Court certifies class against JCPenney for allegedly false “sales”

Spann v. J.C. Penney Corp., 2015 WL 3478038, No. CV 12–0215
(C.D. Cal. May 18, 2015)
 
Spann sued JCP, bringing the usual California claims, for
allegedly “falsely advertising ‘original’ prices, ‘sale’ prices and
corresponding price discounts for its private branded and exclusive branded
apparel and accessories.” In 2011, allegedly in reliance on JCP’s pricing
schemes, Spann bought over $200 in private branded and exclusive branded
apparel and accessories.  JCP advertised
price comparisons on plastic placards above or below each product offered for
sale, and one column showed what was represented to be the “original” price for
each product, while the next column showed the “sale” price of each item.”
 
Spann believed she was able to pay significantly less than
what certain products were worth and normally sell for in the retail
marketplace, and was thus allegedly induced to purchase ten different items,
all of which were offered at prices significantly lower than their stated
original prices. For example, three blouses had labels representing them to
have original prices of $30.00 and discounts of $12.01, “leaving a purchase
price or [supposed] ‘deal’ at $17.99.”  Spann’s receipt contained the same
misrepresentations.  However, the
purported “original” prices were false, as the prevailing retail price for
these blouses during the three months immediately prior to her purcase was no
more than $17.99.
 
JCP allegedly discontinued, then returned to, these pricing
practices, marking up the prices of many of its private and exclusive branded
apparel and accessories, well above the interim “fair and square” prices and “well
above the prevailing market price for such items, without any good faith
intention of selling such items … at those higher prices.”
 
The court first addressed JCP’s challenges to Spann’s
damages expert Brian Bergmark, the Managing Director and one of the founders of
Torrey Partners, an economic and accounting services firm. JCP argued that Bergmark’s
identification of the prevailing market price for the items plaintiff purchased
as the “most commonly occurring (or [p]revalent) actual sales price by item
using JCPenney’s in-store data” was unreasonable and unsupportable, and that he
couldn’t calculate the prevailing market price for each item solely by
reference to sales prices at JCP stores. 
Given the court’s conclusion (below) on the meaning of “prevailing
market price,” Bergmark’s analysis of JCP’s sales data was reasonable and
supportable. “JCPenney’s large volume of sales data for its own products is
undoubtedly a reasonable and supportable method by which to determine the
prevailing market price of products that are available only in its stores.”
 
JCP also objected that Bergmark wrongly equated the
prevailing price to be the modal price, as opposed to the mean or some other
metric, based on his (inappropriate) interpretation of the relevant California
law.  That doesn’t go to commonality.  Whether one uses modal or mean price, the
method of calculation (comparing purchase prices to prevailing market prices)
won’t change.  JCP didn’t propose an
alternative measure that would render the calculation an inherently
individualized one. “Without any indication that this measure impacts class
certification, this is not a dispute that must be resolved at this time.”
 
On to rule 23(a): numerosity was easy, of course; also
typicality and adequacy.  Commonality
included a number of questions, including falsity/misleadingness, likelihood of
deceiving a reasonable consumer, materiality, how to calculate prevailing
market price, JCP’s bona fide intent to sell at non-sale prices, and
damages.  The claims of all prospective
class members involved the same alleged misrepresentations related to items
with common characteristics.
 
JCP argued that the price of each item said nothing about
the price of other items, but that ignored Spann’s claim of a false advertising
scheme consistent across JCP’s private branded and exclusive branded apparel
and accessories. Spann submitted evidence supporting this claim—for a number of
quarters, no items were offered at
regular price.  “If defendant can prove
that its price-comparison advertising scheme did not generate false price
comparisons that deceived consumers, then it should welcome class
certification.”  Either way, it would get
a common answer.
 
