Veera v. Banana Republic, LLC, --- Cal.Rptr.3d ----, 2016 WL
7242539, No. B270796 (Ct. App. Dec. 15, 2016)
This decision, over a dissent, finds standing under the
usual California statutory claims to challenge an alleged bait-and-switch
scheme by Banana Republic, even though the plaintiffs knew the non-discounted
prices of the items when they bought them. Cherilyn DeAguero, Sean Bose, and
Rakhee Bose alleged that signs in Banana Republic store windows advertising a
40 percent off sale were false or misleading because they did not disclose that
the discount applied only to certain items. “Having waited in line to purchase
the selected items, and out of frustration and embarrassment, they ultimately
bought some (but not all) of the items they chose even though the discount did
not apply.” The trial court found that they hadn’t suffered injury in fact and
lost money or property. The court of
appeals majority found that there was a triable issue of whether they suffered
economic injury caused by the false advertising. I agree—the dissent’s idea of what
constitutes bait and switch is far too limited, ignoring the sunk costs problem
that includes time and embarrassment (or other social pressures).
For example, DeAguero
recounted that when she got to the front of the line, the clerk told her that
her items weren’t discounted. When she replied
that the sign indicated everything was 40 percent off, the clerk said the
discount did not apply to the items she chose.
She “became embarrassed, noticing that the line behind her was getting
long…. [S]he was trying to remain in a budget but did not want to make her
daughter return to the dressing room to remove the outfit she was wearing.” Her daughter was embarrassed and asking her
to stop complaining, and she ultimately bought the items her daughter was
wearing to avoid further embarrassment, but left behind other non-discounted
items.
Likewise, Sean and Rakhee found out that the discount didn’t
apply to their items only at the register.
“According to Sean, there were at least 15 people in line and he was
annoyed and very embarrassed. He ultimately purchased one item (a sweater)
because ‘we had invested all that time and effort, and just to leave with
nothing would be a complete and utter waste of energy and time.’”
Medrazo v. Honda of North Hollywood (2012) 205 Cal.App.4th 1,
involved a case in which the defendant dealership offered motorcycles for sale
without complying with certain sections of the Vehicle Code that require a
motorcycle dealer to disclose dealer-added costs on tags hung on motorcycles
available for purchase. The court of
appeals found a triable issue on injury in fact because she wasn’t informed of
the dealer-added charges or the total price of the motorcycle until she was
presented with the sales contract, after the decision to purchase had been
made. The UCL and FAL prevent misleading
advertising; the CLRA specifically bars “[m]aking false or misleading
statements of fact concerning reasons for, existence of, or amounts of price
reductions”:
These provisions are designed in
part to protect consumers such as plaintiffs 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. Assuming plaintiffs’ version of Banana Republic’s advertising occurred,
there is a triable issue whether that legally protected interest was violated
in the same way as the legally protected interest of the plaintiff in Medrazo,
who had a right to know dealer-added charges as stated on a required hanger tag
when deciding to buy a motorcycle.
Medrazo also
indicated that the plaintiffs suffered economic harm because that case found
economic injury in that plaintiff bought a motorcycle the defendant wasn’t
legally allowed to sell. The economic harm here was the difference between the
advertised 40% off price plaintiffs should have been charged, and the full
price plaintiffs actually paid. It’s
true that plaintiffs need to show reliance, but there was a triable issue of
whether plaintiffs’ reliance resulted in their economic loss—misrepresentation
need not be the only or even the
predominant cause of the injury-producing conduct. It is enough if a plaintiff shows that “in
[the] absence [of the misrepresentation] the plaintiff ‘in all reasonable
probability’ would not have engaged in the injury-producing conduct.”
Isolating the moment of purchase isn’t determinative of
reliance and causation:
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.
This reasoning was especially important given the
implications of a contrary result, which would be to legalize bait and switch
advertising: “when the deception is revealed, the consumer, now invested in the
decision to buy and swept up in the momentum of events, nonetheless buys at the
inflated price, despite his or her better judgment.” If the consumer is able to resist, she has no
cause of action because she’s suffered no economic injury, as required by Proposition
64. But Banana Republic’s argument would
mean that, if the scheme is successful, she’d also have no standing unless the
inflated price was surreptitious. That
can’t be what Proposition 64 intended.
