False Ad Suit Survives When Consumers "Swept Into" Purchase

A California Court of Appeal found that plaintiff consumers had raised triable issues of fact on whether they suffered damages in reliance on allegedly misleading advertising about the extent of a 40%-off sale, despite plaintiffs' knowledge—before going through with the purchase—that the items plaintiffs bought were not part of the sale.

The Court's decision, which reversed the trial court's grant of summary judgment in favor of defendant retailer Banana Republic, confirms the difficulty retailers face in obtaining summary judgment where plaintiffs can show even a minimal connection between the allegedly false or misleading advertising and the plaintiffs' purchase. If a plaintiff can demonstrate that the advertising lured the plaintiff to consider purchasing items, and she likely would not have made a purchase but for being lured, this may be enough to defeat summary judgment even if the plaintiff learned the true facts prior to actually making the purchase.

Detailed Discussion

Plaintiffs and putative class representatives alleged that they entered Banana Republic stores after seeing signs in the store windows advertising a discount of 40% off purchases. There was evidence that some of the signs included a caveat that the discount applied to "selected styles," while other signs did not.

After shopping, trying on clothes, and making the decision to purchase certain items, plaintiffs waited in line to make their purchases. Once the cashier had rung up plaintiffs' items, but before plaintiffs actually completed the transactions, the plaintiffs learned that the 40% discount did not apply to any of the items plaintiffs had selected.

None of the plaintiffs went through with the entire purchase. Instead, one of the plaintiffs decided not to purchase anything other than the clothes that her daughter was wearing. Another plaintiff purchased only one sweater, electing not to buy any of the other items he and his wife had brought to the counter.

The plaintiffs contended that, after having been lured into the store by the 40%-off sale sign, selecting items to purchase, and then waiting in line, which was growing behind them, they felt embarrassed, humiliated, annoyed, and angry, and ultimately decided to purchase some (but not all) of the items at full price so as not to further embarrass themselves or their companions, and to salvage their shopping excursion from being a complete waste of time. They asserted causes of action against Banana Republic for false and misleading advertising under California's Unfair Competition Law (Bus. & Prof. Code §§ 17200 et seq.) (UCL), False Advertising Law (Bus. & Prof. Code §§ 17500 et seq.) (FAL), and the Consumers Legal Remedies Act (Civ. Code §§ 1750 et seq.) (CLRA).

The trial court granted summary judgment in favor of Banana Republic, finding that the plaintiffs lacked standing to assert their claims because they had failed to establish any economic injury (i.e., loss of money or property) as a result of the allegedly false and misleading advertising, since plaintiffs made their purchases after learning that the items were not discounted.

In reversing the trial court's decision, the Court of Appeal held that plaintiffs had raised triable issues of fact regarding whether they suffered injury in fact and whether such injury was a result of the allegedly misleading advertising—e.g., damages and causation.

On the issue of whether the plaintiffs suffered an injury in fact, the Court of Appeal stated that the UCL, FAL, and CLRA were intended in part to protect consumers "by requiring businesses to disclose the actual prices of items offered for sale, and prohibiting businesses from using false and deceptive advertising to lure consumers to shop. In short, plaintiffs had a legally protected interest in knowing from the outset, when they started to shop, the true prices of the items they chose to buy." The economic harm to plaintiffs, the Court of Appeal found, was the difference between the full price the plaintiffs actually paid and the price less the 40% discount they should have paid, assuming the allegations of false advertising were true.

With respect to causation, the Court of Appeal noted that an alleged misleading advertisement need not be the only cause of a plaintiff's economic loss under the consumer protection statutes. "It is enough that the representation has played a substantial part, and so has been a substantial factor, in influencing his decision." For this reason, the Court held, the question of reliance and causation did not rest on whether plaintiffs knew the actual price of the items they purchased at the moment the money was exchanged. The entire chain of events had to be taken into account to determine whether the alleged misleading advertising was a substantial factor in causing plaintiffs' decisions to buy. The Court went on:

Here, in plaintiffs' version of events, the advertising led them to enter the store, to shop, to select items, to decide to purchase them, and to stand in line to make the purchases. Their reliance on the advertising informed their decision to buy, which culminated in the embarrassment and frustration they felt when, as the items were being rung up, they learned that discount did not apply. And it was the temporal proximity of that chain of events, and the pressure the events brought to bear on plaintiffs' judgment, that played a substantial role in leading them to purchase the items they did, even though they knew the discount did not apply. On this reasoning, there is a triable issue whether plaintiffs' reliance on the allegedly misleading advertising was a cause, though not the only cause, of their economic harm.

Although this decision may be a bit of an eye-roller for retailers because it seems to remove, in the summary judgment context, the issue of consumers' free will and suggests there could be liability for a retailer when consumers get "swept up in the momentum to" buy, the Court of Appeal's decision actually is not surprising. California's consumer protection statutes were intended to operate more protectively than simply shielding consumers from actual fraud. As the Court of Appeal recognized, a contrary holding would essentially sanction "bait and switch" schemes, barring consumers from having any recourse against a retailer for misleading activities unless the retailer surreptitiously charged an inflated price that the consumer does not realize she paid until after the money actually changed hands. This result would be at odds with the purposes of the consumer protection statutes, which were intended to curb deceptive business practices and ensure transparency throughout a consumer transaction, not just at the very last moment before purchase.



pursuant to New York DR 2-101(f)

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