liquorGuest Commentary

by Tara Parker, a 2015 Judge K.K. Legett Fellow at the Washington Legal Foundation and a student at Texas Tech School of Law.

In recent decisions from opposite sides of the nation—Florida and California—two federal district judges issued contradictory decisions on the same question—whether a liquor manufacturer’s use of “handmade” on its product label is false or misleading to the average consumer. Defendants in mislabeling cases rarely claim total victory at the preliminary level because courts tend to defer the question of whether a label is false or misleading to a later stage in the litigation. The Florida judge’s willingness to dismiss a “handmade” claim shows that courts can beat this trend. If, on the other hand, judges follow the path of least resistance, as seen in the California case, mislabeling claims of questionable merit will continue to proliferate, undermining predictability in the law and raising prices for consumer product purchasers.

In the Florida case, Salters v. Beam Suntory, Inc., the plaintiffs sued Maker’s Mark, a Kentucky-based bourbon manufacturer, whose label includes the term “handmade.” On May 1, 2015, the Northern District of Florida dismissed the plaintiffs’ negligent misrepresentation claim with prejudice. The plaintiffs, who sought to represent a class of other Florida purchasers, alleged that they would not have bought the bourbon but for the advertisement that it was handmade. The damages alleged were compensatory (the full price paid for the bourbon), and punitive.

In its brief opinion, the court first acknowledged that whether a statement is false or misleading is often a fact question. It explained, however, that Federal Rule of Civil Procedure 8 and the Supreme Court’s interpretation of it in Bell Atlantic v. Twombly, governed the court’s consideration of the plaintiffs’ complaint. Plaintiffs have the burden to “plead[] factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Because each claim in Salters was entirely dependent on the false or misleading nature of “handmade,” the court focused on whether a reasonable juror could find such statement was not false or misleading. After analyzing various possible definitions and interpretations of the word “handmade,” the court held that “no reasonable person would understand ‘handmade’ in this context to mean literally made by hand.” The court easily concluded that “handmade” in this context is simply a kind of “puffery,” which is not sufficient to support claims for false or misleading representation to consumers.

The Florida decision contrasts with the March 18, 2015 Southern District of California ruling in Hoffman v. Fifth Generation, Inc., which denied a motion to dismiss on almost the exact same facts. In the California case, the named plaintiff claimed that the label, “Tito’s Handmade Vodka” was false and misleading because Fifth Generation did not make it with a process involving human hands. The plaintiff, on behalf of a putative nationwide class, argued that the word “handmade,” along with the phrase, “Crafted in an Old Fashioned Pot Still by America’s Original Microdistillery” caused him to believe he was buying a higher-quality product that had not been mass-produced. He also claimed that the labeling caused him to pay a higher price for the vodka than he would have otherwise. The class seeks monetary damages for the cost of the vodka as well as an injunction prohibiting Fifth Generation from violating California’s Unfair Competition Law (UCL).

The Hoffman court referenced Rule 8 and Twombly once in the recitation of the legal standard for motions to dismiss, and then proceeded to ignore them. Instead, the court considered the “reasonable consumer” deception issue in the context of the UCL and the other California laws under which Hoffman sued. U.S. Court of Appeals for the Ninth Circuit precedent, the court explained, dictates that only on rare occasions should federal trial judges make the reasonable consumer determination under California law at the dismissal stage. Fifth Generation argued that the court should embrace the leeway the appeals court left it because reasonable consumers understood that vodka is created by heating neutral spirits and distilling the vapors, which requires the use of equipment. The defendant also noted that the label explained what “handmade” meant in the context of this particular vodka. “In the court’s view,” the judge wrote, the disputed term “arguably could mislead a reasonable consumer.” The Hoffman suit will thus proceed past the motion to dismiss.

The contrasting outcomes of Salters and Hoffman suggest the obvious conclusion that California will continue to be the jurisdiction of choice for plaintiffs’ lawyers who seek causes of action in supermarket aisles and liquor stores. As long as some judges in California refuse to grant motions to dismiss, one of two equally unenviable outcomes will result. If defendants prevail in similar labeling suits filed in other jurisdictions, businesses will be left with an unpredictable, Balkanized legal standard. If, however, plaintiffs’ lawyers divert all such labeling cases to California, one state’s judiciary will be regulating labels for the whole nation. Either way, consumers who will have to bear the added costs of companies’ legal defense are the losers.