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The Tito’s Lawsuit: When Approval is Not Approval

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Tito’s vodka was doing great for the past 15 years, then hit a gigantic speedbump this week in the form of a class action lawsuit.

Tito’s therefore provides a good example of when an approval is not really an approval. Tito Beveridge has more than 30 TTB label approvals for his vodka from 1997 to 2013 (as in the above image, from LabelVision). They may not do him much good in this lawsuit, even though, in years past, most would assume the federal approval would be dispositive. It’s a good thing most TTB approvals are not paper anymore because these would “not be worth the paper they are printed on.”

The classic case of an approval that is not really an approval would be your garden variety Napa Valley Chardonnay, Vintage 2010. TTB will take almost every one of those italicized words at face value. To the extent any one of those words is not true, your approval is not going to help you too much, in the event of an inquiry. Like an IRS tax return, the COLA (and any formula approval) is, to a surprisingly large degree, something of an honor system, stapled together with the penalty of perjury on every such document.

The Forbes article explains:  “Tito’s has exploded from a 16-gallon pot still in 1997 to a 26-acre operation that produced 850,000 cases last year, up 46% from 2011, pulling in an estimated $85 million in revenue.” The article strongly suggests Tito is about to be a victim of his own success. You can say this post is a prime example of a lawyer taking something clear, like an affirmative, direct approval, and blurring it up to say it’s not really an approval. That would not change the messy, complicated reality, that TTB is not the only sheriff in town. We have a “system” and though it may be cumbersome, it actually does work pretty well. TTB approves Palcohol. Fine. That’s only one level. Then the private sector jumps in (i.e., us). This triggers the states, legislators, media, trade associations, on and on, to take action. TTB can’t and probably does not need to “do it all.” Customs jumps in on imports, states jump in on Santa and bitch issues, and now there is a clear right of private action in all such disputes. The floodgates are well open. A few weeks ago, in light of the Pom v. Coke decision, we predicted a flood of lawsuits around label claims. Some said “the sky is not falling.” Well, the water is starting to rise pretty high. Tito is up to his waist. Templeton is up to its knees. Bass and Becks are up to their ankles. All from private action with no trace of governmental intervention. Skinny Girl got dunked a few years back and we will need to go back and look to see how much water she swallowed.

The Tito’s lawsuit (Hoffman v. Fifth Dimension, Inc.) is here. Some juicy highlights are as follows.

This is a class action case brought on behalf of all purchasers of all vodka (“Vodka”) manufactured, distributed, marketed, and/or sold by FIFTH DIMENSION, INC. dba Tito’s Handmade Vodka (hereinafter “TITO’S”). Through a fraudulent, unlawful, deceptive and unfair course of conduct, TITO’S, and DOES 1 through 100 (collectively “Defendants”), manufactured, marketed, and/or sold their “TITO’S HANDMADE” Vodka to the California general public with the false representation that the Vodka was “handmade” when, in actuality, the Vodka is made via a highly-mechanized process that is devoid of human hands. There is simply nothing “handmade” about the Vodka, under any definition of the term,1 because the Vodka is: (1) made from commercially manufactured “neutral grain spirit” (“NGS”) that is trucked and pumped into TITO’s industrial facility; (2) distilled in a large industrial complex with modern, technologically advanced stills; and (3) produced and bottled in extremely large quantities (i.e., it is “mass produced”).

The Oxford Dictionary defines the term “handmade” as “[m]ade by hand, not by machine, and typically therefore of superior quality.”

On information and belief, the Vodka was made, manufactured and/or produced in “massive buildings containing ten floor-to-ceiling stills and bottling 500 cases an hour” 2 using automated machinery that is the antithesis of “handmade” that is in direct contradiction to both the “Handmade” representation and the “Crafted in an Old Fashioned Pot Still” representation on the product. Discovery will further reveal the specific automated manner in which the Vodka is made.

Defendants also concealed the fact that the Vodka is no longer made in old fashioned pot stills of the variety TITO’s proudly displayed in the 2013 Forbes article (i.e., in a shack containing a pot still cobbled from two Dr. Pepper kegs and a turkey-frying rig to cook bushels of corn). The disclosure of this information was necessary in order to make Defendants’ representations truthful and not misleading.

