Plaintiffs filed a putative class action for violations of
the CLRA, UCL, and FAL based on defendants’ failure to disclose to consumers
that the jewelry they advertise as “white gold” and “sterling silver” is coated
with rhodium, which wears off. The wear reveals the underlying color of the
jewelry, which is an “undesired yellow, off-white or dingy grey color.” Consumers
can restore the jewelry's original “shiny white” appearance by re-coating the
jewelry at their own expense.
Plaintiff Rojas bought an engagement ring from JCPenney for
over $1000 and gave it to plaintiff Torres.
It was sold as “white gold,” without disclosure of the rhodium coating,
the underlying color, or the vulnerability to wear. Rojas and Torres had the
ring re-coated “more than once” in the past year to restore its original white
color. Plaintiff Kerner similarly bought
jewelry advertised as “sterling silver,” without disclosure that the items were
coated with rhodium, or that the coating would wear off “to reveal a layer of
copper or nickel that is applied to the sterling silver core to make the
rhodium coating adhere more easily to the jewelry.” Plaintiffs alleged that if they’d known the
truth, they wouldn’t have bought the jewelry or would have paid less for it.
Defendants moved to dismiss on the basis that they were
protected by safe harbors under the FTC Guides, the National Sampling Act, and a
provision of California law adopting the National Sampling Act. California’s
safe harbor doctrine precludes an unfair competition claim when the legislature
has permitted certain conduct or considered a situation and concluded no action
should lie. To forestall such a claim,
another provision of law must actually bar the action or clearly permit the
conduct.
Defendants argued that the FTC Guides allowed them to
advertise an item as gold or sterling silver without disclosing a rhodium
coating as long as the amount of other metals in the item diddn’t exceed the
permissible tolerances set out in the National Stamping Act (NSA): three parts
per thousand for gold and four parts per thousand for sterling silver. The court disagreed, for two reasons: first,
the Guides aren’t legislation or regulations, as required for the application
of the safe harbor doctrine, but rather merely interpretations designed to
provide public guidance, not created by a formal rulemaking process. Second, defendants didn’t show that the Guides
clearly permitted the failure to disclose.
Rather, they stated that it was unfair/deceptive to misrepresent the
presence of gold or silver if it didn’t meet the NSA’s permissible tolerances. This wasn’t permission for nondisclosure; at
best, it didn’t make the nondisclosure unlawful. But there’s a difference between not making
an activity unlawful and making that activity lawful. The same analysis applied
to the NSA itself and California law incorporating it.
With that out of the way, the court found that the
plaintiffs had pled their claims with the requisite particularity. Failure to disclose can be actionable under
the CLRA if the defendant had a duty to disclose, which requires at least one
of: (1) a fiduciary relationship with the plaintiff; (2) exclusive knowledge of
material facts not known to the plaintiff; (3) active concealment of a material
fact from the plaintiff; or (4) partial representations with suppression of
some material fact. The court found that
plaintiffs pled (2)-(4). Plaintiffs
plausibly alleged that the rhodium coating wasn’t visually discernible to them
at the time of purchase and that defendants had exclusive access to the
specifications of the jewelry; they plausibly alleged active concealment
because neither the ads nor the sales staff provided any information about the
rhodium coating; and they plausibly alleged partial representations based on
statements that jewelry was “14kt white gold” or “sterling silver,” without
mentioning the rhodium coating.
Similar reasoning preserved the UCL claims under all three
prongs: unlawful, unfair, and fraudulent.
The court rejected defendants’ arguments that alleged violations of the
FTC Act can’t ground a UCL claim because there’s no private cause of action
under the FTCA. The UCL provides a cause
of action for violations of other laws, and the FTCA doesn’t itself bar private
enforcement of its provisions. And of
course the FAL claims also survived.
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