UCL/CLRA remedies hypothetical

A reader writes in with the following hypothetical:

Let's say a company, which we'll call "The Big Space," sells its own branded clothes, makes misleading statements about the existence of price discounts. For example, it advertises that these pants were "Usually $50, now $25, for a limited time." However, the true facts are that the retailer only sold the pants at $50 ten percent of the time, and the regular price was actually the "discounted" price of $25. Under 17200 and CLRA, and pursuant to FTC guidelines, this is probably misleading advertising. But what are the damages, if any, to the consumer?

For instance, let's say a retailer, whom we'll call "The Big Space," is the only retailer who sells its branded pants, and you can't buy them from any other store. What is the consumer's damages, if any, where he bought the pants at $25, thinking he was getting a $25 discount? What if comparable pants from Calvin Klein cost $25 also, so the consumer actually got a decent deal on the pants? And that's not even addressing the issue of reliance, which apparently isn't necessarily required under Prop 64 according to what I read on your blog. Regarding reliance, the consumer could argue that he bought the pants because he thought, based on the "limited time" language, that he had better act fast before the price was raised back to the supposed $50 regular price.

Does the consumer have a case for damages, besides just suing for an injunction (which state attorneys general or the FTC could do themselves)?

Keeping in mind that damages are recoverable under the CLRA, but not the UCL (which limits monetary recovery to restitution), what do you think?

Comments

[mary]

If misleading advertising, i.e. if mispresenting that clothes are on discount is indeed actionable, I can see two kinds of harm. One, to the shopper who buys these pants instead of the $25.00 non big-space pants. Assume they are Calvin Klien and commonly available at Macy's. Macy's always puts things on sale, so pants could have easily been available at $15. Consumer, as all consumers will, thinks well here I am saving 25.00 off 50 dollar pants and 50 dollar pants must be better quality than pants at Macy's that were originally 25, so I'll pop the extra 10 bucks because I am getting better pants. How you gather the data on comprability and availability, I don't know. Second harm: Macy's which has slashed all profit margin out of product in order to move it, and doesn't get sale because consumer is misled into thinking they are getting a better deal on Big Space pants.

[Scott McMillan]

Misleading advertising also affects the consumer's perception of prices. By advertising that items are on sale, which are sold only at the standard price, consumers are likely to remember that the store is a discounter with "sale" prices, rather than remember the specific low price that initially drew the interest. Consumers are creatures of habit, and unless the experience was remarkably bad, will return to the store that they believed to have the lower price.

Thus, the consumers are not just injured by the initial false sale, but are injured by the higher prices they pay in subsequent sales at Big Space.

Competitors are obviously injured because they have to compete at a lower price point that has been imposed by the perception created by the false advertising. Meanwhile, Big Space has taken the customers by the initial false advertising and is free to persuade those consumers to pay higher prices, with higher margin, on "better" products. Moreover, those same consumers are likely to buy additional non-discounted merchandise, i.e., when was the last time that you went to a store and bought only one item.

The $64,000 question is how to measure that damage figure owed by Big Space to competitors and to the consumers.

[Kimberly]

Mary and Scott make some very good points. Anyone from the defense bar care to weigh in?

[Kevin Underhill]

Okay, I'll take a shot from the defense perspective.

The question was, does the consumer have a case for damages (apparently including UCL restitution), and it seems to me the answer is no, under either statute. Injunctive relief, maybe, but no claim for money. It may be a telling point that although Mary and Scott both have (somewhat complicated) damages theories, neither one could actually measure the amount that the consumer would supposedly be entitled to.

If these pants are actually worth $25, as the hypo says (Mary's hypo about Macy's changes the facts), then the consumer has lost nothing. He paid $25 for something worth $25. The consumer has no standing to sue under the UCL, and I don't see how there are any real damages for CLRA purposes.

And that is setting aside the issue of reliance (which you won't be surprised to hear that I think is required now). It seems to me that Mary and Scott both have to stretch that concept pretty far to argue that this consumer bought the pants because of those kind of "on sale" representations. The only thing even false about that statement is "usually $50" -- the current price is accurately stated and as long as they do raise it periodically, then time is limited. But does anyone really rely on what the price of goods USED to be? Even if they did, would that be the kind of material reliance that would justify a lawsuit? It's pretty close to "puffery" that does not qualify as a material misrepresentation.

It sort of seems similar to price points like $99.99 -- those might be considered slightly misleading (it's a $100 product, but sounds like less), but that's not the kind of thing we let consumers sue over. Or is it?

[Dan]

Hi, I'm the reader who submitted the hypothetical.

I appreciate all of your excellent responses.

I think Mary has an excellent point that "The Big Space"'s competitors may have a cause of action regarding their loss of sales.

I also agree with Mary and Scott that consumers may be damaged. Even though the pants may be worth $25, competitors may well have comparable pants on sale for even less. But the consumer may not bother to comparison shop because he thinks there is a sense of urgency in buying the pants NOW, before he loses out on the supposed incredible deal. Thus the consumer may be damaged in the amount he paid above the sale price of a competitor.

I appreciate Kevin's perspective, but I think he is oversimplifying things a bit. This is not puffery, whatsoever. Puffery is typical exaggerations, etc. Here we are talking about violating the law, specifically Civil Code section 1770(a)(13)[CLRA] by "Making false or misleading statements of fact concerning reasons for, existence of, or amounts of price reductions." Also, see 16 C.F.R. section 233.1 - the FTC's Guide Against Deceptive Pricing, which gives a very similar example of illegal advertising.

Also, to flesh out my hypothetical, let's say that virtually every product sold by this retailer, which has a 25% nationwide marketshare in clothing, contains these false statements regarding made-up former prices, and that it's all part of a common scheme. And let's suppose that such ads, and banners, are plastered all over the place on on the Internet and are key to the company's entire advertising strategy. And that other retailers in the industry don't practice this misleading advertising.

I am very confident that a class-action suit for an injunction would be successful; but I'm not sure regarding how to prove the damages, which as Kevin points out, is a somewhat elusive number. But I do believe consumers are being damaged - a false sense of urgency is being created, and they may be paying too much b/c they don't bother to check for sales at competing stores, where the pants may be cheaper, because they have been led to believe that they need to act FAST to get this incredible deal.

Thanks again for the insights.

[Kimberly]

Thanks to everyone for their comments. I think the recent decision Colgan v. Leatherman Tool Group, Inc., ___ Cal.App.4th ___ (Jan. 10, 2006) provides some guidance to plaintiffs on how to measure UCL "restitution" in this kind of case. As I explained in my original post on the decision, the Colgan defendant violated the UCL by falsely representing that its products were "Made in the U.S.A." The Court of Appeal suggested several ways that the portion of the purchase price attributable to that misrepresentation could be proven, including the testimony of an expert economist. I would look to that decision if I were attempting to measure the harm caused by the misrepresentation in the hypothetical.