to the language and purpose of Section 5.34. The argument here is that consumers will believe that plaintiffs' product does not contain normal alcohol; this is deception regarding the contents of the product.
However, this claim by the Bureau that consumers will believe plaintiffs' products are poisonous lacks a rational basis and must be rejected outright. On its face, this claim is absurd, as plaintiff's product loudly proclaims that it is "vodka." Mere use of the term "death" in conjunction with the image of a grinning skull does not overcome the clear message of the label that the product contains vodka. This reasoning by the Bureau is "so implausible that it [can]not be ascribed to a difference in view or the product of agency expertise." Motor Vehicle Mfrs. Ass'n, 103 S. Ct. at 2867 .
Even if this claim were not absurd, it is contradicted by the Bureau's alternative reasoning. At the same time that the Bureau claims that the label mocks the dangers of alcohol such that consumers will believe that alcohol is not dangerous, the Bureau also claims that consumers will believe that "the product is inherently unsafe for human consumption at any level." April 1 Letter, at 2. The Bureau cannot have it both ways. While these two claims might be colorable when considered separately, they are contradictory when taken together. The Bureau's reasoning loses its credibility when it is so obviously self-abnegating.
Finally, the history of the BATF's consideration of this label totally undercuts the Bureau's claim that the label on its face leads consumers to believe the product is inherently dangerous. The Bureau admits that its decision to revoke the label approval was solely based on its "administrative expertise" in evaluating the effects of labels when they are considered in isolation. See Cates Declaration, PP 8-9. However, in 1989 and 1990, the Bureau twice approved identical labels in the same exercise of its expertise. Although the Bureau may have the authority to reverse a decision to approve a label, the fact that the Bureau has already approved a label undercuts its claim that the label was improper on its face.
In conclusion, the Court finds that plaintiffs are likely to prevail on the merits of their argument that the BATF's decision was "arbitrary or capricious." On this record, it appears that the Bureau's decision was primarily based on its concerns over the marketing of the vodka, and not on a concern that the consumers would be mislead regarding the vodka's contents. Section 5.34 does not permit the Bureau to regulate labels on this basis.
b. Constitutional Violations
(1) Due Process
In order for a person to enjoy the protection of the Due Process Clause of the Fifth Amendment, he or she must have a protected life, liberty or property interest. See U.S. Const., amend V ("No person shall . . . be deprived of life, liberty, or property, without due process of law"). Certificates of label approval such as those in question here create property interests because they are given for a potentially unlimited period of time and because their continued existence is essential to plaintiffs' livelihood. As such, the licenses create "important interests" which cannot be "taken away without the procedural due process required by the [Fifth] Amendment." See Bell v. Burson, 402 U.S. 535, 91 S. Ct. 1586, 1589, 29 L. Ed. 2d 90 (1971) (citing Sniadach v. Family Finance Corp., 395 U.S. 337, 89 S. Ct. 1820, 23 L. Ed. 2d 349 (1969), and Goldberg v. Kelly, 397 U.S. 254, 90 S. Ct. 1011, 25 L. Ed. 2d 287 (1970)); Richardson v. Town of Eastover, 922 F.2d 1152, 1156-57 (4th Cir. 1991).
The procedural requirements of the Due Process Clause vary according to context. At an absolute minimum, due process requires that an agency give a person adequate notice that a decision is being considered and give that person an opportunity for a hearing. See Logan v. Zimmerman Brush Co., 455 U.S. 422, 102 S. Ct. 1148, 1153, 71 L. Ed. 2d 265 (1982) (citing Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 70 S. Ct. 652, 656, 94 L. Ed. 865 (1950)). Whether a person must be given additional procedural protections depends on the importance of the private interests, the length and finality of a deprivation of a protected interest, the likelihood of government error, and the magnitude of the government interests involved. Id. at 1157 (citing cases). There is some support for the idea that revocation of a government license requires the revoking agency to afford a hearing where the licensee can present evidence and confront and cross-examine adverse witnesses; the agency may also be required to make factual findings based solely on the evidence properly made a part of the record at the hearing. See, e.g., Willner v. Committee on Character & Fitness, 373 U.S. 96, 83 S. Ct. 1175, 1180, 10 L. Ed. 2d 224 (1963); see also 4 Jacob Stein, Glenn Mitchell & Basil Mezines, Administrative Law, § 41.02, at 41-8 (1992).
