staff had, nor were they provided a written record of the procedures employed or actions taken in the exercise of authority revoking the "Black Death" label. Defendants argue that the expertise of Mr. Cates and Ms. Moberly comes from "decades of reviewing labels," but this general assertion of supposed expertise misses the point. The expertise relied upon to revoke the "Black Death" COLA apparently relates to knowledge of consumer perception and behavior, and to the assessment of the likelihood of consumer confusion in the market caused by the label and associated advertising of the product. It does not relate to the assumed expertise of Mr. Cates and Ms. Moberly to discern misimpressions conveyed by the label as to the product in the container.
Thus, in light of the plaintiffs' ability to meet the test in Eldridge, the existence of material facts in dispute, and the failure to provide an adjudication hearing before cancellation of the COLA, the Court finds that the plaintiffs have been deprived of their constitutional right to procedural due process.
2. Statutory Authority of the BATF.
Under the APA, agency decisions may be "held unlawful and set aside" if they are "in excess of statutory jurisdiction, authority, or limitations, or short of statutory right." 5 U.S.C. § 706(2) (West 1977). Plaintiffs argue that the BATF acted outside its statutory authority because "there is absolutely no delegation of authority to suspend or revoke COLAs in the FAA." Plaintiffs' Motion for Summary Judgment Brief, at 24. Defendants respond by arguing that the BATF has implied authority under the FAA to cancel a label that was erroneously issued.
The Court finds that there is no express delegation of authority in the BATF to suspend or revoke previously granted COLAs. While there is delegated authority to approve COLAs, the authority to revoke COLAs does not automatically derive from the authority to approve COLAs. Without statutory authority or regulatory authority, the BATF cannot cancel a certificate of label approval.
In Jeager v. Simrany, 180 F.2d 650 (9th Cir. 1950), for example, 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 such authority for 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.
The BATF 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." Defendants cite Gun South, Inc. v. Brady, 877 F.2d 858, 862-63 (11th Cir. 1989), in support of their argument. In Gun South, the BATF temporarily suspended an import permit for semiautomatic weapons upon discovering that it had previously issued the permit in error. The court upheld the decision by the BATF to revoke the license to import assault rifles because the initial approval was in error.
While there is some authority in support of the argument that agencies may reconsider their decisions even absent express statutory authority providing for such review, "an agency may undertake such reconsideration only if it does so within a reasonable time period and affords the claimant proper notice of its intent to reconsider the decision." Dun & Bradstreet v. U.S. Postal Service, 946 F.2d 189, 193 (2d Cir. 1991) (citing Bookman v. U.S., 197 Ct. Cl. 108, 453 F.2d 1263, 1265 (Ct. Cl. 1972)). In Bookman, the court held that the court "will sustain the reconsidered decision of an agency, as long as the administrative action is conducted within a short and reasonable time period." Id. at 1265 (citations omitted). The determination of "a short and reasonable period of time" depends on the balancing the desirability of finality in an agency's decision against the public interest in reaching a proper result. "What is a short and reasonable period will vary with each case, but absent unusual circumstances, the time period would be measured in weeks, not years." Gratehouse v. U.S., 206 Ct. Cl. 288, 512 F.2d 1104 (Ct. Cl. 1975). In Gratehouse, a former government employee who had resigned from his job sought back pay and reinstatement by reason of alleged procedural errors on the part of the Civil Service Commission for failing to hear his complaint that his resignation had been coerced. The court found that the government's offer of a Civil Service Commission hearing to consider plaintiff's accusation two years later was too long a period of time to be considered a reconsideration of its earlier decision to deny plaintiff the hearing. In this case, the BATF changed its mind and revoked the previously approved COLA three years after the original approval. Thus, although the BATF may be able to establish implied authority to reverse its actions in some circumstances, in light of the decisions in Bookman and Gratehouse and in the absence of any showing of "unusual circumstances" by defendant that would justify the three year delay in the BATF's reconsideration, the Court finds that the BATF lacked implicit authority to revoke plaintiff's COLA in this case.
3. Arbitrary and Capricious Action.
Even if the BATF had authority to revoke the COLA, the BATF acted arbitrarily and capriciously in violation of 5 U.S.C. § 706(2). Under the APA, agency decisions may be "held unlawful and set aside" if they are "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law." 5 U.S.C. § 706(2) (West 1977). The BATF's articulated reasons for revoking plaintiff's previously approved label are (1) that the label would lead consumers to falsely believe that the vodka was inherently dangerous, and (2) that by mocking the dangers of alcohol, consumers would be mislead into believing that alcohol is not dangerous.
a. Revocation based on the belief that consumers will think "Black Death Vodka" is poisonous was arbitrary and capricious.
