was faced with an unfair judge when family members were indicted for retailing whiskey in quantities less than five gallons, which at the time was the cutoff between wholesaling and retailing.2
Richard N. Wathen appears to have been indicted because a group of neighbors near his distillery in Lebanon, Kentucky, asked to buy directly from the distillery.3 The neighbors were told that they could not be sold less than a barrel, so the neighbors formed a group, collected money among themselves, deposited the full amount for the barrel into a local bank, and brought a bank check to the distillery.4 When the barrel was rolled out of the warehouse, a distillery employee—at the request of the neighbors and as an accommodation—removed the bung and filled a variety of different-sized containers for the neighbors.5 One of the neighbors appears to have been a snitch because after he received his gallon, he became the complaining witness who supported the indictment.
Things got worse for Wathen from here. The judge set to hear the case was Livingston Thurman. Judge Thurman and the Wathen family were well acquainted already, dating back to at least 1907, when the city of Lebanon held a local option vote. Judge Thurman supported the local option efforts, and he reportedly “uttered violent and bitter language against persons engaged in the business of selling whisky,” promising to use the courts to “see that the town was kept dry.”6 The Wathen family, of course, opposed the local option law, so on the eve of the vote, Judge Thurman made false charges against Richard Wathen and other opponents of local option and had them arrested on the false charge of conspiracy to bribe voters as part of a scheme “for the purpose of intimidating and deterring the opponents of local option.”7
Judge Thurman refused to step aside for the case against the Wathens, perhaps consistent with his previous statement that in any local option case coming before him he would favor the commonwealth: “I will solve all doubts in such cases in favor of the Commonwealth, and if parties go unwhipped of justice on the charge of violating the local option law in my district, it will be by the verdicts of the juries, and if I were on the jury I would find a way to convict them.”8 The judge was also alleged to have stacked juries with local option supporters,9 so the outlook for the Wathen family was bleak indeed.
Fortunately, Wathen, Mueller & Co. v. Commonwealth helped develop Kentucky law with regard to the removal of biased judges. The court recognized that partial judges “may knife a party that he is trying without it appearing from the record, or without his being able to ascertain the fact,” so with the support of affidavits provided by the Wathens, Judge Thurman was forced out of their case.10
Rush v. Denhardt is another case in which a biased judge helped define the parameters for when judges should be disqualified.11 Warren County, Kentucky, was not dry at the time, but county judge Henry H. Denhardt had plans to make it dry. He ran a campaign and was elected promising to rid the county of liquor: “If I am elected county judge—and if I get your help and that of the rest of the temperance Democrats, I will surely win the race—there will be no saloons in Warren county, or in or out of Bowling Green. The people who want whisky will have to ship it if they use it in this county during my term of office. And I will revoke every license now in existence. It is easy for you to see why the whisky ring and their clackers are against me. I courted their opposition and that of every other violator of the law. I have prosecuted them whenever I have been able to secure evidence, and with the power given to the county judge I can put open saloons and the blind-tiger and every other whisky joint out of business as long as I can have the backing of good people.”12
True to his promise, Judge Denhardt tried to revoke the license of several retail sellers of whiskey.13 When Judge Denhardt refused to recuse himself and the Warren circuit court judge refused to force Judge Denhardt off the cases, the Kentucky Court of Appeals ruled that “there can be no doubt that the affidavit presented good and sufficient reasons why [Judge Denhardt] should not preside at the trial of these cases.”14
Other dry counties spelled trouble for distillers too, as overzealous prosecutors searched for ways to punish those in the bourbon trade. In Wathen v. Commonwealth, for example, Richard N. Wathen found himself indicted again, this time for allegedly selling bourbon in Knox County, Kentucky, which was dry.15 Interestingly, the court noted that while Knox County was dry under its local option law, Lebanon was a “wet” territory, meaning that since the 1909 Judge Thurman case, the Wathens had prevailed against the temperance forces in Lebanon.16
Also interesting, this lawsuit contains a historical explanation of how bourbon was sold in the early 1900s. Specifically, Wathen employed a traveling salesman who would bring advertising materials to dry counties, blank order forms, return envelopes, and—importantly—sample whiskey.17 The employee made these sales efforts in Knox County and found four buyers.18 The customers filled out the blank order forms for two gallons of whiskey, signed the form, enclosed payment, and sent the orders by mail to Wathen in Lebanon, Kentucky.19 The legal issue was whether the sale was made in Knox County (where it was illegal) or in Marion County (where it was perfectly legal).20 In an important decision for commercial transactions, the court held that the sale took place in Marion County because that was where the offer was accepted and where the whiskey was delivered to a common carrier.21 Predictably consistent rules for commercial transactions, and consistent application of those rules, are necessary for modern, thriving markets, and a bourbon lawsuit helped establish those rules.
