Advertising Products as “Handmade” or “Handcrafted”? Beware: The Tito’s Vodka Class Action Continues…

In what has become a “new wave” of class action “labeling” litigation, Gary Hofmann sued Fifth Generation, Inc., the producer of “Tito’s Handmade Vodka,” on behalf of himself and an alleged class comprised of all Tito’s Handmade Vodka retail purchasers during the last four years.

Hofmann asserted four causes of action—statutory unfair competition, statutory false advertising, a violation of California’s Consumers Legal Remedies Act, and negligent misrepresentation—alleging that Tito’s labeling is false and misleading because its vodka-making process is, in fact, “highly mechanized” and “devoid of human hands,” despite being advertised as “handmade.”  Hofmann claims that as a result of this false advertising, he and other consumers paid inflated prices for vodka based upon the belief the vodka was handmade when, in reality, it was made using machines, and therefore not worth the purchase price.

In a much-anticipated ruling, on March 18, 2015, a California federal district court denied Defendant’s Motion to Dismiss, allowing the potential class of plaintiffs to pursue their claims.[1]

Fifth Generation moved to dismiss, arguing that Hofmann had not alleged (1) an economic injury or any other damages caused by Tito’s “handmade” labeling, or (2) causation. Thus, Fifth Generation argued, Hofmann lacked standing to pursue his claims.  The court, however, disagreed, noting that under California law “the extra money paid[] is economic injury and affords the consumer standing to sue,” where a customer pays more for a product than he or she would have been willing to pay had the product been labeled correctly. Thus, Hofmann pleaded injury. Likewise, Hofmann sufficiently pleaded causation (at least on his misrepresentation claim).

Under California law, there are two causation requirements that must be pleaded to tie a misrepresentation or statutory claim to economic injury: (1) the customer must be deceived by the label into spending money to purchase the product; and (2) plaintiff must allege that he or she would not have purchased the product otherwise. The court found that Hofmann pleaded both elements as to his negligent misrepresentation claim, but not for the statutory claims.

Fifth Generation also sought dismissal arguing that no reasonable consumer could believe that Tito’s Vodka was in fact handmade, thus defeating Hofmann’s statutory claims.  The court determined that a “reasonable consumer’s” interpretation of “handmade” could not be resolved without factual development. Consequently, the court permitted Hofmann’s negligent misrepresentation claim to proceed, but dismissed his statutory claims with leave to replead the elements, which he appears willing and able to do. As a result, the case against Tito’s continues.

Under Texas law, consumers may attempt to utilize common law negligent misrepresentation to make such claims or may attempt to bring a claim pursuant to the Deceptive Trade Practices Act (“DTPA”), which prohibits, among other conduct:

• Representing that goods or services have sponsorship, approval, characteristics, ingredients, uses, benefits, or quantities which they do not have.
• Representing that goods or services are of a particular standard, quality, or grade, or that goods are of a particular style or model, if they are of another.
• Failing to disclose information concerning goods or services which was known at the time of the transaction if such failure to disclose such information was intended to induce the consumer into a transaction into which the consumer would not have entered had the information been disclosed.

Tex. Bus. & Com. Code § 17.46. To assert any of these claims, however, a plaintiff must establish “economic damages.” Tex. Bus. & Com. Code § 17.50.  A consumer under the DTPA may establish economic damage with evidence of out-of-pocket damages or benefit-of-the-bargain damages.[2] On the other hand, damages for a claim of negligent misrepresentation under Texas law is limited to out-of-pocket expenses, or pecuniary losses, and benefit-of-the-bargain damages are unavailable.[3]

And the fight is not only over “handmade.”  A putative class action lawsuit over Jim Beam bourbon advertised as being “handcrafted” has likewise been filed. Other suits include a putative class action against Maker’s Mark (handmade) and against Angel’s Envy Rye (small batch whiskey and handcrafted).

Whether a product advertised as “handmade” or “handcrafted” violates Texas law—when the product is not in fact made or crafted by human hands—remains to be seen.  Because individual claims would be diminutive, the real question is whether a plaintiff can obtain class certification for such claims.

A class action requires commonality and predominance. That is, a class action must present “questions of law or fact common to the class” and those “questions of law or fact common to the members of the class predominate over any questions affecting only individual members.”  Tex. R. Civ. P. 42. Questions of reliance, in both the context of the DTPA and a negligent misrepresentation claim will likely require assessment of the individual circumstances surrounding the purchase.[4] Defendants in these cases should argue that where reliance issues predominate, the class action mechanism is inappropriate.[5] 

The Tito’s case, however, demonstrates that companies defending such claims must be prepared to fund defensive litigation at least through the class certification stage.  As a result, if your company advertises its product as “handmade” or “handcrafted,” when it in fact isn’t made by human hands, it may be time to consider the cost of rebranding versus the cost of defending against a potential class action lawsuit.

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[1] Hofmann v. Fifth Generation, Inc., 14-CV-2569 JM JLB, 2015 WL 5440330 (S.D. Cal. Mar. 18, 2015).

[2] W.O. Bankston Nissan, Inc. v. Walters, 754 S.W.2d 127, 128 (Tex. 1988). 

[3] Bank of Texas, N.A. v. Gaubert, 286 S.W.3d 546, 556 (Tex. App.—Dallas 2009, pet. dism’d w.o.j.).

[4] Tex. Bus. & Com. Code § 17.50 (requiring reliance by the consumer to establish DTPA violation); McCamish, Martin, Brown & Loeffler v. F.E. Appling Interests, 991 S.W.2d 787, 791 (Tex. 1999) (“negligent misrepresentation claims require reasonable reliance on the representation”).

[5] Sandwich Chef of Texas, Inc. v. Reliance Nat. Indem. Ins. Co., 319 F.3d 205, 211 (5th Cir. 2003) (“Fraud actions that require proof of individual reliance cannot be certified as Fed. R. Civ. P. 23(b)(3) class actions because individual, rather than common, issues will predominate.”); Gen. Motors Corp. v. Garza, 179 S.W.3d 76, 82 (Tex. App.—San Antonio 2005, no pet.) (“Generally, because reliance requires an individual finding regarding each class member, class certification is improper in cases like this in which reliance is an element of the cause of action.”).