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Ruling Could Put Deceptive Labeling Cases on Hold

The U.S. Court of Appeals for the Ninth Circuit today placed on hold a consumer class action involving yogurt labels until the FDA issues final guidance on use of the terms at issue in the dispute—a decision that could ripple outward to the many other food and beverage cases alleging deceptive labeling.

The plaintiffs in Kane v. Chobani, LLC, No. 14-15670, alleged that Chobani deceptively labeled its yogurt as “natural” in violation of FDA regulations, and improperly used the term “evaporated cane juice” to describe the yogurt’s added sugar ingredient. But because the FDA is currently considering the scope and permissible usage of both terms, the court ordered a stay “until such time as the [FDA] completes its proceedings regarding the use of the terms . . . in food labeling.” The use of both terms “implicates technical and policy question that should be addressed in the first instance by the agency with regulatory authority over the relevant industry rather than by the judicial branch,” the court wrote, noting that it made no sense—and would be inefficient—to continue litigating the case while the FDA was mulling questions at the heart of the litigation.

Today’s ruling directly applies only to the Kane case, but other courts are likely to follow a similar path while awaiting guidance from regulators, rather than expending time and energy on continued litigation that could be rendered moot. The stay comes as other courts within the 9th Circuit and elsewhere are considering similar class actions involving alcoholic beverages, including from consumers claiming they were misled by labels calling popular products “handmade.” Although there are currently no pending FDA proceedings considering use of the term “handmade,” cases involving that word could also end up subject to a stay if that changes. As it is, some courts have dismissed such claims on the grounds that no reasonable consumer can believe spirits brands are “handmade” or because the use of such terms is non-actionable “puffery,” but others have been allowed to proceed.

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Maker’s Mark Defeats “Handmade” Class Action Lawsuit

Could consumers have plausibly believed that one of the country’s top-selling bourbon brands is “handmade”?  Not according to one federal district court in Florida, which recently dismissed a class action alleging Maker’s Mark deceived consumers by labeling its whiskey as “handmade.”  The decision by U.S. District Judge Robert Hinkle comes on the heels of a California federal court’s decision not to dismiss outright a similar consumer class action involving Tito’s Handmade Vodka.  Compare Salters v. Beam Suntory, Inc., 14-cv-659, Dkt. 31, (N.D. Fla. May 1, 2015) with Hofmann v. Fifth Generation, Inc., 14-cv-2569, Dkt. 15 (S.D. Cal. Mar. 18, 2015)).  These divergent opinions suggest that courts are still puzzling over just how much credence to grant putative class claims based on allegedly deceptive liquor labels at the motion to dismiss stage, particularly under the U.S. Supreme Court’s decision in Bell Atlantic Corp v. Twombly, 550 U.S. 544 (2007).  In Twombly, the Court made clear that plaintiffs must include enough facts in a complaint to make their claim to relief not just conceivable, but plausible—or else face dismissal.

Salters, the Florida case, is part of a wave of recently filed class actions accusing alcoholic beverage producers of violating state consumer protection statutes.  In the typical case, as here, the plaintiffs claim to have purchased the brand in reliance on allegedly deceptive labeling and contend they would not have purchased it or would have paid less otherwise.  The Salters plaintiffs claimed they were damaged because Maker’s Mark sold “their ‘handmade’ Whisky to consumers with the false representation that the Whisky was ‘handmade’ when, in actuality, the Whisky is made via a highly-mechanized process, which is devoid of human hands.”

Judge Hinkle flatly rejected the idea that this could support a claim.  Citing Twombly, he noted that although whether a label is false or misleading is generally a question of fact, a motion to dismiss should be granted if the complaint’s factual allegations do not “render plaintiffs’ entitlement to relief plausible.”  The court observed that taken literally, all bourbon is handmade, because it is not a naturally occurring product; construed less literally, which was apparently the plaintiffs’ approach, “no reasonable consumer could believe” that bourbon could be made by hand, presumably without commercial-scale equipment, “at the volume required for a nationally marketed brand like Maker’s Mark.”  In any event, court found the plaintiffs’ claims implausible under any definition of “handmade,” writing:

In sum, no reasonable person would understand “handmade” in this context to mean literally made by hand.  No reasonable person would understand “handmade” in this context to mean substantial equipment was not used.  If “handmade” means only made from scratch, or in small units, or in a carefully monitored process, then the plaintiffs have alleged no facts plausibly suggesting that statement is untrue.  If “handmade” is understood to mean something else . . . the statement is the kind of puffery that cannot support claims of this kind.

The court appears to have concluded that when applied to a product [...]

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