Articles from April 2018

Chase v. Hobby Lobby: Court Takes Consumers’ POV on False Discounts

In Chase v. Hobby Lobby Stores, Inc., No. 17-00881 (S.D. Cal. Feb. 8, 2018) (slip op. available here), the plaintiff alleged that Hobby Lobby engages in a scheme to defraud consumers by advertising fake discounts, using false reference pricing, on its store merchandise. For example, Hobby Lobby places price tags on individual store products stating their “Marked” price, such as $17.99 for a photo frame. In the store aisles, amongst other photo frames, Hobby Lobby also advertises on an 8”x11” placard, “Photo Frames 50% OFF the Marked Price” in large boldface type, and sells the product to the customer at half of the “Marked” price, or $8.99. As a result of what she saw on the placard, the plaintiff purchased the frame believing it was worth significantly more than the $8.99 that she paid. Slip op. at 2-3. However, the plaintiff contends that this “Marked” price is fictitious, because the frame never sold for the “Marked” price of $17.99 during the 90-day period preceding her purchase nor was it offered for sale. Chase filed a class action based on this practice alleging violations of California’s consumer protection statutes, including the Unfair Competition Law (“UCL”), False Advertising Law (“FAL”), and the Consumers Legal Remedies Act (“CLRA”). Id. at 3.

On February 8, 2018, Hobby Lobby moved to dismiss the class complaint. It argued that reasonable consumers would not be deceived into believing the discounted price represented a reduction from Hobby Lobby’s own “marked” price because the placards contained disclaimers in small print. Specifically, the word “always” appeared in small print sandwiched between the words “Photo Frames” (below) and “50% OFF” (above) in larger font, and the term “the Marked Price” was followed by an asterisk directing the reader to more fine print, stating “discounts provided every day; marked prices reflect general U.S. market value for similar products.” Slip op. at 5 (attached as Exhibit B to the First Amended Complaint). The plaintiff alleged she did not notice these disclaimers at the time of her purchase. Id. at 8, 10 n.7. Nevertheless, Hobby Lobby relied on Freeman v. Time Inc., 68 F.3d. 285 (9th Cir. 1995) to argue that a reasonable consumer would have read and understood the disclaimers to mean that Hobby Lobby had not previously sold the merchandise at the “Marked” price. Id. at 9. See Freeman, 68 F.3d at 289-90 (holding, unremarkably, that no reasonable recipient of a sweepstakes offer would be deceived by language in large print that he or she had won the sweepstakes where adjacent language in small print expressly and repeatedly stated, “[i]f you return the grand prizewinning entry”).

The court rejected the application of Freeman and held that, under the reasonable consumer standard, Hobby Lobby’s “disclaimers” did not immunize it from liability for its deceptive pricing scheme. In doing so, the court considered Hobby Lobby’s representations from the point of view of the consumer. It stated, “there is a significant difference between viewing a . . . mailed advertisement [distinguishing Freeman] and viewing a placard in a store aisle amidst a sea of photo frames.” Slip op. at 10. “[I]t is plausible that a reasonable consumer—viewing the [in-store] ad from a distance—could have failed to take note of the word ‘ALWAYS’ and ignored disclaimers in light of the size and bolded font of the ‘50 % off’ language in the overall context of the advertisement.” Id. In the context of food labeling, the Ninth Circuit had previously stated, “[w]e disagree . . . that reasonable consumers should be expected to look beyond misleading representations on the front of the box to discover the truth from the ingredient list in small print on the side of the box.” Williams v. Gerber Prods., 552 F.3d 934, 939 (9th Cir. 2008). Hobby Lobby extends this analysis to in-store advertising, where consumers cannot be expected to search for small print to discover whether discounts that they have been promised are truthful.

Authored By:
Robert Friedl, Senior Counsel

Edwards v. Ford: 9th Cir. Affirms Award of “Catalyst” Attorney’s Fees in Auto Defect Class Action

In February, the Ninth Circuit issued an unpublished decision that bodes well for consumer-plaintiffs seeking to recover attorney’s fees under a “catalyst” theory in automotive defect class actions. See Edwards v. Ford Motor Company, No. 16-55868 (9th Cir., Feb. 22, 2018) (slip op. available here). The three-judge panel affirmed the Southern District of California’s finding that the plaintiff’s lawsuit was a substantial factor in Ford’s decision to issue “voluntary” relief to the class, as well as its award of $1.5 million in attorney’s fees and costs. However, the Ninth Circuit also upheld the district court’s decision not to apply a fee multiplier, reasoning that the $1.5 million award already accounted for the contingent risks the plaintiff faced. The decision will make it more difficult for automakers to sidestep drivers’ lawsuits by issuing a “voluntary” customer satisfaction program.

