NEA VIZCARRA v. MICHAELS STORES, INC.
Case No. 23-cv-00468-PCP
UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA
January 05, 2024
Re: Dkt. No. 26, 34
ORDER DENYING IN PART MOTION TO DISMISS AND DENYING MOTION TO STRIKE
Plaintiff Nea Vizcarra alleges that defendant Michaels Stores, Inc. deceptively advertises its products as discounted when in fact they are always available for at least 20% less than the purported “regular” price. She brings several claims on behalf of herself and a proposed class. Michaels moves to dismiss Ms. Vizcarra‘s complaint under
I. Background
The following facts from Ms. Vizcarra‘s amended complaint are accepted as true for the purposes of evaluating Michaels’
Michaels sells arts and crafts and home decor products on its website and in its stores. On Michaels.com, Michaels’ entire inventory is always available at a discount of at least 20% off of the “regular” listed prices. Michaels prominently advertises these discounts on its homepage, search results pages, and next to the “regular” list price on each item‘s individual page. For example, on January 31, 2023, a prominent red banner at the top of the Michaels.com homepage advertised “20% off regular price purchases.” On search and product pages that month, the text “Save 20% with code 22MADEBYYOU” appeared in red text immediately below list prices. Some of the discount codes are time limited. But Ms. Vizcarra alleges that at least one sitewide discount code offering at least 20% off of all merchandise is always offered. She has included screenshots of Michaels’ website from every month between
Ms. Vizcarra purchased several items from Michaels.com on November 28, 2022. She used a sitewide discount code advertising “40% off all regular price purchases,” and also purchased several items that were individually on sale for steeper discounts. On January 19, 2023, she purchased more items, this time from a Michaels store in Salinas, California. At the time, Michaels was advertising “20% off all regular price purchases” with a coupon that was “valid through January 28, 2023.” Some of the items she purchased in-store were on sale for even greater discounts. Her receipt indicated she saved $11.65. Ms. Vizcarra says that in purchasing the discounted items, she understood that she was purchasing items that regularly (including before the advertised promotion) retailed at the published “regular” price, that this published price was the market value of the products she was buying, and that she was receiving the items at a comparatively reduced price that was not always available. She says she would not have made the purchases if she had known that the products were not discounted as advertised.
Ms. Vizcarra brought this action on February 1, 2023 and filed an amended complaint on May 3, 2023. She brings the action on behalf of a putative nationwide class of people who “purchased one or more Michaels Products advertised at a discount on Defendant‘s website or in-store,” as well as on behalf of a similar California subclass. Michaels has moved to dismiss the amended complaint. The Court held a hearing on Michaels’ motion on November 9, 2023.
II. Legal Standards
Under
III. Analysis
For the reasons set forth below, Michaels’ motion to dismiss is denied as to all of Ms. Vizcarra‘s claims except her unjust enrichment claim. The motion to strike the class allegations is also denied. Michaels’ separate request for judicial notice is granted.
A. Motion To Dismiss
1. Ms. Vizcarra States a Former Price Advertising Claim Under the FAL.
Ms. Vizcarra‘s first cause of action includes a claim under Section 17501 of the California False Advertising Law (FAL). Section 17501 governs the practice of “former price” advertising and provides: “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.”
The upshot of Ms. Vizcarra‘s allegations is that in stores and online, all Michaels products are always available for two prices: the regular list price and a discounted price that is always at least 20% lower. Ms. Vizcarra alleges that the coupon code needed to secure the 20% discount is widely and prominently advertised, including on the Michaels.com homepage, search results pages, and individual product pages, as well as in stores. A customer that does not use the coupon will not receive the sitewide 20% discount. The screenshot included in Ms. Vizcarra‘s complaint and discussed by Michaels in its motion to dismiss shows an example of how this advertising is typically presented:
Dkt. No. 26, at 11; Dkt. No. 34, at 15. This advertising and pricing mechanism essentially presents a customer with two choices. Option 1: Add the item to your cart, check out, and pay $19.99. Option 2: Add the item to your cart, enter the prominently displayed discount code, check out, and pay $15.99 (i.e., 20% off).
Michaels is correct that in this example, $19.99 is a current price of a 16-ounce Green Eucalyptus Bunch (one of two current prices, to be precise). Based on this, Michaels contends that it “advertises current—not former—prices” and that its “alleged discounting... is not subject to Section 17501.” Dkt. No. 34, at 16. But Michaels makes an important logical leap—namely, that a current price cannot also be a former price.
