Antitrust Law Daily Wrap Up, ADVERTISING—N.D. Cal.: False advertising claim against online art dealer may proceed, (Jun 16, 2016)

By Michael Menzhuber, J.D., LL.M.

A consumer’s claim that an online art dealer violated California’s False Advertising Law by purporting to offer sales prices off of advertised "regular prices" that were no different from the prices which it regularly sold its products was not subject to dismissal, according to the federal district court in San Francisco (Knapp v. Art.com, Inc., June 15, 2016, Orrick, W.).

James Knapp purchased an art piece from a website owned by Art.com because the website was advertising a "40% off sale" ending at midnight. When he placed the order, he was required to enter an optional coupon code to trigger the 40% discount. The following day, Knapp returned to the website and found that the sale was automatically renewed but with a 45% discount.

Knapp subsequently brought an action against Art.com which asserted: (1) violation of California’s False Advertising Law (FAL); (2) violation of the unfair and unlawful prongs of California’s Unfair Competition Law (UCL); (3) violation of California’s Consumer Legal Remedies Act (CLRA); and (4) unjust enrichment and common law restitution. In response, Art.com filed a motion to dismiss or strike the first cause of action for violation of the FAL and certain aspects of the second cause of action for violation of the UCL.

Art.com argued that Knapp’s FAL cause of action should be dismissed because Knapp’s FAL was based exclusively on the price advertising provision of the law and Knapp did not adequately allege either that Art.com’s advertised sales involved "former price advertising" or that any advertised former price was not the "prevailing market price" at the relevant time.

The court disagreed. It determined that Knapp’s cause of action was not based exclusively on the price advertising provision because his principal theory of liability was that Art.com did not ordinarily sell its products at the advertised regular prices. The court further determined that even if Knapp’s FAL cause of action was limited to the price advertising provision, the allegations in his amended complaint were sufficient to state a claim under the statute.

Art.com also argued that Knapp lacked standing under the price advertising provision because he did not specifically allege that he believed that the "40% off" language was a former price comparison and his only claimed harm was that he did not know a better sale would be offered the next day. The court again disagreed because Knapp plausibly alleged that: (1) he understood the "40% off" language as advertising a discount from Art.com’s former prices; and (2) he would not have purchased the product if it were not for the advertised "40% off" sale.

With respect to Knapp’s UCL claim, the court granted Art.com’s motion to strike Knapp’s unlawful prong claim but only to the extent that it was based on section 52(a). The court granted the motion because that statute is limited to false advertisements relating to the purchase of "food, drugs, devices, services, or cosmetics."

The case number is 16-cv-00768-WHO.

Attorneys: Jason H. Kim (Schneider Wallace Cottrell Konecky Wotkyns LLP) for James Prescott Knapp. Moe Keshavarzi (Sheppard Mullin Richter & Hampton LLP) for Art.com, Inc.

Companies: Art.com, Inc.

Cases: Advertising ConsumerProtection StateUnfairTradePractices CaliforniaNews