However helpful temperance era bourbon lawsuits might have been to establishing rules for disqualification of judges and for commercial transactions, support for National Prohibition continued to grow, as war efforts helped the government ease into Prohibition-style regulation. The Food and Fuel Control (Lever) Act of 1917 restricted the use of grains in distilling and brewing, and the following year Congress passed the War-Time Prohibition Act, which banned the use of certain grains for brewing purposes.22
It was less of a stretch, then, for Congress to approve the Eighteenth Amendment in 1917 to ban the “manufacture, sale or transportation of intoxicating liquors” throughout the United States and for it to be ratified by three-fourths of the states by January 1919.23 National Prohibition then went into effect on January 17, 1920. Enforcement of the Eighteenth Amendment was accomplished through the Volstead Act, which provided that no person shall “manufacturer, sell, barter, give away, transport, import, export, deliver, furnish, receive or possess any intoxicating liquors,” except as allowed under the act.24
Wine for sacramental uses was exempt, and—importantly—consumption of liquor was still legal for those who had wisely stocked up before January 17, 1920, and for those who received a doctor’s prescription for whiskey. In fact, every ten days a patient could be prescribed a pint of “medicinal” whiskey, and stories abound about the dramatic increase in “illness” during this period. Six (of ten authorized) medicinal licenses were issued during Prohibition so the demand for medicinal whiskey could be sustained. Licensees included the A. Ph. Stitzel Distillery, the American Medicinal Spirits Company (via Old Overholt), Brown-Forman, Frankfort Distilling Company (acquired by the Paul Jones Company in 1922), Glenmore Distillery, and Schenley Distillers.
While at least these well-connected and lucky six companies could survive, temperance zealots still interfered with the thin sliver of lawful business they had remaining. One lawsuit tested the breadth of the Volstead Act when the sheriff of Dade County, Georgia, seized and tried to destroy a railcar shipment of bourbon originating from the Old Crow Distillery and destined for Los Angeles as “medicinal whisky.”25
The Brunswig Drug Company lawfully purchased the bourbon from the W. A. Gaines & Company stocks, with all appropriate permits under the Volstead Act, and the bourbon was delivered to the railroad company in Kentucky.26 While the train happened to be passing through Dade County on its journey to Los Angeles, Sheriff L. M. Holmes stopped the train and confiscated the bourbon, and with the cooperation of the local authorities, he obtained a court order “directing that said whisky be destroyed and poured out by the sheriff of said county of Dade.”27 An emergency lawsuit to save the bourbon challenged the police powers of the state of Georgia and tested the supremacy of the Volstead Act versus Georgia state law.
As noted, the Volstead Act specifically permitted the sale of liquor in some circumstances: “Liquor for nonbeverage purposes and wine for sacramental purposes may be manufactured, purchased, sold, bartered, transported, imported, exported, delivered, furnished and possessed, but only as herein provided, and the commissioner may, upon application, issue permits therefor.”28 On the other hand, a Georgia statute allowed the confiscation of “all vehicles and conveyances of every kind and description which are used on any of the public roads or private ways of this state . . . in conveying any liquors or beverages, the sale or possession of which is prohibited by law.”29 This showdown between state and federal authority landed squarely in support of interstate commerce and the continued supply of medicinal whisky; regardless of state prohibition laws, “a shipment of whisky may lawfully pass” in interstate commerce.30
Prohibition—along with the Wathen family again—also helped develop the law of illegal searches and seizures, which most Americans now learn about from television police dramas. In yet another Wathen v. Commonwealth case, Arthur Wathen challenged his conviction of unlawful possession of a still based upon a warrantless search.31 The Court of Appeals of Kentucky described the scene: “The evidence shows that two federal prohibition officers were passing through the farm of appellant when they came upon an old abandoned residence, near a stream, and about 300 yards from the residence occupied by [Wathen], near which old residence they noticed a small amount of a substance resembling still slop flowing from under the floor. The house was locked and the windows covered so that they could not see into the building. Thereupon they broke into the house through a window and discovered therein parts of a moonshine still, some barrels of mash, and other accessories commonly employed in the manufacture of whisky.”32 In a breakthrough for rights of criminal defendants and in line with long-standing American jurisprudence, the court ruled that the federal prohibition officers had no right to break into Wathen’s house without a search warrant, so none of the evidence could be used against Wathen at his trial.33
When the repeal of National Prohibition finally arrived, on December 5, 1933, with the Twenty-First Amendment, a new era of regulation was introduced, often with remnants of Prohibition.34 Age Int’l, Inc. v. Miller describes some of the remnants of Prohibition surviving past Repeal.35 In particular, it describes the common “three-tier” regulatory structure in which manufacturers distill (or brew) and package alcoholic beverages, then ship to wholesalers, which then distribute to retail dealers that can then sell directly to consumers.36 These three tiers are strictly segregated, and in most cases a single entity cannot fill more than one role.37
The federal government has also reminded spirits producers that it will keep the reins tight whenever a national interest supports regulation. Just as temperance-inspired regulations were instituted during World War I, for example, World War II brought with it new regulations that prohibited the production of bourbon and mandated the production of alcohol for war purposes. In March 1942 the War Production Board first placed distilleries on a time allocation basis to operate part-time to produce industry-grade alcohol for war purposes, and by October “all distilleries were operated exclusively for the production of alcohol for war purposes.”38 Because this governmental appropriation of private businesses reduced the supply of beverage alcohol, the Office of Price Administration (OPA) fixed the prices of whiskey.