On its surface this argument makes some intuitive sense; advertisements commonly display a former price in order to
Here, if Michaels had listed $19.99 as the current price of a eucalyptus bunch but had included a red label below stating, “This item was formerly only available at the regular price but is now also available at a 20% discount by entering a coupon code,” that would clearly suggest that the listed current price was also being presented as the former price of the product. The essence of Ms. Vizcarra‘s complaint is that, in context, Michaels’ pricing creates exactly this impression, albeit less explicitly. The question here is not whether Michaels’ list prices are current prices (they clearly are), but rather whether it has presented its “regular” prices in a way that suggests they are also former prices.1
It is clear that Michaels’ advertising does not explicitly identify its “regular” or pre-discount current prices as “former” prices. But Section 17501 does not require explicit labelling.
“A reasonable consumer does not need language such as, ‘Formerly $9.99, Now 40% Off $9.99,’ or, ‘40% Off the Former Price of $9.99,’ to reasonably understand ‘40% off’ to mean 40% off the former price of the product.” Knapp v. Art.com, Inc., No. 16-CV-00768-WHO, 2016 WL 3268995, at *4 (N.D. Cal. June 15, 2016). Courts have construed strikethrough prices as representing former prices despite “[t]he lack of specific words indicating the regular price.” Munning v. Gap, Inc., No. 16-CV-03804-TEH, 2016 WL 6393550, at *4 (N.D. Cal. Oct. 28, 2016). And in Knapp, the Court held that a perpetual coupon pricing scheme very similar to Michaels’ could constitute former price advertising within the meaning of Section 17501:
Art.com asserts that section 17501 does not apply because Art.com‘s sales require consumers to enter a coupon code to obtain the advertised sale price, meaning that its sales merely compare “two current prices“—i.e., the coupon price and the non-coupon price—not a former non-sale price and a current sale price. I am not convinced. Knapp has plausibly alleged that the “40% off” language he viewed objectively qualifies as former price advertising within the meaning of section 17501, and that he subjectively interpreted the language as advertising a discount from Art.com‘s former prices. Against this backdrop, it is not clear why it matters that he was required to enter a coupon code to obtain the advertised 40 percent discount. As described in the [complaint], the requirement
that a consumer enter a coupon code to obtain the advertised discount is merely a routine, procedural step in the purchase transaction and is not material to whether Art.com‘s advertising constitutes former price advertising under section 17501. Moreover, I am skeptical that section 17501 cannot be applied to a comparison between a current coupon price and a current non-coupon price, merely because both prices are currently available to consumers. Art.com cites no on-point authority to support its position that a former price under section 17501 must be one that is not currently offered, and thus cannot be a currently offered “regular” or “non-sale” price.
Knapp, 2016 WL 3268995, at *5 & n.4 (cleaned up).
This analysis is equally applicable here. Ms. Vizcarra‘s allegations are sufficient to suggest that Michaels’ advertising could convey to a reasonable consumer that the non-discounted list price is a “former” price under the meaning of Section 17501. At the pleading stage, it is clearly plausible that language like “20% off all regular price purchases” or even “save 20%” could suggest to a reasonable consumer that that the listed non-discount price is the price a customer would previously have had to pay and that comparable discounts are not always available. And as the Court in Knapp convincingly explained, there is no reason why the fact that the higher price is also currently offered means it cannot also be understood as a former price.
Michaels does not dispute that the allegations in Ms. Vizcarra‘s complaint are sufficient to establish a Section 17501 violation under the logic of Knapp. But Michaels argues that Knapp is an outlier that has been superseded by an intervening California appellate court decision, People v. Superior Court (J.C. Penney Corp.), 34 Cal. App. 5th 376 (2019). In particular, Michaels points to two aspects of the Knapp decision it says conflict with J.C. Penney (a decision which is persuasive but not necessarily binding authority as to the content of California law).
