FACTUAL AND PROCEDURAL BACKGROUND
On October 20, 2017, petitioner filed the first amended complaints in the four underlying actions, which are directed separately against real parties J.C. Penney Corporation, Inc. (J.C. Penney), Kohl's Department Stores, Inc. (Kohl's), Macy's Inc. (Macy's), and Sears, Roebuck and Co. and Sears Holdings Management Corporation (collectively, Sears).
According to the complaints, real parties engaged in misleading, deceptive, or false advertising by offering goods for sale online at prices discounted from so-called "reference prices" that purported to reflect real parties' own former prices, but which did not do so. The
Real parties demurred to the complaints, contending, inter alia, that the section 17501 claims failed because the statute unconstitutionally limits truthful speech
On September 4, 2018, the City Attorney filed his petition for writ of mandate, seeking relief from the ruling regarding the section 17501 claims. We issued an order to show cause why that ruling should not be vacated.
DISCUSSION
Petitioner contends the trial court erred in sustaining the demurrer to the section 17501 claims. As explained below, we agree.
Regarding real parties' challenge to section 17501 as an unconstitutional regulation of free speech, as a preliminary matter we reject petitioner's contention that the statute targets only false, misleading or deceptive commercial speech (see pt.C.2.b., post ). We agree with real parties that the plain language of the statute restricts protected commercial speech and thus, the statute is subject to the test for constitutional validity set forth in Central Hudson Gas & Elec. v. Public Serv. Comm'n (1980)
Regarding real parties' contention that section 17501 is void for vagueness, we conclude they have offered neither a successful facial challenge -- that is, an attack on the general validity of the statute -- nor a successful challenge based on the statute's application to them. We reject at the threshold their contention that a specific rule for evaluating facial challenges was abrogated in
Applying that rule, we conclude the facial challenge fails even if the statute's impact on protected speech triggers a higher standard for clarity, as the statute clearly applies to some of the misconduct alleged in the complaints, and is not inherently unworkable or devoid of guidance to retailers (see pt.D.3.b.i., post ). For the same reasons, we reject the "as-applied" challenge, insofar as it pertains to that alleged misconduct. With respect to the remaining misconduct alleged in the complaints, we conclude the record is insufficient to support a successful "as-applied" challenge on demurrer. (see pt.D.3.b.ii., post ).
A. Standard of Review
"Because a demurrer both tests the legal sufficiency of the complaint and involves the trial court's discretion, an appellate court employs two separate standards
"When reviewing a demurrer on appeal, appellate courts generally assume that all facts pleaded in the complaint are true. [ Citation.]" (Cantu , supra ,
"Second, if a trial court sustains a demurrer without leave to amend, appellate courts determine whether ... the plaintiff could amend the complaint to state a cause of action. [ Citation.]" (Cantu, supra,
B. Governing Principles
The key issues here concern the constitutionality and interpretation of section 17501, which constitute questions of law we resolve de novo. ( Samples v. Brown (2007)
A party challenging the constitutionality of a statute ordinarily must carry a heavy burden. "Facial challenges to statutes ... are disfavored. Because they often rest on speculation, they may lead to interpreting statutes prematurely, on the basis of a bare-bones record. [Citation.] ... [¶] Accordingly, we start from 'the strong presumption that the [statute] is constitutionally valid.' [Citations.] 'We resolve all doubts in favor of the validity of the [statute].' [Citation.] Unless conflict with a provision of the state or federal Constitution is clear and unmistakable, we must uphold the [statute]. [Citations.]" ( Building Industry Assn. of Bay Area v. City of San Ramon (2016)
To the extent we must construe section 17501, our inquiry applies established principles. "The objective of statutory interpretation is to ascertain and effectuate legislative intent. To accomplish that objective, courts must
Here, the record presented to the trial court contains no legislative history relating to Business and Professions Code section 17501. On our own motion, we have taken judicial notice of former Penal Code section 654a -- the predecessor of Business and Professions Code section 17501 -- and the legislative acts enacting those statutes. ( Boghos v. Certain Underwriters at Lloyd's of London (2005)
The trial court, in sustaining real parties' demurrer, considered two documents authorized by the Attorney General of the State of California: a 1957 opinion that interprets aspects of section 17501 (
C. Free Speech Rights
Our initial focus is on whether section 17501 implicates free speech rights under the First Amendment of the United States Constitution and the free speech provision of the California Constitution ( Cal. Const., art. I, § 2, subd. (a)). Section 17501 consists of two paragraphs, the second of which contains a prohibition concerning advertisements. The first paragraph sets forth a standard relating to worth or value: "For the purpose of this article the worth or value of anything advertised is the prevailing market price, wholesale if the offer is at wholesale, retail if the offer is at retail, at the time of publication of such advertisement in the locality wherein the advertisement is published. " The second paragraph states: "No price shall be advertised as a former price of any advertised thing, unless the alleged former price was the prevailing market price as above defined within three months next immediately preceding the publication of the advertisement or unless the date when the alleged former price did prevail is clearly, exactly and conspicuously stated in the advertisement ."
