Last month the US District Court for the Central District of California issued an order in the Shalikar v. Asahi Beer U.S.A., Inc. false advertising class action case. Like many similar cases, Shalikar alleges that the plaintiffs, as representatives of a purported class of consumers, were deceived into paying more for Asahi beer because they believed the beer was made in Japan when, in fact, the beer sold in the United States was produced in Canada. In the recent order, the court denied Asahi’s motion to dismiss for failure to state a claim (a 12(b)(6) motion).

The Shalikar plaintiffs brought their case under California’s Consumer Legal Remedies Act, Unfair Competition Law, and False Advertising Law, and also pled common-law claims for breach of implied warranty, fraud, intentional misrepresentation and unjust enrichment. Asahi beer that is sold in the United States is brewed in Canada, and each label states “Brewed and Bottled under Asahi’s Supervision by Molson Canada, Toronto, Canada.” Each label also states “Product of Canada” as required by US customs regulations. Plaintiffs alleged, however, they were deceived into paying more for the product because the labels and packaging use the word “Asahi,” which means “morning sun” in Japanese, and the label and packaging employs Japanese characters in several places. Plaintiffs also produced a survey purporting to show that the beer’s packaging led 86 percent of the respondents to believe that the product was brewed in Japan.

The court denied Asahi’s motion to dismiss in its entirety. It reasoned:

  1. Although the Alcohol & Tobacco Tax & Trade Bureau (TTB) had approved the label, the “safe harbor doctrine” does not shield Asahi’s conduct. Notably, the court was confronted by differing rulings on the subject, with decisions both applying (the Cruz Bud Light Lime-a-Rita case) and rejecting (the Hofmann Tito’s Vodka case) the safe harbor defense. Rejecting the defense, the Shalikar court reasoned that a TTB-issued Certificate of Label Approval (COLA) does not have the force of law, and therefore a fundamental prerequisite of the safe harbor defense (that the defendant acted in accordance with a regulatory requirement) was not present.
  2. The court next rejected Asahi’s contention that the complaint did not allege that the labeling and packaging of Asahi beer was false or misleading to a reasonable consumer. Examining the contentions of the plaintiffs and the counter-arguments of Asahi, which pointed to the clear disclosures on the label, the court concluded that resolving the dispute could not be determined as a matter of law (g., Asahi would need evidentiary support, presumably at the summary judgement stage). The court also credited the plaintiffs’ survey.
  3. The court also denied Asahi’s motion to dismiss the implied warranty claim. Asahi argued that because of the US three-tier distribution system, a warranty claim was precluded by California’s requirement that “vertical contractual privity” exist between a plaintiff and a defendant for such a claim to succeed. Examining case law on the subject, the Shalikar court held that the pleadings justified applying an exception to the privity rule where the plaintiff is the “intended beneficiary” of the alleged warranties at issue.
  4. Finally, the Shalikar court rejected the motion to dismiss the remaining common law claims, referring back to its conclusion that the plaintiffs had adequately alleged that Asahi’s labeling and packaging could mislead a reasonable consumer.

The Shalikar ruling provides another reminder that producers need to remain vigilant about their US marketing. Pro-plaintiff decisions like this one often precipitate settlements that are lucrative to the lawyers bringing such cases, suggesting that the “wave” of false advertising suits engulfing the alcohol beverage industry will not likely go away soon.

The Shalikar decision also includes some important fodder for further consideration. First, the court’s conclusion that COLAs do not have the force of law can have implications far beyond the class action context. Indeed, one would expect TTB to weigh in against this notion should Shalikar be taken up on appeal. Second, in permitting a claim relying solely on vague allusions to a country-of-origin (Japanese characters, etc.), the Shalikar decision seems decidedly at odds with a number of other recent decisions. If accepted, this aspect of the decision is an extremely troubling one for brand owners, as a central point of “deception” alleged by the Shalikar plaintiffs is the use of the Asahi brand name itself. Third, the effective use of survey evidence by the plaintiffs may portend a trend in future litigations.

As a single ruling by a US district court, Shalikar does not, of course, represent the last word on these subjects. Moreover, given the troubling implications of some of its reasoning, Asahi may be more likely to continue litigating this case than many other defendants have been after losing at the motion to dismiss stage. But it is increasingly clear that class actions like this one will continue to plague the alcohol beverage industry for the foreseeable future.