District Court Denies Motion to Dismiss Deception Claims against Brewer

By on January 24, 2018

On January 17, 2018, the United States District Court for the Northern District of California issued a decision in yet another putative class action alleging that a beer brand’s labeling and marketing was false and deceptive. In this case, the defendant is The 21st Amendment Brewery Café (21st Amendment), a successful California-based craft brewery. See Peacock v. The 21st Amendment Brewery Café, LLC, N.D. Cal. No. 17-cv-01918-JST (Jan. 17, 2018).

21st Amendment originated in the San Francisco Bay area, but it produces a substantial quantity of its beer under contract in Minnesota. Bottles and cans of 21st Amendment beers—even those produced in Minnesota—state “Brewed & Canned by 21st Amendment Brewery, San Leandro, CA,” as permitted by the Alcohol and Tobacco Tax and Trade Bureau (TTB) “principal place of business” labeling regulations. 21st Amendment beer cartons show a map of the Bay Area with an “X” designating the location of their Bay Area brewery (not Minnesota, naturally). Finally, the 21st Amendment website describes the brewery’s origins in San Francisco, although it also notes that the brewery produces some beer in Minnesota.

Following a wave of similar lawsuits against brewers and beer importers, plaintiff Peacock brought suit on behalf of himself and a purported class of purchasers, alleging that he paid more for 21st Amendment beer based on the mistaken belief that the beer was produced in the San Francisco Bay Area. Peacock’s complaint invokes the California Unfair Competition Law (UCL) and the Consumer Legal Remedies Act (CLRA), seeking both monetary and injunctive relief.

Ruling on 21st Amendment’s Motion to Dismiss, the district court’s decision adds to the body of case law challenging the labeling and marketing of a growing list of beers that now includes Asahi, Beck’s, Foster’s, Guinness, Kirin, Kona, Sapporo and Red Stripe. Turning to the merits and applying the familiar motion to dismiss standard that assumes the truth of the plaintiff’s reasonable allegations, the court concluded:

  1. 21st Amendment argued that the challenged claims constitute mere “puffery” and are therefore non-actionable. Applying the “reasonable consumer” test, the court agreed that statements on the website could not have plausibly misled the plaintiff because, among other things, the website affirmatively states that 21st Amendment brews beer in Minnesota. But the court, relying partially on the recent Kona beer decision, found that the map on the beer carton, combined with the “brewed . . . by” statement (as “helpful” context) could mislead a reasonable consumer. Plaintiff adequately alleged an actionable misrepresentation.
  2. The court rejected plaintiff’s attempt to use California’s “Sherman” food and drug law, which incorporates Food and Drug Administration (FDA) regulations, as a basis for its UCL claim. First, plaintiff could not identify what FDA regulations were violated by 21st Amendment. More fundamentally, the court found that plaintiff did not demonstrate that FDA regulations would even govern the labeling of 21st Amendment beer.
  3. Like most courts that have ruled on similar arguments, the court rejected 21st Amendment’s “safe harbor” defense. A safe harbor would arise if applicable TTB regulations authorized the challenged labeling and marketing, but the court found that TTB’s regulations, even its principal place of business labeling rule, do not occupy the filed, nor are they incompatible with the plaintiff’s claims.
  4. Turning to the CLRA, the court dismissed plaintiff’s claim without prejudice due to plaintiff’s failure to follow the notice requirements contained in that law. Presumably plaintiff Peacock will now provide adequate notice and amend the complaint.
  5. The court dismissed plaintiff’s claim for injunctive relief, while pointing out that under the 9th Circuit’s recent Davidson v. Kimberly-Clark decision, purchasers of consumer goods now have an easier time establishing standing to seek injunctive relief. Although plaintiff Peacock had not adequately pleaded a claim, the court’s dismissal with leave to amend suggests that plaintiff can establish standing upon amending his complaint.

Although the court dismissed substantial portions of Peacock’s complaint, the survival of some claims and the ability to amend the complaint to revive other claims make the decision look like a net loss for 21st Amendment. One encouraging point for the industry is the court’s decision to follow Brown-Forman v. Matthews and Cruz v. Anheuser-Busch in rejecting the imposition of FDA labeling standards on products regulated by TTB under the Federal Alcohol Administration Act. Moreover, the court’s conclusion that the website statements could not mislead a reasonable consumer suggests that the affirmative disclosure of the Minnesota brewing location would have proved dispositive to this court.

21st Amendment presumably now faces the difficult decision of whether to continue litigating or seeking to settle rather than face the expensive and intrusive discovery process. Of course, settlement payments in cases of this nature have the unfortunate effect of signaling to plaintiffs and (more pointedly) their lawyers that there is money to be made in bringing such claims. A difficult decision indeed.