Posts Tagged ‘current events’
3/23/2015 Update. Caution. The above headline seems fairly skewed. See below for what we think really happened last week. The case is not halted at all.
Tito had another bad yesterday, this time in federal court in San Diego. This further makes it obvious that the world of labeling has changed markedly since the Supreme Court’s Pom decision of June 12, 2014. On March 18, 2015, Judge Jeffrey Miller (of the U.S. District Court for the Southern District of California) ruled that the Tito’s vodka case, relating to deception and the term “handmade,” should move forward. Since the case was filed on September 19, 2014, Tito has argued that the case should be dismissed.
The judge did agree with Tito on a few points, but agreed with the complainants on the larger points. Tito had argued that the case should not move forward because there was no real damage to anyone. In response, the court’s Order Granting in Part and Denying in Part Tito’s Motion to Dismiss, noted some consumers care a lot about “processes and places of origin” when deciding what to buy. By way of example, the court pointed to past controversies about kosher, halal, diamonds from conflict zones, and wine appellations.
Background about the case is here (the main complaints) and here (the main defense). This posting is a short version, and more commentary will be available at Wine & Spirits Daily, later today (or upon request). The nub of the matter is, the label and indeed the main selling proposition for Tito’s vodka, all the way back to its inception, center on its “handmade” aspects. This claim (the biggest word on the label) is now the subject of at least five lawsuits all over the U.S. They are 1) Hofmann (as here), 2) Pye (filed in federal court in Florida), 3) Aliano (filed in Cook County and removed to federal court), 4) McBrearty (filed in New Jersey state court and removed to federal court), 5) Cabrera (filed in San Diego, federal court), and 6) Grayson (filed in Las Vegas, federal court).
The Hofmann court said the class action claimants need not show that the vodka was defective or that the vodka was worth the price paid. Instead, the relevant inquiry is whether consumers were deceived about the “handmade” claim, and persuaded to buy on the basis of that deception. In essence, the judge is saying the plaintiffs made a mistake by arguing that class member would pay less – instead of arguing that they would not buy the product at all – but for the label claim at issue.
The Order has a funny typo on page 11 (stemming from the plaintiff’s brief), referring to the label term as “homemade,” when in reality the label shows the term “handmade.” A pillar of Tito’s defense, so far, is that TTB has approved the label on many occasions and after careful review. The court was not impressed by this point: “the court concludes that [Tito] has not shown that the safe harbor bars Plaintiff’s claims.” The court said TTB’s review was peripheral and informal at most, especially in view of the fact that TTB does not even have standards or rules for the term at issue.
The order seems careful and even-handed, but then seems to lean against Tito more, by saying:
In the court’s view, the representation that vodka that is (allegedly) mass-produced in automated modern stills from commercially manufactured neutral grain spirit is nonetheless “Handmade” in old-fashioned pot stills arguably could mislead a reasonable consumer. This is not, therefore, an issue that can be resolved at this stage.
Judge Miller further ruled that the 2013 Forbes article, that largely raised the questions about the Tito claim, is reliable enough, to form a basis for the allegations. Relatedly, the court was not too impressed with Tito’s argument that this article sufficiently alerted consumers that the claim might be dubious.
Finally, the court asserted that the complaint is not too vague for Tito to prepare an adequate response. The court said Tito’s “cogent” responses prove it. The court sided with the plaintiffs in most areas, but went against the plaintiffs in dismissing three major claims, on the basis that they were not pled properly. The court also, however, provided the plaintiffs with 14 days to fix those deficiencies and so this order is overwhelmingly helpful to the plaintiff side.
Simon Fleischmann (a top class action litigator at Locke Lord in Chicago) explained:
While this is a disappointing ruling from a defense standpoint, it is important to remember that this is just one trial court decision on the pleadings in what will likely be a broader war waged in several courts across the country on similar issues. And perhaps most importantly, the opinion emphasizes the highly individualized nature of that particular plaintiff’s purchasing decisions in a way that will make it difficult to certify a class of similarly situated consumers later on in the litigation.
Simon knows the context well. He is litigating very similar issues on behalf of Templeton Whiskey.
The court’s order is here.
Over the years many have suggested that Tito’s vodka is not really made in small batches or by hand. I tried to keep an open mind, as the brand grew, and even in the face of the lawsuits summarized here.
So I have been particularly looking forward to a response, on the merits, at long last, from the source. Tito finally responded, on November 17, 2014, in the form of a motion to dismiss the Florida case. (The defendants also filed a similar motion, a month later, in the California case. The California motion is 28 pages and substantially similar to the one filed in Florida, right down to mangling the name of the agency that issued the so-crucial approvals. It does add a dash of spice here: “Plaintiff himself knows nothing, and he filed a lawsuit that ignores what the Tito’s label actually says and instead bases his claim on hearsay statements in a magazine article, hoping he can later commit discovery to get the facts he admittedly lacks.”)
