Monday, June 5, 2017
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C.A. Upholds $6.8 Million Fine for Online Trickery
Overstock.Com Found to Have Inflated ‘List Prices’ It Claimed to Be Beating
By a MetNews Staff Writer
The First District Court of Appeal on Friday upheld imposition of $6.8 million in civil penalties on the Utah-based corporation that runs Overstock.com, found to have engaged in massive unfair business practices and false advertising by comparing its prices to inflated list prices.
Writing for Div. Four, Justice Maria Rivera said Overstock’s contention that the amount assessed violates the Eighth Amendment’s prohibition on excessive fines is without merit. She said:
“The trial court carefully considered Overstock’s culpability, explaining that the seriousness of the misconduct was moderate, but that the offending practices were numerous, persistent, and willful, and the record fully supports these findings. The penalty the court set was both far below the maximum allowed by statute and well within Overstock’s ability to pay. The penalty was not constitutionally disproportionate.”
Overstock—which boasts sales of $1.8 billion in 2016, an inventory on its website of more than 6 million items, and a staff of about 1,700 persons—was found by Alameda Superior Court Judge Wynne S. Carvill in 2013 to have repeatedly represented as the “list price” for a given item the highest amount that could be found being charged for it.
Eight Counties’ Suit
His Dec. 3, 2013 decision came in response to an action filed in 20110 by district attorneys in Alameda, Marin, Monterey, Napa, Santa Clara, Santa Cruz, Shasta, and Sonoma counties. They sued under Business & Professions Code §§17200 (unfair competition) and 17500 (false advertising).
Evidence included a 2007 internal email from an Overstock manager advising employees that they “probably do not want to use Amazon” in determining the list price “as they will be similar to our price,” instructing:
“I need you to find the HIGHEST selling price. We found out it can include freight, which will make it even higher.”
One consumer in 2007 bought two patio sets from Overstock for $449 each pursuant to a representation that the list price was $999. He spotted a sticker on a table showing that the Wal-Mart price for a set was $227—the same price being charged by two of three online sellers.
Overstock represented the prices in this manner:
List Price: $999.00
Today’s Price: $449.99
You Save: $549.01
(55%)
Some comparisons were to prices of different, though similar, products.
Method of Calculation
Carvill determined the penalties by reference to the number of days over which the violations occurred. He desisted from using the number of Californians who saw the misleading advertisements or the number of sales of the items because either method would have resulted in penalties in the hundreds of millions of dollars.
The penalties were set at $3,500 for the period between March 2006 to October 2008, and $2,000 for each day from October 2008 through the time of trial, in September 2013.
Rivera said that Carvill did not abuse his discretion. She wrote:
“The trial court explained its reasoning clearly. Although one factor—the finding that the seriousness of the conduct was moderate—weighed in Overstock’s favor, the other statutory factors all weighed against Overstock. Those included ‘the number of violations, the persistence of the misconduct, the length of time over which the misconduct occurred, [and] the willfulness of the defendant’s misconduct.’ The offending conduct took place persistently over a period of years and continued not only after Overstock received customer complaints, but after it became aware its conduct was being investigated and prosecuted.”
Overstock Faults Prosecutors
Overstock complained that the slowness of the prosecution caused the penalties for its continuing conduct to mount. The action was filed in 2010, three years after the Shasta County District Attorney’s Office commenced its probe, and it took three years to get to trial.
Rivera said the contention was waived by not having been raised in the trial court, but nonetheless commented:
“The argument is, in any case, feckless. Overstock does not contend that the People either delayed or hid their actions for the purpose of accumulating penalties. Overstock has been aware of the investigation since 2007 and negotiated a tolling agreement to delay the commencement of litigation. In the meantime, it chose to continue the offending practices.”
Rivera found no abuse of discretion in Carvill ’s injunction against continuing the impermissible practices.
In an unpublished portion of the opinion, Rivera declared that Carvill correctly applied a four-year statute of limitations and that substantial evidence supported his findings.
The case is People v. Overstock.com, Inc., A141613.
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