California Appellate Panel Issues Plaintiff-Friendly Deceptive Pricing Decision

Advertising Law

A California appellate panel reversed dismissal and reinstated a deceptive pricing action against electronics retailer Newegg in a broad ruling that will make it easier for plaintiffs to bring similar cases.

M. George Hansen filed a putative class action accusing Newegg of violating the False Advertising Law (FAL), the Unfair Competition Law (UCL) and the Consumer Legal Remedies Act by using deceptive price lists with “completely illusory or grossly overstated” discounts for its electronic products. Hansen argued that he relied on the fictitious prices to make two purchases that he would not have made had he known the price information was false.

Newegg countered that Hansen lacked standing to bring suit because he had not lost “any money or property” as a result of the allegedly false former price representations. The plaintiff received the benefit of his bargain, the defendant told the court, because he obtained the product he wanted at the price it was offered. The trial court agreed, dismissing the suit.

The appellate panel reversed, relying heavily on Kwikset v. Superior Court, in which the California Supreme Court explained that the “marketing industry is based on the premise that labels matter—that consumers will choose one product over another similar product based on its label and various tangible and intangible qualities they may come to associate with a particular source.”

The court also relied on the U.S. Court of Appeals for the Ninth Circuit’s application of Kwikset to a deceptive pricing suit in Hinojos v. Kohl’s Corporation.

“We agree with the Ninth Circuit’s conclusion that under Kwikset, the UCL and FAL’s standing requirements are satisfied when a consumer has alleged that he or she relied on fictitious former price information in making a purchase, and would not have made the purchase but for the misrepresentation,” the appellate panel wrote. “Kwikset plainly states that a ‘consumer who relies on a product label and challenges a misrepresentation contained therein can satisfy the standing requirement of section 17204 by alleging, as plaintiffs have here, that he or she would not have bought the product but for the misrepresentation.’ The Court’s decision contains no language limiting that rule to misrepresentations regarding the physical characteristics or ‘attributes’ of a product.”

Nor does the case law suggest that a consumer must allege the product he or she received was worth less than, or was not functionally equivalent to, the product as it was advertised, the court said. “To the contrary, Kwikset held that a consumer’s subjective willingness to pay more for the product than he or she would have been willing to pay in the absence of the misrepresentation is itself a form of economic injury ‘whether or not a court might objectively view the products as functionally equivalent.’”

Interpreting Kwikset in the manner advocated by Newegg would effectively preclude consumers from bringing false advertising claims predicated on deceptive former price and discount information, despite the fact that the legislature has specifically prohibited the practice, the appellate panel pointed out.

The court also rejected Newegg’s argument that a rational consumer would not pay more for a product based on its advertised former price, as the economic value of the product is the same regardless of the price’s status as a discount.

“This argument ignores a simple fact: Our Legislature has adopted multiple statutes that specifically prohibit the use of deceptive former price information and misleading statements regarding the amount of a price reduction,” the panel wrote. “These statutes make clear that, contrary to Newegg’s assertions, our legislature has concluded ‘reasonable people can and do attach importance to [a product’s former price] in their purchasing decision.’”

To read the opinion in Hansen v. Newegg.com, click here.

Why it matters: The California appellate panel decision provides a road map for deceptive pricing plaintiffs, making it clear that a consumer’s “subjective willingness” to pay more for a product than he or she would have been willing to pay in the absence of the misrepresentation is itself a form of economic injury that can establish standing to bring suit. This broad reading of Kwikset will open the courthouse doors for many potential class action plaintiffs.