Antitrust Law Daily Wrap Up, ADVERTISING—N.D.Ill.: Deceptive advertising claims against rye whiskey distributor partially survived dismissal, (May 19, 2015)

By Michael Menzhuber, J.D., LL.M.

A restaurant owner’s claims that a liquor distributor falsely advertised that its rye whiskey was an artisanal, craft product—but was in fact a mass-manufactured grade-alcohol product—survived in part and were dismissed in part by the federal district court in Chicago (Aliano v. Whistlepig LLC, May 18, 2015, Finnegan, S.).

Background. Mario Aliano, an individual and restaurant owner, purchased a bottle of WhistlePig Straight Rye Whiskey for his restaurant and another bottle for himself. The rye whiskey was distributed by WhistlePig, LLC and Goamericago Beverages. The defendants marketed WhistlePig as an artisanal, craft whiskey produced on a small farm in Vermont from certified organic rye grown on site. They also set up a WhistlePig website that supported the production process as being a small farm-based operation. In reality, however, WhistlePig was distilled and aged in a Canadian factory that produced industrial-sized quantities of beverage-grade alcohol.

Aliano’s decision to purchase the two bottles of WhistlePig was based on the research that he conducted on various brands of whiskey and the representations that each brand made in their marketing and advertising materials. Had he known that WhistlePig was made from mass-produced whiskey distilled and aged in Canada, he would not have purchased it.

Aliano filed a class action, alleging that he, his restaurant, and other consumers and businesses had purchased “hundreds of thousands” of bottles of WhistlePig at a premium prices without knowing the truth about its production. Aliano’s suit asserted four causes of action. Count I alleged violation of the Vermont Consumer Fraud Act (VCFA), 9 V.S.A. §2451 et seq. Count II alleged violation of the Illinois Consumer Fraud and Deceptive Practices Act (ICFA), 815 ILCS § 505/1 et seq. Count III sought damages and injunctive relief stemming from violation of the Illinois Uniform Deceptive Trade Practices Act (IDTPA), 815 ILCS § 510/2 et seq. Count IV sought a claim for restitution and unjust enrichment.

The defendants move to dismiss the complaint for failure to state a claim under Federal Rules of Civil Procedures 12(b)(6). Count I was dismissed for lack of standing because it claimed a violation of the VCFA, while Aliano, and the other plaintiffs, were Illinois residents. The defendants argued that the ICFA and IDTPA claims in Count II and III should be dismissed because (1) neither Aliano nor the other plaintiffs alleged that they suffered any actual or future damage; and (2) the allegation of fraud was not pled with the requisite particularity. The defendants also argued the allegations of fraud, based on deceptive statements appearing on WhistlePig’s label, were barred because the label had been pre-approved by federal regulators.

Damages under the Illinois Consumer Fraud and Deceptive Practices Act. To state a claim under the ICFA, there must be an allegation and proof that, among other things, the plaintiff was deceived by the misrepresentation. The defendants argued that Aliano, and the other plaintiffs, did not plausibly alleged that they were deceived by WhistlePig’s statements and omissions because they have filed similar lawsuits against other distilleries that challenge the exact same marketing practices.

The court, however, was satisfied that the allegations of actual deception sufficed to defeat the defendant’s motion to dismiss. Specifically, the court determined that the allegations were more than adequate to plead the elements of damage and proximate causation because: (1) Aliano conducted certain research into various brands of whisky; (2) that research did not disclose that WhistlePig was distilled and aged in Canada; (3) he purchased the product at a premium price; and (4) he would not have purchased the product if had known that the product was distilled and aged in Canada.

Damages under the Illinois Uniform Deceptive Trade Practices Act. The court dismissed the restaurant’s claim for damages because the only remedy under the IDTPA is injunctive relief. The defendants argued that injunctive relief should also not be granted because the restaurant’s IDTPA claim failed to allege facts indicating that, absent injunctive relief, it would likely be damaged in the future.

The restaurant tried to overcome the “future damages” hurdle by alleging that if WhistlePig was not purchased to be served at the restaurant, the restaurant would lose customers who wanted to drink WhistlePig. On the other hand, if they did serve WhistlePig, they would lose business from customers who objected to paying a premium price for a non-premium whisky. After finding this argument convoluted and speculative, the court granted the defendants’ motion to dismiss.

Particularity of fraud allegations. The defendants argued that the fraud allegations in Counts II and Counts III were not pleaded with the specificity required by Federal Rules of Civil Procedure 9(b), which mandates that the circumstances constituting fraud or mistake must be stated with specificity. The plaintiffs alleged that Aliano saw the defendants’ misrepresentations on the WhistlePig website, bottle labels, and in marketing and advertising materials found on Internet websites. The defendants asserted that these allegations failed to identify the specific marketing and advertising statements made by the defendants, the specific person who made the statements, when they were made, and how they were made.

The court determined that the plaintiffs provided sufficient detail regarding the allegedly misleading statements Aliano saw on the WhistlePig website and on the product label. However, the court determined that the allegations that Aliano was misled by other Internet websites and marketing and advertising materials were not pleaded with the requisite specificity because they did not identify those websites or marketing and advertising materials.

The defendants also argued that their motion to dismiss should be granted because many of their alleged statements about WhistlePig, such as where the bottles are filled, are true. However, the court found that the purported truth about the plaintiffs’ allegations was not a basis for granting a motion to dismiss Counts II and III.

Regulatory approval. The defendants argued that the plaintiffs cannot recover for fraud that is based on the allegedly false statement, “HAND BOTTLED AT WHISTLEPIG FARM, SHOREHAM, VERMONT”, because the label had been approved by the Alcohol and Tobacco Tax and Trade Bureau (TTB), the federal agency responsible for enforcing labeling requirements for alcoholic beverages. The court noted that both the ICFA and IDPTA contain “safe harbor” provisions protecting statements that have been authorized by government regulators.

After a review of cases that interpreted the language in these safe harbors, and applying these principles to the TTB’s labeling process, the court was not convinced that a Certificate of Label Approval constituted sufficient government authorization to invoke the statutory safe harbor provisions. Specifically, the court noted that there was no evidence that TTB affirmatively investigated or confirmed the validity of the “hand bottled” representation or established criteria for the use of the term. It also found that it was not clear whether the TTB label approval process was akin to those in the highly regulated industries where the safe harbors had been found to apply. The court, therefore, denied the defendants’ motion to dismiss the allegations of fraud that were based on statements appearing on the WhistlePig label.

The case is No. 14 C 10148

Attorneys: Thomas A. Zimmerman, Jr. (Zimmerman Law Offices, PC) for Mario Aliano, and Due Fratelli, Inc. Michael D. Hayes (Varga, Berger, Ledsky, Hayes & Casey) for WhistlePig LLC, and GoAmericaGo LLC.

Companies: Due Fratelli, Inc.; WhistlePig LLC; GoAmericaGo LLC

Cases: Advertising StateUnfairTradePractices IllinoisNews