Drunk Suing, Another Round: Court Allows False-Labeling Claim on “Hawaiian Beer” to Proceed

indexWe have been covering a legal action against Kona Brewing Company (now renamed Broomfield v. Craft Brew Alliance), which is one suit in the larger trend of class actions against breweries alleging misleading or false labeling and advertising.  In that suit, Judge Beth Labson Freeman, who sits on the U.S. District Court for the Northern District of California (a.k.a. the “Food Court”), recently ruled on Kona’s motion to dismiss.

Though the court trimmed the complaint, dismissing several of the plaintiffs’ causes-of-action and requests for relief, it held that the crux of the allegations could proceed.  The result is that, through strategic pleading, Kona must spend its time and resources fighting a lawsuit with questionable merits.  Judge Freeman created perverse incentives for future litigants by choosing to become, in essence, a product-packaging regulator.

The plaintiffs filed a putative class action against Kona, alleging that the company’s Hawaiian-themed packaging motivated them to purchase, at a higher price than competing products, Kona’s beer. The company’s branding strategy included the use of such alluring phrases as “Liquid Aloha” and “Catch a Wave.”

Further, several of the twelve-pack boxes feature a map of the Big Island, with a star identifying Kona’s Hawaiian headquarters and inviting customers to visit the brewery.  However, because all Kona beer sold in the continental United States was brewed stateside, not in Hawaii, the plaintiffs’ claimed that Kona’s packaging was false and misleading.

The plaintiffs craftily singled out language and images on the packaging for the six- and twelve- packs of beer, rather than the individual beer labels themselves.  Unlike the external packaging, the labels specifically identified the five mainland breweries at which Kona produced all of the beer it sold in the continental United States.  The plaintiffs sought monetary and injunctive relief.

In its motion to dismiss, Kona argued that its packaging contained non-actionable puffery and, alternatively, did not confuse the reasonable consumer.  Noting that the two theories were entwined, the court addressed them together.  Under the “reasonable consumer” test, the plaintiffs could succeed on their claims if they demonstrated that members of the public are likely to be deceived by Kona’s products.

At the outset, the court noted that such a determination is often a question of fact best left for trial.  Kona pointed the court to another recent misrepresentation case against a brewer, Dumas v. Diageo PLC, where the plaintiffs alleged that the defendants’ Red Stripe Beer misled consumers through its slogan “The Taste of Jamaica.”  In Dumas, the court granted the defendants’ motion to dismiss because it held that the slogan was too “vague and meaningless” to actually mislead consumers into believing the beer was brewed in Jamaica.

The district court agreed that Kona’s slogans like “Liquid Aloha” and “Catch a Wave” were as equally vague and meaningless as Red Stripe’s slogan.  However, the court noted that Kona’s packaging went further.  The map of Hawaii which specifically identified the location of Kona’s island brewery, and its invitation to visit the Hawaiian location, did “more than evoke the ‘spirit’ of Hawaii or indicate that the beer is ‘Hawaiian-style.’”  Instead, this messaging was concrete enough, according to Judge Freeman, that consumers could assume that the beer they purchased was brewed in Hawaii, not the continental United States.

The district court was similarly unpersuaded by Kona’s listing of mainland brewery locations on its beer’s labels.  The complaint rested its allegations solely on the product’s outer packaging, making any disclaimers on the labels irrelevant.  As the court noted: “Reasonable consumers are ‘not required to open a carton or remove a product from its outer packaging in order to ascertain whether representations made on the face of the packaging are misleading.’”

Judge Freeman did grant Kona’s motion to dismiss the claim for injunctive relief, finding that the plaintiffs did not have standing to pursue such a remedy.  The court emphasized that the plaintiffs could not demonstrate redressability because an injunction would not actually remedy their injury.  Whether they were once deceived, the plaintiffs now know that the Kona beer they could purchase is brewed in the continental United States.  Therefore, they cannot, by definition, be further harmed by any misleading packaging because they know the truth.  Without an ongoing injury, plaintiffs do not have standing to seek an injunction.

By leaving most of the complaint intact, the court allowed the lawsuit to continue into the expensive and time-consuming class-certification process.  This is an unfortunate setback for Kona, who must now spend even more money defending the plaintiffs’ dubious claims.  There is little chance that the plaintiffs will ultimately be able to prevail on class certification, because consumers have numerous reasons for deciding to purchase a given product.  Even less of a chance exists that they can provide a sound method for calculating damages.

Despite that, facing the prospect of a national class-action, Kona now has an oversized incentive to settle.  We hope that doesn’t happen, because if it does, the plaintiffs’ lawyers will simply invest their earnings into another round of lawsuits while Kona drinkers will have to pay higher prices.

Also published by Forbes.com on WLF’s contributor page.

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