"Under the First Amendment ..., commercial speech is entitled to protection from governmental regulation [citations], although it is entitled to less protection than other constitutionally guaranteed speech. [Citations.] [¶] Commercial speech is 'expression related solely to the economic interests of the speaker and its audience' [citation] and 'does no more than propose a commercial transaction....' [Citation.] To that end, it serves the economic interests of the speaker, while assisting consumers and furthering the societal interest in the free flow of commercial information. [Citation.]" ( Bronco Wine Co. v. Jolly (2005)
Here, the prohibition in section 17501 is directed at commercial speech, and relates to the content of advertising. Under the First Amendment, the validity of a content-based restriction of commercial speech is subject to the multi-stage test set forth in Central Hudson , in which the court stated: "At the outset, we must determine whether the expression is protected by the First Amendment. For commercial speech to come within that provision, it at least must concern lawful activity and not be misleading. Next, we ask whether the asserted governmental interest is substantial. If both inquiries yield positive answers, we must determine whether the regulation directly advances the governmental interest asserted, and whether it is not more extensive than is necessary to serve that interest." ( Central Hudson , supra ,
The free speech provision of the California Constitution also protects truthful and nonmisleading commercial advertising while permitting the imposition of sanctions for misleading commercial advertising. (
Here, the key question is whether section 17501 regulates unprotected commercial speech. Generally, "[w]ith regard to misleading commercial speech, the United States Supreme Court has
2. Analysis
The crux of real parties' "free speech" contention is that section 17501 restricts protected commercial speech because it "bans vast amounts of truthful speech about former prices." Petitioner counters that the statute, properly construed, applies only to false, misleading, or deceptive advertising of former prices. As explained below, we conclude that by its plain terms, the statute forbids certain common forms of truthful price advertising -- and thus restricts significant amounts of protected commercial speech. As further explained, however, on the limited record before us, real parties' "free speech" constitutional challenge fails on demurrer.
As real parties' contentions require us to interpret the prohibition contained in section 17501, we begin by examining the statute and its provenance. Section 17501 is one of three provisions enacted in 1941 as the original components of Article 1 of Chapter 1, Division 7, Part 3 of the Business and Professions Code, which sets forth the FAL's primary prohibitions against false and misleading advertising. (Stats. 1941, ch. 63, § 1, pp. 727-728.) The three provisions -- sections 17500, 17501, and 17502 of the Business and Professions Code -- were derived from a single predecessor statute, former Penal Code section 654a. (See People ex rel. Mosk v. National Research Co. of Cal. (1962)
Of the three provisions, the most prominent is section 17500, which "is the major California legislation designed to protect consumers from false or deceptive advertising." ( Olson , supra ,
Sections 17501 and 17502, by their plain language, enhance or supplement section 17500. Section 17501 sets forth a specific prohibition not found in section 17500. Similarly, section 17502 establishes an immunity from liability for entities that publish "an advertisement in good faith[ ] without knowledge of its false, deceptive, or misleading character."
The conclusion that Business and Professions Code section 17501 was intended to extend beyond section 17500 derives additional support from
b. Scope of Prohibition in Section 17501
The key question concerns the extent to which section 17501 implicates free speech rights. Our inquiry into the scope of the prohibition necessarily begins with its express terms, as a statute's language "is generally the most reliable indicator of legislative intent." ( Hassan v. Mercy American River Hospital (2003)
Because the prohibition must be construed within section 17501, viewed as a whole, we examine it in light of the preceding paragraph, which focuses on "worth" and "value": "For the purpose of this article the worth or value of anything advertised is the prevailing market price ... at the time of publication of such advertisement in the locality wherein the advertisement is published ." Generally, in a commercial setting, the value or worth of an item is its market value, which may be shown by the market price. ( Bagdasarian v. Gragnon (1948)
Viewed in context, the prohibition, by its plain language, forbids any advertisement of the former price of an "advertised thing" that does not express the market price information regarding former worth or value, as specified in the statute. Simply put, the prohibition bans any advertised claim regarding the former price of an item (1) unless the advertised former price was "the prevailing market price as [ ] defined [in section 17501 ] within the three months next immediately preceding the publication of the advertisement" or (2) unless the advertised former price was the prevailing market
Because the meaning of the elements of the prohibition discussed above is clear, we need not look beyond the statutory language to consider the statute's legislative history or other factors. ( Jackpot Harvesting Co., Inc. v. Superior Court (2018)
Our interpretation of the prohibition finds support in the 1957 Attorney General opinion and Spann v. J.C. Penney Corp. (C.D. Cal. 2015)
As discussed further below (see pt.D.3.b.i., post ), in Spann , the plaintiff asserted a putative class action against real party J.C. Penney, asserting claims under section 17501, based on allegations resembling those relevant here. ( Spann , supra , 307 F.R.D. at pp. 512-513.) The plaintiff requested an order certifying the class, which the trial court granted. ( Id . at p. 533.) In so ruling, the court concluded that according to the "clear language" of section 17501, "when a retailer advertises a 'former' or 'original' price and compares it with a sale price, that 'former' or 'original'
Petitioner insists the legislative purpose behind section 17501 was "not [to] limit or penalize protected or truthful speech." We recognize our obligation, "if possible, to construe [the] statute in a fashion that renders it constitutional" ( In re M.S. (1995)
Nor does anything before us suggest the existence of a legislative intent to focus section 17501 exclusively on false, misleading, and deceptive commercial speech. As explained above, the prohibition operates by affirmatively defining two limited classes of permissible former price claims while banning all other such claims.
