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Broomfield v. Craft Brew Alliance, Inc.

United States District Court, N.D. California, San Jose Division

September 1, 2017

THEODORE BROOMFIELD, ET AL., Plaintiffs,
v.
CRAFT BREW ALLIANCE, INC., et al., Defendants.

          ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT'S MOTION TO DISMISS [RE: ECF 16]

          BETH LABSON FREEMAN, United States District Judge

         Hawaii is a state as well as a state of mind. When adults want to escape the mainland, they can go to their local grocery store, purchase a package of Kona Brewing Company beer, and feel as though they are transported to the beaches of Hawaii. This case is about the importance of where that beer actually is brewed. Plaintiffs Theodore Broomfield, Sara Cilloni, and Simone Zimmer (collectively, “Plaintiffs”) allege on behalf of themselves and three putative classes of consumers, that Defendant Craft Brew Alliance, Inc. (“CBA”), doing business as Kona Brewing Company, intentionally misleads consumers into believing that Kona Brewing Company beer (“Kona beer”) is exclusively brewed in Hawaii.

         Before the Court is CBA's Motion to Dismiss Plaintiffs' Consolidated Class Action Complaint. Motion to Dismiss (“Mot.”), ECF 16; Consolidated Complaint (“Compl.”), ECF 15. Plaintiffs filed an opposition to CBA's motion to dismiss on May 26, 2017. (“Opp'n”), ECF 21. CBA filed a reply on June 9, 2017. (“Reply”), ECF 23. The Court heard oral argument on August 3, 2017 and thereafter took the matter under submission. The Court has reviewed the parties' briefing, the oral argument of counsel, and the robust legal authority involving food and drink labeling. For the reasons below, the Court GRANTS IN PART and DENIES IN PART CBA's Motion to Dismiss.

         I. BACKGROUND

         Defendant Craft Brew Alliance, Inc. (“CBA”) is a publicly traded conglomerate that acquired Kona Brewing Company (“Kona”) in 2010. Compl. ¶ 18. Prior to its acquisition by CBA, Kona had been brewing its beer in Hawaii since the company started in 1994. Id. ¶ 17. The Kona brand includes a variety of beer that references Kona's Hawaiian origins, including “Longboard Island Lager, ” “Big Wave Golden Ale, ” “Fire Rock Pale Ale, ” “Wailua Wheat Ale, ” “Hanalei Island IPA, ” “Castaway IPA, ” “Lavaman Red Ale, ” “Lemongrass Luau, ” “Koko Brown, ” and “Pipeline Porter.” Id. ¶ 22.

         Although Kona has a Hawaiian brewery that makes its draft beer sold in Hawaii, all of its bottled and canned beer, as well as its draft beer sold outside of Hawaii, are brewed in the states of Oregon, Washington, New Hampshire, and Tennessee. Id. ¶¶ 1, 19. Plaintiffs allege that Kona beer is packaged and marketed in a manner that is intended to mislead reasonable consumers seeking to purchase a Hawaiian-made beer. See, e.g., Id. ¶¶ 23-25 (“In essence, Defendants intentionally mislead consumers into believing that a small brewery in Hawaii - which it owns and operates - brews all of the Kona Brewing Co. Beers that Defendants sell on the mainland.”).

         Plaintiffs take issue with a number of representations on the packaging of Kona beer. The Consolidated Complaint contains various images of the packaging for six-packs and twelve-packs of beer to support Plaintiffs' arguments that CBA intended to create the impression that Kona beer is brewed in Hawaii and exported to the continental United States. See generally, Compl. For example, on the top of the box for twelve-packs of Kona beer there is an image of a map of Hawaii which marks the location of the Kona Brewing Co. Brewery on the Big Island. Id. ¶¶ 26, 32. The packaging of the twelve-packs also includes the statement: “We invite you to visit our brewery and pubs whenever you are in Hawaii.” Id. As for the bottles of Kona beer themselves, an image of the Hawaiian island chain and the phrase “Liquid Aloha” are embossed on the front of each bottle. Id.

