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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.”

summonsSummary:  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.

Updates:
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.”
amended9/30/2014: 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.
11/10/2014another 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.

The Tito’s lawsuit (Hofmann v. Fifth Dimension, Inc.) is here. Some juicy highlights are as follows (and on this page).

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.

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19 Responses to “The Tito’s Lawsuit: When Approval is Not Approval”

  1. September 20th, 2014 at 9:17 am

    Wade Woodard says:

    When you submit for TTB label approval, you have to swear that information on label is factual. If Tito’s or any others submitted labels that were not factual, then not only are they subject to these types of lawsuits, the TTB could take punitive action, including revoking a DSP. Here is the actual language for the TTB label approval:

    “Under the penalties of perjury, I declare: that all the statements appearing on this application are true and correct to the best of my knowledge and belief; and, that the representations on the labels attached to this form, including supplemental documents, truly and correctly represent the content of the containers to which these labels will be applied. I also certify that I have read, understood and complied with the conditions and instructions which are attached to an original TTB F 5100.31. Certificate/Exemption of Label/Bottle Approval.”

  2. September 20th, 2014 at 9:36 am

    admin says:

    Thanks Wade. It would be tough for the government to claim perjury here, or to say even “Smirnoff” is not “handmade” because TTB has probably not defined the term.

  3. September 20th, 2014 at 11:38 am

    Wade Woodard says:

    True, the term handmade is vague. What this law firm/plaintiff should really focus is the fact Tito’s says it’s distilled in Austin, TX on the label. If they can show that’s not factual, then that would be a solid case and nothing would be vague about that.

  4. September 20th, 2014 at 9:42 pm

    James Rodewald says:

    Let’s say he is passing bought neutral grain spirit through some pot still mechanism, as he says. Here’s another question: why bother? As it was explained to me for my recently released book “American Spirit:An Exploration of the Craft Distilling Revolution” (I had an interview set up with Tito but it was cancelled while I was on a plane to Austin), that would be like straining something through cheesecloth multiple times and then passing it through a pasta strainer. It won’t make a meaningful difference. I also tried for weeks to get the TTB to explain how they evaluate “times distilled” claims, but never got anything close to a useful response.

  5. September 20th, 2014 at 10:05 pm

    Lawrence C Spies says:

    Well Tito’s Vodka WAS made by hand when he started and when the labels were approved. But I guess as Titos changed the process to machines he would have to get relabeled? ie remove HAND MADE from the label?

  6. September 21st, 2014 at 4:45 pm

    Cowdery says:

    I don’t see how Mr. Lehrman can comment on Templeton since he is the person who signs their COLAs. Then again, maybe he is the best person to comment.

  7. September 21st, 2014 at 5:08 pm

    Robert C. Lehrman says:

    Hi Chuck once again you nailed it. I won’t be saying much about Templeton here. What do you think about Tito’s? I pretty much know your views on Templeton.

  8. September 22nd, 2014 at 12:54 pm

    surfdolphin says:

    Is anything handmade that is distilled in a fractional column apparatus, either an original distillation or a re-distillation or rectification

  9. September 22nd, 2014 at 1:13 pm

    Cowdery says:

    I don’t feel qualified to comment on Tito’s because I really don’t much care what vodka producers do. I mean, it’s vodka.

  10. September 22nd, 2014 at 1:58 pm

    Eric Wilson says:

    It will be interesting to see how this plays out. If Tito’s loses, then some moonshine products that claim a 100 year old family recipe, while the labels plainly say “NGS”, are going to face similar litigation.

  11. September 22nd, 2014 at 7:05 pm

    DSP says:

    I am a distiller, and like most, am really disgusted by Tito’s marketing. But they are just doing what every other big distiller is doing. The new marketing idea being used by the mega producers is to have a human place a sticker ” usually at an oblique angle” across their machine labeled, machine filled, machine produced, machine barrel filled bio-bourbon , whiskey, tequila, et.al.. I believe the large producers were aware this was coming and started slamming the stick on labels onto their products in anticipation of a negative outcome from Titio’s case. What will more than likely happen here is that Tito will pay a heavy price not for how he produced his goods, but because he didn’t pay some kid minimum wage to put stickers on the bottle by hand, or heaven forbid, dip the bottles in wax.

    All of that said, I have also re distilled GNS in a hybrid pot-stills and it is not at all like running vodka through a coffee filter. You must remember that GNS at azeotrope is only in reference to H2O. There are many other compounds in the GNS that can be removed if a pot still is properly charged to allow higher alcohols to build and be drawn off. Further the use of copper in most pot stills can remove residual sulfite from stainless distilled GNS.

    Of course none of this is to be confused with mass re-distillation in a column, after previous like mass continuos distillation.

  12. September 27th, 2014 at 12:25 am

    Donn Rutkoff says:

    While I think the product tastes good, at least as of about 1 or 2 years ago, I too was discounting the face value of “handmade” when I see 1.75s commonplace. It is about time the TTB started doing a better job of looking at claims that are too mushy to be true. “Founders estate”???? lots of bogus verbiage on wine labels, on multitude of zip code wines.

  13. September 27th, 2014 at 7:12 am

    Liquor Industry News/Links 9-27-14 | Franklin Liquors says:
  14. December 12th, 2014 at 10:47 pm

    TA says:

    Leave the guy alone. He puts out the BEST vodka on the planet and it’s American made. Stop persecuting the man. As far as I’m concerned, it’s Handmade. There HAS to be a manual element somewhere in his process that he can declare it handmade. And if not, put the word in quotes and move on, It’s the best, it’s american made, and he does not deserve this legal snafu only because of his success. Only in America are you punished for success.

  15. December 15th, 2014 at 9:31 pm

    Vapeur says:

    Misuse of the term “handmade” in this case is a deliberate tactic that aims to artificially inflate the value of an industrial product. This deceives the consumer and promotes unfair competition at the same time. Who owns the company, and what another individual thinks of the taste of the product is irrelevant.

    Consumer protection is at the top of list of reasons for enforcing truth in advertising. The abuse of terminology (e.g. “handmade”) for the purpose of misleading consumers stands in direct conflict with this mission. Permitting even seemingly minor misrepresentations to go unchecked sets a precedent that leads down a slippery slope with nothing but chaos at the opposite end.

  16. March 3rd, 2015 at 11:30 am

    Handmade, Homemade, Handcrafted — What's Safe These Days? - ShipCompliant: Wine Shipping Blog says:

    […] you pay attention to industry news, you’ve surely noticed an increase in stories about litigation surrounding “misleading” information on labels. Most recently, […]

  17. March 3rd, 2015 at 1:00 pm

    Handmade, Homemade, Handcrafted — What’s Safe These Days? | Convivium Brands says:

    […] you pay attention to industry news, you’ve surely noticed an increase in stories about litigation surrounding “misleading” information on labels. Most recently, […]

  18. March 16th, 2015 at 4:45 pm

    MD says:

    I’d love to know the Plaintiff’s background and what actual skin he has in this game. Seems a bit peculiar to me that a common vodka consumer would spearhead a class action lawsuit. Former employee? Jilted investor?

    Something stinks in Austin…

  19. June 19th, 2016 at 10:42 am

    Don Tito says:

    Who gives a shit whether it’s handmade or not it’s great vodka don’t be haters..

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