Antitrust Law Daily Wrap Up, ADVERTISING—S.D. Cal.: Claims against Sears over false sale signs adequately alleged, (Apr 28, 2017)

By Jody Coultas, J.D.

Sears, Roebucks & Co. may be liable for using deceptive sale signs and price tags to deceive customers into believing the products they purchased were on sale, when in fact the products had never been sold at the "regular" listed price, according to the federal district court in San Diego (Azimpour v. Sears, Roebucks & Co., April 26, 2017, Sammartino, J.).

The complaining consumer purchased a pillow at a Sears’ store in San Diego that was advertised as being on sale. The price tag and sale sign stated that the pillow’s "regular" price was $19.99, but was being offered at a "sale" price of $9.99. The receipt also allegedly contained the misrepresented price, specifically stating "SALE" in large, bold, all-caps lettering directly above the item he purchased. Further, the consumer alleged that its "counsel’s investigation revealed that the pillow was on "sale" at every Sears store in San Diego County for the same price from the filing of the suit through November 8, 2016.

Standing. The consumer had standing to sue on behalf of purchasers of other Sears items bearing in-store price tags similar to those relied upon by the consumer because he is challenging the pricing scheme, not the product, according to the court. The allegations are based on Sear’s allegedly deceptive pricing scheme for all products, not just its pillows. However, the purchaser lacked standing to represent a class of individuals that may have relied on "online promotional materials, in-store displays, and print advertisements," regardless of where they made their purchase. The complaint failed to adequately plead reliance on online or print advertisements.

UCL claim. An "unlawfulness" claim under the California Unfair Competition Law (UCL) was based on violations California’s "former price advertisement" statute, which prohibits advertising price as a former price unless the alleged former price was the prevailing market price as above defined with three months next immediately preceding the publication of the advertisement. Sears argued that the claim failed because the consumer alleged that he saw the "regular" price listed alongside a "sale" price, rather than the "former" price, or any language that might indicate a former price comparison. This argument has been rejected by other courts, and Sears failed to show any authority supporting the argument.

Sears argument that the allegations based on the consumer’s counsel’s "investigation" were insufficient to demonstrate that the pillow purchased by the plaintiff was never offered at the full retail price in the 90 days preceding his purchase was rejected by the court. The investigation and accompanying allegations did not prove that these items were never offered at the "original" or "regular" price during the relevant period. However, they were sufficient under Rule 9(b) to state a claim.

Restitution and disgorgement. Sears argued that the consumer was not entitled to a disgorgement remedy as a matter of law under the UCL. While restitution is the only monetary remedy for violation of the UCL, Sears failed to cite any authority demonstrating that the cost-minus-value method is the only measure used to calculate restitution. Restitution requires the plaintiff to account for cost and benefits received, but a plaintiff may account for benefits received in a variety of ways beyond the cost minus value measure. Whether the consumer can submit sufficient evidence of a measureable amount of restitution is a premature determination at the pleading stage.

Unjust enrichment. California does not recognize an independent cause of action for unjust enrichment, but the Ninth Circuit has construed the common law to allow an unjust enrichment cause of action through quasi-contract. The consumer met that standard, and the court declined to dismiss the claim.

Class allegations. The court dismissed the consumers’ claim for violations of the consumer protection laws on behalf of classes in states with similar laws for lack of constitutional standing. A plaintiff generally lacks Article III standing for state law claims when no plaintiff is alleged to have purchased a product within the relevant state. The complaint failed to name plaintiffs from the various state statutes listed, much less named plaintiffs who reside in those states and actually purchased a product from Sears in reliance on its allegedly deceptive sales tactics.

CLRA notice requirement. The consumer’s pre-suit California Consumer Legal Remedies Act (CLRA) letter, sent one day before the original complaint was filed, asserting specific violations under three subsections of the CLRA, describing Sear’s allegedly unlawful "sale" pricing scheme that deceives consumers into purchasing items based on the false belief they are receiving a bargain, and demanding Sears remedy its unlawful behavior, was sufficient notice under the CLRA, according to the court.

The case is No. 15-CV-2798 JLS (WVG).

Cases: Advertising StateUnfairTradePractices CaliforniaNews