         The packaging for each variety of beer is further adorned with its own Hawaiian-related images, including orchid flowers, volcanoes, palm trees, surfers, canoes, waterfalls, and hula dancers to match the theme of whichever beer is being marketed and sold. Id. ¶¶ 28-73. Each type of beer has its own slogan printed on the handle of the six-pack, such as “Thirst's Up!” on the package for Longboard Island Lager, “Catch a Wave!” for Big Wave Golden Ale, and “Crack Open Aloha!” for Koko Brown. Id. ¶¶ 30, 35, 70. Depending on the type of beer, the bottom of the package for the six-pack includes the image of a Hawaiian island, such as Oahu, the Big Island, or Molokai, next to a narrative and a description of the specific beer. Id. ¶¶ 31, 36, 41, 46, 51, 56. Plaintiffs allege that the only address listed on the packaging is “75-5629 Kuakini Highway, Kailua-Kona, Hawaii 96740.” Id. ¶¶ 32, 37, 42, 47, 52, 57, 60, 64, 67; but see CBA's Request for Judicial Notice (“RJN”), ECF 17, Exhibit E (Island Hopper Variety twelve-pack includes list of five brewing locations next to address in Kona, Hawaii). Plaintiffs assert that these “prominent references to and images of Hawaiian landmarks, traditions, history, and culture, taken in isolation and as a whole, are clearly designed to create the false impression that the Kona Brewing Co. Beers are brewed in Hawaii.” Id. ¶ 73.

         Separate and apart from the representations on the beer packaging, Plaintiffs allege throughout the Complaint that CBA misrepresents Kona beer as “craft beer” when it is not. See, e.g., id. ¶¶ 115, 116, 133. Plaintiffs base their assertion on statements made by a CBA executive on an earnings call in 2016 that discussed how “the Kona brand plays like a craft brand imported from Hawaii.” Id. ¶ 75. Moreover, CBA's 10-K filing with the Securities and Exchange Commission (“SEC”) states that “Kona Brewing is one of the most distinctive craft brewers with a broad portfolio of beers that reflect a uniquely Hawaiian flavor profile, a recognized track record in sustainable business practices, and deep ties to its local community as Hawaii's oldest and largest craft brewery.” Id. ¶¶ 78, 79. None of the Plaintiffs alleges that they relied on these “craft brew” representations.

         Specifically, Plaintiff Theodore Broomfield alleges that he purchased a twelve-pack of Kona's Longboard Island Lager from Walgreens in San Francisco. Id. ¶ 12. Plaintiff Sara Cilloni alleges that she regularly purchased Longboard Island Lager, most recently purchasing a six-pack in San Jose. Id. ¶ 13. Plaintiff Simone Zimmer alleges that she regularly purchased packages of Kona beer, including the Island Hopper Variety twelve-pack, which includes a selection of Kona beer. Id. ¶ 14. All three Plaintiffs allege that they saw and relied on the representations on the packaging of Kona beer, which varied based on the type of beer they purchased. Id. ¶¶ 12, 13, 14. Specifically, Plaintiffs allege they relied on the image of the map of the Hawaiian Islands which marks the location of the Kona Brewing Company Brewery on the Big Island. Id. Plaintiffs allege they believed the beer was brewed in Hawaii, and they would not have purchased Kona beer (or would have paid significantly less for it) had they known the beer was actually brewed in the continental United States. Id.

         Plaintiffs allege that CBA has intentionally capitalized on consumers' willingness to pay more for goods that are from Hawaii. See id. ¶ 82. These allegedly unfair and deceptive practices have harmed Plaintiffs and the purported classes of purchasers of Kona beer by causing them to pay a “premium” for Kona beer they bought under the mistaken belief that it was brewed in Hawaii. Id. ¶ 96. Plaintiffs seek to enjoin CBA from continuing to deceptively package Kona beer, and sue for damages. Id. ¶ 97.

