People v. Overstock.com, Inc.
12 Cal. App. 5th 1064
| Cal. Ct. App. 5th | 2017Background
- Overstock.com displayed advertised reference prices (ARPs) as "List Price," later "Compare at" and "Compare," and calculated "You Save" amounts on product pages; many ARPs were derived from formulas, highest-market offers, or prices for similar (not identical) products.
- Before 2008 Overstock lacked robust verification controls; internal emails show employees and vendors sometimes inflated ARPs or were instructed to find the highest possible market price to maximize displayed savings.
- After consumer complaints and a county investigation, Overstock revised policies in 2007–2011 (validation team, vendor documentation, 90‑day revalidation) but continued some practices (e.g., using similar products as comparisons) and customers continued to complain.
- The People (multiple district attorneys) sued in 2010 under California’s False Advertising Law (§ 17500) and Unfair Competition Law (§ 17200), tolled the statute of limitations from March 24, 2010, and tried the case in 2013; the trial court found Overstock violated FAL and UCL, imposed $6,828,000 in civil penalties, and entered a multi‑part injunction.
- Trial evidence included expert testimony (People’s expert on ARPs’ market effects; Overstock’s expert on consumer understanding) and surveys; the court held ARP practices had the capacity to mislead and Overstock knew or should have known of the risk.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Applicable statute of limitations for UCL penalties | Four‑year UCL limitations (§ 17208) governs government actions for UCL penalties | One‑year statute for governmental penalty actions (Code Civ. Proc. § 340(b)) should apply | Held: Section 17208 (four years) controls; specific UCL limitation prevails over general § 340(b) |
| Sufficiency of evidence that ARPs were false or misleading | ARPs based on formulas, highest available price, or non‑identical products were likely to deceive consumers and thus violated FAL and UCL | Consumers were not actually misled; surveys/expert evidence show multiple consumer interpretations | Held: Substantial evidence supports that ARPs were misleading in capacity and likely to deceive; UCL/FAL violations affirmed |
| Overstock’s knowledge or negligence standard under § 17500 | Overstock knew or reasonably should have known ARPs were misleading (internal emails, complaints, industry guidance, evidence of intent to boost conversion) | No direct proof Overstock knew consumer expectations or the experts’ studies; hyperlinks/disclosures showed Overstock did not view ARPs as prevailing prices | Held: Knowledge can be inferred circumstantially; record supports that Overstock knew or should have known ARPs could mislead |
| Penalties and injunction scope | Civil penalties and injunction needed for deterrence; penalties assessed by days of violation produce reasonable award | Penalties excessive and punitive given moderate seriousness, delay, lack of concrete consumer overpayment, and some practices already abandoned | Held: Penalty award ($6,828,000) and multifaceted injunction upheld as within trial court’s discretion and not constitutionally excessive |
Key Cases Cited
- Cortez v. Purolator Air Filtration Prods. Co., 23 Cal.4th 163 (2000) (section 17208’s four‑year limitations applies to any UCL action)
- Kasky v. Nike, Inc., 27 Cal.4th 939 (2002) (violation of False Advertising Law necessarily violates UCL; likelihood of deception suffices)
- People ex rel. Bill Lockyer v. Fremont Life Ins. Co., 104 Cal.App.4th 508 (2002) (upholding substantial civil penalties and restitution in consumer protection enforcement)
- R.J. Reynolds Tobacco Co. v. People ex rel. Lockyer, 37 Cal.4th 707 (2005) (excessive‑fine analysis and factors for proportionality review)
- People ex rel. State Air Resources Bd. v. Wilmshurst, 68 Cal.App.4th 1332 (1999) (specific statutory limitations prevail over general penalty limitations)
- Colgan v. Leatherman Tool Group, Inc., 135 Cal.App.4th 663 (2006) (advertising itself is primary evidence of misleading character)
- United States v. Bajakajian, 524 U.S. 321 (1998) (test for whether a fine is constitutionally excessive involves proportionality factors)
- People v. JTH Tax, Inc., 212 Cal.App.4th 1219 (2013) (deference to trial court’s discretion in setting civil penalties under UCL/FAL)