Attention Bargain Shoppers: When a Sale Really Is Too Good To Be True
By Alyse Katz
According to a recent Ninth Circuit decision, merchants displaying incorrect or out-of-date “original” or “regular” pricing information for sale merchandise may be liable for false advertising, even though a consumer received the precise product desired at a price the consumer was willing to pay.
The plaintiff in Hinojos sued Kohl’s Department Store in a putative class action under the UCL, FAL, and CLRA after he allegedly purchased sale merchandise because of the savings he believed he was receiving from the products’ advertised “original” prices. He alleged that Kohl’s engaged in false advertising because the store routinely sold the merchandise at its “sale” price, rather than the purported “original” or “regular” prices, and that the “original” prices did not reflect prevailing market prices during the three months immediately preceding Kohl’s advertisements. The district court dismissed the claims, finding that Hinojos did not “lose” any money or property, and thus did not have standing to sue under any of the statutes. The trial court rationalized that there was no loss because the plaintiff got the “benefit of the bargain” because he kept the goods he purchased and they were not defective.
The Ninth Circuit reversed, finding standing for the plaintiff’s claims under the UCL, FAL, and CLRA. Applying California law, the Ninth Circuit adopted an expansive reading of the California Supreme Court decision Kwikset Corp. v. Superior Court, 246 P.3d 877 (Cal. 2011), which held that purchasers of goods falsely labeled “Made in U.S.A.” had standing to sue under the UCL and FAL. The Ninth Circuit rejected the district court’s narrow reading of Kwikset as only applying to false advertisements regarding a product’s “composition, effects, origin, and substance.” Id. at *6. Instead, it broadly found Kwikset to hold that a consumer has “lost money or property” – and thus has standing to sue under the UCL and FAL – so long as the false advertisements induced him to either buy a product that he would not have otherwise purchased or made him spend more than he would have otherwise spent. Hinojos, at *4. In particular, the Ninth Circuit found that there was economic importance to a product’s “regular” price because it provided the consumer with important information about a product’s worth and “the prestige that ownership of the product conveys.” Id. at *12. It further found standing under CLRA’s expansive “any damage” standing requirement, which was not at issue in Kwikset, holding that a plaintiff who has standing under the UCL and FAL’s “lost money or property” requirement would necessarily also have suffered “any damage” as required under CLRA. Id. at *17.
It is interesting to note that the precise practice at issue in Kohl’s is prohibited by a specific provision of the FAL, which the UCL expressly incorporates, stating that:
No price shall be advertised as a former price of any advertised thing, unless the alleged former price was the prevailing market price … within three months next immediately preceding the publication of the advertisement or unless the date when the alleged former price did prevail is clearly, exactly and conspicuously stated in the advertisement.
Cal. Bus. & Prof. Code § 17501. The district court nonetheless denied standing because of the passage of Proposition 64 in California in 2004, which restricted standing for individuals alleging UCL and FAL claims to persons who had “lost money or property” as a result of unfair competition. In reversing the district court, the Ninth Circuit found that Proposition 64 was enacted not to eliminate individual consumer suits when the consumer was actually deceived by a false advertisement, but rather to stop “fishing expeditions” by consumers and attorneys who may have never intended to even purchase a product that was being falsely advertised. Id. at *14 (citing Kwikset, 246 P.3d at 884).
The distinction drawn by the district court between Kwikset, where the buyer received a lock he thought was made in the USA, but instead was made in China, and Kohl’s, where only alleged misrepresentation involved the regular price of the product, might be convincing to economists, but was not convincing to this Ninth Circuit panel. As a result of this decision, merchants should be wary when any aspect of their advertisements might be incorrect or out-of-date because a consumer – even one who agrees to purchase a product at the price advertised and who keeps the goods – may still have a claim for false advertising in California if he simply alleges that he would not have otherwise purchased the product at the advertised price.
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