The Court finds that the procedures in this case likely deprived plaintiffs of their right to procedural due process. Notice of the revocation was certainly given to plaintiffs in the form of the April 1 Letter and communications that followed in April, May, June and July of 1992. However, plaintiffs were given an inadequate opportunity for a hearing. The initial notice to plaintiffs stated that the Bureau had already made its decision and that plaintiffs had to stop selling their product within ten days. See April 1 Letter, at 1. If due process requires that plaintiffs be given an opportunity for a hearing, that hearing must come before the Bureau has made its final decision.
Beyond this, the subsequent meetings between officials at the Bureau and plaintiffs' representatives had serious deficiencies. The meetings were not transcribed, with the predictable result that the Court cannot resolve the factual disputes between the parties regarding what was said at the meetings. Moreover, the Bureau conducted these meetings in a way which apparently confused plaintiffs as to their significance and scope: for example, the parties dispute whether plaintiffs had a right to submit further materials after the April 30 meeting or whether the Bureau had made its final decision by that time. Next, the concession made at the hearing that the Bureau did not consider new evidence raises serious questions as to the constitutional adequacy of the hearing. If a person entitled to due process is offered only an opportunity to confront administrative expertise rather than evidence, the Bureau would seem to be required to identify the expert, the field of expertise, and the foundation for the opinion, rather than offer a simple pronunciamento. Such ad hoc procedures frustrate the important public concerns behind the requirement of due process.
Finally, the Bureau's decision was not made on the basis of an evidentiary record. Although the Bureau may be able to review initial label applications solely on the basis of its administrative expertise, this expertise does not necessarily provide a sufficient basis to revoke the right to use a label, especially after a certificate holder has heavily invested in that label.
Accordingly, without making a final determination of the constitutional sufficiency of the procedures offered to plaintiffs in this case, the Court finds that plaintiffs are likely to prevail on their claim that the Bureau violated their rights to procedural due process.
(2) First Amendment
As the "Black Death Vodka" label consists of speech, plaintiffs argue that the BATF's revocation of the label violates the First Amendment. The First Amendment does provide some protection of commercial speech. See Virginia State Bd. of Pharmacy v. Virginia Citizens Consumer Council, Inc., 425 U.S. 748, 96 S. Ct. 1817, 1823-25, 48 L. Ed. 2d 346 (1976). However, speech that is false and misleading is not protected by the First Amendment. See id. at 1830-31; Adolph Coors Co., 944 F.2d at 1547. Whether the "Black Death Vodka" label is misleading is precisely the issue considered by the Court in evaluating the legitimacy of the Bureau's finding of deception. Accordingly, as the First Amendment claim turns on the Court's ruling on the "arbitrary and capricious" claim, the Court will not now decide this issue.
c. Action in Excess of Statutory Jurisdiction
Plaintiffs next contend that the BATF lacked the authority to cancel the certificates of label approval once they had been approved. Without express statutory or regulatory authority, plaintiffs argue that the BATF cannot cancel a certificate of label approval. In making this argument, they rely on Jeager v. Simrany, 180 F.2d 650 (9th Cir. 1950). In Jeager the Immigration and Naturalization Service ("INS") issued a certificate of lawful entry to plaintiff. The INS subsequently attempted to revoke the certificate on the grounds that it was procured by falsification. Id. at 651. The Ninth Circuit held that the INS lacked the authority to revoke the certificate. The Court noted that the INS had specific statutory authority to cancel certain certificates, but that the relevant certificate was not included in the statute. Id. at 652-53. While the Ninth Circuit speculated that it may have been "an oversight on the part of Congress" not to have included the relevant certificate, it held that it was not up to the courts to cure the situation. Id. at 653. However, the Ninth Circuit went on to state:
It is also arguable that in the absence of the specific provisions of [the statute, the INS] Commissioner, under his general powers of regulation . . . could provide for the cancellation of all the various certificates issued by him or his deputies, but in view of the limitations inherent in the specific provisions of that section, that power cannot be held now to exist.
The BATF concedes that neither the statute nor the regulations expressly grant the Bureau the authority to cancel a certificate of label approval once it has been approved. See BATF Final Decision, at 7. However, the Bureau contends that it has implied authority to "reconsider and rectify errors even though the applicable statute and regulations do not expressly provide for such reconsideration." See Gun South, Inc. v. Brady, 877 F.2d 858, 862 (11th Cir. 1989). In the Gun South case, the court upheld a decision by the BATF to revoke a license to import assault rifles. Id. at 859-60. The Bureau argues that the holding of this case is more relevant to the situation faced here.
Without performing an extensive analysis of this issue, the Court decides for the purposes of this preliminary injunction that the Bureau does have the authority to revoke a certificate of label approval. This authority obviously is limited by the due process protections implicit in the fact that the certificates create property interests on the part of their holders. The Court need not conclusively decide this issue at present, however, as plaintiffs have demonstrated a likelihood of success on the merits of other claims.
