Predictions that Craft Brew Alliance which owns Kona craft beer brand would need to settle following last year’s class certification have come true. Filing with the Court and regulators from April 24 show that the parties to the craft beer false advertising class action have agreed to settle for a sum that is reported as $4.7 Million but which could exceed that amount.
We reported on the lawsuit several times – in short, it alleged Kona brand misled customers into thinking they were buying beer made in Hawaii when the beer was actually made in multiple locations across the U.S. Most recently, the Court presiding over the case had certified the class of consumers making settlement more likely and the 9th Circuit Court of Appeals had rejected Craft Brew Alliance’s attempt to appeal that certification.
Regarding the recent decision to settle, Brewbound’s Chris Furnari had this feature where he spoke with Craft Brew Alliance’s General Counsel Marcus Reed and reported that the lawsuit had become a distraction to the company.
The settlement isn’t surprising as the cost of litigation for a class action along with the potential for a verdict in favor of thousands if not tens of thousands of plaintiffs creates a stress and a potential loss that most companies would rather avoid through a defined, determinate, and final settlement.
For those interested in the specifics so far:
The filing with the Court from April 24 stated that the parties had reached an agreement in principle and were would have a proposal to file by May 23 and were looking for an October 24 date for a hearing:
The Parties are pleased to inform the Court that they have reached an agreement in principle to settle this dispute on a nationwide basis. The Parties are working diligently towards finalizing and executing a settlement agreement and preparing a Motion for Preliminary Approval of the settlement for the Court’s review. The Parties have met and conferred and accordingly propose that the Court set a deadline of May 23, 2019 for the filing of a Motion for Preliminary Approval. The Parties also propose a hearing for preliminary approval of October 24, 2019 at 9:00 am., which the Parties understand is currently the earliest date the Court can hear the Motion. Therefore, the Parties will notice the Motion for October 24, 2019 at 9:00 a.m., but will request an earlier hearing date, should one become available.
And in an 8-K that Craft Brew Alliance filed the same day with the SEC it confirmed the settlement and claimed they would be seeking to make it a nationwide claims made agreement and estimated the settlement costs at $4.7 Million with the potential for an increase:
On April 24, 2019, Craft Brew Alliance, Inc. (“the Company”), filed a joint notice with the plaintiffs in Theodore Broomfield v. Kona Brewing Co. LLC, Kona Brew Enterprises, LLP, et al, in the United States District Court for the Northern Division of California, informing the Court that the parties have reached an agreement in principle to settle the litigation, and expect to file an executed settlement agreement with the full terms and conditions of the settlement with the Court in the near future. The settlement is expected to be structured as a nationwide “claims made” settlement covering purchases of specified Kona beers. Under the agreement in principle, the Company would be required to make certain payments to class members and pay specified administrative fees and fees of the plaintiffs’ attorneys. The preliminary settlement will be subject to the Court’s approval. The Company expects to recognize an incremental charge of $4.7 million on a pre-tax basis in the quarter ended March 31, 2019, based on its current estimate of the probable costs of settling the litigation, but it is reasonably possible that the total cost of settling the litigation will exceed current estimates. The Company did not previously record any liabilities with respect to the litigation or include any potential costs in our anticipated financial highlights for 2019 published on March 6, 2019.
We’ll keep you posted on this settlement as details are filed. There’s always the potential that objectors may review the proposed settlement terms and find reasons to challenge this resolution, but in all likelihood, this is the beginning of the end for this – one of the first craft beer false advertising lawsuits.