Antitrust and Unfair Competition Law

Locally Brewed – NOT! Northern District of California Finds UCL Claims Against Brewery for Deceptively Representing that its Beer is Brewed in California are Plausible

Daniel Macioce, Intern
Federal Trade Commission

In an action for false advertising brought under California’s Unfair Competition Law (UCL) and Consumer Legal Remedies Act (CLRA), Northern District of California District Court Judge John Tigar partially denied defendant 21st Amendment Brewery Café’s (21st Amendment) motion to dismiss.  Peacock v. 21st Amendment Brewery Café, No. 17-cv-01918-JST, 2018 WL 452153, at *1 (N.D. Cal. Jan. 17, 2018).  The decision involves a putative class action alleging that 21st Amendment’s website and on product labels, which feature a map and description of the company’s original brewery site in San Leandro, California, deceptively represent that its beer products are made entirely in the San Francisco Bay Area, when in fact some of its beers are made elsewhere, including in Minnesota.   

Background

Peacock brought this putative class action after paying a “premium price” for 21st Amendment’s “Brew Free! Or Die IPA” and “Hell or High Watermelon Wheat Beer.”  Id.  Peacock alleged that 21st Amendment’s website and the beers’ packaging and labeling misled consumers into believing that 21st Amendment brewed its beers exclusively in the San Francisco Bay Area, even though it brewed some of it—including the cans that Peacock purchased—in Minnesota.  Id.  Specifically, Peacock points to the map of the San Francisco Bay Area printed on the carton, statements on 21st Amendment’s website pertaining to the brewery’s origins in the San Francisco Bay, and the label on the can, which—Peacock claims—suggests the beer was brewed in San Leandro, California.  Id.  But for his belief that the beer was brewed exclusively in California, Peacock would not have purchased these beers.  Id

In ruling on 21st Amendment’s motion to dismiss, the court considered several significant issues, including 1) whether Peacock alleged actionable misrepresentation under the UCL and CLRA; 2) whether Peacock’s UCL claim adequately alleged that that 21st Amendment’s labels were unlawful under the Sherman Food, Drug, and Cosmetic Law; 3) whether 21st Amendment’s compliance with federal labeling laws entitles it to safe harbor protection; and 4) whether Peacock’s CLRA claim was adequately alleged.  See id. at *4–9.

The Court’s Motion to Dismiss Ruling

The UCL prohibits business practices that are “unlawful, unfair, or fraudulent,” as well as “unfair, deceptive, untrue or misleading advertising.”  Cal. Bus. & Prof. Code § 17200 (West, Westlaw through Ch. 2 of 2018 Reg. Sess.); Peacock, 2018 WL 452153, at *3.  Similarly, the CLRA proscribes an enumerated list of “unfair methods of competition and unfair or deceptive acts or practices,” including representations that goods have characteristics that they do not have.  Cal. Civ. Code § 1770(a)(2) (West, Westlaw through Ch. 2 of 2018 Reg. Sess.); Peacock, 2018 WL 452153, at *3.  Under both statutes, a misrepresentation is actionable only if a reasonable consumer would likely be deceived by it.  Peacock, 2018 WL 452153, at *4 (quoting Ebner v. Fresh, Inc., 838 F.3d 958, 965 (9th Cir. 2016); and then quoting Broomfield v. Craft Brew All., Inc., No. 17-cv-01027-BLF, 2017 WL 3838453, at *5 (N.D. Cal. Sept. 1, 2017)). 

Applying this “reasonable consumer” test, the court found actionable misrepresentation to be adequately alleged, because a reasonable consumer would likely be deceived by a Bay Area map printed on the beer cartons, wherein an “X” marked the location of “The Brewery.”  Id. at *5.  However, claims pertaining to the website and the labels on the cans were insufficient under this standard.  See id. at *4–5.  Although the website spoke of 21st Amendment’s origins in the Bay Area, it also stated that some of the beer is brewed in Minnesota.  Id. at *4.  Similarly, the label on the cans—stating “Brewed & Canned by 21st Amendment Brewery, San Leandro, CA”—was not likely to mislead consumers, since this statement reasonably could refer to the location of 21st Amendment’s headquarters.  Id. at *5. 

In addition, the court dismissed Peacock’s UCL claim that 21st Amendment’s conduct was unlawful because the beer’s labeling violated FDA regulations incorporated into California’s Sherman Food, Drug, and Cosmetic Law (Sherman Law).  Id. at *6; seeCal. Health & Safety Code § 110100(a) (West, Westlaw through Ch. 2 of 2018 Reg. Sess.) (adopting federal food labeling regulations as state law).  Noting that Federal Rule of Civil Procedure Rule 9(b)’s heightened pleading standard for claims of fraud applies to the “unlawful” prong of the UCL, the court held that Peacock had not satisfied Rule 9(b)’s particularity requirement, because he failed to identify which of the many FDA regulations incorporated into the Sherman Law was violated.  See id. at *6.  In addition, the court held the FDA’s regulations to be inapplicable to alcoholic beverages and cited this as an additional ground for dismissing the claim.  Thus, the court dismissed claims predicated on violations of the Sherman Law.  Id.

The court next considered whether 21st Amendment was entitled to safe harbor protection as a result of its compliance with federal laws regulating the labeling of alcoholic beverages.  Id. at *6–7.  California’s consumer protection laws, including the UCL and CRLA, recognize a safe harbor exception where the conduct at issue is clearly and explicitly permitted by law or where another provision bars the action under consumer protection laws.  Id. at *6.  Important to the court’s reasoning, federal regulations promulgated under the Federal Alcohol Administration Act evinced no “intent to occupy the field or limit consumers’ remedies,” nor were those regulations “inconsistent” with California’s consumer protection laws.  Id. at *7.  Thus, because the federal regulations did not explicitly bar the present action, the court held that 21st Amendment was not entitled to safe harbor protection.  Id.

Turning to the issue of whether Peacock’s CLRA claim was adequately alleged, the court ruled that Peacock had not complied with the Statute’s notice requirement.  Id. at *7–8.  The CLRA requires a consumer to give thirty days’ notice of “the particular alleged violations” of Section 1770 prior to bringing an action.  See Cal. Civ. Code § 1782(a); Peacock, 2018 WL 452153, at *7.  Although Peacock had provided notice to 21st Amendment prior to filing suit, the court found that notice to be “clearly inadequate” because it did not state with particularity the alleged violations.  Peacock, 2018 WL 452153, at *8.  As a result, 21st Amendment could not have known which of its practices were in violation of the CLRA or “what . . . to do about it.”  Thus, the court dismissed Peacock’s CLRA claim in its entirety.  Id.  However, the court granted leave to amend the claim, provided that Peacock first satisfy the notice requirement.  Id.

Conclusion

Only a portion of Peacock’s UCL claim—relating to the map printed on the cartons of beer and the “unfair” and “fraudulent” prongs of the UCL—survives the motion to dismiss.  See id. at *4–6.  Although the CLRA claim could ultimately be amended, Peacock’s argument likely faces a significant uphill battle.  First, the court cautioned that its holding on the issue of actionable misrepresentation should not be interpreted to mean that Peacock’s argument is “particularly compelling,” suggesting that it would be a difficult case for Peacock.  See id. at *5 & n.4.  Moreover, the court deferred to the class certification stage the issue of whether the class of “all purchasers of 21st Amendment beer” is overbroad.  Id. at *10.

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