Plaintiffs have demonstrated a likelihood of success on the merits of two claims. First, they are likely to succeed in demonstrating that the BATF's decision to revoke their certificates of label approval was "arbitrary and capricious." Second, they are likely to succeed in demonstrating that the Bureau violated their rights to due process by providing them with inadequate procedural protections. Accordingly, this prong of the preliminary injunction analysis weighs strongly in favor of enjoining the Bureau's decision to revoke the certificates.
2. Threat of Irreparable Harm
As the Court has found that there is a high likelihood of success on the merits, a preliminary injunction is required if there is any significant possibility of irreparable harm. See Miss World (UK), 856 F.2d at 1448. Plaintiffs attempt to demonstrate that the BATF's revocation of their certificates will cause them irreparable harm in two basic ways.
First, plaintiffs assert that without the "Black Death" label, they will be unable to sell vodka and therefore will go out of business. See Plaintiffs' Memorandum in Support of Support of Application for Temporary Restraining Order, at 24; Cabo Declaration, P 29; Supplemental Declaration of Federico Cabo, P 1. Based on the evidence in the record, the Court finds this claim to be unpersuasive in light of the Bureau's approval of the "Black Hat" labels. Revocation of the "Black Death" labels does not prevent plaintiffs from selling vodka; it only prevents them from selling vodka under the name "Black Death."
Plaintiffs attempt to ameliorate this weakness in their argument by asserting that they are contractually bound to use only the "Black Death" name. According to Federico Cabo, the agreement under which Black Death USA purchased the rights to the "Black Death" brand name requires Black Death USA "to use [the "Black Death" name] exclusively for any vodka which it market[s]." Cabo Declaration, P 32. This agreement has not been submitted to the Court, and based on the declarations that have been submitted, it is unclear to what extent V.T. Sigurdsson's retains rights to the "Black Death" name other than the right to receive royalties. However, given the fact that Black Death USA exists solely for the purpose of holding the rights to the brand name "Black Death," the Bureau's revocation would eliminate the corporation's raison d'etre.
Plaintiffs' second claim of irreparable harm is that loss of the right to sell vodka under the "Black Death" label will cause them to lose the benefit of all the consumer goodwill that has developed toward "Black Death Vodka." See Cabo Declaration, P 31. The Court finds this to be a very real possibility. Plaintiffs have invested over $ 1 million in promoting and marketing "Black Death Vodka." Id. PP 11-12. These efforts have largely focused on the word "death" in the label, as evidenced by the promotional slogan "drink in peace" and the packaging of the vodka in miniature coffins. To take away the name which makes plaintiffs' vodka distinctive to the alcohol consuming public would cause drastic if not irreparable harm to plaintiffs' ability to successfully market their product. This outcome is especially likely in light of the Bureau's apparent refusal to permit plaintiffs to note on the proposed "Black Hat" labels that the product was formerly named "Black Death Vodka." Id. P 31.
The Bureau attempts to counter this claim of irreparable injury by arguing that plaintiffs will be able to recover damages for any loss of sales. This is argument appears to be disingenuous, as the Court is not sure that plaintiffs will even be able to state a claim for damages against the Bureau; the Bureau's own position is that it may not be held liable for damages. Moreover, given the relative youth of plaintiffs' "Black Death Vodka" business, it may prove very difficult if not impossible to actually value plaintiffs' losses due to the Bureau's action. Accordingly, the Court gives the Bureau's argument very little weight on this motion for a preliminary injunction.
The probable effect of the Bureau's decision to revoke plaintiffs' certificates of label approval will be to eviscerate -- if not destroy -- plaintiffs' business. Even if sales of vodka could go forward under the "Black Hat" label, plaintiffs would lose all the goodwill and product identity under the "Black Death" label that they have worked hard to establish. This possible outcome easily constitutes irreparable harm.
The Court finds that plaintiffs are likely to succeed on the merits of its arbitrary and capricious claim and on its due process claim. Without ruling on the remaining arguments, plaintiffs have satisfied the first element of a claim for preliminary injunctive relief. Plaintiffs are also likely to suffer severe and irreparable injuries if the Bureau's decision is not enjoined, as a prohibition on use of the name "Black Death Vodka" could slash their economic prospects. Weighing these equities, the Court finds that both prongs of the test for preliminary injunctive relief have been met and accordingly ENJOINS the Bureau from revoking plaintiffs' certificates of label approval.
IT IS SO ORDERED.
Dated: July 22, 1992.
D. Lowell Jensen
United States District Judge