         The putative class action is brought pursuant to Rule 23 of the Federal Rules of Civil Procedure and consists of three classes: (1) a Nationwide Class of “[a]ll persons in the United States who purchased any of the Kona Brewing Co. Beers within the relevant statute of limitations periods, ” (2) a California Subclass of “[a]ll persons, who are California residents who purchased any of the Kona Brewing Co. Beers, or who purchased any of the Kona Brewing Co. Beers within the State of California, during the relevant statute of limitations periods, ” and (3) a California Consumer Subclass of “[a]ll persons, who are California residents who purchased any of the Kona Brewing Co. Beers, or who purchased any of the Kona Brewing Co. Beers within the State of California, for personal, family, or household purposes during the relevant statute of limitations periods.” Id. ¶ 99. Plaintiffs assert nine causes of action against CBA arising from its marketing and sale of Kona beer. Specifically, Plaintiffs seek to represent the California consumer subclasses against CBA for the following causes of action (“COA”): violation of California's Consumer Legal Remedies Act (“CLRA”), Cal. Civ. Code §§ 1750, et seq. (First COA); unlawful, unfair, and fraudulent business practices in violation of California's Unfair Competition Law (“UCL”), Cal. Bus. & Prof. Code § 17200, et seq. (Second COA); false and misleading advertising in violation of California's False Advertising Law (“FAL”), Cal. Bus. & Prof. Code § 17500, et seq. (Third COA); breach of express warranty (Fourth COA); and breach of implied warranty (Fifth COA). Plaintiffs also seek to represent the California subclasses as well as the broader nationwide class of consumers on claims for the following causes of action: common law fraud (Sixth COA); intentional misrepresentation (Seventh COA); negligent misrepresentation (Eighth COA); and restitution based on quasi-contract/unjust enrichment (Ninth COA). See generally Compl. This Court has jurisdiction pursuant to 28 U.S.C. § 1332(a) and (d).

         II. LEGAL STANDARD

         A. Rule 12(b)(6)

         “A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted ‘tests the legal sufficiency of a claim.'” Conservation Force v. Salazar, 646 F.3d 1240, 1241-42 (9th Cir. 2011) (quoting Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001)). When determining whether a claim has been stated, the Court accepts as true all well-pled factual allegations and construes them in the light most favorable to the plaintiff. Reese v. BP Exploration (Alaska) Inc., 643 F.3d 681, 690 (9th Cir. 2011). However, the Court need not “accept as true allegations that contradict matters properly subject to judicial notice” or “allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences.” In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008) (internal quotation marks and citations omitted). While a complaint need not contain detailed factual allegations, it “must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim is facially plausible when it “allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id.

         On a motion to dismiss, the Court's review is limited to the face of the complaint and matters judicially noticeable. MGIC Indem. Corp. v. Weisman, 803 F.2d 500, 504 (9th Cir. 1986); N. Star Int'l v. Ariz. Corp. Comm'n, 720 F.2d 578, 581 (9th Cir. 1983). However, under the “incorporation by reference” doctrine, the Court also may consider documents which are referenced extensively in the complaint and which are accepted by all parties as authentic. In re Silicon Graphics, Inc. Sec. Litig., 183 F.3d 970, 986 (9th Cir. 1999), abrogated on other grounds by S. Ferry LP, No. 2 v. Killinger, 542 F.3d 776, 784 (9th Cir. 2008).

         B. Leave to Amend

         In deciding whether to grant leave to amend, the Court must consider the factors set forth by the Supreme Court in Foman v. Davis, 371 U.S. 178 (1962), and discussed at length by the Ninth Circuit in Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048 (9th Cir. 2009). A district court ordinarily must grant leave to amend unless one or more of the Foman factors is present: (1) undue delay, (2) bad faith or dilatory motive, (3) repeated failure to cure deficiencies by amendment, (4) undue prejudice to the opposing party, and (5) futility of amendment. Eminence Capital, 316 F.3d at 1052. “[I]t is the consideration of prejudice to the opposing party that carries the greatest weight.” Id. However a strong showing with respect to one of the other factors may warrant denial of leave to amend. Id.

         III. REQUEST FOR JUDICIAL NOTICE

         Before turning to CBA's motion to dismiss the Consolidated Complaint, the Court addresses CBA's Request for Judicial Notice (“RJN”), ECF 17. CBA requests the Court to take judicial notice of the earlier-filed complaints in each action that were eventually consolidated into the instant case. ECF 17, Exhibits A, B. Plaintiffs oppose this request and argue that the Consolidated Class Action Complaint is the operative complaint which “supersedes” the earlier complaints. ECF 22. CBA also requests judicial notice of images of the packaging for five varieties of Kona beer. ECF 17, Exhibits C-G. Plaintiffs do not oppose CBA's request for judicial notice of the product packaging.

