Friday, April 25, 2014

FYI: 9th Cir Holds Plaintiff in Alleged Falsely "Discounted Price" Case Properly Alleged Actual Injury, Reversing Lower Court

Wednesday, June 5, 2013

Reversing the lower court, the U.S. Court of Appeals for the Ninth Circuit recently ruled that the plaintiff in a putative class action properly alleged he suffered economic injury, and thus had standing to sue under California's Unfair Competition Law, Fair Advertising Law, and the Consumer Legal Remedies Act, where the plaintiff alleged that he purchased merchandise on the basis of false discounted-price information and would not have made the purchase but for the misrepresentation. 

The Court also denied the defendant retailer's motion for certification to the California Supreme Court, ruling that the motion was untimely as raised after the submission of briefs and the conclusion of oral argument, and opining that the request for certification may have been part of an attempt to find a favorable forum.

Plaintiff ("Purchaser") purchased a number of items at a retail department store ("Retailer") that operates a national chain of stores.  Purchaser bought the items supposedly in reliance on allegedly deceptive advertisements indicating that the items were substantially reduced from their "original" or "regular" prices when in fact Retailer allegedly routinely sold the items at the advertised "sale" prices rather than at the purported "regular" prices. 

Purchaser filed a putative class action complaint against Retailer in California Superior Court asserting causes of action under California's Unfair Competition Law ("UCL"), Fair Advertising Law ("FAL"), and Consumer Legal Remedies Act ("CLRA"). 

Retailer removed the action to federal court under the federal Class Action Fairness Act.  The federal district court dismissed the UCL and FAL claims, reasoning that Purchaser lacked standing under those statutes, as they require a plaintiff to have "lost money or property" as a result of a defendant's false advertising, and Purchaser had bought the merchandise he wanted at the advertised price thus obtaining the "benefit of the bargain."

After the California Supreme Court issued its opinion in California Supreme Court in Kwikset Corp. v. Superior Court, 246 P.3d 877 (Cal. 2011), a case involving false advertising and a plaintiff's standing as having suffered actual injury, the lower court denied Purchaser's motion for reconsideration, later granted Retailer's motion for judgment on the pleadings, and dismissed Purchaser's remaining CLRA claim, concluding that Purchaser lacked standing because he was unable to show that he had suffered "any damage" as a result of Retailer's false advertising.

Purchaser appealed.  The Ninth Circuit reversed and remanded.

As you may recall, the UCL provides consumers with a cause of action against businesses that engage in "unfair competition," which is defined in part as:  "any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising . . . . "  Cal. Bus. & Prof. Code § 17200.

The UCL incorporates the FAL's prohibition on unfair advertising, which in turn provides in part:  "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. 

Moreover, to have standing under the UCL or FAL, persons alleging UCL or FAL claims must have "suffered injury in fact and ha[ve] lost money or property as a result of unfair competition."  Cal. Bus. & Prof. Code §§ 17024, 17535. 

Finally, the CLRA prohibits "[m]aking false or misleading statements of fact concerning reasons for, existence of, or amounts of price reductions."  Cal. Civil code § 1770(a)(13).  See also Cal. Civil code § 1780(a)(providing a cause of action to consumers who suffer "any damage" resulting from practices prohibited under section 1770).

Applying the standard set forth by the California Supreme Court in Kwikset Corp. v. Superior Court, 246 P.3d 877 (Cal. 2011), the Ninth Circuit noted that there are "innumerable ways" that a consumer can show "some form of economic injury" to show injury in fact as a result of his transactions with the defendant, and explained that Purchaser had sufficiently alleged economic injury to have standing in this case. 

Specifically, the Ninth Circuit pointed out that Purchaser satisfied Kwikset's standing requirement by alleging that:  (1) the advertised discounts conveyed false information about the merchandise he purchased, namely that the goods were sold in the recent past at a substantially higher price at Retailer and/or in the prevailing market; and (2) Purchaser would not have bought the product but for the misrepresentation.   In so concluding, the Ninth Circuit rejected Retailer's assertion that Purchaser's complaint needed to state at what price he would have purchased the goods had their "original" or "regular" price not been misrepresented, noting that Kwikset explicitly rejected that argument.

Criticizing the lower court for limiting Kwikset to "factual misrepresentations about the composition, effects, origins, and substance of advertised products," the Ninth Circuit pointed out that misrepresenting the "regular" price of merchandise often creates an impression of savings and enhances a customer's perceived value and willingness to purchase a product.   In so doing, the Ninth Circuit explained that the lower court's standing test would preclude consumers from bringing UCL and FAL actions based on false marketing claims that have nothing to do with a product's "composition, effects, origin, and substance,"  including claims such as: "available for a limited time only"; and "not available in stores." 

The Ninth Circuit similarly rejected the lower court's "benefit of the bargain" argument that Purchaser had suffered no economic injury, pointing out that such a defense is only permissible if the misrepresentation that the consumer relied on was not material.  While noting that the test for a representation's materiality is whether a "reasonable consumer would attach importance to it or if the maker of the representation knows or has reason to know that its recipient regards or is likely to regard the matter as important in determining his choice of action," the Court also pointed out that both state and federal law specifically prohibit retailers from advertising false "sales" as Retailer allegedly did here.  

With regard to Purchaser's CLRA claim, the Ninth Circuit employed the same reasoning in rejecting the lower court's determination that Purchaser had not suffered "any damage" as a result of Retailer's false advertising.  See Meyer v. Sprint Spectrum L.P., 200 P.3d 295, 299, 302-03 (Cal. 2009)(ruling that the CLRA's "any damage" requirement includes pecuniary damage and opportunity and transaction costs resulting from deceptive marketing). 

The Court thus ruled that Purchaser had satisfied the standing test articulated in Kwikset as to his UCL, FAL, and CLRA claims.

Notably, the Ninth Circuit also denied Retailer's motion to certify the questions in this matter to the California Supreme Court, reasoning that Retailer's request was untimely.  In so doing, the Court raised questions as to Retailer's motives for raising the possibility of certification after the submission of briefs and the conclusion of oral argument.  As the Ninth Circuit stated, "we strongly disfavor a party that prevailed below requesting certification for the first time after it becomes apparent at oral argument that it is not likely to prevail in federal court."  

Eric Tsai
McGinnis Wutscher Beiramee LLP
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