Last week, a California appellate court held that consumers can proceed with a class action suit against Banana Republic for false advertising arising from posted signs that advertised a 40-percent off sale without disclosing that the discount only applied to certain items. This decision will raise red flags for retailers because the customers had learned the truth about the discount’s limitations at the cash register before making their purchases.
Reversing the trial court’s grant of summary judgment on standing grounds, the appellate court ruled that the plaintiffs raised a triable issue of fact as to whether they had suffered an economic injury and whether the unfair business practice or false advertising caused that injury. The appellate court reasoned:
[I]n 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.
Veera v. Banana Republic, LLC, B270796, 2016 WL 7242539, at *7 (Cal. App. 2d Dist. Dec. 15, 2016). Under this theory, the consumer is “swept up in the momentum of events” and as a result, buys the goods at “an inflated price, despite his or her better judgment.” Id. at *8.
The dissenting opinion warned that the “momentum” theory adopted by the majority would “open the door to suits that veer ever farther away from establishing actual reliance” and recommended that the court “adopt the bright line rule that if the plaintiff learns the ‘truth’ about an item's price before executing a purchase, he or she cannot establish actual reliance on a misleading price advertisement.” Id. at *11.
Finally, retailers should take caution in advertising discounts without clearly and conspicuously disclosing limitations to a sale. Here, without any analysis, the court presumes that a sign advertising a discount without explicitly stating that restrictions apply could be construed as false or misleading under the applicable law. Specifically, the plaintiffs assert violations of California’s broad consumer protection laws, the Unfair Competition Law (Cal. Bus. & Prof. Code, § 17200 et seq.), the False Advertising Law, (Cal. Bus. & Prof. Code, § 17500 et seq.), and the Consumers Legal Remedies Act (Cal. Civ. Code § 1750 et seq.).
Arent Fox’s Advertising, Promotions & Data Security and Fashion groups will continue to monitor issues surrounding false advertising. For more information, please do not hesitate to contact Anthony V. Lupo, Dana Finberg, Sarah L. Bruno, Dan Jasnow, or Sara T. Schneider.