Federal Court Denies Four Loko Motion to Dismiss Putative Class Action

A federal court in New York has denied a motion to dismiss a consumer fraud action against the company that makes Four Loko®, a beverage allegedly containing high alcoholic and caffeine content and sold without disclosing “possible negative health effects.” Yourth v. Phusion Projects, LLC, No. 11-1261 (N.D.N.Y., decided September 27, 2012). The defendant contended that the court lacked subject matter jurisdiction on the ground of mootness “because defendant has offered ‘to fully refund any amounts that Plaintiff paid for Four Loko as well as any fees and costs he incurred.’”

Noting that the circuit courts have split over whether a defendant can moot
a putative class action by offering to satisfy the plaintiff’s demand before a
motion for class certification is filed, the court concluded that “unless plaintiff has unduly delayed in moving for certification, defendant’s offer of full relief does not moot the action.” According to the court, the plaintiff did not
unreasonably delay moving for certification given that the dismissal motion
was made two weeks after the plaintiff amended his complaint.

The defendant also argued that federal law expressly preempts the plaintiff’s state law claims “that defendant failed properly to warn of the alleged harmful effects of caffeinated alcoholic beverages.” Observing that the defendant had placed an appropriate warning label on its product, as required by federal law, relating to “any health hazards that may be associated with the consumption or abuse of alcoholic beverages,” the court determined that this federal warning requirement was not intended “to preempt state law requiring warnings regarding a non-alcoholic ingredient that may have adverse health effects of its own.” The court also stated, “[n]or is there any reason to construe the [Alcoholic Beverage Labeling Act (ABLA)] as intended to preempt state law requiring warnings regarding an adverse health effect of the combination of a non-alcoholic ingredient and alcohol, where the adverse health effect is distinct from that posed by alcohol alone.”

The court further rejected the defendant’s argument that compliance with
ABLA labeling requirements entitles the company to the benefit of a safe
harbor under the state’s general business law. According to the court, “the
deceptive practice alleged by plaintiff here is conduct that is not subject
to the ABLA, because plaintiff does not complain of defendant’s failure to
warn of the health risks of alcohol consumption per se. Thus, [defendant’s] compliance with the ABLA is no defense.” The court also disagreed with the
defendant’s assertions that the plaintiff’s deception and unjust enrichment
claims were insufficiently pleaded.