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A Great Day for Maker’s Mark. A Good Day for Tito(?)

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Whoa! The first of the “handmade” cases wrapped up within the past week. On May 1, 2015 the U.S. District Court in Tallahassee dismissed the class action lawsuit against Maker’s Mark “with prejudice.” The now-defunct case alleged that Beam Suntory was bs’ing about whether the bourbon was “handmade.” The court seems to be saying “handmade” is a puff term, like “delicious.”

The term at issue has been amorphous, over the centuries, and Judge Hinkle seems to have dumped that burden on the plaintiffs:

the plaintiffs have been unable to articulate a consistent, plausible explanation of what they understood ‘handmade’ to mean in this context. This is understandable; nobody could believe a bourbon marketed this widely at this volume is made entirely or predominantly by hand. This order grants the defendant’s motion to dismiss for failure to state a claim on which relief can be granted.

The Judge makes a good point, saying:

But the term ‘handmade’ is no longer used in that sense. The same dictionary now gives a circular definition:  ‘handmade’ means ‘[m]ade by hand.’ Id. But the term obviously cannot be used literally to describe bourbon. One can knit a sweater by hand, but one cannot make bourbon by hand. Or at least, one cannot make bourbon by hand at the volume required for a nationally marketed brand like Maker’s Mark. No reasonable consumer could believe otherwise.

In sum, no reasonable person would understand “handmade” in this context to mean literally made by hand. No reasonable person would understand “handmade” in this context to mean substantial equipment was not used. If “handmade” means only made from scratch, or in small units, or in a carefully monitored process, then the plaintiffs have alleged no facts plausibly suggesting the statement is untrue. If “handmade” is understood to mean something else—some ill-defined effort to glom onto a trend toward products like craft beer—the statement is the kind of puffery that cannot support claims of this kind.

Another Maker’s Mark case is still pending, but darned if Judge Hinkle does not shoot a hole through its heart. The result here is refreshing in that I have rarely seen an important court case move so quickly. I suspect most observers expected this to grind on longer than it takes to make the very best Bourbon.

Not The Onion. California Man, “Beer Aficionado,” Alleges He is Last to Know Blue Moon is Coors and Not a Real Craft Beer. Sues.

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Yet another lawsuit about beverage labeling. This time it’s Blue Moon beer. The class action lawsuit (Parent v. MillerCoors LLC) was filed April 24, 2015 in state court, in San Diego. It alleges that MillerCoors is tricking consumers about whether Blue Moon is craft beer.

blueThere are now literally dozens of class action lawsuits, filed all around the country in just the past couple of years, in state and federal courts, against many of the most popular beer and spirits products in the country. Wine is notably absent, so far.

The complaint alleges that MillerCoors:

  1. makes more than 2.4 billion gallons of beer a year — about 12 times what the prevailing Brewers Association definition, for a craft brewer, allows
  2. falsely portrays the product as “artfully crafted,” when in fact it’s a macrobrew
  3. hides the MillerCoors affiliation under various fake entities
  4. misleads consumers into paying up to 50% more, via omissions and misrepresentations

For good measure, the suit alleges:

Defendant’s business practices are immoral, unethical, oppressive, and unscrupulous, and cause substantial injury to consumers, including Plaintiff and the other members of the Class. As a direct and proximate result of Defendant’s unlawful business practices, Class members suffered injury in that they paid a premium price for a product that would not ordinarily command a premium price, or purchased a product they otherwise would not have purchased, absent Defendant’s misrepresentations and omissions.

bmooNotice that the lawsuit does not really mention labeling, and instead focuses on “false and deceptive marketing.” Notice also that the labels at issue don’t mention “craft.” TTB has approved the Blue Moon labels something like 300 times since the 1995 brand launch. Here is one of the very few Blue Moon labels that actually mentions “craft” as in “artfully crafted.” It’s a bit strange that the slogan would be rampant in advertising but barely there on labels. Sometimes TTB’s beer reviewer is a bit on the strict side, but here the government has been fairly lax. In fact, in the early days, Coors described this U.S.-made beer as “Belgian” rather than “Belgian-Style.” The real Belgian beer companies put this to a stop with another lawsuit.

