Court Refuses to Put a Ring on Defendant’s Ascertainable Loss Argument

Advertising Law

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Can a defendant dodge liability for false advertising by arguing that the plaintiff failed to allege she paid more for the product at issue than it was actually worth?

One California federal court has answered in the negative in a case involving an online consignment store that sold the plaintiff a ring that was promoted as containing 2.10 carats of diamonds. Gaby Basmadjian purchased the ring from www.therealreal.com in August 2017 for $982.62, in part on the representation about the weight of the diamonds.

After receiving the ring, Basmadjian had a gemologist measure it and learned it contained approximately 1.2 carats of diamonds. Since the difference between the advertised carat weight and the actual carat weight was 0.9 carats, it exceeded the permissible range of deviation pursuant to federal regulations, Basmadjian argued in her lawsuit.

She also claimed that the defendant intentionally overstated the weight of the diamonds and systematically inflated the total weights of gemstones in the jewelry sold on its website, in violation of California’s False Advertising Law, Unfair Competition Law and Consumers Legal Remedies Act.

Among other defenses in its motion to dismiss, the defendant countered that the plaintiff failed to plead an ascertainable loss because she did not allege that she paid more for the ring than it was actually worth. But U.S. District Judge William Alsup disagreed with this “narrow construction of what constitutes an ascertainable loss.”

“Defendant’s argument is based on the flawed premise that a consumer cannot suffer a loss unless they can prove that they paid more for a product than its objective value,” the court wrote. “Under this false premise, sellers would be free to misrepresent their products and mislead consumers into buying them so long as the price they charge is lower than the product’s objective worth.”

Basmadjian sufficiently pled that she suffered a loss, the court found, because she pled the price of jewelry is based in part on the weight of the gemstones it contains, and that the defendant overcharged her because it had a practice of overstating the weight of gemstones, which led to inflated prices. She also told the court that she purchased the ring based on the defendant’s false representation that the ring contained 2.10 carats of diamonds, and that she would not have bought the ring from the defendant’s website but for the false representation of gemstone weight.

“Because plaintiff has alleged she received less than what she bargained for, she has sufficiently pled an ascertainable loss,” Judge Alsup concluded.

To read the order in Basmadjian v. The RealReal, Inc., click here.

Why it matters: The court was not persuaded by the defendant’s argument that the plaintiff failed to allege she paid more for the ring than it was actually worth, rejecting the contention that Basmadjian’s claims were speculative. Instead, the court said a consumer can suffer a loss without having to prove she paid more for a product than its objective value.