With the aid of more than one big law firm, and a superior command of the facts, I was eager to sit back and see how deftly Tito could shut down its many detractors. The motion weighs in at 20 or so pages and it does not seem an exaggeration to say that the entire brand, the company, and just about everything on the front label hang in the balance. Also, Tito had the immense benefit that he knew or certainly should have known this day would come around sooner or later. This should have been clear since the first references to “handmade.” This should have been further clear upon the various inquiries about the term over the years, as described in the motion.
The motion starts pretty strong, asserting that plaintiff’s complaint is so vague: “We do not know how many bottles they bought or how much they paid, because they do not tell us those facts. They do not claim there was anything wrong with the vodka they allegedly purchased, or that they did not like it for some reason. They do not claim they complained about it, tried to return it, or even notified anyone of their dissatisfaction … .” Then, “With so many details missing, Fifth Generation is not in a position to make a meaningful response to the Complaint (other than simply to deny the allegations). Nor is the Court in any position to assess whether all or any of the claims pass the plausibility standard. … Measured by those standards, the Complaint is woefully deficient and must be dismissed.”
This may be a good start, but by page 3, the motion seems to go off the rails. It tries to say that the plaintiffs could not have been deceived, because a 2013 Forbes article had already suggested Tito was playing fast and loose with the truth. Tito’s motion says:
In light of what Plaintiffs have pled – and in particular their reliance upon a widely-circulated 2013 Forbes magazine article – it is hard to see how they could plausibly claim they were misled by the label on Tito’s Handmade Vodka for any purchases made after the article was published. Similarly, the number of times they purchased may raise plausibility concerns: If they enjoyed the taste of the product and thought it was a good value, did the label truly influence any but their first purchase? And, if the first time they ever tasted Tito’s Handmade Vodka was at a party, at a restaurant, or in some other setting in which they decided they liked the taste before they ever saw the label, could the label plausibly be said to have influenced even their first purchase? Plaintiffs’ skeletal allegations raise all of these questions and more, but answer none of them.
The defendants seem impressed with this point, breaking out the bolded italics.
Maybe I am missing something fundamental, but this seems absurd as any kind of defense, let alone a cornerstone of a defense. Does it really make sense to assume the plaintiffs would, should, or did get key information about the product from a magazine article — instead of the big, federally mandated, reviewed and approved label plastered on the front of the bottle? The Forbes article is interesting, relevant, and important — but is it really so epochal that everyone interested in vodka should be intimately familiar with it, from the moment of its publication? On the very same page, the motion makes clear in any event that “Plaintiffs never claim that they saw or read the article.” The motion seems to be saying that even though the article is wrong, and low-quality, every yahoo from Texas to California to Florida should know all about it, from the moment of its publication. Perhaps Tito seeks to argue that the lead plaintiffs knew about the article before the purchases at issue, and that this should have caused them not to buy the vodka, or, at the very least, that it would make them not good representatives for the class.
Next, the motion veers over into shaking the pompoms, declaring Tito’s to be “great tasting” and with a value proposition “true to its Austin, Texas roots.” By page five, the motion tees it up beautifully, saying “Plaintiffs contend that Tito’s Handmade Vodka cannot be ‘handmade’ because it is ‘made from commercially manufactured neutral grain spirit that is trucked and pumped into Defendants’ industrial facility.'” This would seem to be the heart of the matter. And so I move to the edge of my seat, waiting for Tito to hit this duly teed-up softball out of the park. And then I wait some more, as the softball seems to sit on the tee, without the benefit of even a swing or a miss, let alone a base hit. Immediately after raising this tantalizing question, the motion changes the subject toward an unilluminating primer on how vodka is normally made.
The defense is a bit too romantic when it explains how the “secret,” “pre-Civil War” pot still methods somehow make the product handmade. And it moves in the other direction when it describes how Tito grasped a pen with his own hands to design the label: “The label on Tito’s Handmade Vodka is also ‘handmade’ in its origins. The graphic of the old fashioned pot still was drawn by Tito Beveridge himself. He chose the fonts, the colors and the other elements of the label that communicate the consumers the essence of the brand.”
Tito makes a stronger point by explaining that TTB inspected Tito’s labels, plant and methods on many occasions, and still allowed the “handmade” claim. The defendants make quite a few other technical arguments and on some of those it’s hard to know who is right. And yet I find myself still waiting for the defendants to simply assert, at long last, that they do not bring in tankers of commodity spirits mass produced with continuous stills, far from Texas or the hands of anyone in Austin. Looks like we will need to keep waiting.
