Kentucky bourbon distilled in Indiana?

Victory Global, LLC v. Fresh Bourbon, LLC, 2022 WL 785039, No. 5:21-62-KKC (E.D. Ky. Mar. 14, 2022)

Both parties are “owned by African Americans, and both sell bourbon.” Plaintiff operates under the name Brough Brothers Distillery. Brough Brothers claims to be the “first and, and presently, the only African-American owned bourbon distillery in the Commonwealth of Kentucky .....” Fresh Bourbon allegedly falsely advertises that Fresh Bourbon is the “first black-owned bourbon distillery in Kentucky,” and makes other related false claims, which is allegedly false because it’s not a distillery, which requires both federal (TTB) and Kentucky (KABC) licenses. Fresh Bourbon responded that it distilled its “Fresh Bourbon brand of Kentucky bourbon in cooperation with an appropriately licensed Kentucky distillery.” Brough Brothers alleged Lanham Act false advertising, common law unfair competition and tortious interference, and a claim under a Kentucky statute that prohibits use of false brands to deceive consumers.

Fresh Bourbon counterclaimed for Lanham Act false advertising. Although Brough Brothers began distilling bourbon at a distillery in Louisville, Kentucky in December 2020, that bourbon isn’t yet on the market. “All of the Brough Brothers bourbon currently on the market was distilled in Indiana,” and thus it allegedly isn’t “Kentucky bourbon.” Likewise, Fresh Bourbon alleged that Brough Brothers does not own a distillery in Kentucky because it does not own the building in which it is currently distilling bourbon.

First, Fresh Bourbon, a direct competitor, had constitutional and statutory standing. Second, there was no preclusion by state and federal alcohol regulations. Although relevant laws require alcohol labels to be truthful and nonmisleading, that isn’t enough for preclusion. POM Wonderful LLC v. Coca-Cola Co., 573 U.S. 102 (2014), reasoned that the FDCA and the Lanham Act complemented each other, and market competitors have extra expertise in assessing unfair competition; so too here. Even though the FDA doesn’t preapprove all ads or labels, whereas the TTB has to approve labels for any distilled spirit, that wasn’t significant. What did matter was lack of an express preclusion provision, especially since the FDCA and the Lanham Act had coexisted for the entirety of the latter’s existence; if there was a problem requiring preclusion, Congress probably would have done something about it. This was also true here. “[T]he Court finds this especially significant and powerful evidence that Congress did not intend TTB oversight to be the exclusive means of ensuring the proper labeling of bourbon and other distilled spirits.”

As for the state law claims, Kentucky has some specific requirements for whiskey labeling, and the KABC can revoke a licensee’s permit for any violations of the statute. But that didn’t create state law preclusion either. Indeed, a Kentucky statute provides that “a person injured by the violation of any statute may recover from the offenders such damages as he sustained by reason off the violation....” “Thus, the Kentucky legislature, far from indicating that competitors may not pursue claims for violations of the state’s whiskey labeling requirements, appears to have granted them a private right of action.”

But did Fresh Bourbon state a claim? Only in part.

Brough Brothers conceded that its bourbon currently on the market was distilled in Indiana but argued that this bourbon was aged and bottled in Kentucky. Thus, the counterclaim had to focus on whether a “Kentucky bourbon” must be distilled in Kentucky.

But the bottle label—on the back—“explicitly states that the bourbon was distilled in Indiana.” So this was like Pernod Ricard USA, LLC v. Bacardi U.S.A., Inc., 653 F.3d 241 (3rd Cir. 2011), where Bacardi’s “Havana Club” rum could not have deceived reasonable consumers about Cuban origin because it said—on the front—that it was “Puerto Rican Rum” and on the back that it was “distilled and crafted in Puerto Rico.” So too here. True, the label contains “drawings of various images, some of which are associated with Kentucky.”

But the Brough Brothers bourbon currently on the market does have some association with Kentucky. The bottle label states it was bottled here. Further, the Brough Brothers are themselves from Kentucky. The bottle label states this also. The Kentucky-associated images do not specifically indicate that the bourbon was distilled in Kentucky. Furthermore, to the extent any consumer might get that impression, the back of the bottle label explicitly states that the bourbon is “DISTILLED IN INDIANA.” Thus, much like the label at issue in Pernod Ricard, the Brough Brothers label could not mislead any reasonable consumer about where the bourbon inside was distilled.

OK, a couple of comments. (1) As to Pernod Ricard, my students noted that, given pervasive mainlander confusion about whether “Puerto Rico’s in America,” that disclosure might well have been insufficient to avoid deception, and (2) on the front and on the back are different things, as tons of consumer protection cases hold, especially given the existence of Kentucky-associated images on the front. The court thought that any uncertainty generated by the front of the bottle would have been dispelled by the back—but reasonable consumers do not necessarily read the entire label, especially if they think they know the answer based on the front; why would they check, given the Kentucky imagery? This certainly seems inappropriate to resolve as a matter of law. Compare Kay v. Copper Cane, LLC, 549 F.Supp.3d 1014 (N.D. Cal. 2021). But I will note it as an example of using a normative, rather than a descriptive, concept of the reasonable consumer.

However, Fresh Bourbon also alleged that the Brough Brothers “website and promotion” of its bourbon currently on the market also uses Kentucky references and imagery to suggest that the bourbon was distilled in Kentucky. Allegedly, “nowhere on the Brough Brothers Internet website do they acknowledge that their bourbon is Indiana Bourbon, or at least not Kentucky bourbon,” but instead claim to be “Kentucky’s first African-American owned distillery.” This could mislead a reasonable consumer about where the bourbon on the market was distilled.

What about the “distillery” claim itself, where Brough Brothers allegedly didn’t own the building?

Brough Brothers’ statement that it owns a distillery is not a false or misleading statement of fact about its product or services. … It is common practice … for business owners to lease the facilities from which they operate their businesses. An individual who operates a coffee shop out of a leased space can truthfully state that he owns a coffee shop; … and a licensed distiller that operates a distillery out of a leased space can truthfully state that it owns a distillery. These statements would not lead a reasonable consumer to believe that the business owner owns the building from which it operates its business.