Although the complaints suggest what appears to be an alternative interpretation of section 17501, that interpretation neither complies with the canons of statutory interpretation nor restricts the prohibition to nonprotected commercial speech. Each complaint alleges that the relevant "market" is the pertinent real party's "own offering of the items." To the extent those allegations are intended to state a general interpretation of section 17501, they suggest that the statutory term "prevailing market price" means the price in a single "market," understood as the business operation of the retailer making the price claim. So construed, the prohibition would ban any advertised former price claim unless it (1) was the retailer's own "prevailing" price "within three months next immediately preceding the publication of the advertisement" or (2) was the retailer's own "prevailing" price on a specified date.
The proposed interpretation is untenable. First, it disregards the common meaning of the term "prevailing market price," and would render a portion of the standard surplusage. As noted above, the prohibition refers to the definition of an advertised item's prevailing market price stated in the standard, that is, "the prevailing market price ... at the time of publication of such advertisement in the locality wherein the advertisement is pub lished
c. Failure of Constitutional Challenge Based on Free Speech Rights on Demurrer
The remaining question is whether the prohibition, as interpreted above, is an invalid regulation of commercial speech. Our focus is on whether there is an adequate justification for the prohibition. (See Gerawan Farming, Inc. v. Kawamura (2004)
Although the proponent of a statute restricting protected commercial speech ordinarily bears the burden of justifying it ( Edenfield v. Fane (1993)
Here, the meager record permits no evaluation of the validity of the section 17501 under the Central Hudson test. In view of the broad sweep of the prohibition contained 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, real parties "free speech" challenge necessarily fails on demurrer. ( Gerawan Farming, Inc. v. Kawamura , supra , 33 Cal.4th at pp. 21-24,
D. Vagueness
We turn to real parties' contention that section 17501 is void for vagueness under the due process clauses of the United States and California Constitution. For the reasons discussed below, we reject the contention.
1. Governing Principles
"It is a well-settled rule that 'a statute which either forbids or requires the doing of an act in terms so vague that [people] of common intelligence must necessarily guess at its meaning and differ as to its application, violates the first essential of due process of law.' " ( Connor v. First Student, Inc. (2018)
"As to the first two applications, the Fourteenth Amendment due process guarantee against vagueness requires that laws provide adequate warning to people of ordinary intelligence of the conduct that is prohibited, and standards to protect against arbitrary and discriminatory enforcement. [Citation.] ... [¶] The third application of constitutional vagueness applies when [the statute] 'clearly implicates free speech rights.' " ( Concerned Dog Owners , supra ,
2. Standards Applicable to Real Parties' Challenges
Here, real parties assert facial and as-applied challenges to section 17501, and the trial court, in concluding that the latter was successful, subjected the statute to heightened scrutiny due to its potential impact on free speech. At the threshold of our inquiry, we must resolve two issues regarding our standards for evaluating the challenges, namely, whether real parties can assert a successful facial challenge if section 17501 clearly applies to some of their alleged misconduct, and whether their challenges require heightened scrutiny.