Finally, for all those who wrote in and said the label claims don’t matter and are only for nerds, please take another look at the label and web page depicted above. This is a screenshot of www.titosvodka.com as of January 4, 2015. I did not add any words or images but I did add a yellow tag near each of the most relevant spots; I emphasized the relevant portions and discarded a lot of the less relevant matter.
I have focused on beverage labeling law since 1988. During that time it has been very rare for a private party to bring any action against a beer, wine or spirit supplier’s labeling or advertising — unless the basis was trademark.
Instead, most people assumed the states, TTB, and FDA would take care of this, pretty much to the exclusion of anyone else. Pom began to unravel this in a big way over the past couple of years, and this trend seems to be gaining momentum.
A San Diego law firm filed a class action lawsuit, on December 8, 2014, in federal court in California. The case is called Nowrouzi et. al. v. Maker’s Mark Distillery, Inc. A few pages of the complaint are here. If you want a copy of the whole complaint, or updates, they are available upon request and without obligation.
The complaint goes right for Beam’s jugular (Jim Beam owns Maker’s Mark). It essentially says Maker’s Mark is lying about whether the product is “handmade.” The first count is for false advertising. The second is for unfair competition and fraud. Next is negligent misrepresentation and then intentional misrepresentation. The lawsuit asks for a jury trial, punitive damages, an injunction, reimbursement to consumers, interest, and lawyer’s fees.
An example of the labeling at issue is above, and here is a recent TTB approval therefore. Maker’s Mark is way out there, on a limb. Very similar to the Tito’s vodka controversy (as regards “Handcrafted”) the whisky label has “Handmade” right out there, front and center. Maker’s Mark, though, doubles down and declares it is “America’s only handmade bourbon. …” That may be too extravagant to be maintained, and is certainly a big, provocative statement. Not least, it has indeed provoked a few lawyers in San Diego.
Here are highlights from the 33 page complaint (replete with photos and stirring allegations):
- “Defendant’s whisky is manufactured using mechanized and/or automated processes, which involves little to no human supervision, assistance or involvement, as demonstrated by photos and video footage of Defendant’s manufacturing process.”
- “[T]he matter in controversy, exclusive of interest and costs, exceeds the sum or value of $5,000,000.”
- “Defendant has shipped approximately 1.4 million cases of whisky in 2013.”
- “’Handmade’ and ‘handcrafted’ are terms that consumers have long associated with higher quality manufacturing and high-end products. This association and public perception is evident in the marketplace where manufacturers charge a premium for ‘handcrafted’ or ‘handmade’ goods.”
- “Defendant’s website also states that, ‘[w]hile most distilleries use a modern hammer mill to break up their grains, Maker’s Mark uses an old antique roller mill, which is less efficient, but reduces the chance of scorching the grain and creating a bitter taste.’ This is done in an apparent attempt to market the whisky as being of higher quality by virtue of it being made by hand. As a result, Defendant induces consumers.”
- “[C]ontrary to Defendant’s misleading labeling, its whisky is predominately or entirely made by mechanized and automated processes.”
- “Defendant has faced continual production shortages and has attempted to remedy those shortfalls by expanding and mechanizing its facility. Defendant’s supply shortages have been so severe that Defendant even proposed ‘watering down’ its whisky’s alcohol content to meet production demands.”
- “Defendant’s mill is neither old nor antique. Defendant’s mill is a modern mechanized and/or automated machine that requires little to no human supervision, assistance or involvement to grind and prepare the grain, which is the primary ingredient in Defendant’s whisky. … [T]here is virtually no human involvement in this system, other than perhaps the pressing of a button.”
- “Defendant is guilty of malice, oppression, and fraud, and each Plaintiff is therefore entitled to recover exemplary or punitive damages.”
For the most part, the complaint strikes me as careful, serious and well-written. But this part seems to go a bit too far toward the land of make believe:
Producing consumer goods by means of mechanized or automated process has long [been] touted as a cheaper way to “mass produce” consumer goods. By utilizing machines to produce goods, manufacturers are able to make more goods in a shorter period of time at a lower cost. Mechanization of course sacrifices quality, as machines cannot exercise the skill and care of a human craftsman. Every consumer would undoubtedly prefer a higher quality product, however many are not able or willing to pay for such quality. The demand for higher quality products has always existed amongst consumers and thus manufacturers market their products to those seeking higher quality goods and demand a premium price for that quality.
As a great distiller once explained to me, “artisanal” is not always a compliment. When it comes to cars, or computer chips, for example, I am pretty sure I would rather have one made by a modern robot than a genial old man.