The first claim by the BATF that consumers will believe plaintiffs' products are poisonous lacks a rational basis. Not only does it defy common sense to believe that the use of the term "death" in conjunction with the image of a grinning skull overcomes the otherwise clear indications on the bottle that the product contains vodka, but the two reasons put forth by the BATF for revoking the label are contradictory. The BATF claims that the "Black Death" label mocks the dangers of alcohol such that consumers will believe that alcohol is not dangerous, while also claiming that consumers will believe that the vodka is inherently unsafe for consumption. Defendants respond that the BATF's two reasons were not contradictory, but rather, the BATF meant that no matter how one viewed the label, it would create a misleading impression. Specifically, if the label was viewed facetiously, the label derided the detrimental effects of alcohol. If the label was read at face value, it would be misleading to the consumer who would think the product was inherently unfit for human consumption. When questioned at the hearing on this point, defendants conceded that consumers are not likely to believe the bottle contained a poisonous substance.
b. Revocation based on alleged mockery of the dangers of alcohol was arbitrary and capricious.
The BATF's revocation of plaintiff's label based on the alleged mockery of the dangers of alcohol was also improper. The BATF's regulations implementing the FAA Act do not authorize the BATF to generally regulate the marketing of alcoholic beverages; instead they authorize the BATF to regulate the labelling on the bottles of alcoholic beverages with respect to the content of the bottles. For the BATF to revoke a license, there must be a possibility of consumer deception as to what is contained within the bottle itself.
The FAA Act, 27 U.S.C.A. § 205(e) (West 1927 & Supp. 1992), the basis of the BATF's authority to regulate labels of distilled spirits, was intended to prohibit practices in the alcoholic beverages industry "that Congress had judged to be unfair and deceptive, resulting in harm to both competitors and consumers." Adolph Coors Co. v. Brady, 944 F.2d 1543, 1547 (10th Cir. 1991) (extensive discussion of legislative history of FAA Act as it relates to representations of alcoholic content). Based on the language of this statute, it is apparent that Congress was primarily concerned with consumer deception stemming from sellers' claims regarding the quantity and content of alcoholic beverages.
The Bureau regulations implementing the FAA Act are found in Title 27 of the Code of Federal Regulations. The regulation relied on by the Bureau in this case states that
No label shall contain any brand name, which, standing alone, or in association with other printed or graphic matter, creates any impression or inference as to the age, origin, identity, or other characteristics of the product unless the Director [of the BATF] finds that such brand name (when appropriately qualified if required) conveys no erroneous impressions as to the age, origin, identity, or other characteristics of the product.
27 C.F.R. § 5.34 (1991) [hereinafter "Section 5.34"]. Like the language of the FAA Act itself, this regulation authorizes the Bureau to evaluate brand names of alcoholic beverage products to determine whether the name is likely to mislead consumers regarding the nature of the contents of the beverage, i.e., the quality, quantity and physical characteristics of the alcoholic beverage within the container bearing the label.
Based on the language of the FAA Act and this regulation, the Court finds that the second reason given for revoking the label approval -- that the "Black Death" label mocks the dangers of alcohol -- necessarily relies on a concern which is not addressed by the FAA Act. The basic idea behind the reason asserted by the Bureau is that by parodying the dangers of alcohol, plaintiffs deceive consumers into believing that alcohol does not have deleterious effects on a person's health. At its root, it is a concern with the marketing of "Black Death Vodka" as it relates to perceptions of the safety of alcohol in general. This understanding of the Bureau's reasoning is supported by statements made by Terry Cates in the Wall Street Journal, where he was quoted as saying that "had we known the direction the point-of-sale advertising was going to take, I submit we wouldn't have approved [the label]."
Wall Street J., Apr. 3, 1992, at B3.
On its face, Section 5.34 does not authorize the Bureau to generally regulate the marketing of alcoholic beverages; Section 5.34 is a labeling regulation. There must be a possibility of consumer deception as to what it contained within the bottle itself in order for the Bureau to revoke the right to use a label. This understanding of Section 5.34 is consistent with the Bureau's practice in initially approving the labels, where the Bureau decides to approve a label only if the claims regarding the contents of the distilled spirits are borne out by a chemical analysis of the spirits. See, e.g., Letter from Jerry Bowerman to Ann Morse, dated July 24, 1989 (Exhibit A to Cabo Declaration) (chemical analysis of "Black Death Vodka" upon which initial label approval was based). Moreover, it is consistent with the structure of the regulations themselves: while Section 5.34 addresses statements made on product labels, an entirely different subpart of the regulations addresses the advertising of distilled spirits. See 27 C.F.R. subpt. H (1991) ("Advertising of Distilled Spirits").