a. Propriety of Facial Challenge
The parties dispute whether real parties' facial challenge fails if the statute clearly applies to some of their alleged misconduct. Relying primarily on Hoffman Estates , supra ,
i. Facial Vagueness Challenges Before Johnson
We begin by setting forth the key rules regarding facial vagueness challenges prior to Johnson. When the challenged statute did not implicate free speech rights, the standard for a successful facial challenge was high: the
Under this "as-applied inquiry first" rule, the facial challenge failed if the statute clearly applied to some or all of the challenger's conduct. ( Hoffman Estates , supra ,
The principal decision regarding these rules was Hoffman Estates . There, a merchant asserted a facial vagueness challenge to a city ordinance requiring retailers to secure a license in order to sell items " 'designed or marketed for use' " with illegal cannabis or drugs. ( Hoffman Estates,
Here, the parties dispute whether Johnson abrogated the use of the "as-applied inquiry first" rule in the context of real parties' facial
ii. Continuing Vitality of "As-Applied Inquiry First" Rule
For the reasons discussed below, we conclude that Johnson did not abolish the use of the "as-applied inquiry first" rule here. In Johnson , a criminal defendant asserted a vagueness challenge to the "residual clause" of the Armed Career Criminal Act, (
While Johnson addressed the facial challenge to the statute without first attempting to apply it to the defendant's conduct, the high court noted that
To the extent Johnson declined to look first at the defendant's conduct, it created uncertainty regarding the high standard for a successful facial challenge. Nevertheless, it neither expressly overruled Hoffman Estates nor even mentioned it. As one circuit court observed, the unifying tenet of the prior cases on which the court relied was that a criminal statute that ' "simply has no core' and lacks 'any ascertainable standard for inclusion and exclusion' " is impermissibly vague, regardless of the facts of the particular case. ( United States v. Cook (7th Cir. 2019)
In our view, Johnson did not put an end to the "as-applied inquiry first" rule. Rather, the decision appeared to involve an exceptional statute in which the key defect could be established without examining the statute as applied to the challenger's circumstances. Indeed, after Johnson , both federal and California courts have continued to rely on the "as-applied inquiry first" rule. ( Cook , supra , 914 F.3d at pp. 549-555 [applying rule in rejecting facial vagueness challenge to criminal statute]; Doe v. Valencia College (11th Cir. 2018)
The remaining issue is whether we should follow the "as-applied inquiry first" rule. Real parties contend, in effect, that the exceptional circumstances in Johnson are also present here, as their facial and as-applied challenges rely on the same claim, namely, that the statute is entirely meaningless. Pointing to the 1984 committee report, they assert that the statute's key terms "individually and in combination create an incomprehensible statute that is void for vagueness on its face." They offer the same contention in challenging the statute for vagueness as applied, arguing that it "contains a series of terms that have no defined, predictable, understandable application either singly or in combination. Thus, even if the allegations in the ... complaints are accepted as true ..., the conduct therein described is not 'clearly proscribed' by [s]ection 17501 -- because [s]ection 17501 'clearly proscribes' nothing." (Italics omitted.)
We are not persuaded. As our Supreme Court has explained, an overarching principle in evaluating vagueness challenges is that "abstract legal commands must be applied in a specific context. A contextual application of otherwise unqualified legal language may supply the clue to a law's meaning, giving facially standardless language a constitutionally sufficient concreteness." ( Gallo , supra ,
The remaining question before conducting that analysis is whether, in view of our conclusion that section 17501 restricts protected commercial speech, a higher standard of clarity is required in our application of the "as-applied inquiry first" rule. In the context of a facial or as-applied vagueness challenge to a statute restricting protected speech, heighted scrutiny may be required in evaluating whether the statute clearly applies to the challenger's conduct. (See Hoffman Estates , supra ,
The nature of the heightened standard of clarity was discussed in Holder. There, legal rights groups and individuals asserted constitutional challenges to a federal statute making it a crime to "knowingly provid[e] material support or resources" -- including a " 'service' " such as " 'training' " or " 'expert advice' " -- " 'to a foreign terrorist organization.' " ( Holder , supra ,
Relying on Hoffman Estates , the United States Supreme Court rejected the Ninth Circuit's ruling, stating: "[T]he Court of Appeals contravened the rule that '[a] plaintiff who engages in some conduct that is clearly proscribed cannot complain of the vagueness of the law as applied to the conduct of others.' " ( Holder , supra ,
In view of Holder , when a regulation restricts protected speech, the application of the "as-applied inquiry first" rule may involve a higher standard of clarity in determining whether the challenger's own conduct falls under the statute. Here, it is unclear that real parties' challenges trigger that standard, notwithstanding our conclusion that section 17501 restricts protected commercial speech. Because the section 17501 claims are predicated on what is alleged to be real parties' false, misleading, or deceptive advertising, the claims do not necessarily encompass any protected commercial speech by real parties.
As explained below, we reject real parties' facial and as-applied vagueness challenges. 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.
Generally, " '[i]n considering whether a legislative proscription is sufficiently clear to satisfy the requirements of fair notice, "we look first to the language of the statute...." [Citations.] ... [Citation.] The Legislature's intent "as exhibited by the plain meaning of the actual words of the law," must be followed " ' "whatever may be thought of the wisdom, expediency, or policy of the act." ' " [Citations.]' [Citations.]" ( Benson v. Kwikset Corp. (2007)
At the outset, we note that the trial court, in accepting the as-applied challenge, directed its attention primarily to petitioner's legal conclusions regarding the application of section 17501, as alleged in the complaints. However, "we are not limited to [petitioner's] theor[ies] of recovery in testing the sufficiency of [the] complaint[s] [on] demurrer, but instead must determine if the factual allegations of the complaint[s] are adequate to state a
a. Allegations in Complaints
The complaints assert that real parties offer goods for sale online at prices purportedly discounted from so-called "reference prices" that are "deliberately and artificially" stated to be higher than real parties' actual former prices. Some of the goods are "in-house" goods exclusive to each real party, and the others are nonexclusive goods also sold by competing retailers.
