Yesterday Law360 reported that the maker of Four Loko -- a flavored malt beverage -- was sued in a putative nationwide class action. A quick review of the complaint reveals the dubiousness of the plaintiff's claims and, more importantly, demonstrates the sheer avarice underlying these sorts of "economic loss" class actions in the product liability context generally.
People have consumed alcohol and caffeine together for so long that their effects are common knowledge. Whether it's an Irish Coffee, a Rum & Coke, an Expresso Martini, or a popular "energy drink" and vodka, caffeinated alcohol drinks are far from uncommon. The distilled spirits used in mixing such cocktails often have more than 25 percent alcohol by volume. The defendant's Four Loko, according to the complaint, had between 6 and 12 percent alcohol by volume, depending on the state in which it was sold.
As the complaint reflects, over the last five years some in the public health community have voiced concerns about combining alcohol with caffeine. Certain studies mentioned in the complaint reported that young adults who made cocktails of vodka and a popular caffeinated "energy drink" did not perceive some of the effects of intoxication (e.g., drowsiness, impaired motor skills). The complaint paints a gruesome picture, attempting to blame Four Loko (rather than other beverages) for incidents of alcohol poisoning and deaths. Compl. para. 27.
But the complaint doesn't seek to compensate anyone who allegedly was physically injured by the product (although it doesn't exclude them from the class and presumably would bar their future claims through res judicata). And -- although it prays for a "corrective advertising campaign" -- it doesn't seek to stop the sale of product. That's because the defendant beat them to it: the manufacturer itself reformulated the product last year to address the concerns raised by the Food and Drug Administration, voluntarily removing the caffeine, taurine, and guarana from its product.
Instead, the plaintiff in this case is a woman who allegedly bought Four Loko Fruit Punch on two consecutive days last August "for a purchase price of approximately $3 per can" without "any warning of the particular dangers of drinking a caffeinated beverage with high alcoholic content." Id. at para. 30. She alleges that she and the class of all Four Loko customers across the nation "spent money purchasing Four Loko at a price premium when it actually had significantly less value than was reflected in the price [they] paid for it." Id. at para. 32.
The Bottom line: The class wants to be refunded part of the money they spent buying and drinking 23.5 ounce cans of "Four Loko" which clearly listed the ingredients caffeine, taurine and guarana, and (according to the plaintiff) was commonly referred to on the street as "blackout in a can." Id.at 19. And what could be the reason for this refund? The can didn't disclose the alleged "dangers of drinking a caffeinated beverage with high alcoholic content." Really?!
Like so many "economic loss" class actions, this is a lawsuit invented by lawyers to use the tool of aggregation to enrich themselves on the fiction that consumers actually suffered small injuries that make this a "negative value suit" susceptible to class treatment. Horsepuckey! Particularly in this case. No honest economist will be able to testify that a product purportedly referred to as "blackout in a can" had an inflated price because it failed to disclose risks. Period.
But beyond that, let's look at some of the other obstacles to certifying this class. To begin with, plaintiffs likely will not be able to build an economic model to support their price theory for much the same reasons that Judge Denise Cote listed in her opinion rejecting the "inflated price" theory in Weiner v. Snapple. Notably, the defendant here is in an even better position to say that it did not control retail pricing, since it is far removed from retail sales due to the "three-tier system" that keeps manufacturers from controlling wholesalers, who are similarly prevented from controlling retailers (both on-premise retailers and off-premise retailers).
Second, the class definition fails to exclude the (presumably vast majority of) class members who got exactly what they paid for and would make the same purchase again if the defendant had not voluntarily reformulated the product. This is a fundamental -- and likely irreparable -- failure of pleading. The fountain versus bottled Diet Coke cases are probably the best example of this strong defense argument. See State ex rel. Coca-Cola Co. v. Nixon, 249 S.W.3d 855, 861 (Mo. 2008); Oshana v. Coca-Cola Co., 472 F.3d 506 (7th Cir. 2006).
Next, look at the causes of action pled. Three out of four of them are California statutes: the Unfair Competition Law, the False Advertising Law, and the Consumer Legal Remedies Act (which doesn't even plead that the defendant has received and had a chance to respond to a proper notice letter). There is absolutely no basis for imposing California law on transactions that occurred in other states; the defendant is not even a California resident. And when was the last time you saw a nationwide class certified on the consumer protection statutes of the various states? Moreover, California case law in the last few years suggests that there is a causation requirement inherent in a restitution claim, and individual class members who were not deceived are not entitled to receive a partial refund on products they consumed and enjoyed.
The fourth and final cause of action -- "fraudulent concealment" -- is typically a means to do an end run around the statute of limitations. To the extent this cause of action is intended as a basis for recovery, it is "fraud." Fraud law varies considerably by state, and certainly requires individualized proof of reliance. There can be no class action on this count.
The whole issue of caffeinated alcohol beverages has, in my personal opinion, been horribly bungled by public health advocates and regulators who assail certain companies apparently to score media points while not insisting that everyone (brewers, distillers, makers of popular mixers, and bartenders who mix cocktails) play by the same rules. (I suppose I benefit from this selective "enforcement," as I enjoy drinking a particular unnamed double-expresso vodka on the rocks on rainy Fall football afternoons. And no one has gone after it -- yet. But I keep an extra case in my basement, on the off chance that consistency becomes a hobgoblin in some official's mind.)
Regulatory inconsistencies aside, make no mistake: this lawsuit, which was brought against a company that already voluntarily discontinued the sale of caffeinated alcohol beverages, has nothing whatsoever to do with public health. And it has nothing to do with compensating people who were surprised about the product they bought. This lawsuit is about the lawyers' fees, pure and simple. The thing that encourages me is that if the defendant sticks to its guns and makes the right arguments, this suit should be a dry hole for the lawyers who are speculating on it.