Plaintiff is remarkably astute about when he purchased Blue Moon, and the BA parameters, but had a weak spot in his discernment, even when his friends tried to give him a clue:

From 2011 until mid-2012, Plaintiff frequently purchased Blue Moon beer… . Relying on its advertising, its placement among other craft beers, and the premium price it commanded, Plaintiff, who is also a beer aficionado and home brewer, purchased Blue Moon believing it was a craft beer, as the term is commonly used by beer consumers and the Brewers Association. [Eventually] Plaintiff was informed by friends that Blue Moon is not a craft beer, but rather a mass produced beer made by MillerCoors. Plaintiff was initially skeptical, but eventually verified the facts through his own research. As a result, Plaintiff has not purchased Blue Moon since approximately July 2012.

No word yet about whether Plaintiff has switched to Shock Top.

The tide is rising:  Tito’s, Templeton, Breckenridge, Maker’s Mark, Jim Beam, Beck’s, Budweiser, Lime-A-Rita, Kirin, Skinnygirl, Tincup, Angel’s Envy, WhistlePig, and now Blue Moon. Google says Blue Moons come around every 2.7 years, but the suits are starting to pour in at a far faster rate.

Bad Medicine, Good Disclaimer

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There should be no doubt that a solid disclaimer can help make your label ok. And if there was, the Bad Medicine brand of spirits should put it to rest. In at least two places, the Bad Medicine labels say “The name Bad Medicine does not refer to any claimed health benefits.”

Not so long ago, it would be unthinkable that TTB would allow “medicine” or “health” talk — outside the mandated Government Warning. But the case law keeps changing, and so do the labels, along with it.

What other disclaimers are out there (beer, wine, spirits) and what ones should be?

Very Possibly, Your Approved Label is Wrong

bevmasterFrom the demise of Prohibition until about a year ago, you could fairly safely assume your label was right, if it was approved by TTB. Most people assumed they had a “safe harbor,” created upon approval, even if some of the claims were dubious.

This has been changing, and fast. The causes are numerous. One big one is the Pom case, decided in mid-2014. Another is an onslaught of class action lawsuits (such as Tito’s, Makers Mark, Beam, Angel’s Envy, Templeton). I am not discussing these factors in detail in this post because we have covered them a lot in many other blog posts, readily findable. A third factor is the rise of whiskey. The whiskey rules are quite a bit more complicated than those for other leading categories such as vodka.

The details about this trend are set out in the April-May 2015 issue of Beverage Master – Craft Spirits & Brew Magazine. The article is entitled, Why Your Whiskey Label is Probably Wrong.

Some people don’t like hearing this message and think it sounds a tad alarmist. But for every one of those people, there are experts who understand this confluence of circumstances can take your company down (and perhaps some who are eager to do so). On a less somber note, the article explains some easy ways to tamp down the threats presented.

Label Audits

And here is something else you can do to push these threats away from your business. Get your labels audited. In response to the markedly changed situation, we are pleased to announce our 2015 label audit program. The details are here.

The list of labels deemed ok and approved, and then not ok, grows longer every day (Skinnygirl, Black Death Vodka, Palcohol, etc.). Wouldn’t it be nice to stay off that list? You should think about having a knowledgeable person review your labels, before this chap (Thomas Zimmerman, the man behind many of the lawsuits) does it for you.

Louisville, Flavorman, Tito, Locke Lord, ADI

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Louisville is great. Such a nice break from the clamor of DC. I think I am nearly qualified to make this call because I have been going to Louisville half a dozen times per year for a few years now, and I have now hit all the top 50 or so bars and restaurants. I just got back from a 10 day stay.

Some highlights of course are the great people at Flavorman, Moonshine University, Challenge Bottling, Grease Monkey Distillery, and the Distilled Spirits Epicenter (all seeming to be one big happy family).

Another highlight was speaking at ADI. More on that in a few days.

A major highlight was meeting Tom Cunningham and Simon Fleischmann from Locke Lord (a big Chicago law firm). They are handling some of the whiskey disputes, on the defense side, and I learned more about class action lawsuits during a few drinks with them, and their speech, as compared to three years in law school. For those who missed the boat on attending the 2015 ADI convention, here is a summary of Locke Lord’s presentation, Spirits Industry Under Fire:  What You Need to Know About Class Action Litigation.

The most illuminating parts of this booklet (a companion to the speech), in my opinion, are as follows:

  1. Plaintiff class action lawyers thrive on ambiguity in the law and jump in where regulators don’t. For example, the federal government has not done much with defining such basic concepts as “natural” or “handmade” and so this part of the bar jumps in — in the form of actions such as the Skinnygirl and Tito lawsuits.
  2. In startlingly strong language, the Locke lawyers assert:

    firstPlaintiffs’ class action attorneys by and large don’t care whether your product is truly “handmade” or made in “small batches” or is “craft.” They trade in what is essentially blackmail and terrorism. If they have a basis for alleging that your product is not what you claim it to be, even if you fervently believe that it is, they will sue you. Very few cases go to trial. Especially class action cases, which can easily kill a company. They have the power to put you out of business simply by making a claim. Therefore, you are likely to pay them to simply drop their claim, even if it’s bogus.