According to the complaints, following an investigation of real parties' online websites, petitioner found that large percentages of the "daily offerings" were offered at (or above) the represented reference price only for periods of 30 days or fewer during the 90-day period preceding the pertinent advertisements. Depending on the particular real party, the complaints assert that 19.38 percent to 51.29 percent of the daily offerings were never offered at (or above) the reference price; that 48.65 percent to 88.08 percent of the daily offerings were offered at (or above) the reference price for only 14 days or fewer; and that 83.76 percent to 98.55 percent of the
As noted above (see pt.C.2.b., ante ), the complaints assert that for purposes of section 17501, the relevant market is the pertinent real party's "own offering[ ] of the items." In connection with that assertion, each complaint specifically alleges that with respect to the in-house goods, the real party is the only possible "market" regarding those goods. With respect to nonexclusive items sold by other retailers, however, each complaint asserts that even if the "market" relating to those items encompasses other retailers, real parties' reference prices do not coincide with the prevailing market prices because real parties' actual prices were consistently below the advertised reference prices.
b. Clarity of Section 17501
As explained below, the complaints state theories of liability regarding the in-house goods and the nonexclusive goods that rely on the same provisions of section 17501, but differ with respect to the markets in which the pertinent prevailing market prices must be determined. We conclude that real parties'
i. In-House Goods
The theory of liability clearly applicable to the in-house goods is set forth in Spann , supra ,
In Spann , the plaintiff asserted a putative class action against real party J.C. Penney, asserting claims, inter alia, under the FAL, including section 17501. ( Spann,
In so ruling, the court rejected J.C. Penney's contention that the section 17501 claim was not suitable for class litigation. ( Spann,
The theory set forth in Spann clearly applies to the false or deceptive former
The complaints allege that real parties did not specify dates in their former price claims, and otherwise assert in detail that their actual former prices for advertised items were usually less than their claimed former prices for the items. The complaints allege (1) that for significant percentages of the daily offerings, the items were never sold at (or above) the claimed former prices during the 90-day period preceding the advertisements; (2) that for virtually half or more of the daily offerings, the items were sold at (or above) the claimed former prices for only 14 days or fewer during the 90-day period; and (3) that for the vast majority of the daily offerings, the items were sold at (or above) the claimed former prices for only 30 days or fewer during the 90-day period.
As discussed further below, these allegations support the reasonable inference that for a considerable amount of the advertised in-house goods, the claimed former price was greater than the actual prevailing market price during the statutory three-month period. Because real parties' daily offerings did not specify dates upon which the claimed former prices obtained, the complaints clearly state a theory of liability under section 17501, namely, that real parties' claimed former prices for their in-house goods did not coincide with the prevailing market prices for the relevant three-month period.
Because the facial challenge fails if section 17501 clearly applies to real parties, our focus is on whether they have identified any fatal vagueness in the application of the Spann theory to the facts as alleged in the complaints. We thus disregard hypothetical problems of application outside those concrete circumstances, including all such problems identified in the 1984 committee report.
We reject real parties' suggestion that the statutory terms "market" and "prevailing market price" are unintelligible. As explained above (see pt. B.3.b., ante ), those terms have established meanings sufficient to
The 1957 Attorney General opinion and Spann reached similar conclusions regarding the terms "market" and "prevailing
Real parties and amici contend the specific definition of "prevailing market price" relevant to the statutory prohibition is unworkable. The prohibition relies on the definition in the standard set forth in section 17501, which provides that the "prevailing market price" is that which obtains "at the time of publication of such advertisement in the locality wherein the advertisement is published." ( § 17501, italics added.) Real parties and amici maintain that the italicized terms have no clear meaning.
The clear import of the definition is that a retailer, in selecting the medium for the advertised item, determines the particular market in which the prevailing market prices are to be identified. The relevant market is the one that exists in the locality of consumers likely to see the advertisement at the time it is published, and consists of the vendors then competing to sell the advertised item to them. Accordingly, when, for example, a retailer advertises an item on a specified date in a newspaper whose circulation is limited to Los Angeles, the relevant market price is that which prevails among the retailers selling the advertised item to consumers in Los Angeles on the date in question. Because the term "prevailing" ordinarily means "common," and applies to "what is predominant or widespread beyond others of its kind or class at a time or place indicated...." (Webster's Third New Internat. Dict.
