April 2, 2014 – Diageo’s lawsuit to overturn a 1937 Tennessee state law limiting where the state’s distillers can mature their spirits is headed for a Nashville federal court, but the drinks giant hopes to avoid a trial if an agreement can be reached with state regulators. The lawsuit was filed last Friday (March 28) against the Tennessee Alcoholic Beverage Commission and executive director Keith Bell in response to a TABC inquiry about Diageo’s practice of moving barrels from the George Dickel Distillery in Tullahoma to warehouses in Kentucky.
The original 1937 law was part of Tennessee’s repeal of Prohibition, and required distillers to mature all of their spirits in the same county as the distillery. It was amended as part of last year’s “Tennessee Whiskey” law to allow distillers to use warehouses in adjacent counties. However, Diageo’s lawsuit claims the requirement violates the US Constitution’s protections for interstate commerce. Zack Nobinger of Taylor Strategy, Diageo’s external public relations agency for the Dickel whiskies, said in an email that federal court was the logical place to challenge the state law on constitutional grounds.
“According to the 1937 Storage Statute, manufacturers of all types of alcoholic beverages licensed in Tennessee are prohibited from storing the distilled spirits they manufacture in Tennessee anywhere other than the Tennessee county in which they were manufactured or an adjacent county. As a result, Diageo has filed a lawsuit against the Tennessee Alcoholic Beverage Commission for depriving manufacturers of their constitutional rights to engage in interstate commerce because it does not allow Diageo to store distilled spirits anywhere other than the Tennessee county, or adjacent county, where it was produced. However, based on discussions between both parties late Friday we are hopeful that we can come to a mutually agreeable solution on this matter in short order.”
Keith Bell of the TABC confirmed in a Monday email that this is the first time the agency has raised a question about a distiller’s use of warehouses outside the state, while making it clear that the TABC has not opened a formal investigation or enforcement action. According to Diageo’s court filing, the company does take some spirit produced at the Dickel distillery to its warehouses at the Stitzel-Weller Distillery in Louisville, but none of that spirit is used for Dickel-branded whiskies. Nobinger confirmed that the Dickel distillery produces whiskey used in other Diageo products and for sale to third-party bottlers, and some of that whiskey is being matured in Kentucky.
The state has not yet filed its response to Diageo’s lawsuit.