competitor has state, federal standing to challenge nondisparaging false ads

Jerome’s Furniture Warehouse v. Ashley Furniture Industries, Inc., 2021 WL 1541649, No. 20CV1765-GPC(BGS) (S.D. Cal. Apr. 20, 2021)

Jerome’s alleged false advertising under state and federal law based on Ashley’s alleged false advertising  “intended to deceive customers into falsely believing that it offers prices and financing that cannot be beaten by Plaintiff or other competitors.” Arizona’s AG pursued Ashley and there was a consent judgment, but Jerome’s wanted more.

Jerome’s identified four misrepresentations: First, Plus claims, such as “40% OFF PLUS! 60 MO. NO interest NO down payment NO minimum purchase.” However, the offer is allegedly “either 40% off already inflated prices or 60 months interest free payments,” and the ads are allegedly misleading because they don’t disclose “that most of the merchandise at the Ashley stores are excluded from the advertised sale due to on site “manager’s specials” and/or other exclusions discovered once a customer enters the stores. “The disclaimer that the sale in the ad cannot be combined with any other promotion or discount is on the second page of the ad and in microscopic fine print.” An email from Ashley’s Senior Vice President of Business Development says 80% read the headline, only 20% of those then read the content.” Jerome’s reps visited a store offering “50% off plus 60 months no interest,” but the promotion didn’t apply to nearly all items within the upholstery and dining department and all “14-piece packages” because they were already marked down with “manager’s special.” In the bedroom section, the items were marked up to roughly double Jerome’s prices for similar pieces. A salesperson explained that “PLUS” meant the second sales term was “another” sales option available but the representatives could not receive both.

Second, alleged misrepresentations of “regular price” to falsely inflate the “savings” to be realized from its “sale price.” For example, one ad stated the “regular price” of the Ballinasloe 3-piece sectional sofa as $2,299 and offered a sale price of $1,150, but the actual regular advertised price for the set on its website was allegedly $1,300. This violates FTC regulations. Another email quote from that Senior VP: “Raise prices, then offer a discount if willing to wait for delivery...the longer you wait the more you save, up to 40% off for 4 months.”

Third, alleged misrepresentations of quality by inflating “regular” prices, leading consumers to think they’re getting higher quality. Fourth, alleged misrepresentations of time limits on sales, when the real terms of the promotions seldom change at all. Jerome’s alleged that it was well known that bait and switch worked in the industry because higher volumes of “foot traffic” lead to higher sales.

The court found that the complaint satisfied Rule 9(b). Jerome’s identified specific ads making the challenged claims; it did not need to identify specific deceived customers.

The court also rejected Ashley’s dumb argument that Jerome’s didn’t sufficiently allege that the ads were in interstate commerce because Jerome’s only identified one billboard ad. The complaint alleged that the billboard was materially identical to other billboards used by Ashley throughout Southern California and the rest of the country, and that there was website advertising (accessible throughout the country).

Also of note here: the court applies a presumption of materiality from literal falsity, which is becoming a more contested thing.

Injury: Ashley argued that there was no plausible harm to Jerome’s because consumers could compare the parties’ prices. A plaintiff alleging competitive injury under the “false advertising” prong “need only believe that he [or she] is likely to be injured in order to bring a Lanham Act claim.” Moreover, commercial injury is presumed “when defendant and plaintiff are direct competitors and defendant’s misrepresentation has a tendency to mislead consumers.” (Citing pre-Lexmark precedent, but probably fine especially in situations like this.)

State claims: The court found competitor standing under the UCL and FAL; the plaintiff didn’t itself have to rely on the false claims if it was injured thereby.

Sonner’s effect on restitution and injunctive relief claims by a competitor: Jerome’s argued that it properly alleged that legal remedies were inadequate because of the inability to ascertain the amount of future damages from Ashley’s continued, future misconduct. The court agreed with respect to the injunctive relief requested, but not with respect to restitution. Anyway, Jerome’s wasn’t entitled to restitution because it hadn’t given any specific money to Ashley. “Compensation for a lost business opportunity is a measure of damages and not restitution to the alleged victims.”