On to Rule 23(b)(3) and predominance.  Spann planned to use JCP’s internal pricing
guidelines, which were allegedly deceptive because one required that an
‘original’ price be the price ‘at which 5–10% of the item’s total initial
shipment will be sold,’”and another requires a “14–day ‘landing period’ during
which a new item would be offered at a regular price before being marked down.”
At the same time, however, the guidelines “allowed discounts, such as ‘Buy one Get
one at 50% [or more] Off” (BOGO) during the landing period. Spann intended to
show that, as a result, “few, if any, items were ever truly offered or sold at
the ‘regular’ price.” Allegedly, JCP’s “price pacing flow charts” showed that “only
thirteen of the thousand-plus items [offered during four fiscal quarters during
the Class Period] were ever offered at the advertised regular price; and those
were for a total of only 17 days and coupled with a BOGO discount.” Given that
each division met or exceeded its profit margin target at the planned sale
price, Swann argued, JCP didn’t expect to sell products at the higher “regular”
price. The evidence would allegedly show that only .2% of products sold at the
regular price, while 98.7% of JCP’s revenues came from products offered at a
discount of 30% or more.  As a result, the
so-called regular prices were not the prevailing market price for any of the items
during any 90 day period.
 
UCL liability doesn’t require individualized proof of
deception, reliance, and injury, as long as members of the public are likely to
be deceived by the defendant’s conduct. A jury could determine from Swann’s
evidence that JCP’s pricing scheme was pervasive and that JCP was or should
have been aware that it was deceptive. 
She could also rely on empirical data demonstrating that false price
comparisons deceive consumers and influence their purchasing decisions.  Common questions also predominated under the
FAL and CLRA, which would trigger the UCL’s unlawfulness prong.  Unlawfulness also covered a claim under the
FTCA.  The court looked to the FTC guides
on former price comparisons: “[i]f the former price is the actual, bona fide
price at which the article was offered to the public on a regular basis for a
reasonably substantial period of time, it provides a legitimate basis for the
advertising of a price comparison.” A former price may be fictitious or not
bona fide, if “an artificial … inflated price was established for the purpose
of enabling the subsequent offer of a large reduction[.]”  JCP’s argument that each claim had to be
proven on an individual basis again ignored plaintiff’s theory of the case: a
systematic and pervasive unlawful price comparison policy. “Evidence of such a
policy or scheme is common to all putative class members and predominates over
any individual facts or questions.”
 
Likewise, predominance often occurs in CLRA cases because
“causation, on a classwide basis, may be established by materiality, meaning
that if the trial court finds that material misrepresentations have been made
to the entire class, an inference of reliance arises as to the class.” Defendant’s
deceptive conduct and the question of materiality predominated over
individualized questions of reliance.  In
Amgen, the Supreme Court affirmed
certification of a securities fraud case where a failure of proof on
materiality would end the case; so too here, where there might be no individual
questions at all, given the plaintiff’s intent to “rely on empirical data
demonstrating that false price comparisons deceive consumers and influence
their purchasing decisions.” 
 
The court reached a similar result under the FAL.  The FAL has a specific provision about statements
as to former price: “[n]o price shall be advertised as a former price of any
advertised thing, unless the alleged former price was the prevailing market
price … within three months next immediately preceding the publication of the
advertisement[.]” JCP argued that, to show “prevailing market price,” Spann
would have to show the price offered by other retailers in the geographic area,
which would vary by consumer and by item, defeating predominance.
 
The language of the FAL didn’t make clear what the “market”
was in a case involving private and exclusive branded items sold by only one
retailer.  The court found previous cases
distinguishable on their facts.  The 1984
Report of the Attorney General’s Committee on Sale and Comparative Price
Advertising offered an example that the court found analogous to the present
claims:
 
[A] furniture dealer runs [an]
advertisement which offers a couch which he claims was formerly selling for
$100 but is now selling for $50. Unless the price which he advertises as the
former price actually coincides with the “prevailing market price” of the couch
within the next preceding three months … the advertisement is again false and
deceptive, and the vendor is within the prohibitions of section 17500.
 
Although this example didn’t define “prevailing market
price,” the AG Opinion states that the price should be the “prevailing market
price” of the couch, as opposed to an earlier example that required comparison
with “similar mattresses” where the seller used the term “retail price” to
explain its comparison. If the proper analysis of “prevailing market price” always
required consideration of similar items from other retailers, there’d be no
distinction between the prevailing market price of “the couch” versus “similar
couches.” Still, the AG Opinion didn’t directly answer the question either.