Consumers are particularly vulnerable to these kinds of false and deceptive labeling practices. Most consumers possess very limited knowledge of the likelihood that products, including the Vodka at issue herein, that are claimed to be “Handmade” are in fact: (1) made from commercially manufactured NGS that is trucked and pumped into TITO’s industrial facility; (2) distilled in a large industrial complex with modern, technologically advanced stills; and (3) produced and bottled in extremely large quantities (i.e., it is “mass produced”). This entire process is devoid of the caring touch of human hands. This is a material factor in many individuals’ purchasing decisions, as they believe they are purchasing a product made in small amounts that is of inherently superior quality.

As a direct and legal result of their unlawful, unfair and fraudulent conduct described herein, Defendants have been and will be unjustly enriched by the receipt of ill-gotten gains from customers, including Plaintiff, who unwittingly provided their money to Defendants based on Defendants’ fraudulent “Handmade” representation.

The plaintiffs are asking for all the money, plus attorney fees, punitive damages, interest, costs, and taxes:  “all monies acquired by means of Defendants’ unfair competition.”

Right about now, every beer, wine and spirits company should be re-examining their labels, new and old, approved and prospective, and making sure every part is on firm ground. If you lack TTB approval it may hurt you a lot, but if you have it, it may not be sufficient to save you.

* A small disclaimer is, I have no idea about the underlying facts here. I am evaluating this from my couch, based on TTB approvals, public records, the plaintiff’s allegations, and the press. We look forward to presenting Tito’s side of the story, when it comes out.

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TTB Funding

I read about TTB funding a few days ago in Wine & Spirits Daily. It is good but I still don’t understand why they don’t use more links. I had to look elsewhere for the letter, to the Senate, about TTB funding. The letter is here.

Here are some highlights and observations:

  1. The letter seems to cover the powers that be, in the beer, wine and spirits industries (BI, WI, DISCUS, etc.).
  2. They, and TTB, seem to set TTB’s funding needs at $101 million, for 2015.
  3. The letter says “Since 2007, TTB has had to shrink its workforce by 10% ‐ more than 50 full‐time positions – and this has had a direct, negative impact on the businesses that depend on it to operate and grow.”
  4. The letter reads like a big wet kiss:  “The Business Insider claimed in 2012, that ‘the TTB is the government’s third‐biggest revenue collector, after the IRS and Customs and Border Protection.’ It may also be its best: In fiscal year 2013, it took in $23 billion. That amounts to $457 for every dollar the agency spent collecting taxes ‐ more than twice the IRS’ ratio. No other federal agency does so much for so little, while also having a huge impact on the industry it regulates.”
  5. With a further embrace, the letter says:  “We need a well‐funded TTB to be able to process label requests quickly in order to get new products to market in this highly competitive global market place. We also need a wellfunded TTB to prevent and guard against unscrupulous actors from entering our marketplace who otherwise could harm the public with dangerous products, which has occurred outside of the United States with counterfeit alcohol.”
  6. “In recent years, the alcohol beverage industry has seen explosive growth across the United States and the number of businesses that the TTB regulates has skyrocketed.” Since 2007, “the number of wineries, breweries
    and distilleries in the country has grown by an astounding 53.1%.”
  7. While heaping praise upon TTB, the letter also takes a small jab at other agencies:  “In short, now is not the time to cut funding to one of the few federal agencies that is performing well and actually helping a significant US industry grow.”

From my perspective, it does look plain expensive to run something like TTB. I would imagine that not handling paper and not mailing out tons of labels and formulas has saved TTB a lot of money in the past decade. It would seem that most of the costs for systems like FONL and PONL and COLAs Online are one-time only costs. While those systems seem to work reasonably well, it is very difficult to have a dialogue by phone, in-person, or email, and though this is unfortunate, I suspect it saves a lot of money (at least in the short-term). On the other hand, in TTB’s quest for some internet-based efficiencies, they may have succeeded too much in making it easy to submit all manner of stuff. This forces TTB to deliberate upon every hare-brained scheme with about the same exertion as the next big thing.

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TTB Shutdown?

