Appeals Court revives whiskey fungus lawsuit

• Lawsuit alleges nuisances caused by a fungus that feeds on ethanol vapors wafting from warehouses where barrels of whiskey are aged.
• After a lower court threw out the suit against two Kentucky bourbon makers, the state appeals court has overturned the dismissal.
• What comes next could be the legal process of discovery, where the lawyers for the plaintiffs and defendants take depositions and request documents.

A lawyer who on Friday won a big ruling that revives a battle in Louisville over whiskey fungus from aging bourbon said city officials could solve the problem, if they wanted to.

But William F. McMurry said the Louisville Metro Air Pollution Control District has lost "any fire in the belly" for helping residents and businesses in Shively and western Louisville deal with vapors from what has become a signature industry in Louisville, after taking action in 2012 against just one company, Diageo Americas Supply Inc.

District spokesman Tom Nord said district officials felt they had a "resolvable situation" with Diageo, declining to comment on other distillery operations.

Called "the angel's share," liquor vapors drifting from Louisville bourbon warehouses have long been romanticized by distilleries, but reviled by neighbors as a smelly, property-damaging nuisance. The ethanol vapors have been linked to excessive growth of a fungus known as baudoiniacompniacensis.

READ MORE: Bond endorsed for Brown-Forman distillery

On Friday, the Kentucky Court of Appeals gave new life to McMurry's law firm's battle against whiskey fungus and two big Kentucky liquor companies: Brown-Forman Corp. and Heaven Hill Distilleries.

The ruling overturned a lower court's dismissal of a lawsuit by a Shively-area business and residents, claiming the black splotchy fungus that's fed by ethanol vapors is a nuisance and damages their property.

"We are disappointed in the decision and are considering our options, including asking the Kentucky Supreme Court to review the Court of Appeals reversal of the Jefferson Circuit Court decision," the two companies said in a joint statement.

The lawsuit is one of several led by McMurry, challenging distillers in Kentucky, the Virgin Islands and Scotland. It was filed in 2012 but dismissed by Jefferson Circuit Court Judge Judith McDonald-Burkman, at the request of the two companies.

Splotching problems

The appeals court's three-judge panel of Denise Clayton, Sara Walter Combs and Janet L. Stumbo voted unanimously to overturn the lower court ruling. They found that McDonald-Burkman misinterpreted earlier case law in ruling that the federal Clean Air Act does not allow the plaintiffs to sue in state court over air quality nuisance issues.

Their decision sends the case back to the lower court for a resolution.

"This opinion is going to resonate with Brown-Forman and Heaven Hill in a way that no other has," McMurry said. "We are are so close now to finally getting discovery into how they conduct their business. No one has ever pulled back the curtain and looked ... especially at how they have been able to ignore this huge environmental issue all these years."

Among those who sued the companies is Bruce Merrick and his Dant Clayton Corp. Dant Clayton makes and installs stadium seating, and Merrick argues that the whiskey fungus destroys any inventory stored outdoors and has doubled the cost of replacing a commercial roof, according to the nine-page ruling.

"It's a nuisance, it is time consuming and it's expensive," Merrick said.

In a matter of months, aluminum seating samples that can cost $25,000 to make are so covered with black spots that they can't show them to prospective clients, Merrick said.

The splotching also eats away at buildings on the company's 23-acre property on Bernheim Lane, he added.

He said it seems to be getting worse, as the bourbon industry has boomed. Few issues are affecting as many people in Shively as the fungus, he added.

Dant Clayton was co-owned by Louisville Mayor Greg Fischer until 2011, who has been promoting bourbon as a signature industry for Louisville. In the days after the air district issued its violation against Diageo, Fischer questioned the science used by his own air district experts; he also recused himself from any involvement in the matter because of a business relationship he had with Merrick.

After being threatened by the district with $10,000-a-day fines, Diageo agreed in July 2013 to clear out its inventory in a Millers Lane warehouse, with some of the barrels to be moved to another facility about a half mile away, and others to be moved to Tennessee.

The aging process

But even though there are other warehouses in the area where bourbon is aged, district officials have not brought any other enforcement actions against them, including Brown-Forman and Heaven Hill, yet local residents and business owners are still being affected, McMurry asserted.

"This is something that could have, would have, and should have been done, but for politics, politics and more politics," McMurry said. "The district picked on the international corporation, but sidestepped the same actions against the good ol' boys of Kentucky, Brown-Forman and Heaven Hill," McMurry said.

Nord would only comment on the Diageo matter, writing in a statement that the district had responded to citizen complaints, and its Miller's Lane warehouse should be empty by early 2016.

"We expect that to resolve the matter," he wrote.

He declined to answer questions about the other companies, and invited The Courier-Journal to file open records requests to get more information. "I just have to let the statement speak for itself," he said.

The district in 2012 posted on its website detailed information about the problem of whiskey fungus. But that information has since been taken down.

It was removed, he said, "when the issue seemed to die down."

Heaven Hill and Brown-Forman have previously said they were sympathetic to the concerns about the fungus, but that the fungus was natural and also found in areas not related to the production of whiskey. They have also said that an aging process in warehouses with open windows contributes to the flavor of their products, and that they would vigorously defend themselves in court.

McMurry said the companies need to enclose the warehouses and prevent the vapors from getting into the community, or pay property owners for their damages. The suit does not seek a specific dollar amount for damages.

McMurry was lead counsel in a case in which the Roman Catholic Archdiocese of Louisville in 2003 paid $25.8 million to 243 victims of abuse by priests, brothers and teachers.

Reach reporter James Bruggers at (502) 582-4645 or on Twitter @jbruggers.

Baudoinia Compniacensis

A naturally occurring mold, it is normally slow growing and eclipsed by other faster producing molds.

When introduced to ethanol-rich environments, such as that surrounding a whiskey-aging warehouse, it becomes uncharacteristically fast growing, resilient and adaptive to many environments.

Baudoinia uses the ethanol as a carbon source, stimulating rapid growth.

Mature colonies of the whiskey fungus are crust-like and scorched in appearance.

The pronounced blackening from whiskey fungus often extends a considerable distance from the ethanol emission source and indiscriminately colonizes on exposed surfaces.

Source: Louisville Metro Air Pollution Control District.