  3. Not big fans of their brethren on the other side of the class action bar, and with refreshing candor, the Chicago lawyers explain:

    Plaintiffs’ class action attorneys are either inherently lazy or extremely efficient, depending on your perspective. For most of them, the goal is to maximize their fees by expending the least amount of effort. They are a creative breed of attorney, but after one comes up with a legal theory that pays off, others will tend to simply file copycat cases and “paint by numbers” to receive their reward.

  4. The same lawyer and plaintiff are behind many of the cases:  Templeton, WhistlePig, Angel’s Envy, and Tin Cup. There is also a herd mentality.

    If these cases are settled with any significant amount of attorneys’ fees recovered, many more cases will likely follow. Any spirits producer who uses ambiguous terms on its label or in its marketing will likely be a target. More plaintiffs’ attorneys will join the frenzy. Big settlements are like blood in the water – they will attract more sharks.

  5. The truth is not always a complete defense and it’s not only falsity that puts the blood in the water.

    Knowing where you cross the line between [puffery and deception] is an art, not a science. That line is fuzzy. A claim does not need to be outright “false” to be actionable … [If] it tends to be misleading or deceptive, even if strictly true, a plaintiffs’ class action lawyer will likely seize upon it and file a lawsuit.

  6. Easy precautions are avoiding risky or ambiguous claims, being transparent, and having a knowledgeable person review your marketing materials. You can also trip up the herd by changing your labels periodically — making it much harder for the herd to declare that all in the nationwide class suffered on account of the same labels and claims.
  7. Another strategy is to block the plaintiffs’ effort to certify a class.

    whoIf a plaintiff is suing for disgorgement of the proceeds of the allegedly deceptive marketing, which the plaintiff argues is $5 per bottle, and you have sold 1,000,000 bottles of your product, the exposure is $5 million if a class is certified that consists of everyone who purchased those 1,000,000 bottles. But if the court decides that the case is not appropriate for class certification, the plaintiff’s damages are $5. The case is a serious threat if a class is certified, and no threat at all if one is not certified. So even if you were to lose the case on its merits, if no class is certified you still “win.” [But, because of] the typically high potential exposure and the high cost to defend these cases, the plaintiffs’ attorneys don’t really need to win. All they have to do is survive that initial motion to dismiss and they will be in a position to use their leverage to negotiate a lucrative settlement. Essentially, you can’t win. If you get sued, you’ve already lost, unless you happen to have a very deep pocket. And even then, you still lose. … It is a dirty business.

I reached out to Simon and Tom to ask what is new during the past few weeks in these matters. They pointed out:

  1. whatThe Tito’s vodka plaintiffs are seeking to consolidate a handful of Tito cases as of a few days ago. Consolidating class actions makes a lot of sense. When multiple cases are filed in different places, the defendant has to fight the same battle numerous times. An argument that carries the day in one judge’s courtroom might not carry the day in another. Multiple cases also expose witnesses to multiple depositions. The plaintiff’s lawyer gets the advantage of reviewing the first transcript and using it to develop better or more clever questions in the next deposition. For these reasons and others, having all the cases brought together in a single courtroom is a sound defense strategy. It often also helps facilitate a settlement.

  2. In other news, while the pace of the new class action filings has slowed, they continue to be filed.  Breckenridge Distilling was sued in Chicago by one of the groups of lawyers that previously sued Templeton Rye. In addition, Anheuser-Busch has been sued in an interesting “hybrid” case that includes aspects of the numerous “Made in the USA” cases that have plagued other manufacturing industries for several years and the cases against the spirits industry that involve claims related to the sourcing of ingredients from places other than the place the product is “made.” Fully briefed motions to dismiss are pending in the majority of the cases against the spirits industry. The next six months should see a number of opinions that will give us a good idea of where these cases are headed. If judges generally accept the defendants’ arguments, we may see the wave of cases against the industry dissipate. If judges generally reject those theories, we expect to see more cases filed.

We will continue to watch all these cases closely because when it comes to alcohol beverages, “the herd’s” actions are as important as anything the federal government is doing. That is new and epochal.

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