First, according to Michaels, ”Knapp ruled a plaintiff need not identify prices charged by other retailers to establish a defendant‘s prices are higher than the ‘prevailing market price’ so long as a plaintiff alleges that a defendant sells at a percentage lower than ‘prevailing market prices.’ But J.C. Penney and subsequent cases make clear that an item‘s ‘prevailing market price’ is determined by the actual sales prices of ‘similar goods’ and the ‘same goods’ on the ‘open local market.‘” Dkt. No. 39, at 10. Michaels is correct that J.C. Penney addresses the definition of “prevailing market price” under Section 17501. See 34 Cal. App. 5th at 411. But Knapp does not conflict with J.C. Penney because Knapp is not about the definition of “prevailing market price.” Instead, Knapp addresses what a plaintiff must plead in order to establish that the advertised former price was not the prevailing market price. Knapp‘s holding that a plaintiff “does not need to identify prices charged by other retailers to plausibly establish that... advertised former prices are higher than prevailing market prices,” 2016 WL 3268995, at *5, is entirely consistent with a definition of “prevailing market price” that is based on the “common or predominant price among the sellers in the market where the item is advertised,” J.C. Penney, 34 Cal. App. 5th at 412. In other words, while a plaintiff must eventually determine the prices charged by other sellers in the market where an item is advertised in order to prove the prevailing market price, they need not identify the actual prices charged by other retailers in order to state a claim.
Here, Ms. Vizcarra has plausibly alleged that Michaels presents its pricing and discounts in a way that could suggest to a reasonable consumer that the “regular” (i.e., higher current price) is also a former price. The next question under Section 17501 is whether “the alleged former price was the prevailing market price... within three months next immediately preceding the publication of the advertisement.”
The complaint alleges that most products Michaels sells are “exclusive” or “private brand” products sold only by Michaels, but that it also sells at least some non-exclusive products.2 Dkt. No. 26, at 22. In her complaint, Ms. Vizcarra alleges that all Michaels products—be they exclusive or non-exclusive—are always available for two prices. Drawing all reasonable inferences in her favor, the Court can presume that most consumers, when confronted with two prices including a lower price that can be obtained with negligible additional effort, will opt for the lower price. Ms.
Vizcarra‘s allegations are therefore sufficient to plausibly establish that the prevailing market price of products sold at Michaels is the lower, discounted price, while Michaels’ advertising presents the higher non-discounted price as a former price. This is true even for any non-exclusive products, because the Court can infer for purposes of the present motion that Michaels would not continually sell products for prices at least 20% less than the market rates at which those products are offered elsewhere. See also Knapp, 2016 WL 3268995, at *5 (“Knapp does not need to identify prices charged by other retailers to plausibly establish that Art.com‘s advertised former prices are higher than prevailing market prices.“).3 Under
2. Ms. Vizcarra Adequately Pleads FAL, UCL, and CLRA Advertising Claims.
In addition to the Section 17501 claims discussed above, Ms. Vizcarra also claims in her first cause of action that Michaels has violated Section 17500 of the FAL. In her second cause of action, she seeks damages and an injunction under the California Consumer Legal Remedies Act (CLRA). And in her third cause of action, she claims that Michaels has violated the unlawful, deceptive, and unfair prongs of California‘s Unfair Competition Law (UCL). Michaels argues, and Ms. Vizcarra does not dispute, that these claims are subject to
Section 17500 of the FAL broadly prohibits knowingly or negligently making “untrue or misleading” statements in conjunction with the intentional sale of goods or services. The UCL prohibits “any unlawful, unfair or fraudulent business act or practice,” as well as any “unfair, deceptive, untrue or misleading advertising” and any act prohibited by the FAL.
(cleaned up). Finally, the CLRA prohibits a wide range of “unfair methods of competition and unfair or deceptive acts or practices,” including:
- “Representing that goods or services have sponsorship, approval, characteristics, ingredients, uses, benefits, or quantities that they do not have or that a person has a sponsorship, approval, status, affiliation, or connection that the person does not have,”
Cal. Civ. Code § 1770(a)(5) ; - “Advertising goods or services with intent not to sell them as advertised,”
id. § 1770(a)(9) ; and - “Making false or misleading statements of fact concerning reasons for, existence of, or amounts of, price reductions,”
id. § 1770(a)(13) .
As its name suggests, the CLRA authorizes consumers harmed by prohibited conduct to bring an action for damages and injunctive relief, provided they first comply with certain notice requirements when seeking damages.