The 1957 Attorney General opinion offered the same interpretation of the definition, concluding that -- depending on the content of the advertisement -- the prevailing market price was determined by the actual sales prices of similar goods, or the same good, on the "open local market." (30 Ops.Cal.Atty.Gen., supra , at p. 129.) The Attorney General further stated: "[I]t is not any price on the market that the statute refers to, for ... there is often more than one price for the same goods appearing simultaneously on the market, but the most common one." (Ibid .; see Haley v. Macy's Inc. (N.D. Cal. 2017)
Under the Spann theory, as alleged in the complaints, the application of the statutory definition of "prevailing market price" is clear. Although each real party's online advertisements reach a widespread group of consumers, the real party is the only retailer selling its in-house goods to those consumers. For that reason, the real party's advertised actual price for an in-house item may constitute the item's prevailing market price at the time the actual price is advertised as alleged in the complaints.
Real parties' demurrer maintained that the statute did not preclude determining the prevailing market price of an advertised
Real parties and amici further contend the term "time of publication," as used in the definition, has no clear meaning. However, California law has long provided that when an act is relevant to the operation of a statute, it is ordinarily treated as falling on a full day, rather than a fraction of a day. ( Municipal Improv. Co. v. Thompson (1927)
Real parties and amici also contend the term "locality" is necessarily vague, arguing that it has numerous possible meanings, and that the advent of the Internet has made its application "even more question-begging" due to the Internet's broad reach. We disagree. Generally, the term "locality," viewed in context (that is, "the locality wherein the advertisement is published"), operates to identify the market for the "advertised item" as the consumers targeted by the advertisement and the sellers competing to sell the item to them. So understood, the Internet raises no special difficulty regarding the term, as it is merely a medium that reaches a very large group of consumers. In the context of advertising former prices of in-house goods, the term "locality" plays no role in identifying relevant competing sellers, as only real parties sell their in-house goods.
Additionally, real parties and amici maintain that the key terms in the statutory
Broadly speaking, the provision, by its plain language, permits a former price claim only when the claimed former price coincides with the requisite three-month market price. Because the provision refers to "the" prevailing market price during the pertinent three-month period, the requisite market price is reasonably viewed as the common or predominant price during that period. For that reason, in a typical case, a retailer may avoid liability under the statute by advertising a former price that obtains on all or most of the days within the pertinent three-month period.
In Spann , relying on expert testimony, the trial court accepted the statistical "mode" price of an advertised item -- that is, the most commonly occurring price -- as the appropriate objective standard for determining the prevailing three-month market price for that item. ( Spann,
Although difficulties may arise in some contexts in determining whether a former price claim coincides with the requisite three-month market price, no fatal unclarity attends that determination under the complaints' allegations. The complaints allege that for significant percentages of the advertised items, the actual prices were always below the claimed former prices during the 90-day period; that for approximately half or more than half of the advertised items, the actual prices were below the claimed former prices on all but 14 days (or fewer) 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.
Real parties suggest the statute is void for vagueness as applied to them because it does not resolve whether the actual prices charged for in-house items in their brick-and-mortar stores may serve as the basis for their online former price claims. However, that contention fails on demurrer because the reasonable inferences raised by the complaints' factual allegations contradict the contention's presupposition, namely, that the prices in the brick-and-mortar stores support the online former price claims. Indeed, the complaints allege that each real party has adopted specific policies ensuring that its online sales prices "are, by the company's own design, in substantial parity with" the sales prices in its "brick-and mortar" stores.
ii. Nonexclusive Goods
We turn to the as-applied challenge, insofar as it is directed at the sole tenable theory of liability alleged in the complaints regarding nonexclusive goods, namely, the theory that disregards the complaints' erroneous legal conclusion that each real party's business operation constitutes the "market." That theory relies on the allegations that even if the "market" relating to nonexclusive goods encompasses other retailers, real parties' claimed former prices do not coincide with the requisite market prices.
The theory in question thus differs from the Spann theory primarily with respect to the market or markets in which the prevailing market prices are to be determined. Under section 17501, as construed above (see pt.D.3.b.i., ante ), the market for each nonexclusive item advertised by a real party consists of all the retailers selling the "advertised item" to the consumers targeted by the real party's advertisement. In those markets, the real party's actual price for a nonexclusive item will not establish the item's prevailing market price. ( Spann , supra ,
Regarding the nonexclusive goods, the complaints rely on the same factual allegations regarding real parties' advertising, but contend real parties' claimed former prices did not coincide with the requisite three-month market prices because real parties' actual prices were consistently below the claimed former prices. Although on demurrer we are not bound by all factual conclusions alleged in a complaint, the inference asserted here is, in fact, reasonable because in competitive markets, the actual
We must reject any as-applied challenge to the "nonexclusive goods" theory on demurrer because it is premature, that is, it hinges on facts neither pleaded in the complaints nor subject to judicial notice. (Tobe , supra , 9 Cal.4th at pp. 1083, 1088, 1092-1093,
DISPOSITION
Let a peremptory writ of mandate issue directing that respondent trial court vacate its order sustaining real parties' demurrer to the section 17501 claims without leave to amend, and enter a new order denying that demurrer. Petitioner is awarded costs.