I don’t really have a dog in this fight as of this writing. I do think this has reached a critical mass such that TTB should step in and seek to define terms of this nature, lest TTB be relegated to a role as a mere spectator in the gladiation of others. I do also think the term at issue is not quite puffery (such as “premium”) but not quite a factual statement, either (such as “aged 5 years”). The law probably needs to wake up and stop dealing with the easy cases, at one extreme or the other, only.
As one would expect: “A spokesman for Beam/Suntory, the parent company of Maker’s Mark, called the claim ‘without merit’ . … ‘We will defend this case vigorously and we are confident that we will prevail’ ….”
As mentioned above, this case has a lot in common with the Tito’s vodka case. As to that case, it probably sounds like I have lined up on the other side from Tito in recent weeks. Not really. I started out with an open mind, recognizing the plaintiff’s may be mistaken, or Tito may be a wily coot who saw this coming and planned accordingly. But it has really been the hapless responses of the Tito’s supporters, in the weeks after the lawsuits flew, that colored my view. They made laughably inane arguments like, who cares about the labeling, or TTB said it’s fine. More recently, Tito’s lawyers filed a response, and it seems good, and much more persuasive than anything said on Tito’s behalf in the interim (as should probably be expected). I look forward to assessing the responses, in both cases, soon.
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.”
Summary: in Hofmann v. Fifth Dimension, Inc., Gary Hofmann (a consumer) sued Tito’s vodka on behalf of all Tito’s customers in California, claiming that the company misleads people about whether the product is “handmade.” The lawsuit was filed September 15, 2014 in San Diego county court. The federal government reviewed and approved the Tito’s labels, but has no definition for the term at issue.
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.
9/16/2014: Judge Eddie C. Sturgeon is assigned to handle the case.
9/23/2014: Tito’s apparently put out a press release, sketching out a defense. I sure hope they have more. They took a jab at the plaintiff for botching the defendant’s proper name, Fifth Generation, Inc. Shanken points out that the brand is at 1.3 million cases per year (that’s a lot of hands!). Tito says “he will vigorously contest the lawsuit.” Tito largely hangs his hat on the fact that TTB approved the labels.
9/25/2014: the plaintiff amended the defendant’s name, from Fifth Dimension, Inc. to Fifth Generation, Inc. In so doing the plaintiff declared being ignorant of the company’s true name, when filing the complaint on 9/15/2024. This is odd because the plaintiff used the correct name on the Affidavit of Venue filed the same day. Plaintiff did a good job covering this point, though, in the original complaint, by saying: “Plaintiff is ignorant of the true names and capacities of the defendants sued herein as DOES 1-100, inclusive; therefore, Plaintiff sues these defendants by such fictitious names. … Plaintiff will amend the complaint to allege their true names and capacities when ascertained.”
9/30/2014: things just got much more serious for Tito, as the case ballooned into a nationwide class action suit. The amended complaint states: “This is a nationwide class action case brought on behalf of all purchasers of vodka (“Vodka”) manufactured, distributed, marketed, and/or sold by FIFTH GENERATION, INC. dba Tito’s Handmade Vodka (hereinafter “TITO’S”).” Also boding ill, the original and amended complaints refer to Sidley Austin (suggesting that the small San Diego firm on the plaintiff side, may be working with a much bigger firm.) The same small law firm, in San Diego, just recently won hundreds of thousands of dollars in another labeling suit as described here in The Wall Street Journal.
10/3/2014: a copycat lawsuit filed in Florida on 10/25/2014, in federal court this time, under Florida law.
10/14/2014: and now another lawsuit, this time in Illinois.
10/21/2014: finally I was able to find a copy of Tito’s response. I looked around but was not able to find the press release earlier.
10/27/2014: Tito has a full-throated defense of his vodka today. I think he is saying it is in fact substantially made in a pot still in Austin. In Wine & Spirits Daily he says, “I, Tito Beveridge, believe the pot still distillation process, like that of single malt scotches and French cognacs, is the cornerstone of craft spirits production, period.” There are lots of other words in Tito’s statement but I can’t find much in it to suggest the degree or extent of this much-vaunted pot-/hand-/craft-production. Is it a fig-leaf kind of thing, or the main way the product is made? I see lots of other jazz about foreign companies, etc. but precious little new information about how this product is made, or anything important that makes it any more “handmade” than the next 500 vodkas.
11/10/2014: another lawsuit, this time New Jersey.
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.
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 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.
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:
- The letter seems to cover the powers that be, in the beer, wine and spirits industries (BI, WI, DISCUS, etc.).
- They, and TTB, seem to set TTB’s funding needs at $101 million, for 2015.
- 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.”
- 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.”
- 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.”
- “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%.”
- 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.