California’s Code of Civil Procedure section 1021.5, known as California’s Private Attorney General statute, provides that a court may award attorney’s fees to a “successful party” when the action has resulted in the enforcement of an important right affecting the public interest. See Graham v. DaimlerChrysler Corp., 34 Cal. 4th 553, 565 (2004). The statute “provides an exception to the general rule that each party to a lawsuit bears its own attorneys’ fees.” MacDonald v. Ford Motor Company, 142 F. Supp. 3d 884, 890 (N.D. Cal. Nov. 2, 2015) (Capstone Law APC represented Ms. MacDonald). To be a “successful party,” a plaintiff need not obtain a court-ordered change in the defendant’s behavior; it is enough for the plaintiff’s lawsuit to have catalyzed, or motivated, the defendant to provide the primary relief sought. Graham, 24 Cal. 4th at 567. The plaintiff bears the burden of proving he or she catalyzed the relief.

On appeal, Ford argued the district court improperly applied a “presumption” in the plaintiff’s favor, giving undue weight to the plaintiff’s circumstantial evidence. The plaintiff argued that the chronology of the events in the litigation, compared with the timing of Ford’s decision to offer free repairs to its customers, proved the plaintiff had motivated the automaker’s actions. A review of the case and relevant factual chronology clearly supported the plaintiff’s argument: in May 2011, Plaintiff Gene Edwards sued Ford on behalf of Ford Freestyle owners, alleging Ford knew that her 2006 Ford Freestyle vehicle—which repeatedly surged forward, stalled, and required a $900 repair—had an “Electronic Throttle Control [ETC] Defect.” That same month, the National Traffic Highway Safety Administration (“NHTSA”) opened a “Preliminary Evaluation” into the ETC defect. The case was being actively litigated in 2012, when the plaintiff defeated a motion for summary judgment and Ford defeated the plaintiff’s motion for class certification. In October 2012, an internal Ford review group recommended that the company implement a Customer Satisfaction Program providing free repairs to the class. Ford implemented the program on November 29, 2012. NHTSA closed its investigation on February 7, 2013. In January 2016, in ruling on the plaintiff’s motion for attorney’s fees, the district court found that the chronology of the events raised an inference that the plaintiff’s lawsuit catalyzed Ford’s customer service program.

Following an unsuccessful motion for reconsideration, Ford appealed, arguing the district court applied the wrong burden of proof in its analysis. Slip op. at 2. Under Ford’s view, the declaration it submitted attesting that NHTSA had motivated Ford to issue the customer service program—not the plaintiff’s lawsuit—should have been enough to rebut the plaintiff’s circumstantial evidence. The Ninth Circuit disagreed, stating: “In California, the inference from the chronology of events does not evaporate when the defendant introduces relevant and credible evidence to the contrary; rather, the trial court must weigh the evidence and determine on all the evidence, including any inference arising from the chronology, if the plaintiff’s story is persuasive. See Hogar v. Cmty. Dev. Comm’n of City of Escondido, 157 Cal. App. 4Th 1358, 1367 (2008).” Id. at 3. This finding was not a first for Ford. In 2015, Judge Tigar of the Northern District of California came to a similar conclusion in a different case, holding that a declaration from a Ford employee was insufficient to overcome the inference of remedial conduct having been catalyzed by the plaintiff’s litigation established through the plaintiff’s chronology of the events. See MacDonald, 142 F.Supp.3d 884 (N.D. Cal. Nov. 2, 2015).

In a cross-appeal, the Edwards plaintiff challenged the district court’s decision to reject the plaintiff’s requested 1.5x fee multiplier. The district court had held that the contingent risk borne by the plaintiff was already compensated adequately through her counsel’s hourly rates. The Ninth Circuit affirmed, finding no clear error. Slip op. at 6.

The Edwards case shows that a compelling chronology of events, even absent a “smoking gun,” can establish that consumer-plaintiffs are entitled to attorney’s fees for causing a manufacturer to act in the public interest.

Authored by:
Cody Padgett, Associate