malt "cocktails" with no wine or spirits were plausibly misleading

Cooper v. Anheuser-Busch, LLC, 2021 WL 3501203, No. 20-CV-7451 (KMK) (S.D.N.Y. Aug. 9, 2021)

Plaintiffs alleged that the labels on the “Ritas” line of beverages (Lime-A-Rita Sparkling Margaritas, Sangria Spritz Sparkling Sangria Cocktail and Rosé Spritz Sparkling Rosé Cocktail, and Mojito Fizz Sparkling Cocktail) were deceptive and misleading, generating claims for (1) violations of §§ 349 and 350 of the New York General Business Law, (2) breach of express warranty, (3) common law fraud, and (4) unjust enrichment. The court partially granted and denied the motion to dismiss.

The Margarita Products allegedly prominently display “LIME-A-RITA” and “SPARKLING MARGARITA,” with an image of a margarita served with a salted rim and lime wedge in the fornt, but do not contain tequila; plaintiffs allege that a reasonable consumer expects tequila in a margarita. The fact that the products are malt beverages flavored to resemble a margarita are only disclosed in “a small font statement” on the bottom panel of the packaging. The allegations for the other products are similar. For example, plaintiffs alleged that the term “Spritz” is “well known as a wine-based cocktail.” The Mojito Products say “SPARKLING COCKTAIL,” and also have, e.g., small images of Collins cocktail glasses and a martini glass next to a number indicating how many cans of each flavor come in the package. (I have to admit, as a cocktail fan, I’m offended.)

"sparkling margarita"

"sparkling classic cocktails" (mojito, cosmo)

"Spritz": sangria, rosé

The plaintiffs also alleged that the misleadingness was enhanced by the market context. Other companies allegedly sell canned beverages with labeling such as “SPARKLING MARGARITA” (Jose Cuervo), “CLASSIC Margarita” (Salvador’s), or “Perfect Margarita” (BuzzBox), but they do have tequila. So too for canned mojitos, canned sangria, and canned rosé.

An actual canned margarita

The misleadingness arguments were not “patently implausible” or “unrealistic.” “To the contrary, Plaintiffs have cogently explained how reasonable consumers might be misled into thinking that the Products were canned cocktails, instead of ‘Flavored Malt Beverage[s].’ Such a mistake is not hard to imagine.” The dictionary agrees that a cocktail is a “usually iced drink of wine or distilled liquor mixed with flavoring ingredients,” a “margarita” is as “a cocktail consisting of tequila, lime or lemon juice, and an orange-flavored liqueur,” “rosé” is as a type of wine, “sangria” is a wine-based “punch,” and a “mojito” is a cocktail containing rum. It was “more than plausible” that a reasonable consumer viewing a package labeled “SPARKLING MARGARITA” would assume the beverage inside contained tequila, and so on. The imagery on the packages did little to dispel misconceptions and, if anything, would reinforce the impression of liquor/wine content.

Defendant argued that consumers would understand these merely as “flavor designators.” That didn’t work at this stage.

Alleged misrepresentations of quantitative aspects may be more easily dispelled by disclaimers than with qualitative characteristics. What about the “truffle oil” case? Well, that was nonprecedential, and also in the special context of “the most expensive food in the world.” Although the ingredient list was a factor, it wasn’t dispositive, and binding Second Circuit precedent says “[r]easonable consumers should not be expected to look beyond misleading representations on the front of [a] box to discover the truth from the ingredient list in small print on the side of the box.” Nor are the recent vanilla cases similar, despite defendant’s argument that these too are merely flavors with non-liquor/wine sources. Fairly construed, plaintiffs alleged that the whole beverage “purports to be something—a ‘margarita’—which it is not,” etc. Margaritas and mojitos can be distinguished from vanilla, “which generally serves as a flavoring agent in other products, as opposed to a discrete item one might order in a bar or restaurant.”
Defendants argued that context made deception implausible, including (1) federal regulations, (2) the “full context” of the packaging, (3) the setting in which plaintiffs purchased them, and (4) the labels of the comparator products.

Defendants argued that federal regulations allowed it to use “a cocktail name as a brand name or fanciful name.” But the regulations prohibit a malt beverage label from containing “[a]ny statement, design, device, or representation that tends to create a false or misleading impression that the malt beverage contains distilled spirits or is a distilled spirits product.” They don’t ban “[t]he use of a cocktail name as a brand name or fanciful name of a malt beverage, provided that the overall label does not present a misleading impression about the identity of the product.” Thus, plaintiffs’ theory was fully consistent with federal regulations. The target of this Action is not Defendant’s use of “a cocktail name as a brand name or fanciful name.”