Claims under the FAL, UCL, and CLRA “are governed by the ‘reasonable consumer’ test.” Williams v. Gerber Products Co., 552 F.3d 934, 938 (9th Cir. 2008). Importantly, the UCL and FAL “prohibit not only advertising which is false, but also advertising which, although true, is either actually misleading or which has a capacity, likelihood or tendency to deceive or confuse the public. Thus, to state a claim under either the UCL or the false advertising law, based on false advertising or promotional practices, it is necessary only to show that members of the public are likely to be deceived.” Kasky, 27 Cal. 4th at 951. “California courts have recognized that whether a business practice is deceptive will usually be a question of fact not appropriate for decision on demurrer.” Williams, 552 F.3d at 938. The question is
Here, Ms. Vizcarra has alleged facts that could plausibly establish that Michaels’ advertising is false, misleading, or capable of deceiving or confusing the public. The essence of her allegations, described in more detail above, is that Michaels’ advertised sales, discounts, and coupons are not as good as they might at first appear because its products are always on sale and customers never have to pay the listed “regular” price. Michaels counters that the alleged advertisements cannot be misleading because, “while discounts may be available, that does not mean that all consumers are aware of them or undertake the required affirmative steps to take advantage of them,” and that as a result, the allegation that coupons or discounts are always available “does not mean that the products are ‘never’ offered at the ‘regular’ or ‘prevailing market price.‘” Dkt. No. 34, at 18. That may be the case, but even advertisements which are technically true can still be misleading, deceptive, or confusing and thus violate the FAL. Ms. Vizcarra‘s allegations plausibly suggest that this could be true, and they therefore suffice at the pleading stage. Whether reasonable consumers are actually likely to be deceived by Michaels’ advertising is a question of fact that must be resolved at a later stage.
Ms. Vizcarra‘s UCL claims are closely related to her FAL claims and are also therefore sufficient. The deceptive advertising prong of the UCL uses the same “reasonable consumer” test as the FAL (which it also explicitly incorporates), and Ms. Vizcarra‘s UCL deception claim therefore suffices for the same reason. The adequately pleaded FAL violation also serves as a sufficient predicate for a violation of the unlawful prong of the UCL. Finally, while there appears to be some variation among California courts over what test applies to consumer claims under the unfair prong of the UCL, the hard questions arise when conduct that is not otherwise proscribed is nevertheless alleged to be unfair. Here, where the factual allegations are sufficient to plausibly allege violations of the FAL and other prongs of the UCL, those same allegations also sufficiently state an unfairness prong claim under the UCL, including under the more stringent test that “requires the allegedly unfair business practice be ‘tethered’ to a legislatively declared policy.” See Belton v. Comcast Cable Holdings, LLC, 151 Cal. App. 4th 1224, 1239 (Cal. Ct. App. 1st. Dist. 2007).
Michaels also argues that even if Ms. Vizcarra‘s claims satisfy
Michaels also argues that
Finally, Michaels argues that Ms. Vizcarra has not complied with the CLRA‘s notice requirements and that the CLRA damages claim must therefore be dismissed. The CLRA provides that a plaintiff may file an action for injunctive relief and, at least 30 days after filing that action and notifying the defendant of the alleged violation, amend their complaint to include a request for damages. See
In sum, Michaels’ motion is denied as to the FAL, UCL, and CLRA claims asserted in Ms. Vizcarra‘s first three causes of action.
3. Ms. Vizcarra States a Claim for Intentional Misrepresentation.
Ms. Vizcarra‘s ninth cause of action is a claim for intentional misrepresentation. Michaels argues this claim should be dismissed under the economic loss doctrine, which holds that a plaintiff who suffered “purely economic loss due to disappointed expectations” may recover only in contract—not tort—unless the plaintiff “can demonstrate harm above and beyond a broken contractual promise.” Robinson Helicopter Co., Inc. v. Dana Corp., 34 Cal. 4th 979, 988 (2004). But one class of contract cases where the California Supreme Court has recognized that tort damages are permitted is “where the contract was fraudulently induced.” Id. at 989–90 (quoting Erlich v. Menezes, 21 Cal. 4th 543, 551–52 (1999)); see also White v. FCA US LLC, 22-cv-00954-BLF, 2022 WL 3370791, at *5 (N.D. Cal. Aug. 16, 2022) (“Properly pled, claims for fraudulent inducement fall under their
Ms. Vizcarra argues that her claim is not subject to the economic loss rule because it is based in fraudulent inducement: She alleges that she would not have purchased Michaels’ goods in the first place absent Michaels’ alleged misrepresentations, and claims that having purchased the products at all is a separate tort injury distinct from her disappointed economic expectations regarding their monetary value. Because these allegations include an element of fraudulent inducement, they are not barred by the economic loss rule and are sufficient to state a claim for intentional misrepresentation.
