Many alcohol beverage industry clients are faced with lawsuits attacking product labels. These lawsuits can be frustrating for clients, particularly when the labels at issue were previously approved by the Alcohol and Tobacco Tax and Trade Bureau (TTB). But approval by the TTB does not insulate a company from a lawsuit under various state consumer protection and unfair trade practices statutes.

Try as companies may, even products that purport to conform with US regulations can still be characterized as “misleading” and “deceptive” by crafty and ambitious plaintiffs’ lawyers across the United States. Making matters worse, these lawsuits are typically styled as putative class actions, meaning the cases are brought by one or two alleged purchasers of the product, suing the company on behalf of all US purchasers of any allegedly deceptive product produced by the company, which makes both the defense of these suits as well as the potential damages quite costly.

An entire cottage industry of plaintiffs’ lawyers in the US focuses on just these types of putative class actions targeting the food, alcohol, beverage and packaged goods industries. Indeed, they file hundreds to thousands of new cases each year. So, what should a company do when facing allegations that a product label is deceptive or misleading?

In this post, we answer that question and provide an overview of the typical process in one of these cases. We also offer some practical tips to best protect your company if you are facing a threat of a lawsuit or if a class action lawsuit is filed against you.

BEFORE THE LAWSUIT IS FILED: PRE-SUIT DEMANDS

Many plaintiffs’ lawyers focused on suing alcohol industry clients send pre-suit demand letters, or letters asking for label changes and lofty payments in exchange for the plaintiff’s lawyer not filing a lawsuit. While one primary purpose of the pre-suit demand letters is to attempt to extort or extract a settlement from a company, there is another common purpose to these pre-suit demands. Many state statutes either require pre-suit notice or otherwise increase the types of recovery a plaintiff can pursue in a lawsuit if the pre-suit notice is served, such as in California.

If you receive a pre-suit notice demanding changes to your product label and/or payment of money, you should immediately engage a lawyer to step in and represent you. Additionally, a pre-suit notice often includes a demand to preserve documentation and evidence related to the allegations in the demand letter. If such documentation is not preserved, that can create significant issues for companies in a lawsuit.

The pre-suit notice period also offers an opportunity to persuade the plaintiff’s lawyer that there is no good faith or valid cause of action based on the allegations in their letter. To the extent those efforts are successful, you may avoid a lawsuit altogether. To the extent there is disagreement about the validity of the allegations, the notice period allows time to negotiate a pre-suit resolution on an individual basis which can be much cheaper than defending a nationwide class action. Most pre-suit resolutions require the company to share sales figures related to the at-issue products with the plaintiff’s lawyer before a specific demand will be made for a financial settlement of the case.

THE LAWSUIT IS FILED

If you do not receive a pre-suit demand, or if the notice period expires and a lawsuit is filed, you have an obligation to preserve potentially relevant documents, information and records. A lawyer can assist you in identifying what must be preserved.

In addition, servicing a filed lawsuit on a defendant starts the clock on responding to the complaint that contains the allegations against your company. Depending on the jurisdiction, you could have anywhere from 21 to 30 days to respond to the complaint from the date you were served. An experienced class action litigator can roadmap all the deadlines and strategies to respond to the complaint and prepare a defense strategy to defeat the case.

One method often employed is a motion to dismiss that challenges the sufficiency and plausibility of the allegations. This motion attempts to end a case early on by informing the court that there is no plausible legal claim that can be sustained based on the allegations against your company. Motions to dismiss are met with varying degrees of success and largely depend on the specific legal and factual allegations at issue in the case. They can, however, be an effective tool to try to end a case before it starts and to frame the issues for the judge and tell the defense story early on.

THE CLASS ACTION ASPECT OF THE LAWSUIT

As mentioned above, most of the lawsuits targeting alcohol industry labels are “putative” class actions, meaning they are styled as cases being brought by a few on behalf of all similarly situated consumers. The reason this procedure is utilized is to maximize the potential recovery for the lawyers bringing the lawsuit against the defendant company.

Retaining a lawyer with experience defending class actions is key to successfully navigating this stressful situation. An often-confusing element of a class action, particularly for companies based in foreign countries who are not as familiar with this procedure under US law, is that a class action involves whether common issues of law and fact predominate over individualized issues of fact or law. That is: Does the common fact, law and question make sense when compared to all of the individual facts, law and answers to those questions such that the class action is a more efficient mechanism than hundreds of consumers each suing individually?

That is an oversimplification of the class action process, but hey, this is a blog post.

Any putative class action must be defended both on the merits (did you do the alleged bad thing and was anyone harmed by it) and on the class action basis (are there predominating individualized issues that make a class action inappropriate). Winning the class action battle and avoiding a court certifying a case as a class action can be just as important as a victory on the merits.

The reality is, if you defeat class certification, the case effectively ends because there is not enough money in the individual consumer’s purchase of various alcohol products to make the case worthwhile for the plaintiffs’ lawyers.

Take, for example, a consumer who purchased five bottles of high-end liquor at $500/bottle:

• If the plaintiff was stripped of the total value of all five purchases because of some alleged deception or misleading label, that individual person is out, at most, $2,500.
• If the amount is doubled or tripled, there isn’t much money in a case like that for the lawyer.
• But, if a class of 10,000 consumers each experienced harm and damages of $2,500, that’s $25 million (of which the plaintiffs’ lawyers typically take 30 to 40%).

In other words, defeating class certification often ends a case as swiftly as winning the case on the merits.

CONCLUSION

You should avoid getting sued in a class action and avert this mess altogether, if possible. Having excellent alcohol regulatory counsel can help mitigate such risk.

But what should you do if you receive a pre-suit demand, or you get sued in a class action attacking one of your products? Here are a few practical steps to take:

• First, engage a lawyer with experience defending class actions.
  • Bonus points if the lawyer has experience with the opposing counsel themselves.
• Second, make sure you take steps to preserve evidence, information and documents related to the allegations. Your lawyer can help you navigate that.
• Third, provide notice, or otherwise inform key business stakeholders and any applicable insurance carriers.
• Fourth, obtain sales figures for the at-issue products for your lawyer to evaluate the general risk to the company in the case, and request a budget to evaluate the costs to defend various stages of the case.
• Finally, decide whether you want to stand up and fight or attempt to resolve the case. Unfortunately, there can be repeat demands sent by serial filers of these types of cases and settling one may foster a reputation that your company is an easy target for future payouts. Sometimes the right answer is to stand tall and defend the product. An experienced lawyer can help you navigate those difficult decisions.