The court turned to principles of statutory construction, which in California
start with legislative intent, which itself is first determined by the words of
the statute.  Intent prevails over
letter, and the letter of the law will be read to conform to the spirit of the
act if possible.  The court found that
the law’s clarification of “prevailing market price” as “wholesale if the offer
is at wholesale [and] retail if the offer is at retail” evinced a legislative
intent “that courts consider the specific offer at issue, such that the
relevant ‘market’ is tailored to fit the actual circumstances of the sale.”  Ultimately, the court had to identify the
item’s proper market.  (See Mark Lemley
& Mark McKenna on defining
markets
in IP.)  “In many
circumstances, local sales prices for a particular item, in all stores offering
it for sale, is an appropriate basis for the calculation of prevailing market
price.”  The AG Opinion’s reference to
finding the price of “similar mattresses” didn’t define similarity, and that
could depend on the circumstances:
 
If, for example, the price of a
queen Sealy® pillow top mattress were at issue, it might make sense to look to
the local stores that sell such mattresses to determine the prevailing market
price. If, however, the item at issue was a Sleep Number® mattress, which are
only sold at Sleep Number® stores, considering the price of “similar mattresses
… in the open local market” will simply require examining the prices offered
at local Sleep Number® stores.
 
Here, JCP’s “private and exclusive branded items of apparel
[and] accessories,” including East Fifth, Worthington, and Liz Claiborne, were
only sold at JCP stores. Thus, the market for these items consisted of
defendant’s stores. JCP’s 81 California stores sold thousands of the individual
items at issue; the large volume of sales data was an appropriate basis upon
which to determine their prevailing market prices.
 
The court found this result especially appropriate given
JCP’s assertions on its price tags.  JCP
argued that, under California regulations, the terms “regular” and “original” were
references to “former price,” as defined in the law. A “former price” is
properly advertised only when it is the prevailing market price and it has been
offered at that price for the preceding 90 days.  JCP claimed that, when it used “regular” and
“original,” it was referring to its previous prices and expressly invoking the
statutory scheme, so that a $30 “regular” or “original” price listed on a price
tag communicated both that defendant’s actual former price was $30, and that
the prevailing market price was $30. “If that is so, then either of the
following must be true: (1) defendant already took other retailers’ prices for
similar items into account when it determined its own original price and a
back-end comparison is unnecessary; or (2) defendant recognizes that the market
for these items consists only of its own stores.”
 
Using JCP’s prices to determine prevailing market price, it
was clear that common questions predominated on the FAL claim. Bergmark had
already analyzed JCP’s sales data and found that defendant’s advertised
“original” price was not the prevailing market price for the 90–day period
preceding plaintiff’s purchases. He further determined that “none of the
subject items ever sold at their Regular price on the internet.” And the
analysis he performed for Spann’s purchased items “could easily be performed
for each and every item in the class description … if similar sales data
regarding those products is provided.” JCP didn’t explain what analyzing
individual ads could possibly show that would be relevant.  Nor was the specific price provision in the
FAL a safe harbor; even if JCP didn’t violate the law specific to advertising
“regular” and “original” prices, it could still violate the UCL, the CLRA, and
the more general provision of the FAL against false advertising.
 
JCP then argued that common issues didn’t predominate as to
remedies.  To satisfy predominance,
plaintiff needed to present a damages model consistent with her liability case.
She proposed three alternative measures: (1) complete restitution; (2)
restitution based on the “transaction value” promised by JCP, that is, the
discount that each class member would have received had JCP offered a discount
from the actual regular price; or (3)
restitution based on JCP’s profits.  JCP
argued that none of these were proper measures of restitution. However, the
court found them to be consistent with her liability case. As to (1) and (3),
plaintiff presented evidence that every dollar she spent resulted from JCP’s
false advertising. As for (2), she presented evidence that the amount she
thought she was saving was a factor in her buying decisions. Thus, her
restitution theories were linked to her liability theories. While JCP argued that
complete restitution was an inappropriate class action remedy, the cited cases
were TILA and loan cases, not consumer protection cases.  There was no need to measure the value of the
benefit plaintiff received because she’d just have to return the products she
purchased.  Moreover, even if the value
received by class members should be deducted from the purchase price,
individual calculation of damages doesn’t defeat class certification.
 
Then, class adjudication was superior to individual adjudications,
of course. 
 
Even if Spann wasn’t entitled to restitution, a
liability-only class could still be certified. Victims of false price
comparison schemes have been injured even if there is “no difference in value
between the product as labeled and the product as it actually is.” Comcast didn’t change the availability
of bifurcation.  Regardless, class
certification was granted.

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