Ms. Vizcarra‘s complaint also includes a claim for negligent misrepresentation that Ms. Vizcarra has now withdrawn. Dkt. No. 38, at 18 n.2. This claim is dismissed.
4. Ms. Vizcarra States Claims for Breach of Contract and Warranty.
Ms. Vizcarra‘s fourth cause of action is for breach of contract. She claims that she and class members entered a contract with Michaels in which they would pay Michaels for the products, and Michaels in turn would provide products that had market values equal to the non-discounted list prices while providing a discount. Michaels argues that there was no breach because it provided products having the specified list price and provided the specified discount from that price. The parties clearly disagree over the terms of the purported contract, how Michaels’ products should be valued, and whether Ms. Vizcarra and other customers received the discounts they were promised. But these are fact disputes. For purposes of
Ms. Vizcarra‘s fifth cause of action is for breach of express warranty. Under California law, “[a]ny affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the affirmation or promise,” as does “[a]ny description of the goods which is made part of the basis of the bargain creates an express warranty that the goods shall conform to the description.”
Ms. Vizcarra‘s sixth cause of action is for breach of implied warranty. Michaels’ arguments regarding the sufficiency of that claim are the same as its arguments regarding the express warranty claim, and fail for the same reasons.
5. Ms. Vizcarra Does Not State a Claim for Unjust Enrichment.
Ms. Vizcarra‘s seventh cause of action is a claim for quasi-contract/unjust enrichment. In California, “there is not a standalone cause of action for ‘unjust enrichment.‘” Astiana v. Hain Celestial Grp., Inc., 783 F.3d 753, 762 (9th Cir. 2015). Rather, “unjust enrichment” and “restitution” can serve as “the theory underlying a claim that a defendant has been unjustly conferred a benefit through mistake, fraud, coercion, or request,” the return of which “is the remedy typically sought in a quasi-contract cause of action.” Id.
In support of her quasi-contract claim, Ms. Vizcarra alleges that Michaels’ “false and misleading advertising” caused her to purchase Michaels products and “pay a price premium,” and that Michaels therefore “received a direct and unjust benefit” at her expense. Dkt. No. 26, at 40. It is unclear from the facts alleged in the complaint, however, how Michaels’ use of price discounts resulted in payment of a price premium to Michaels by Ms. Vizcarra—which is a necessary element of her claim for restitution. Wrongful conduct does not provide a basis for restitution unless there is a benefit unjustly retained by the defendant at the plaintiff‘s expense. See Weitzenkorn v. Lesser, 40 Cal. 2d 778, 794 (1953) (“Quasi contractual recovery is based upon benefit accepted or derived for which the law implies an obligation to pay. ‘Where no benefit is accepted or derived there is nothing from which such contract can be implied.‘“).
In any event, Ms. Vizcarra‘s existing complaint suffers from a more obvious problem. “An action based on an implied-in-fact or quasi-contract cannot lie where there exists between the parties a valid express contract covering the same subject matter.” Rutherford Holdings, LLC v. Plaza Del Rey, 223 Cal. App. 4th 221, 231 (2014). At the pleading stage, this means that “a plaintiff may not plead the existence of an enforceable contract and simultaneously maintain a quasi-contract claim unless the plaintiff also pleads facts suggesting that the contract may be unenforceable or invalid.” Saroya v. Univ. of the Pac., 503 F. Supp. 3d 986, 998 (N.D. Cal. 2020).5 In her existing complaint, Ms. Vizcarra has not pleaded that the contract she alleges she had with Michaels is unenforceable or invalid or explained why the facts she has alleged could
render the contract unenforceable. For that reason, her quasi-contract/unjust enrichment claim is dismissed with leave to amend.
B. Motion To Strike
Michaels also moves to strike Ms. Vizcarra‘s class allegations under
C. Request for Judicial Notice
Michaels has requested judicial notice of several court filings and fourteen webpages. The court filings are clearly noticeable under
IV. Conclusion
Ms. Vizcarra‘s unjust enrichment claim is dismissed with leave to amend. Michaels’ motion to dismiss is denied as to all other claims. The motion to strike is denied. The request for judicial notice is granted. An amended complaint, if any, is due February 2, 2024. If Ms. Vizcarra does not file an amended complaint by that date, Michaels’ response to the existing complaint will be due February 23, 2024.
IT IS SO ORDERED.
Dated: January 5, 2024
P. Casey Pitts
United States District Judge