Monday, May 22, 2023

Great balls of fire: lawsuit over malt sold looking nearly identical to whisky can continue

McKay v. Sazerac Co., 23-cv-00522-EMC (N.D. Cal. May 17, 2023)

The court rejected Sazerac’s motion to dismiss McKay’s usual California statutory and common law claims on behalf of a putative class based on Sazerac’s labeling and marketing of mini bottles of Fireball malt beverages, which look almost the same as Fireball Whisky.

image from complaint
Fireball Malt back

Did you know that Fireball Whisky has been sold since 1989 and is the fifth best-selling spirit in the United States? It’s Canadian whisky—a distilled spirit—with added cinnamon syrup and sweeteners, and is 66 proof (33%) alcohol by volume (ABV). It’s sold in many sizes, from 1.75L bottles to 50ML mini bottles. The label reads “Cinnamon Whisky.”

Fireball Malt debuted in 2020. It is a malt or wine-based beverage with added cinnamon syrup, sweeteners, and whisky flavors, and results in 33 proof (16.5%) alcohol by volume (ABV). It has no whisky and is only sold in 50ML mini bottles. The label reads “Cinnamon” and, in smaller font, “Malt Beverage With Natural Whisky & Other Flavors and Carmel Color.”

Because it’s not hard liquor, it can be sold in more locations, such as gas stations and convenience stores.

The court rejected Sazerac’s argument that it was protected by the safe harbor doctrine, which allows conduct that the legislature has specifically considered and permitted. Here, the Alcohol and Tobacco Tax and Trade Bureau granted a certificate of label approval (COLA) covering Fireball Malt. The regs say that a COLA may not be issued if the label contains “any statement or representation, irrespective of falsity, that is misleading to consumers as to the age, origin, identity, or other characteristics of the malt beverage” or if any label statement “directly creates a misleading impression or if it does so indirectly through ambiguity, omission, inference, or by the addition of irrelevant, scientific, or technical matter.” But “neither of these provisions clearly permit the type of representations made by Sazerac in the Fireball Malt label.” “To forestall an action under the unfair competition law, another provision must actually ‘bar’ the action or clearly permit the conduct.”

The claims here didn’t turn solely on Sazerac’s failure to use font of the minimum size required by a regulation or disclose added flavoring as required by another regulation. “Rather, it is the combination of the labeling and appearance that creates confusion between the whisky and malt bottles. Plaintiff’s claims are predicated on a comparative analysis of the two products in question. Importantly, there is no evidence that the TTB regulations address any sort of comparative analysis with other labels, or test for consumer confusion.”

As another court reasoned, “COLAs are too ‘informal’ to be considered regulations having the force of law. Compared to the ‘rigorous’ approval process for prescription-drug labels, the TTB process ‘hinges on self reporting’ and reflects only the representations made to it by the distributor, not an endorsement of those claims.”

The court also found fraud adequately pled, including for the statutory claims. The complaint plausibly alleged affirmative misleadingness given that the two products’ labels were “substantially the same,” including the brand name “Fireball,” Sazerac’s fire- breathing dragon logo, the words “RED HOT,” the same color scheme, burnt edge, font and labeling, and the words “CINNAMON.” Fireball Malt bore the ambiguous descriptor “Malt Beverage With Natural Whisky & Other Flavors and Carmel Color” and was packaged in a 1.7-oz, shot-size bottle “common for hard liquor.” The court rejected Sazerac’s argument that the other descriptors on the label make plain that Fireball Malt is a malt beverage, not a whisky, citing to the language of “Malt Beverage,” “ALC 16.5% BY VOL,” and “WHAT YOU HAVE HERE TASTES LIKE SMOOTH WHISKY WITH A FIERY KICK OF RED HOT CINNAMON” located on the back of the product.

Tasting “like” whisky didn’t clearly preclude a reasonable interpretation that it was or included whisky. “It is also not clear that consumers would carefully scrutinize the tiny print of ‘Malt Beverage’ and ‘ALC 16.5% BY VOL’ in light of the other flashier language and design of the packaging.” Ordinary consumers don’t have “an obligation to conduct extensive linguistic analysis on their grocery shopping runs.”

Sazerac further argued that McKay should have known that the products he bought in a gas station were not whisky because gas stations are not licensed to sell hard liquor. But a reasonable consumer “could well be unaware of which establishments hold which liquor license types. He may not know that a gas station store can sell malt but not whisky. This is especially so if he is making a quick roadside purchase. He might also assume that the store is not complying with the terms of its liquor license.” The complaint even alleged that “[o]ne radio personality who saw a huge Fireball display in front of the cash register at a gas station wondered if ‘that specific store was doing something they’re not supposed to be doing’ by selling ‘cinnamon flavored whiskey!!’” Nor would a reasonable consumer need to compare his purchase with other beverages in the vicinity to assess whether the store sold only beer/wine and malt. Sazerac argued that it has structured its distribution such that Fireball Whisky and Fireball Malt and never both placed in the same store. “But the reasonable consumer may not be aware of Sazerac’s distribution practices.”

McKay also successfully alleged concealment under the CLRA, FAL, and UCL. An actionable “omission must be contrary to a representation actually made by the defendant, or an omission of a fact the defendant was obliged to disclose.” Such an obligation arises when (1) “the omission was material,” (2) the omission relates to a fact that is “central to the product’s function,” and (3) one of four special circumstances exists, including partial representations that are misleading because some other fact has not been disclosed. That was alleged here.  

It was too early to tell whether equitable claims had to be dismissed because legal relief was sufficient; McKay also had standing to seek injunctive relief.

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