What about the full context of the packaging?  References to (1) “Ritas,” (2) “ ‘sparkling’ drinks,” and (3) a “wide variety of flavors in both words and images” did not make it “obvious” that these were malt beverage. Anheuser-Busch suggested that because it was “synonymous with beer,” reasonable consumers would conclude that there was no wine or liquor in the products. [Hmm, I wonder if it wants to be bound by that argument at the TTAB?] First, the court wasn’t about to accept that claim as fact at this stage. Second, “Anheuser-Busch” or “A-B” didn’t appear in the images in the complaint, so how would consumers know? Third, “Ritas” and the other flavors/images in the packages wouldn’t obviously mean “no liquor/wine.”

What about the fact that NY doesn’t allow sales of wine and liquor in convenience and drug stores like those in which plaintiffs purchased the products? Although “reasonable consumer[s] do[ ] not lack common sense,” at this stage, the court wasn’t going to resolve questions regarding “the background knowledge, experience[,] and understanding of reasonable consumers” as a matter of law. What consumers know about alcohol regulations “cannot be resolved without surveys, expert testimony, and other evidence of what is happening in the real world…. A consumer’s mistaken assumption that she can purchase a beverage containing wine or distilled liquor in a drug or convenience store is not comparable to a consumer’s putative belief that an ‘Angus’ breakfast sandwich sold for under $5 at Dunkin Donuts is an actual, ‘intact’ steak, or that a ‘mass produced, modestly-priced olive oil [is] made with ‘the most expensive food in the world.’ ” Contextual discrepancy based on price is different from contextual discrepancy based on state alcohol laws, “something that may be far less obvious to the reasonable consumer.”

Comparator products “expressly state that they contain spirits and wine.” Thus, defendant argued, reasonable consumers expect a product that does have liquor/wine to state as much explicitly. Surprising me, the court is most sympathetic to this argument, but it still can’t be resolved on a motion to dismiss. (I would think that instead, the fact that there are actual canned cocktails out there means that consumers are far less likely to read through the full label to see that this “mojito” is not.)

And, of course, putting “flavored malt beverage” on the bottom of the package isn’t enough at this stage. The court wasn’t persuaded that “disclosures aren’t dispositive” only applies when there’s an express claim about ingredients or a suggestion that a particular ingredient dominates; there’s no coherent distinction between those situations and these ones.

Materiality: Under GBL §§ 349–50, a material misrepresentation is one that is “likely to mislead a reasonable consumer acting reasonably under the circumstances.” “In other words, the materiality requirement is incorporated in the legal standard courts use when evaluating whether plaintiffs have adequately pled the second element of a deceptive labeling claim. It does not form some quasi-distinct element that plaintiffs must separately satisfy.” Certainly the court couldn’t say that the type of alcohol was immaterial to a reasonable consumer.

Injury: Plaintiffs alleged that, had they known the products were merely flavored malt beverages that did not contain tequila, wine, or rum, they would not have purchased the them, or would have paid considerably less for them. Defendant argued that more should be required here, especially since plaintiffs brought comparator brands into the complaint without disclosing their prices. At this stage, the allegations of a price premium were enough.  “Although plaintiffs sometimes point to comparators in support of a price premium claim, a plaintiff is not required to do so in order to allege injury.”

The breach of express warranty claims failed for lack of sufficient pre-suit notice, and unjust enrichment was duplicative.

Fraud claims failed because the allegations didn’t establish a “strong inference” of fraudulent intent. “[S]imply alleging a defendant’s self-interested desire to increase sales does not give rise to an inference of fraudulent intent,” and the complaint didn’t allege “strong circumstantial evidence of conscious misbehavior or recklessness,” though this was a closer call. Plaintiffs alleged that defendant ran an ad in which the speaker appears in front of a wine cellar, but that wasn’t enough. 

“The outcome might be different, for example, if Plaintiffs had plausibly alleged that Defendant was aware of consumers’ preferences for beverages with distilled liquor or wine, and then deliberately marketed the Products as such in order to capitalize on that market,” or that “Defendant was losing market share because of competition from canned cocktail manufacturers, and then decided to market its malt beverages deceptively as ‘cocktails’ to salvage its position in the market for alcoholic beverages.” So maybe they’ll replead.