CERTIFIED FOR PUBLICATION.
We concur:
WILLHITE, J.
CURREY, J.
Notes
For simplicity, we treat the action against Sears as involving a single retail entity.
All further statutory citations are to the Business and Professions Code, unless otherwise indicated.
At the request of real parties, the trial court ordered portions of the complaint be sealed.
After issuing the order to show cause, we granted requests from Consumer Attorneys of California and from the Retail Litigation Center, Inc., the National Retail Federation, the California Retailers Association, and the Chamber of Commerce of the United States of America to submit briefs as amici curiae.
The trial court took judicial notice of the 1984 report at the request of real parties -- which petitioner did not oppose -- and appears to have taken judicial notice of the 1957 opinion sua sponte. In sustaining real parties' demurrer to the section 17501 claims, the court placed special emphasis on the 1984 report as support for its conclusion that the statute is impermissibly vague.
In supplemental briefing, the parties directed our attention to a 1933 magazine article discussing the enactment of Assembly Bill 2384, which established the original version of section 17501. After characterizing the bill as a measure "designed to curb depression-born abuses," the article states that it "regulates comparative prices. With commodity prices shot to pieces and last year's bargains this year's extravagant memories, unscrupulous merchants have taken quick and unfair advantage. They advertise either wholly fictitious values, slashing them to prices that are actually merely current market prices, or else they compare present prices with figures that prevailed in 1929, carefully concealing the vintage of the higher price." (Gerald J. O'Gara, The legislature goes "new deal" (July 1933) Western Advertising, p. 20.)
Section 17502 states: "This article does not apply to any visual or sound radio broadcasting station, to any Internet service provider or commercial online service, or to any publisher of a newspaper, magazine, or other publication, who broadcasts or publishes, including over the Internet, an advertisement in good faith, without knowledge of its false, deceptive, or misleading character."
The Printers' Ink Model Statute was eventually adopted in many states, either in its original form or with modifications. (Olson , supra ,
Following the 1933 amendment, former Penal Code section 654a provided:
"Any person ... who, with intent to sell ... real or personal property ... or to induce the public ... to enter into any obligation relating thereto ... shall make ... in any ... advertising medium ... or by means of any ... advertising device, ... an advertisement ... which [ ] shall contain any statement ... concerning such real or personal property ... which ... is false or untrue, ... or which is deceptive and misleading, and which is known, or which by the exercise or reasonable care should be known, to be false or untrue, deceptive or misleading, by the person ... circulating or placing before the public said advertisement, shall guilty of a misdemeanor.
"For the purpose of this section, the worth or value of anything advertised shall be taken to be the prevailing market price, wholesale if the offer is at wholesale, retail if the offer is at retail, at the time of publication of such advertisement in the locality wherein the advertisement is published.
"No price shall be advertised as a former price of any advertised thing, unless said former price was the prevailing market price as above defined within three months next immediately preceding the publication of said advertisement or unless the date when said former price prevailed shall be clearly, exactly and conspicuously stated in the said advertisement.
"Provided, however, that this act shall not apply to any publisher of a newspaper, magazine, or other publication, who publishes said advertisement in good faith, without knowledge of its false, deceptive, or misleading character."
As our Supreme Court has explained, " 'value,' in connection with legal problems, ordinarily means market value." (Bagdasarian v. Gragnon , supra ,
In supplemental briefing, petitioner contends the prohibition, as interpreted above, "contains no 'ban' on truthful speech," and "expressly allows for retailers to advertise any truthful former price, so long as the retailer also identifies the date when the price was offered." The crux of petitioner's argument is that in the clause, "unless the date when the alleged former price did prevail is clearly, exactly and conspicuously stated in the advertisement," the term "prevailed" refers to the retailer's own price on the specified date, rather than the prevailing market price for the date. We reject that interpretation, as it would require us to impose a new meaning on the term "prevail" different from its meaning in the other portions of the statute. By its plain language, the prohibition clearly bans all truthful former price claims regarding the retailer's own prices that do not coincide with the specified prevailing market prices, regardless of whether the retailer specifies the date on which its claimed former prices obtained.
We note that in 1933, when the predecessor of section 17501 was enacted, the precise extent to which commercial speech enjoyed constitutional protection was uncertain, as there was relatively little litigation regarding that issue. (See Gerawan Farming, Inc. v. Lyons, supra,
In so concluding, we do not reject the possibility that under the statute, as properly construed, a retailer's own former price for a good may sometimes constitute the requisite former market price. As explained further below (see pt. D.3.b.i., post ), that situation potentially occurs when the good in question is an "in-house" item sold only by the retailer, as the retailer's price for such a good could be determined to be the "prevailing" price at which it is sold, upon an adequate factual showing.