The Emergency Price Control Act of 1942, in turn, brought down a major whiskey merchant of the time.39 Robert Gould challenged the constitutionality of the act and its application in Kentucky, but he lost in spectacular fashion.40 Adding salt to his wounds, Gould experienced another aspect of tight state regulation, when Kentucky denied him a renewal license because of his federal conviction. In Alcoholic Beverage Control Board v. Pebbleford Distillers, Inc., the court affirmed the Kentucky Alcoholic Beverage Control Board’s (ABC) decision to reject a license for a distillery half-owned by Gould because of that earlier conviction.41
Regulation was serious, and even today courts still support tight regulation, sometimes based on antiquated arguments. In Kentucky, for example, the United States Court of Appeals for the Sixth Circuit upheld a post–Prohibition era statute that bans grocers and gas stations from selling liquor. In Maxwell’s Pic-Pac, Inc. v. Dehner the court reversed the local federal district court’s decision that had invalidated the statute.42
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: a liquor store chain named Liquor Outlet d/b/a the Party Source.43 The named defendant, Tony Dehner, was the ABC commissioner of Kentucky, and he represented the interests of the commonwealth. Just as ministers and bootleggers enjoyed a conspiracy of convenience in Kentucky in the 1930s (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.
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 and showed how current-day liquor control laws arose out of the remnants of Prohibition. In the 1800s, in Kentucky and elsewhere, “anybody had the right to sell liquors anywhere, to anybody, and at any time.”44 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 “the free market for alcohol” had led to political corruption, prostitution, gambling, crime, poverty, and family destruction.45 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.”46 It was an unmitigated disaster.
Along with the repeal of Prohibition, the Twenty-First Amendment allowed states to regulate the sale of alcoholic beverages. Initially, Kentucky’s regulatory framework did not restrict the types of premises that could sell packaged 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.”47 So, grocers and gas stations have been prohibited from selling wine and liquor for over seventy-five 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 with the small grocer, and in August 2012 it ruled in favor of Pic-Pac, although it suspended its ruling pending the inevitable appeal.
And of course Kentucky and Liquor Outlet did appeal. The Sixth Circuit Court of Appeals concluded that it is reasonable for Kentucky to choose to prohibit the sale of liquor in certain places, such as those where “the community must come together.”48 Sounding like the old 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.49
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.50 Still, overly broad alcohol control laws have been struck down previously in Kentucky and in other states. In Commonwealth of Ky. ABC Bd. v. Burke, for example, the court invalidated a provision of the Alcohol Beverage Control Act that prohibited women from being bartenders and from drinking at a bar.51 The Sixth Circuit failed to mention 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, so this law is only applicable to small or independent grocers like Pic-Pac. In addition to those small stores, temperance era regulation still has a foothold in restricting unlicensed sales of spirits. While selling alcoholic beverages requires a license under state and federal law, that restriction has not dampened enthusiasm for buying rare bourbon bottles for the sole purpose of reselling for a profit (flipping) or simply selling bottles to friends or fellow fans for consumption. Secondary market sales are alive and well in the bourbon world, despite noteworthy roadblocks put up by online companies eBay and Facebook, both of which have removed sites dedicated to reselling and trading spirits.
The recent dramatic growth in bourbon’s secondary market is probably due to a combination of short supply of truly premium bottles, an expansion of “limited edition” and “commemorative” bottles, a perception that quality within certain brands has declined, removal of age statements on many brands and discontinuation of other brands, and—perhaps most important—the exponential rise in popularity of bourbon and other American whiskey. These factors have led enthusiasts to hoard hundreds and sometimes thousands of bottles, and it has created incentives for hobbyist collectors who never plan on drinking the contents of bottles to amass vast inventories for appreciation, trading, and profiteering. Within hours after a new release of Pappy Van Winkle or Willett Family Estate, bottles appear for sale online on Facebook, Craigslist, dedicated sales sites, and countless private sites and forums.
Some retailers (including distillery gift shops) have reacted to the secondary market by raising prices. W. L. Weller 12 Year bourbon, which normally sold for under $30 in past years, is reportedly
selling for over $100 at retail in New York City. A retail store in Lawrenceburg, Kentucky, not far from Four Roses and Wild Turkey, was routinely adding $50 to standard brands that have become short in supply. The Willett Distillery gift shop has tested the market with bottles prices up to $750. And these price increases pale in comparison to some secondary market sales.
