California Appellate Panel Upholds Validity of Pricing Statute

Manatt, Phelps & Phillips, LLP

Manatt, Phelps & Phillips, LLP

Siding with the government, a California appellate panel held that section 17501 of the Business & Professions Code was not unconstitutionally vague on its face or as applied to national retailers accused of deceptive pricing.

In 2017, the Los Angeles city attorney sued several retailers, including J.C. Penney, Kohl’s and Sears, alleging that they violated the statute by selling products online using deceptive or untrue statements about the former prices of those products. According to the complaint, the defendants offered their goods at “reference prices” that falsely purported to reflect their own former prices.

The complaints alleged that for significant percentages of the advertised items, the actual prices were always below the claimed former prices during the 90-day period, and that for the vast majority of the advertised items, the actual prices were below the claimed former prices on all but 30 days (or fewer) during the 90-day period.

The defendants “deliberately and artificially set the false reference prices higher than [their] actual former sales prices so that customers are deceived into believing that they are getting a bargain when purchasing products,” the city attorney alleged.

In a demurrer, the defendants argued that the statute was unconstitutionally vague on its face and as applied. A trial court sustained the demurrer but the appellate panel reversed.

Even though the statute’s impact on protected speech triggered a higher standard for clarity, it was not inherently unworkable or devoid of guidance to retailers, the court found. With respect to the as-applied challenge, the record was insufficient to support the defendants’ demurrer, the court said.

The court first discussed the extent to which the statute restricts free speech rights. The defendants were correct that the law restricts protected commercial speech because it “forbids any advertisement of the former price of an ‘advertised thing’ that does not express the market price information regarding former worth or value,” the court said. Nothing, however, suggested the existence of a legislative intent to focus the statute exclusively on false, misleading and deceptive commercial speech, the panel wrote.

“In view of the allegations, under any reasonable specification of a requisite three-month market price for the in-house goods … it is clear that the three-month market prices were often—and perhaps always—less than the claimed former prices,” the panel wrote. “The allegations thus suffice to establish that real parties routinely advertised former price claims for in-house goods not coinciding with the three-month market prices. For that reason, much or all of real parties’ alleged conduct ‘readily fall[s]’ within the scope of the statute.”

As for whether the statute’s prohibition was an invalid regulation of commercial speech, “the meager record permits no evaluation of the validity of … section 17501 under the Central Hudson test,” the panel said. “In view of the broad sweep of the prohibition 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, [the defendants’] ‘free speech’ challenge necessarily fails on demurrer.”

Turning to the void for vagueness contention, the appellate panel rejected both of the defendants’ arguments.

“Their facial challenge to section 17501 fails in its entirety because the statute clearly prohibits some of the misconduct alleged in the complaints; furthermore, the as-applied challenge relating to the remaining misconduct fails on demurrer for want of factual allegations sufficient to support the challenge.”

Vacating the trial court’s order sustaining the defendants’ demurrer, the appellate panel remanded the case.

To read the opinion in People v. J.C. Penney Corp., click here.

Why it matters: By vacating the trial court’s grant of demurrer on grounds the statute was void for vagueness, the appellate panel’s decision reaffirms the validity of Section 17501. It also puts retailers on notice that additional enforcement actions may be in their future.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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