In this case, there is no likelihood of consumer confusion as to what is contained in the bottle. The product is clearly labeled as " vodka." Plaintiffs' Motion for Summary Judgment Brief at 8. The BATF has provided no evidence that any customer has actually believed that the bottle contains poison or anything other than vodka, nor has it presented consumer surveys indicating that the product is associated in any way with alcoholism, alcohol poisoning, drunk driving, underage drinking, or any other manifestation of alcohol abuse.
Thus, the revocation of the "Black Death" label, based on the alleged mockery of the dangers of alcohol, was improper.
On this record, the BATF'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 BATF to regulate labels on this basis.
c. Revocation based on "death-evoking," misleading, or fanciful label was arbitrary and capricious.
To the extent the BATF's revocation of the "Black Death" COLA was due to the "death-evoking," misleading or fanciful nature of the label, the decision was arbitrary and capricious. The BATF has approved such "death-evoking" labels as "Cobra" malt liquor, "Blackened Voodoo" beer, "Vampire" wine, "Razor Edge" beer, "Wicked" ale, "M.A.S.H." vodka and "Scratch" beer. Plaintiffs' Motion for Summary Judgment Brief, at 11. For the BATF to single out plaintiffs' "Black Death" vodka COLA because it somehow mocks the seriousness of alcohol or misleads young people into believing it is part of a death cult is inconsistent and unfair to plaintiffs.
In addition, non-descriptive or even fanciful tradenames are a commonplace. "Wild Turkey" bourbon, "Moosehead" beer and "Apple" computers are a few examples. The BATF itself approved the label for "Black Hat" vodka with graphics nearly identical to the graphics on the revoked "Black Death" vodka COLA. And the BATF approved a label for "Sheep Dip" scotch even though it is highly unlikely that consumers would confuse the contents of a bottle so labeled with sheep-dip, a "liquid preparation of toxic chemicals into which sheep are plunged esp. to destroy parasitic arthropods (as lice, mites, keds, ticks)." Webster's Third New International Dictionary 2091 (1986).
4. First Amendment.
Plaintiffs argue that the BATF's revocation of the "Black Death Vodka" label violates the first amendment because the label constitutes protected speech. While the first amendment protects some commercial speech, 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), to the extent that the speech is false and misleading, it is not protected. Id. at 1830-31.
The determination of whether the label is misleading is the same as the determination under the "arbitrary and capricious" claim above. This Court finds no evidence that the label is misleading, however, even if it were, there would be less restrictive alternatives than outright prohibition of the label. Where commercial speech has a tendency to mislead, a disclaimer rather than outright prohibition is the appropriate remedy. Bates v. State Bar of Ariz., 433 U.S. 350, 375 (1977). Here, the government's prohibition of the "Black Death Vodka" label strikes at the heart of the first amendment. In light of the previous analysis, however, the Court finds no reason to decide this case on first amendment grounds.
The Court has thoroughly reviewed the evidentiary submissions in this case, and in light of the foregoing analysis, the Court is satisfied that no disputed genuine issues of material fact remain. The unresolved factual disputes already described do not affect the outcome of the case, and are, therefore, not material. Plaintiffs evidence establishes each element of the claims decided by this order, and meets the burden of the plaintiffs to demonstrate that they would be entitled to a directed verdict at trial. Defendants have failed to demonstrate a failure to state a claim upon which relief can be granted or to present evidence which, even if it is assumed to be true for purposes of this motion, would lead the Court to deny plaintiffs' motion for summary judgment.
The Court therefore ORDERS as follows:
1. Plaintiffs' motion for summary judgment is GRANTED.
2. Defendants' motion to dismiss or in the alternative for summary judgment is DENIED.
3. A status conference will be held by phone at 8:30 a.m., Pacific Standard Time, on December 9, 1992.
4. Plaintiffs are to prepare and file with the Court, within 20 days of the date of this Order, a proposed form of judgment consistent with this Order. Plaintiffs are to provide a copy of the proposed judgment to defendants and defendants may file any objections to the proposed form of judgment within 30 days of the date of this Order.
IT IS SO ORDERED.
Dated: October 22, 1992.
D. Lowell Jensen
United States District Judge