Being able to increase retail price when demand outstrips supply seems to be quintessentially American and honors the free market system. Similarly, an active secondary market can be more proof of capitalism at work. Just as fans at sporting events detest scalpers because of high prices, “whiskey flippers” get a similarly bad name.
While secondary market sales occur everywhere that bourbon enthusiasts outweigh supply, consumers selling to other consumers are probably breaking the law, although some states—including Kentucky—permit the sale of vintage spirits to licensed retailers.52 Otherwise, Kentucky law requires a license to sell alcohol: “A person shall not do any act authorized by any kind of license with respect to the manufacture, storage, sale, purchase, transporting, or other traffic in alcoholic beverages unless the person holds or is an agent, servant, or employee of a person who holds the kind of license that authorizes the act.”53 Penalties in Kentucky increase for each offense from a Class B misdemeanor to a Class A misdemeanor to a Class D felony.54 The legality of secondary market sales may not be a concern where there is lax (or no) enforcement, but consumers should at the very least be concerned about counterfeit whiskey. In June 2017 the secondary market was rocked by reports—and an eventual admission—that an active secondary market seller refilled empty bottles of highly sought-after bourbon with unknown whiskey, doctored a new seal, and sold the phony bourbon for thousands of dollars. “Buyer beware” is a rule of necessity in dark markets.
More than just a “sale” is prohibited in many states. In Kentucky, for instance, the statutory definition provides that the word sale “means any transfer, exchange, or barter for consideration, and includes all sales made by any person, whether principal, proprietor, agent, servant, or employee, of any alcoholic beverage.”55 So, at least in Kentucky, trading bottles of bourbon could be just as illegal as selling it without a license. Merely buying on the secondary market, however, does not appear to be prohibited under the Kentucky statute because buying for personal use does not require a license in the first place.
Similarly, federal law requires a license to sell or transport distilled spirits, wine, and malt beverages whenever it would cross state lines:
Some online sellers, for example on Craigslist, seemingly suspect that their proposed sales are illegal, so they include disclaimers, such as:
While inventive, these disclaimers seem unlikely to protect an unlicensed seller from criminal charges. Similarly, some online secondary marketplaces include a long list of disclaimers and other terms of use that indicate that their customers have read and understand this provision of the U.S. Code and agree to by affirming, “I am responsible for obeying all applicable enforcement mechanisms, including, but not limited to federal, state, municipal, and tribal statutes, rules, regulations, ordinances, and judicial decisions, including compliance with all applicable licensing requirements.”57
These disclaimers and terms have not been tested in courts yet. Until law enforcement agencies clamp down on the secondary market sales or otherwise make it a point of emphasis for enforcement, non-licensed sales will continue. Examples of “crackdowns” on the secondary market are rare enough that they make mainstream news, as happened in Pennsylvania in January 2015, when reports of a successful sting operation on the campus of Duquesne University rippled around the bourbon community. The Pennsylvania State Police Bureau of Liquor Enforcement teamed up with Duquesne University in response to complaints, but they only confiscated the bottle and did not arrest the seller, who could have been charged with a misdemeanor under Pennsylvania law and fined $4 per ounce, or $103, for his bottle of Pappy Van Winkle.
Closer to the heart of Bourbon Country, major news outlets covered the theft of $100,000 worth of bourbon between 2006 and 2013. While it was first reported in 2013, when sixty-five cases of Pappy Van Winkle were stolen in a seemingly inside job, the case developed into a story of intrigue involving bourbon, guns, steroids, bad employees, and thirsty police. Ten people were eventually indicted on racketeering and other charges. The alleged middleman, Dustin “Dusty” Adkins, pleaded guilty in August 2015 to a reduced charge of criminal conspiracy to receive stolen property valued at less than $10,000, which is only a misdemeanor carrying up to one year in jail. One could speculate that these substantially reduced charges also involved an agreement to testify against the final two holdouts at the time, including the alleged ringleader, former twenty-six-year Buffalo Trace employee Gilbert “Toby” Curtsinger. As justice moved slowly, it took another two years before Curtsinger entered his own guilty plea. But in the meantime the case drew national media attention and became known as “Pappygate.”
Whatever the scale, it is risky to buy bourbon on the secondary market. Bourbon regulation has come full circle again; Colonel Taylor pushed for regulations to protect consumers from imitation whiskey in the late 1800s, and now again consumers are faced with imitation whiskey in the form of counterfeit bottles on the secondary market. The regulatory answer—this time Kentucky’s new vintage distilled spirits law—should help provide assurances to consumers that a bourbon is authentic and genuine while at the same time reducing the allure of the secondary market.