The evidence also suggested that at least some of the Banana
Republic signs lacked asterisks or any other indications of exclusions.
Bigelow, P.J., dissented.
The basic argument:
Whether or not the store window
signs were ambiguous or misleading, it is undisputed that before the plaintiffs
incurred any economic injury, they learned the clothes they had selected were
not 40 percent off. They then changed their purchase decisions, choosing to buy
only some of the items they had selected, fully aware they were not discounted.
Thus, plaintiffs couldn’t show that they relied even in part
on the truth of the misrepresentation in consummating the sale. [I agree with the majority that this slices
the transaction too finely. The
misrepresentation can be a substantial cause of the transaction in the first
place, because they relied on it to take key initial steps representing
significant sunk costs, without that reliance extending to the actual
purchase—that’s the whole point of bait and switch.] The dissent would find the long-standing
principle of fraud cases that reliance isn’t reasonable if the recipient learns
the real facts before purchase.
Embarrassment or frustration isn’t relevant to reliance as long as the
plaintiff learns the true facts “before consummating the transaction that
causes the injury.” [There is a reason that state consumer protection laws, and
not just California’s, depart from traditional fraud principles, which are
mainly caveat emptor.]
The dissent worried that the “momentum to buy” analysis
couldn’t be applied consistently.
Suppose the consumer was drawn into the store by a misleading discount
advertisement and was told as soon as he
picks up an item in the store that it wasn’t in fact discounted. If he bought
anyway, would he be covered? What if he
learned in line, but not yet at the front of the line? What if the consumer was
shopping on the internet from home and learned that the discount wouldn’t apply
before she buys the items in her virtual “shopping cart”? [Substantial cause analysis seems relevant
here; once you leave predominant cause behind, these inquiries are necessary,
but not fatal. Also, why is the store
running misleading discount ads, and shouldn’t it bear the risk that these will
lure consumers in if they don’t say “select” items?] This decision, the dissent feared, would
invite exhaustive litigation. [It seems
to me that the legislative choice to ban bait and switch has largely answered
these questions: don’t engage in that practice.
There’s no efficiency payoff/consumer benefit to telling consumers that
there will be a discount and then not giving it to them. This conclusion does, of course, mean that
advertisers’ clear signals that not all items will be discounted should also be
taken into account.]
The dissent said this wasn’t classic bait and switch, when
the seller had no intention of delivering the product advertised. [What about lacking intention to deliver the price advertised?] “In a classic bait and switch, the merchant
actively conceals the fact of the misrepresentation from the consumer,
resulting in the consumer buying an item he did not enter the store to
purchase.” And the consumer continues to rely on misrepresentations because he
believes that “the advertised item is not actually available, or that it is
inferior in a meaningful way to the item the merchant actually wants to sell to
reap greater profit margins.” In such
situations, the consumer’s understanding that she [now the consumer is she] is
buying a different product doesn’t necessarily mean that her reliance on the
deception has ended. [This is
equivocation about which representations must trigger reliance. What brought
the consumer in was the offer of X item at Y price, which includes the
necessarily implied claim that X item is available for purchase. If she’s not buying X item, then she has
ceased “relying” on the availability of X item, and her continued presence is
either from sunk cost reasons, same as the theory here, or because she’s been
persuaded to buy Z item instead.] “[H]ere,
there was no evidence any salesperson attempted to convince the plaintiffs to
purchase items they did not want.”
[Again, equivocation about the “convincing.” Salespeople need not be involved—the pressure
of the line here does the same work of social pressure to leave off one’s
initial preference.]
The dissent was sympathetic to the similarity to traditional
bait and switch, but thought that the law here just didn’t cover the
situation. The plaintiff must consummate the relevant transaction
relying on the mistaken belief that a misrepresentation was true, absent
legislative change to the contrary.
Because of the congruence between consumer protection law and
traditional fraud claims, “[w]e must ‘isolate’ the point in time at which money
was exchanged because that is the moment at which the plaintiffs were injured
in a legally cognizable way under the consumer protection laws.”
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