Does Tennessee's grandfather clause that exempts one specific distillery from the Lincoln County Process violate the Constitution?

Subject

Opinion No. 15-23, Tennessee Whiskey, March 18, 2015

Plain-English summary

In 2013 Tennessee enacted Tenn. Code Ann. § 57-2-106, which set seven requirements for any product sold or labeled "Tennessee Whiskey." Six of those tracked the federal standards for bourbon: 51% corn, charred new oak barrels, proof limits, and so on. The seventh, unique to Tennessee, required that the whiskey be filtered through maple charcoal before aging. That process, known as the Lincoln County Process, is what distinguishes Tennessee Whiskey from bourbon in the state's branding.

Subsection (c) of the statute carved out an exception for one distillery. By describing a "county that authorized the manufacturing process by referendum after January 1, 1979, and prior to January 1, 1980" and "first licensed by the state alcoholic beverage commission after January 1, 2000, and before January 1, 2001," it pinpointed Prichard's Distillery and exempted it alone from the Lincoln County Process. The AG concluded the carve-out was unconstitutional. A grandfather clause that protects all pre-existing businesses can be valid (as in Fleet Transport). But this one applied to a single business, used arbitrary date windows to do it, and could not be justified on the ground that the exemption was the very feature that defined the category. That made it impermissible class legislation under article XI, section 8, of the Tennessee Constitution, and a federal equal protection violation.

Currency note

This opinion was issued in 2015. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Background and statutory framework

Tenn. Code Ann. § 57-2-106(a) required, for any product marketed as "Tennessee Whiskey" or related labels, that the liquor be (1) made in Tennessee, (2) at least 51% corn, (3) distilled to no more than 160 proof, (4) aged in new charred oak barrels in Tennessee, (5) filtered through maple charcoal before aging, (6) barreled at no more than 125 proof, and (7) bottled at not less than 80 proof. Most mirrored the federal bourbon standards in 27 C.F.R. § 5.22(b); the maple-charcoal step (the Lincoln County Process) was the distinguishing Tennessee feature.

Subsection (c) provided that subdivision (a)(5) (the Lincoln County Process) "shall not apply to intoxicating liquor manufactured at a distillery located in a county that authorized the manufacturing process by referendum after January 1, 1979, and prior to January 1, 1980; provided, however, that any such distillery was first licensed by the state alcoholic beverage commission after January 1, 2000, and before January 1, 2001." Legislative history made clear this language was drafted to exempt Prichard's Distillery, which had been selling a product labeled Tennessee Whiskey without the maple-charcoal step.

Under Tennessee equal-protection doctrine and article XI, § 8, of the Tennessee Constitution, a classification that does not implicate a fundamental right or a suspect class is reviewed for rational basis (Massachusetts Bd. of Retirement v. Murgia, 427 U.S. 307 (1976); Brown v. Campbell Cnty. Bd. of Educ., 915 S.W.2d 407 (Tenn. 1995)). Grandfather clauses can satisfy rational basis when they protect a broad class of existing businesses from new operating requirements (Fleet Transport Co., Inc. v. Tennessee Pub. Serv. Comm'n, 545 S.W.2d 4 (Tenn. 1976)). The defect here was that the clause functionally protected one business, not a defined class of pre-existing operators.

Common questions

Did this opinion actually invalidate the law?
No. AG opinions are advisory. A court would have to decide whether to strike down § 57-2-106(c), and only the legislature can amend or repeal it.

Why is "Tennessee Whiskey" so closely defined in the first place?
Branding. The 2013 statute was driven by major Tennessee distilleries (most notably Jack Daniel's) seeking to lock down what could legally be called "Tennessee Whiskey" in marketing. The Lincoln County Process is the historical hallmark.

What is the difference between class legislation and equal protection?
In federal doctrine, equal protection (Fourteenth Amendment) prevents arbitrary classifications. Article XI, § 8, of the Tennessee Constitution does similar work but is sometimes framed as a ban on "special" or "class" legislation aimed at a specific person or business. The AG concluded both were violated.

What was special about the Fleet Transport case?
Fleet Transport upheld a grandfather clause that gave existing commercial petroleum haulers a pass on a new certificate-of-necessity rule. The Tennessee Supreme Court reasoned the clause covered "all commercial haulers engaged in operation before the effective date." The carve-out in § 57-2-106(c) was different: it covered one distillery, not the broader class of distilleries that had already been selling Tennessee Whiskey without the Lincoln County Process.

Citations

Teague v. Campbell Cnty., 920 S.W.2d 219 (Tenn. Ct. App. 1995) (defining grandfather clause); Fleet Transport Co. v. Tennessee Pub. Serv. Comm'n, 545 S.W.2d 4 (Tenn. 1976) (upholding broad grandfather clause); Brown v. Campbell Cnty. Bd. of Educ., 915 S.W.2d 407 (Tenn. 1995); Mass. Bd. of Retirement v. Murgia, 427 U.S. 307 (1976).

Source

• Landing page: https://www.tn.gov/attorneygeneral/opinions.html
• Original PDF: https://www.tn.gov/content/dam/tn/attorneygeneral/documents/ops/2015/op15-23.pdf

Original opinion text

March 18, 2015
Opinion No. 15-23

Tennessee Whiskey

Question

Does Tenn. Code Ann. § 57-2-106(c) violate any state or federal law, rule, or regulation or any provision of the Tennessee Constitution or the United States Constitution?

Opinion

Tennessee Code Annotated section 57-2-106(c) constitutes impermissible discrimination in violation of the equal protection provisions of the Fourteenth Amendment to the United States Constitution, as well as impermissible class legislation in violation of article XI, section 8, of the Tennessee Constitution.