         First, Exhibits C through G are properly subject to judicial notice because they are incorporated by reference into the Consolidated Complaint. See Knievel v. ESPN, 393 F.3d 1068, 1076 (2005). As for Exhibits A and B, though the Court may take judicial notice of public records, the original Broomfield and Cilloni complaints will not be noticed “for the truth of the matter asserted therein.” In re Bare Escentuals, Inc. Sec. Litig., 745 F.Supp.2d 1052, 1067 (N.D. Cal. 2010); see also M/V Am. Queen v. San Diego Marine Const. Corp., 708 F.2d 1483, 1491 (9th Cir. 1983). The Court does not take judicial notice of the legal reasoning or disputed facts contained in publicly filed court records, but rather considers only the existence of such allegations and arguments. See, e.g., Lee v. City of Los Angeles, 250 F.3d 668, 690 (9th Cir. 2001) (permitting a court to take judicial notice of another court's opinion, but not the truth of the facts recited therein).

         CBA argues that the Court should take judicial notice of the original Broomfield and Cilloni complaints for more than their existence. See generally RJN Reply, ECF 24. CBA asks the Court to compare the “conflicting reliance allegations” made in the Consolidated Complaint with the allegations in the original complaints. Id. 3. In fact, throughout its motion to dismiss, CBA repeatedly relies on allegations in the original Broomfield and Cilloni complaints that are not present in the Consolidated Complaint. See, e.g., Mot. 5-6 (“Plaintiffs' Consolidated Complaint conspicuously deletes all references to and images of Kona labels…along with references to Kona's website.”). This is improper. CBA contends that the Court need not “blindly accept the allegations in the pleadings as true if [the] allegations are contradicted by uncontested facts set forth in…facts that are included in materials that can be judicially noticed.” RJN 3 (citing Yang v. Dar Al-Handash Consultants, 250 Fed. App'x 771, 772 (9th Cir. 2007)). However, none of the cases cited by CBA involves a court taking judicial notice of conflicting allegations in a complaint that was subsequently amended or superseded by an operative complaint. This is because the Ninth Circuit recognizes the “well-established doctrine that an amended pleading supersedes the original pleading.” Ferdik v. Bonzelet, 963 F.2d 1258, 1262 (9th Cir. 1992), as amended (May 22, 1992); see also Loux v. Rhay, 375 F.2d 55, 57 (9th Cir. 1967) (“The amended complaint supersedes the original, the latter being treated thereafter as nonexistent.”) (citing cases), overruled in part by Lacey v. Maricopa County, 693 F.3d 896, 928 (9th Cir. 2012). This doctrine prevents the Court from comparing the allegations in Plaintiffs' original complaints to those in the operative Consolidated Complaint in deciding CBA's motion to dismiss. See Williams v. Cty. of Alameda, 26 F.Supp.3d 925, 936 (N.D. Cal. 2014) (“[T]he Court will not consider any facts in the first amended complaint (“FAC”) that are not pled in the SAC.”)

         The issue CBA raises regarding the conflicting allegations in Plaintiffs' earlier complaints could certainly become relevant as evidence against Plaintiffs, but it is not proper for the Court to consider the truth or weigh the credibility of such evidence in connection with a motion to dismiss. Id. (“While prior pleadings may be admissible in evidence against the pleader, the Court is bound to accept as true allegations in the operative pleading on a motion to dismiss and generally cannot consider evidence outside the pleadings without converting a motion to dismiss into a motion for summary judgment.”) (internal citations omitted). At this stage, the Court takes judicial notice of the original complaints for their existence only, including the figures and images of Kona beer product labels referenced in the original complaints. Plaintiffs are incorrect that the Court cannot take judicial notice of the images of the Kona beer labels in the original complaints, which are a matter of public record and not subject to reasonable dispute. Opp'n 3. However, the Court will not consider Plaintiffs' allegations of reliance on such labels in the original complaints.

         For the foregoing reasons, CBA's request for judicial notice is GRANTED.

         IV. DISCUSSION

         CBA moves to dismiss the Consolidated Complaint on multiple grounds. First, CBA argues that Plaintiffs' claims are not plausibly alleged because the representations on the packaging for Kona beer are, at most, non-actionable puffery or are qualified by a clear disclaimer. Mot. 9-11. Specifically as to the claims under California's consumer protection statutes, CBA argues the claims are not plausible because no reasonable consumer would be misled by the packaging. See Mot. 11-14. Second, CBA contends that Plaintiffs have failed adequately to allege claims for common law fraud, intentional misrepresentation, and negligent misrepresentation. See id. 14-16. Third, CBA argues that Plaintiffs' breach of express and implied warranty causes of action must fail because Plaintiffs do not allege facts to establish a promise that Kona beer was brewed exclusively in Hawaii. See id. 16-18. Fourth, CBA argues that Plaintiffs lack standing to pursue injunctive relief under California's consumer protection statutes. See id. 18-20. Fifth, CBA challenges Plaintiffs' ability to obtain equitable relief when an adequate remedy at law is available. See id 20-21. Finally, CBA takes aim at the putative nationwide class and asserts that Plaintiffs lack standing to bring claims on behalf of out-of-state consumers for violations of their state laws, and that claims by out-of-state consumers likewise fail for lack of personal jurisdiction over CBA. See id. 21-24. The Court addresses CBA's motion to dismiss with respect to each category of Plaintiffs' claims in turn below.

