Lawsuit against Templeton Rye maker gets green light

A lawsuit alleging that whiskey maker Templeton Rye deceived consumers received approval to proceed from the state attorney general's office, a signal that the lawsuit's claims are not frivolous.

Under a 2009 state law that allows consumers to file class-action lawsuits against companies for fraud, the Iowa attorney general's office must first evaluate the lawsuit and sign off if its claims are found to have validity, said Bill Brauch, director of the office's Consumer Protection Division.

Though largely a formality, it is an acknowledgment that Templeton Rye could be found liable for violating Iowa law if allegations of consumer fraud and misleading advertising are found to be true, Brauch said.

Taken at face value, the claims against the rye whiskey producer appear "not even remotely close to frivolous," he said. "In looking at the claims, they appeared to me to be ones that had validity, and in fact, strong validity."

If the class action is successful, a judgment or settlement could give future Templeton Rye drinkers a discount on the product, said Ray Johnson, a West Des Moines consumer protection attorney. Often in similar cases, it can be hard to identify all the members of a class, making coupons an attractive option, he said.

Proving that consumers paid more for the whiskey believing that it was made in Iowa will be key to the lawsuit, Johnson said.

Additionally, Brauch last week approved the filing of a second consumer fraud class-action lawsuit against Templeton Rye from another Chicago law firm, he said. Illinois court records indicate that the second lawsuit has not been filed yet.

The whiskey company did not respond to an email request for comment.

Attorneys with Edelson PC in Chicago filed a lawsuit earlier this month against the Carroll County-based whiskey company, which since 2006 has sold bottles of its "Prohibition-era" rye whiskey. In marketing materials, such as T-shirts and event advertisements, the company has said the whiskey is "made in Iowa," according to the lawsuit.

In August, however, the company's chairman and a co-founder told The Des Moines Register that the company in actuality buys stock rye whiskey from an Indiana distillery, MGP Ingredients, and does not actually produce the whiskey using a Prohibition-era recipe.

Drinkers paid more for bottles of Templeton Rye than they normally would have because of advertising that was misleading about the alcohol's roots in Iowa, according to the lawsuit. Looking, for instance, at how Iowa wines are marketed gives weight to the idea that consumers place a higher value on locally made brands, Johnson said.

At stores, local wines are often in their own specially labeled section and sell for higher prices, Johnson said.

"Iowa can develop certain industries by promoting 'made in Iowa' or grown here," he said. "These claims are material and they need to be true.

"My personal opinion is this is a no-brainer. ... If you say something is Iowa-made, most of it or material parts of the product need to be made in Iowa."

However, the whiskey company could argue that its production processes allowed it to claim a made-in-Iowa status, said Marsha Mansfield, a professor at the University of Wisconsin's law school who teaches consumer law. After the whiskey is distilled and aged in Indiana, it is shipped to a Templeton facility and blended with other whiskeys, water and other ingredients, the company has said.

It's likely that the production process will be highlighted in court at some point, Mansfield said.

"That's going to be a question for expert witnesses to address, how the manufacturing process of making this particular product works," she said. "What are they using locally in order to make the final product? Is the fact that it's bottled in the state good enough?"

Under Iowa law, the plaintiff's attorneys do not have to show that the Templeton Rye makers intentionally tried to trick consumers to prevail on charges of consumer fraud, Brauch and Johnson said. The attorneys must show only that it was "likely" buyers were misled, Johnson said.

The company's intention, however, could factor into a judge's decision on awarding monetary or other damages, both said.

The lawsuit, however, does allege that the company made intentional decisions to deceive drinkers, such as originally keeping the fact that the whiskey is distilled in Indiana off the bottle.

"Defendant had the opportunity to design, distribute and orchestrate its marketing to disclose the actual origins of its Templeton Rye but instead chose to design misleading marketing that concealed the true origin of its whiskey," the lawsuit said.

The lawsuit will most likely be watched by many in the growing craft distilling industry, said Wayne Curtis, a freelance journalist who writes about spirits for the Atlantic. However, Curtis said he believes the lawsuit is "opportunistic" and overlooks the fact that Templeton Rye and others based on the MGP Ingredients recipe are, overall, quality whiskeys.

Media coverage is forcing Templeton Rye and other craft distillers to be more transparent about the source of their products without any need for class-action lawsuits, Curtis said.

"It was not a bait-and-switch kind of thing, other than on the marketing side," he said. "It's not like they're promising craft and giving them some swill made in a Third World country."

What's next?

The next major step in the lawsuit against Templeton Rye will be a decision by a judge over whether to "certify" the class, which will determine whether the lawsuit moves forward as a class action, said Ray Johnson, a West Des Moines consumer protection attorney.

The lawsuit names the class as "all individuals in the United States who've purchased a bottle of Templeton Rye." The company has sold over a million bottles of its whiskey.

Templeton Rye will most likely argue against certifying the class, which could increase the amount of damages it pays if the plaintiffs are successful, Johnson said. A common tactic used by attorneys arguing against class certification is claiming that there's no way to prove the class action accurately represents a group of people, he said.

For instance, the whiskey company could argue that there's no way to prove that everybody who bought a bottle feels tricked by what the plaintiff's attorneys claim were Templeton Rye's deceptive marketing practices, Johnson said. A judge's decision on class certification typically comes months after a lawsuit is filed, he said.

Templeton Rye's website and promotional videos claim the firm was born after its founders got a scrap of paper with the whiskey's recipe handed down from Alphonse Kerkhoff, who made the alcohol during Prohibition.

The company announced in August that it would change its bottle's labeling to include that the whiskey is distilled in Indiana, which had previously been left off the bottle.