ANALYSIS

In 2013, the General Assembly enacted Tenn. Code Ann. § 57-2-106 which prohibits an intoxicating liquor from being advertised, described, labeled, named, sold or referred to for marketing or sales purposes as "Tennessee Whiskey," "Tennessee Whisky," "Tennessee Sour Mash Whiskey," or "Tennessee Sour Mash Whisky" (collectively hereinafter "Tennessee Whiskey") unless the intoxicating liquor is:

(1) manufactured in Tennessee;
(2) made of a grain mixture that is at least fifty-one percent (51%) corn;
(3) distilled to no more than one hundred sixty (160) proof or eighty percent (80%) alcohol by volume;
(4) aged in new, charred oak barrels in Tennessee;
(5) filtered through maple charcoal prior to aging;
(6) placed in the barrel at no more than one hundred twenty-five (125) proof or sixty-two and one half percent (62.5%) alcohol by volume; and
(7) bottled at not less than eighty (80) proof or forty percent (40%) alcohol by volume.

Tenn. Code Ann. § 57-2-106(a).

Most of these requirements are based on the standards of identity for bourbon created by the Alcohol and Tobacco Tax and Trade Bureau. See 27 C.F.R. § 5.22(b). The fifth requirement, that the intoxicating liquor be filtered through maple charcoal prior to aging, is unique to Tenn. Code Ann. § 57-2-106. This requirement is commonly referred to as the "Lincoln County Process." This "charcoal mellowing" process occurs when the whiskey is filtered through charcoal before going into the casks for aging. This process is designed to distinguish Tennessee Whiskey from bourbon.

One distillery is exempt from using the Lincoln County Process by virtue of Tenn. Code Ann. § 57-2-106(c), which provides:

Subdivision (a)(5) shall not apply to intoxicating liquor manufactured at a distillery located in a county that authorized the manufacturing process by referendum after January 1, 1979, and prior to January 1, 1980; provided, however, that any such distillery was first licensed by the state alcoholic beverage commission after January 1, 2000, and before January 1, 2001.

Legislative history reveals that Tenn. Code Ann. § 57-2-106(c) was enacted to allow Prichard's Distillery to continue using the term "Tennessee Whiskey" even though it does not use the Lincoln County Process.

Subsection (c) of Tenn. Code Ann. § 57-2-106 is essentially a "grandfather" provision. A "grandfather clause" is defined as "an exception to a restriction that allows all those already doing something to continue to do it, even if they would be stopped by the new restriction." Teague v. Campbell Cnty., 920 S.W.2d 219, 221 (Tenn. Ct. App. 1995). This type of clause implicates the equal protection provisions of the Fourteenth Amendment to the United States Constitution and article XI, section 8, of the Tennessee Constitution, which prevents the General Assembly from enacting "special legislation" for the benefit of specific individuals or localities in an arbitrary and capricious manner. Because subsection (c) does not impermissibly interfere with a fundamental right or operate to the peculiar disadvantage of a suspect class, there need only be a rational basis for the provision in order to sustain its validity under both the federal and state constitutions. See Massachusetts Bd. of Retirement v. Murgia, 427 U.S. 307, 312 (1976); Brown v. Campbell Cnty. Bd. of Educ., 915 S.W.2d 407, 413-14 (Tenn. 1995).

A grandfather clause exempting existing businesses from newly imposed operating restrictions is constitutionally permissible in certain circumstances. In Fleet Transport Co., Inc. v. Tennessee Pub. Serv. Comm'n, 545 S.W.2d 4 (Tenn. 1976), the Tennessee Supreme Court found that a statute providing grandfather status to certain commercial haulers of petroleum products and exempting them from the requirement of proving public convenience and necessity before the Public Service Commission did not violate constitutional provisions against unreasonable class legislation. The Court reasoned that the grandfather clause was not limited in its application to isolated carriers or individuals, but that it pertained to all commercial haulers engaged in operation before the effective date of the law requiring certificates of convenience and necessity. Thus, it recognized and protected those legitimately operating their businesses before the law was changed. Id. at 7.

The grandfather clause in Tenn. Code Ann. § 57-2-106(c) is unlike the one in Fleet Transport since it applies to only one business. No other distillery that existed prior to the passage of Tenn. Code Ann. § 57-2-106 can take advantage of the exemption. While legislative history indicates that Prichard's Distillery may be the only existing distillery that sold a product labeled "Tennessee Whiskey" without using the Lincoln County Process when Tenn. Code Ann. § 57-2-106 was enacted, subsection (c) does not create "grandfather rights" for distilleries on this basis. In fact, subsection (c) does not even address distilleries that were already selling products labeled "Tennessee Whiskey." Subsection (c) merely employs specific dates in order to exempt one distillery from the Lincoln County Process requirement. There is no discernable reason to distinguish one distillery from other existing distilleries on this basis, especially since the exemption at issue is purportedly the one that distinguishes Tennessee Whiskey from bourbon. Thus, Tenn. Code Ann. § 57-2-106(c) constitutes impermissible discrimination in violation of the equal protection provisions of the Fourteenth Amendment to the United States Constitution, as well as impermissible class legislation in violation of article XI, section 8, of the Tennessee Constitution.

HERBERT H. SLATERY III
Attorney General and Reporter

ANDRÉE SOPHIA BLUMSTEIN
Solicitor General

LAURA T. KIDWELL
Senior Counsel

Requested by:
The Honorable Bill Sanderson
State Representative
204 War Memorial Building
Nashville, Tennessee 37243