The Legal Consequences of the Angels' Share

As whiskey ages in a barrel, some of it evaporates into the atmosphere. The amount lost is called the "angels' share" of the whiskey. Some estimate that heaven gets about two to five percent of the whiskey each year. While the economic (and heartbreaking) toll of the angels' share is well-known by distillers and consumers, the legal consequences are a different story.  

Diageo Americas Supply, Inc. ages whiskey in Louisville, Kentucky at the former site of the famous Stitzel-Weller distillery. In 2012, a group of landowners who lived near Stitzel-Weller sued Diageo in federal court in Louisville based on Diageo's angels' share.

Specifically, the landowners claimed that the ethanol in the angels' share combined with condensation and caused a "black, sooty" fungus to grow on their property. This fungus is commonly referred to as "whiskey fungus" and can be seen, for example, on Heaven Hill Distillery's white rickhouses where barrels of whiskey are aged. While whiskey fungus might not be much of a concern on a distillery's property, the landowners complained that the fungus interfered with their enjoyment of their own property, forced them to take "extreme cleaning measures," and decreased the value of their property. They brought claims against Diageo for negligence, nuisance, and trespass.

At an early stage of the case, the court largely agreed with the landowners. The court first rejected Diageo's argument that the landowners' claims were "preempted" (or foreclosed) by the Clean Air Act because the Act had a "savings clause" that permitted the landowners' claims. (The court's decision on this point was later affirmed on appeal.)  

Turning to the landowners' claims, the court concluded that the negligence claim could not go forward, but the nuisance and trespass claims could. Regarding the nuisance claim, the court held that the landowners adequately alleged that the whiskey fungus interfered with their use and enjoyment of their property and decreased the value of their property, and that Diageo could correct its ethanol emissions at a reasonable expense. As for the trespass claim, the court held that the landowners adequately alleged that the ethanol entered and physically invaded their property.

After the court's decision, the parties jointly agreed to dismiss the case, so there was no final decision. Even so, there are a few things we can learn about the legal consequences of the angels' share.

For starters, there can be legal consequences. While there was no final decision in the case against Diageo, the court essentially held that the landowners had viable claims so long as they ultimately had evidence to support the claims. Distillers should thus be wary of similar claims, especially when they might not be able to use the Clean Air Act as a legal shield.

Perhaps there are ways distillers could limit their ethanol emissions and thus also limit their legal liability. For instance, in their case against Diageo, the landowners suggested Diageo could implement "ethanol control technology" used by brandy makers in California. While the jury may be out on the cost-effectiveness of such technology, distillers might benefit from exploring similar technologies in order to avoid the costs of future lawsuits and possible liability. 

Finally, I expect more of these sorts of claims against distillers in the future. The case against Diageo was not an isolated lawsuit; in the court's decision, the court referenced similar cases brought against Buffalo Trace and Brown-Forman in Kentucky state court. With the recent bourbon boom, more and more barrels are aging across the country and thus possibly subjecting additional landowners to the whiskey fungus.  

---

Merrick v. Diageo Americas Supply, Inc., 5 F. Supp. 3d 865 (W.D. Ky. 2014)

---

Follow me on Twitter (@casesofwhiskey) and feel free to contact me at casesofwhiskey@gmail.com with any questions, comments, or suggestions for the blog!