Why it matters

A reasonable consumer could be misled by the label on Tito's Handmade Vodka, a New York federal court judge ruled in denying the manufacturer's motion to dismiss a putative class action suit alleging false advertising. The court determined that United States Alcohol and Tobacco Tax and Trade Bureau (TTB) approval does not create a safe harbor. Just because the federal agency reviewed the label, it did not conclusively determine that every claim that appeared on it complied with state law, the court found. The court allowed the false advertising suit to move forward, as the record failed to reveal that the TTB evaluated the merits of Tito's use of the term "handmade."

However, the ruling conflicts with other recent orders regarding the use of the term "handmade" in spirits advertising. For example, in Nowrouzi v. Maker's Mark Distillery, Inc., California Judge John A. Houston determined that the "handmade" claim was not a specific and measurable claim that could reasonably be understood to mean that "no equipment or automated process was used to manufacture the whiskey." Similarly, in September 2015, Florida Judge Robert Hinkle largely dismissed Shalinus Pye et al. v. Fifth Generation, Inc., case number 4:14-cv-00493 (N.D. Fla.), a proposed class action against Tito's after finding that the Oxford English Dictionary definition of "handmade" could not be used to literally describe vodka. Judge Hinkle also tossed a similar class action against Maker's Mark Distillery with similar allegations (Salters et al. v. Beam Suntory Inc. et al., case no 4:14-cv-00659 (N.D. Fla.)).

Detailed discussion

New York resident Trevor Singleton accused the company of deceiving consumers with label claims that its vodka is "Handmade" and "Crafted in an Old Fashioned Pot Still by America's Original Microdistillery." In addition, according to the complaint, the company's website repeatedly used the term "handcrafted" and explained the vodka is "made in small batches in an old fashioned pot still" and uses a "time honored method of distillation [that] requires more skill and effort than modern stills."

Singleton alleges, however, that Tito's vodka is actually manufactured and produced in "massive buildings containing ten floor-to-ceiling stills and bottling 500 cases per hour," and that the company misled consumers in an effort to capitalize on their preference for higher-quality vodka by charging a premium for its products. Singleton also alleged that the Distilled Spirits Council of the United States defines "craft spirits" as spirits produced in quantities under 40,000 cases a year—far fewer than Tito's allegedly produces.

Tito's countered with a motion to dismiss, arguing that federal and state regulatory approval of the Tito's Handmade Vodka label created a safe harbor that barred all of the plaintiff's claims. Failing that, the defendant told the court the plaintiff failed to state a claim under New York's prohibition on deceptive acts or practices.

New York General Business Law Section 349(d) states: "In any such action it shall be a complete defense that the act or practice is, or if in interstate commerce would be, subject to and complies with the rules and regulations of, and the statutes administered by, the federal trade commission or any official department, division, commission or agency of the United States as such rules, regulations or statutes are interpreted by the federal trade commission or such department, division, commission or agency or the federal courts."

Because TTB approved Tito's label, the company was safe from suit, it said.

But U.S. District Court Judge Brenda K. Sannes disagreed.

To receive a certificate of label approval (COLA), an entity must satisfy regulations that include a prohibition on using misleading brand names, or using labels that contain any false or untrue statements. Although Tito's argued that by approving its label the TTB determined it had complied with federal regulations and found the term "handmade" to be neither false nor misleading, the plaintiff said the TTB simply took the term at face value.

No New York court has applied a COLA from the TTB to a false advertising suit, the court said, and a review of cases from other jurisdictions involving similar safe harbor provisions and TTB approval of labels for alcoholic beverages yielded mixed results. Courts in California and Florida agreed with defendants, while different California courts (including in a case with nearly identical facts) and another in Illinois have sided with plaintiffs.

"In this case, based on the COLAs before the Court, it is not clear whether the TTB has determined that each representation on Tito's labels complies with the relevant regulations, as required to apply the safe harbor," the court said. "The record does not reflect whether the TTB investigated or ruled upon the representations that Tito's vodka is 'handmade' and 'crafted in an old-fashioned pot still.' The COLAs filled out by Defendant and certified by Defendant to be true and correct are simply market approved by the TTB."

In contrast, when Tito's added the term "Gluten-Free" to its labels, the COLAs approved the label based on a specific TTB ruling, pending rulemaking on gluten-free references by the Food and Drug Administration, the court noted.

"Although Defendant claims that the TTB specifically investigated and approved the 'Handmade' representation on the Tito's label, those facts are not properly before the Court," Judge Sannes wrote. "Moreover, the COLA application form states that the issuance of a certificate does not relieve Defendant from liability for violations of the Federal Alcohol Administrative Act, which itself prohibits false and misleading labeling, suggesting that TTB approval is not intended to carry preemptive weight."

As for the sufficiency of the plaintiff's claims, the court found Singleton had met his burden to survive a motion to dismiss. Applying an objective standard, and using the plaintiff's definition of handmade to encompass a product made with "certain basic tools … without complex automated machinery," the judge found that a reasonable consumer could be misled by the "handmade" language.

In particular, the court noted that together with language about use of an "old-fashioned pot still," the "handmade" claim "may suggest a hands-on, small-batch process that is not automated," when it is allegedly mass-produced in a highly automated one. "At this stage of the case, Plaintiff has plausibly alleged that Defendant's labels are deceptive or misleading in a material way because Tito's vodka is not made in a hands-on, small-batch process," Judge Sannes said. The plaintiff had stated an actual injury, she added, by alleging he paid a premium for the vodka.

The court did throw out Singleton's claims for breach of express warranty and negligent misrepresentation but allowed a claim for intentional misrepresentation to move forward.

To read the decision in Singleton v. Fifth Generation, click here.