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Banana Republic's 40% Off Sale Leads to Unfair Competition Claim; Misleading Advertisement Could Not Be Cured at Point of Sale

In Veera v. Banana Republic, LLC, a California Court of Appeal recently reversed a judgment in favor of Banana Republic in a false advertising class action based on in-store ads promoting a 40% off sale. The plaintiffs alleged they were lured into Banana Republic stores after seeing ads in store windows stating "40% off." Plaintiffs learned at the cash register that the discount did not apply to the items they wanted to purchase. Out of frustration and embarrassment, plaintiffs claim they bought some but not all of the items they selected at full price. They later sued for violations of California's Unfair Competition Law ("UCL") at Business and Professions Code sections 17200 and 17500, claiming the "40% Off" signs were misleading because they did not disclose that the discount only applied to certain items.

To have standing to assert a claim under the UCL, a plaintiff must show he or she suffered economic injury caused by the unfair business practice or false advertising. The superior court granted summary judgment, agreeing with Banana Republic that plaintiffs could not show they suffered an economic injury as a result of the alleged false advertising because they learned the true price of the clothing before completing the transaction and nevertheless made the purchases. The appellate court reversed.

The appellate court reasoned that the false advertising laws are designed to protect consumers by requiring businesses disclose the actual prices of items offered for sale, and prohibiting business from using false and deceptive advertising to lure consumers. As a result, plaintiffs has "a legally protected interest in knowing from the outset, when they started to shop, the true prices of the items they chose to buy." The appellate court continued, holding "the question of reliance and causation does not rest as a matter of law on whether plaintiffs knew the actual price of the items they purchased at the moment money was exchanged." The advertising led plaintiffs to enter the store, select items, decide to purchase them, and stand in line to make the purchases. Thus, their reliance on the advertising informed their decision to buy. "It was the temporal proximity of that chain of events, and the pressure the events brought to bear on plaintiffs' judgment, that played a substantial role in leading them to purchase the items they did, even though they knew the discount did not apply." The appellate court was also persuaded by the argument that, if it held otherwise, consumers would effectively have no remedies for "bait and switch" advertising.

The decision in Veera potentially opens the door to a wide-range of fraud and false advertising claims as it arguably prevents retailers from curing any misleading or confusing advertisements at the point of sale. At the very least, plaintiffs will rely on Veera to expand the range of consumer fraud cases that can be brought under the UCL.

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