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

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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