Locke Lord QuickStudy: Tito’s Case to Move Forward — Court Denies Motion to Dismiss

On March 18, 2015, a federal judge in San Diego issued an eagerly anticipated ruling on the motion to dismiss filed by Fifth Generation, Inc. (the producer of Tito’s Handmade Vodka), effectively denying Tito’s motion to dismiss the case. In issuing its ruling, the court became the first to offer an opinion on the merit of claims made in numerous similar cases filed across the country against a number of spirits producers.

The Plaintiff alleged that Tito’s misrepresents its product to consumers by calling it “handmade” when in fact the process involves machinery and is automated or mechanized in part. The case was based in large part on a 2013 Forbes Magazine article that described the original still, “cobbled from two Dr. Pepper kegs and a turkey-frying rig,” but was later replaced by “ten floor to ceiling stills . . . bottling 500 cases an hour.” According to the plaintiff, this renders Tito’s “handmade” claim misleading, and the statement “Crafted in an Old Fashioned Pot Still” to be deceptive.

Tito’s argued that the case should be dismissed because the label was approved by the Alcohol and Tobacco Tax and Trade Bureau (the “TTB”). TTB regulations prohibit false or misleading labeling. TTB’s approval of the label, Tito’s argued, meant that TTB had already found the label was not false or misleading, and that the plaintiff could not challenge the TTB’s decision in that regard. But the court ruled that the law did not require the court to defer to TTB’s approval of the label. The court stated that there was no evidence before the court that TTB had “specifically investigated and approved” the “Handmade” claim.

Tito’s also argued that no reasonable consumer could have been deceived about how vodka is produced, because everyone knows that a still is involved, and that a still is equipment that could arguably be considered a “machine.” But the court disagreed, saying that the distinction between an “old fashioned pot still” and a modern column still was a meaningful distinction, and one that a reasonable consumer might find significant when deciding to purchase a bottle of vodka.

Perhaps most important, the court commented on the plaintiff’s damage theory in a way that may make it very difficult for the plaintiff to certify a class later in the case. The judge emphasized the highly individualized nature of a consumer’s decision making, stating that maybe some consumers relied on the statement that the vodka was “handmade” while others didn’t care about that claim. That portion of the opinion is very helpful for Tito’s.

The ruling is significant because a number of cases have been filed against many other producers of spirits in which plaintiffs make similar allegations. The plaintiffs in each of these putative class actions claim that the purportedly deceptive labeling and marketing of the products allowed the producers to charge more for the product. In each case an individual or individuals seeks to represent everyone in the United States who purchased the product in issue in that case.

However, a motion to dismiss requires a court to assume that the allegations of a complaint are true. The denial of the motion in Tito’s case does not mean that the plaintiff’s allegations are correct – it merely means that the plaintiff will be given an opportunity to prove that they are correct. As a practical matter, it means that Tito’s now faces lengthy and expensive litigation or the prospect of seeking a class-wide settlement. While this case is an unfavorable development for the spirits industry, it is also only one trial judge’s opinion. It may influence other judges, it may not. These issues will be addressed by several other judges in other courts in the coming months.

For more information on the matters discussed in this Locke Lord QuickStudy, please contact the authors.