Monday, December 19, 2016

Can bait & switch cause actionable harm even though the consumer knows the price at checkout?

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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