In a related contention, relying on Zauderer v. Office of Disciplinary Counsel of Supreme Court (1985)
Generally, an affirmative defense relies on a fact that is independent of the factual allegations essential for the plaintiff's claim. (Bevill v. Zoura (1994)
We note that in supplemental briefing, petitioner contends the statute can be shown to be valid under Central Hudson test, and has directed our attention to evidence relevant to one of its prongs, namely, whether the statute serves a substantial governmental interest. Real parties' "free speech" challenge to the statute thus cannot be resolved on demurrer, as doing so would deny petitioner an opportunity to make a full evidentiary showing regarding the application of the Central Hudson test. (See Tobe , supra ,
After oral argument, real parties directed our attention to Bucklew v. Precythe (2019) --- U.S. ----,
The trial court, in overruling real parties' demurrers to petitioners' other causes of action, concluded that the complaints' allegations stated causes of action for false, misleading, or deceptive advertising under section 17500. Before us, real parties have not challenged that ruling. Accordingly, for purposes of this writ proceeding, the allegedly false, misleading, or deceptive former price advertising must be viewed as unprotected commercial speech, as section 17500 targets such speech (Olson , supra ,
Real parties have failed to establish any other tenable basis for heightened scrutiny of the statute. They suggest that section 17501 is subject to the enhanced standard of clarity appropriate for criminal statutes because criminal penalties are potentially available for violations of section 17501 (§ 17534 ). In Ford Dealers Assn. v. Department of Motor Vehicles (1982)
The rationale in Ford Dealers Assn. applies here. Like the statute at issue there, section 17501 is a remedial statute subject to liberal construction to effectuate the protection of consumers, and the instant complaints do not seek criminal penalties. We therefore decline to subject the statute to the heightened standard of clarity appropriate for criminal statutes.
Sessions v. Dimaya (2018) --- U.S. ----, [
The same is true of other contentions raised by real parties and amici. Real parties argue that section 17501 has been rendered unworkable by unspecified factual changes in retailing wrought by the Internet. Relying on facts not alleged in the complaints, amici maintain that the term "prevailing market price" is well defined only for markets for generic or bulk commodities, and thus is inapplicable to sellers of nongeneric goods. These contentions cannot support vagueness challenges asserted on demurrer.
Nothing in this opinion should be understood to resolve whether the market prices for some or all of real parties' alleged exclusive in-house goods are, in fact, properly determined solely by real parties' prices for those items.
Real parties' reliance on Connally , supra ,
In a statute, the term "month" means "calendar" month, absent any qualification (Sprague v. Norway (1866)
We recognize that the complaints rely on a 90-day period, rather than a three-month period. The complaints' allegations are thus technically defective, as the three-month period will comprise 89 to 92 days (see fn. 19, ante ). Nonetheless, those minor defects are immaterial to whether the complaints state clear claims under section 17501, in view of the patent falsity of the former price claims as alleged in the complaints.
We also observe that the complaints allege that a retailer necessarily contravenes the provision in question by publishing a former price that obtains on fewer than half the number of days within the three-month period. The complaints assert that a seller violates the statute by advertising a reference price for a product "higher than that which it actually offered and sold the product for a majority of the days on which it was offered during the preceding 90 days." However, we are not bound by that legal conclusion.
Real parties' demurrer contended the allegations were defective because they were pleaded on information and belief. We disagree. As Witkin explains, "[i]t sometimes happens that a plaintiff ... lacks knowledge and the means of obtaining knowledge of facts material to his or her cause of action.... Usually the matters are peculiarly within the knowledge of the adverse party, and the pleader can learn of them only from statements of others. In this situation, the pleader may plead what he or she believes to be true as the result of information ... the pleader has received." (4 Witkin, Cal. Procedure (5th ed. 2008) Pleading, § 398, pp. 537-538.) However, "[i]t is improper to plead on information and belief when the pleader had actual or presumed knowledge of the facts." (Id . at § 399, p. 539.)
Here, real parties are likely to have records of the prices for in-house items sold in their brick-and-mortar stores. In contrast, petitioner could have obtained that price data only by visiting real parties' brick-and-mortar stores on a daily basis during its investigations in order to monitor the prices of the "thousands" of in-house goods. Nothing in the complaints suggest that was possible. For that reason, the price information in question must be regarded as "peculiarly" within real parties' knowledge. (4 Witkin, supra , Pleading, § 398, p. 538.)
In a related contention, amici argue that the application of the phrase, "the prevailing market price ... within the three months next immediately preceding the publication of the advertisement," is uncertain with respect to online retailers who publish continuous advertisements for items. We disagree. Because the statute plainly aims at providing market price information useful to consumers, the three-month period is properly construed as a "rolling" period, that is, one whose beginning and end changes each day, thus requiring a daily recalculation of the prevailing market price during the three-month period. (Cf. City of Brentwood v. Central Valley Regional Water Quality Control Board (2004)