Metropolitan News-Enterprise


Wednesday, April 17, 2019


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C.A. Reinstates False Advertising Suit Against Major Retailers

Says That on Present Record, It Can’t Be Said That Business & Professions Code §17501, Though It  Does Ban ‘Considerable Amount’ of Truthful Commercial Speech, Is Unconstitutional


By a MetNews Staff Writer


The Court of Appeal for this district yesterday ordered reinstatement of an action against J.C. Penney, Sears, Kohl’s, and Macy’s for allegedly lying about online prices being discounted from former prices, rejecting the trial court’s determination that the underlying statute, Business & Professions Code §17501, unconstitutionally restrains truthful advertising and is void for vagueness.

Presiding Justice Lee Edmon of Div. Three, a former Los Angeles Superior Court presiding judge wrote the opinion, which overturns a judgment of Los Angeles Superior Court Judge Carolyn B. Kuhl, also a former presiding judge.

Edmon said that the statute “bans a considerable amount of commercial speech protected under the First Amendment and the free speech provision of the California Constitution.” Her opinion nonetheless resuscitates actions brought against the department store chains by the Office of Los Angeles City Attorney.

Each of its separate complaints against the four retailers allege that the defendant “deliberately and artificially sets the false reference prices higher than its actual former sales prices so that customers are deceived into believing that they are getting a bargain when purchasing products.”

The opinion directs that a peremptory writ of mandate issue, as sought by the city, requiring the Superior Court to vacate the order sustaining demurrers by the chains without leave to amend, and to overrule the demurrers.

Wording of Statute

Section 17501, a part of the False Advertising Act, provides:

“For the purpose of this article the worth or value of anything advertised is the prevailing market price, wholesale if the offer is at wholesale, retail if the offer is at retail, at the time of publication of such advertisement in the locality wherein the advertisement is published.

“No price shall be advertised as a former price of any advertised thing, unless the alleged former price was the prevailing market price as above defined within three months next immediately preceding the publication of the advertisement or unless the date when the alleged former price did prevail is clearly, exactly and conspicuously stated in the advertisement.”

Edmon saw no merit to the “vagueness” challenge, declaring that the terms employed—such as “prevailing market price”—have commonly understood meanings.

Free Speech Rights

“The key question concerns the extent to which section 17501 implicates free speech rights,” she wrote. The jurist went on to say:

“[W]e conclude that by its plain terms, the statute forbids certain common forms of truthful price advertising—and thus restricts significant amounts of protected commercial speech.”

Tet, she said the complaints filed by the withstand demurrers, explaining:

“In view of the broad sweep of the prohibition contained in the statute, we question whether an adequate justification exists for the prohibition. Nonetheless, the record before us does not establish that the requisite justification does not exist. For that reason, real parties ‘free speech’ challenge necessarily fails on demurrer.”

Speech Circumscribed

Edmon found that the statute precludes a company from advertising a reduction in the price at which it formerly sold a particular item, unless its own price happened to coincide with the prevailing market price during a three-month period or on a specific date.

She set forth:

“Viewed in context, the prohibition, by its plain language, forbids any advertisement of the former price of an ‘advertised thing’ that does not express the market price information regarding former worth or value, as specified in the statute….So understood, the prohibition imposes standardized market-based meanings on permissible former price claims, and proscribes all other former price claims—including discount advertising that conveys the seller’s own former price for an item, unless that advertised former price coincides with one of the specified two market prices.”

After-Halloween Discount

The presiding justice elaborated:

“[T]he prohibition does, in fact, ban certain forms of false, deceptive, and misleading advertisements regarding former prices—albeit at the cost of banning a considerable amount of truthful and nonmisleading advertising regarding former prices, including a good deal of discount advertising by individual retailers regarding their own former prices. For example, if a retailer offered widely sold brands of Halloween costumes, the prohibition would preclude the retailer from advertising, ‘All Halloween costumes 50 percent off our former prices,’ on the day after Halloween, unless those prices coincided with one of the two requisite market prices.”

Edmon said, however, that the constitutional challenge must fail “unless it is conclusively demonstrated by the facts pleaded in the complaints or subject to judicial notice,” and that the “the meager record” in the present case “permits no evaluation of the validity of the section 17501” under the appropriate tests.

The case is People v. Superior Court, J.C. Penney Corp., Inc., RPI, 2019 S.O.S. 1814.

Attorneys on appeal for the parties were:

City of Los Angeles: Michael W. Sobol, Roger N. Heller, Katherine C. Lubin, and Facundo Bouzat of Lieff Cabraser Heimann & Bernstein; Assistant City Attorney Michael J. Bostrom.

J.C. Penney: Mark A. Perry, Christopher Chorba, Bradley J. Hamburger, Lauren M. Blas, and Ryan S. Appleby of Gibson, Dunn & Crutcher; Moe Keshavarzi, Robert H. Philibosian, A. Alexander Kuljis and Fred R. Puglisi of Sheppard, Mullin, Richter & Hampton.

Sears: Joseph Duffy and Joseph Bias of Morgan, Lewis & Bockius.

Kohl’s: Kaye Scholer, James F. Speyer, and Alex Beroukhim of Arnold & Porter.

Macy’s: Stephanie A. Sheridan, Anthony J. Anscombe, Meegan B. Brooks of Steptoe & Johnson; Brian Michael Parsons of Macy’s Law Department.


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