         A. Actionable Misrepresentations and the Reasonable Consumer Test

         At the outset, CBA argues that all of Plaintiffs' claims must be dismissed because the images and statements on the packaging for Kona beer are at most “mere puffery” and are not actionable misrepresentations. Mot 9. CBA goes on to argue that all of Plaintiffs' claims are based on the same “defective premise” that a reasonable consumer would be misled into believing that the Kona beer he or she purchased was brewed exclusively in Hawaii. Id. CBA's argument that no reasonable consumer would be misled by the beer packaging is appropriately directed toward Plaintiffs' first three causes of action for violations of California's consumer protection statutes. For the reasons below, the Court finds that Plaintiffs have adequately alleged that certain representations on the six- and twelve-pack packaging of Kona beer are actionable misrepresentations that are likely to deceive a reasonable consumer into thinking that the beer was brewed in Kona, Hawaii. Therefore, CBA's motion to dismiss on the grounds that Plaintiffs have not alleged actionable misrepresentations and that no reasonable consumer would be misled by the packaging is DENIED.

         Plaintiffs' first three causes of action in the Consolidated Complaint are for violations of California consumer protection statutes: the CLRA, UCL and FAL. See generally Compl. The CLRA prohibits unfair methods of competition and unfair or deceptive acts or practices; the UCL prohibits unlawful, unfair or fraudulent business acts or practices; and the FAL prohibits unfair, deceptive, untrue, or misleading advertising. Williams v. Gerber Prods. Co., 552 F.3d 934, 938 (9th Cir.2008) (citing Cal. Civ.Code § 1770, Cal. Bus. & Prof.Code §§ 17200 and 17500). Claims under the CLRA, UCL and FAL are governed by the “reasonable consumer” test, under which a plaintiff must show that “members of the public are likely to be deceived.” Williams, 552 F.3d at 938; Consumer Advocates v. Echostar Satellite Corp., 113 Cal.App.4th 1351, 1360 (2003). CBA separates their position into two parts: (1) the representations on the packaging of Kona beer are not actionable because they are either puffery or are objectively true; and (2) no reasonable consumer would be misled by the representations. These arguments are interrelated under the applicable reasonable consumer test. As such, the Court considers them together.[1]

         Under the reasonable consumer standard, Plaintiffs must allege facts to show that the alleged misrepresentations are “likely to deceive” reasonable consumers. Freeman v. Time, Inc., 68 F.3d 285, 289 (9th Cir. 1995); see also Lavie v. Procter Gamble Co., 105 Cal.App.4th 496, 508 (2003). Because the “reasonable consumer” inquiry is an objective standard, claims may be dismissed as a matter of law where an alleged statement amounts to “mere puffery” or “in the context, is such that no reasonable consumer could be misled” in the manner claimed by the plaintiff. Haskell v. Time, Inc., 857 F.Supp. 1392, 1399 (E.D. Cal. 1994) (citing Cook, Perkiss and Liehe, Inc. v. N. Cal. Collection Serv. Inc., 911 F.2d 242, 245 (9th Cir. 1990)).

         Courts have recognized that the deceptive nature of a business practice under California's consumer protection statutes is usually a question of fact that is inappropriate for decision on demurrer or a motion to dismiss. See Dumas v. Diageo PLC, No. 15-cv-1681, 2016 WL 1367511, at *3 (S.D. Cal. April 6, 2016) (citing Williams, 552 F.3d at 938); see also Linear Technology Corp. v. Applied Materials, Inc., 152 Cal.App.4th 115, 134-35 (2007) (“Whether a practice is deceptive, fraudulent, or unfair is generally a question of fact which requires ‘consideration and weighing of evidence from both sides' and which usually cannot be made on demurrer.”) ...


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