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Updates

Day 1, 10/1/2013, 6:30 am ET:  TTB is shut down for the most part but at least COLAs Online and Formulas Online seem to be functioning normally (to retrieve approvals, etc.). Permits Online and COLA Registry seem to be working normally too.
Day 1, 8:55 am ETthis notice posted to the front of ttb.gov. No updated notice on the voicemail system.
Day 1, 9:10 am ETthis notice paints a pretty dire picture. It says:  “there will be no access to TTB’s eGovernment applications including, but not limited to, Permits Online, Formulas Online, and COLAs online.” It further says:  “TTB has directed employees NOT to report to work and they are prohibited by federal law from volunteering their services during a lapse in appropriations.” If it’s really true, that the websites (such as CO, PONL and FONL) will be shut down, I am happy that we went to the bother over many years to get a copy of every one of tens of thousands of approvals we have handled. It was a lot of work but we knew it was just a matter of time before one calamity or another came to pass.
Day 1, 9:15 am ET:  I am happy to report that, despite the 9:10 message above, the websites seems to be operating normally. If you can see this COLA, they still are. If I may editorialize just a bit (more) — how very banana republic when the government is shut and we know not when it may resume, but have to wait for it anyway to do just about anything.
Day 1, 9:30 am ET:  sites now off, as here. This is going to get ugly (uglier).
Day 2, 10/2/2013, 8:30 am ET:  this is nuts. It is close to impossible for many alcohol beverage companies to get oxygen or sunlight. As I peruse the list of things most adversely affected, such as national parks, it is tough to find areas more adversely affected than beer, wine and spirits. (For example, whereas the adverse impact on a new flavored wine at 8% is almost total, the impact on the same product at 6% would be nil.) It is particularly egregious to set up a system where most every move must be slowly and painstakingly reviewed and approved — then withhold such review and approval, indefinitely. In the case of parks, the eager vacationer can always divert to Disney, the beach, or a local bar. Many beverage companies have no such options, but to wilt. Want to add some coriander to that beer? No can do. Until someday in the far-off future, after the parties decide to talk, the government perhaps reopens, the backlog clears, and eventually, at best, it goes back to something resembling the pitifully slow system of the past where it can take well more than six months to jump through enough hoops to add that coriander to that beer. Need to take something out of that flavored vodka? You can’t do that either. So long as there is a realistic possibility that things like the above can happen, the rules ought to provide backup systems. Without faulting any particular agency or party, I fault a system where the regulated parties are held to high standards and the government is held to approximately no standards at all.
Day 3, 10/3/2013, 7 am ET:  how long until the very best people at TTB start to bail out, and the prophecies of the most ardent government detractors get fulfilled?
Day 6, 10/6/2013:  things will be jammed up for months, at best.
Day 17, 10/17/2013:  TTB finally comes back to life. Google has more than 26,000 items about the shutdown’s impact on beer alone.

Will TTB shut down this week and if so how painful will it be? And who will get the blame?

As of this writing (2 pm ET on the last day of September) a shutdown looks all but certain. The New York Times says the only big question is who will get the blame. I don’t see much on TTB’s website about this yet, but Google helpfully (as always?) turns up this Shutdown Plan.

The key points in the Plan are:

  1. Once appropriations have lapsed, the shutdown will encompass all of TTB’s core mission business (with some exceptions, such as things essential for safety of human life, and otherwise funded Puerto Rico functions)
  2. All normal operations will cease (with few exceptions)
  3. These important things will not continue:  processing of permits, certificates of label approval, and formulas
  4. Only about 35 of 483 employees (and about 135 contractors) are essential and can work during the shutdown

Many things were jammed up before this big piece of other than good news so it’s going to be brutal and slow for quite some time. If you did not start seeking approvals long ago, it sure looks like you will be regretting it any moment.

It is difficult to find non-partisan comments so far, but here are some juicy ones:

  1. It’s ironic, or is it absurd or even obscene, that a group of well to do people, with top notch healthcare for themselves and their families, paid for by taxpayers, would be in a position to deny affordable health care to others.
  2. This year’s shutdown can be known as “Breaking Stupid.”
  3. Shut it down. I’ll save 25 minutes on my drive to work every day.

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9/11 Wine

The 9/11 Memorial wine is made by Lieb Cellars, LLC of Mattituck, New York. In a rare show of unity, it did not go over well with Anthony Bourdain, Dr. Vino, The Colbert Report, or The Christian Post.

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Feminist Wine

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We’ve probably posted a fair number of sexist labels. To help balance things out, here we have a bunch of feminist wine labels.

I’m Not Your Waitress is one in a series of wines made and bottled by Lac Belle Amie of Elizabethtown, North Carolina. Bitchin’ Babes is another.

And for the man who has everything, there is Sugar Mama red wine. This helpful website (“Cougars and Young Men Dating Club”) opens the door so you too can find a sugar momma (if it’s for real). (At this writing, sugarmommameet.com was unavailable, so the link shows a cached page.)

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