In the promotional contest, “Exclusions Apply,” disclosures are more than common. In many cases, these disclosures are made in fine print, do not specify which items are excluded, or are often not included on every copy of the advertisement. In the past, promotional exclusions have been relatively low risk — very few cases have targeted this practice, and both courts to consider such practices had dismissed the plaintiffs’ claims.

The California Court of Appeals’ recent decision in Veera v. Banana Republic makes promotional exclusions substantially riskier.

The plaintiffs in Veera claimed that they were “lured” into Banana Republic stores based on store signage advertising “40% Off” discounts, and that they were injured because the items they selected for purchase were not included in the purported storewide promotion. Banana Republic moved for summary judgment, arguing that the plaintiffs could not state a claim under California’s Unfair Competition Law, False Advertising Law, and Consumers Legal Remedies Act because they decided to complete their purchases even after they became aware at check-out that their items were excluded from the promotion. In February 2016, the Los Angeles Superior Court agreed, granting the retailer’s motion and explaining that “lost shopping time” was not “money or property” as required to confer standing.

Plaintiffs appealed,[1] and on December 15, 2016, the Court of Appeal reversed. The Court’s 30-page decision began by describing California’s consumer protection statutes as being “designed in part to protect consumers such as plaintiffs by requiring businesses to disclose the actual prices of items offered for sale, and prohibiting businesses from using false and deceptive advertising to lure consumers to shop. In short, plaintiffs had a legally protected interest in knowing from the outset, when they started to shop, the true prices of the items they chose to buy.” The court found that the plaintiffs had presented evidence raising a triable issue as to economic harm, because “[t]hey bought certain items at full price, even though (assuming plaintiffs’ evidence of misleading advertising is true) Banana Republic sold those items to them in violation of the UCL, FAL, and CLRA. The economic harm thus suffered is the difference between the advertised price plaintiffs should have been charged, and the full price plaintiffs actually paid.”

The court also found that the plaintiffs raised a triable issue as to causation. In reaching this decision, the court explained that regardless of whether the plaintiffs learned that the items were not on sale before completing their purchases, the advertising could have been the but-for cause of their purchases:

To isolate that point in time as solely determinative of reliance and causation ignores the true nature of those elements . . . Here, in plaintiffs’ version of events, the advertising led them to enter the store, to shop, to select items, to decide to purchase them, and to stand in line to make the purchases. Their reliance on the advertising informed their decision to buy, which culminated in the embarrassment and frustration they felt when, as the items were being rung up, they learned that discount did not apply. And it was the temporal proximity of that chain of events, and the pressure the events brought to bear on plaintiffs’ judgment, that played a substantial role in leading them to purchase the items they did, even though they knew the discount did not apply. On this reasoning, there is a triable issue whether plaintiffs’ reliance on the allegedly misleading advertising was a cause, though not the only cause, of their economic harm.

Justice Bigelow, in dissent, described the majority’s decision as a major departure from previous case law: “I am aware of no legal authority supporting the proposition that a plaintiff’s embarrassment or frustration is relevant to a determination of reliance when the plaintiff knows the true facts before consummating the transaction that causes the injury … I see the majority’s ‘momentum to buy’ theory as both a departure from well-settled principles regarding reliance in ordinary fraud actions and as a dilution of the Prop. 64 requirement that the plaintiff suffer economic injury as a result of the defendant’s improper conduct.” Judge Bigelow warned that the majority’s decision may “invite exhaustive litigation as parties attempt to work out just how little ‘momentum to buy’ is required to establish actual reliance.”

The Veera decision could potentially spark similar litigation against other retailers, also based on the retailers’ alleged failure to adequately disclose the existence of promotional exclusions. Thus, it is now more important than ever for retailers to make sure that their advertisements (including in-store signage, price tags, catalogues, and email advertisements) are clear. Advertisements should disclose the existence of exclusions, and, if possible, describe excluded merchandise with some specificity.

Retailers should also take note of two additional aspects of this decision:

First, Banana Republic introduced copies of some of the signage at issue, which said “Save 40% on select styles*” with small print at the bottom concerning limitations (the court noted that these disclosures were “illegible in the record”). The majority noted that regardless of the asterisk and disclosure, the window cling signage on the same dates did not include asterisks or similar disclosures. “Thus, at best, Banana Republic’s evidence shows that for at least a few days in December 2011, its windows displayed signs advertising 40 percent off a purchase with no limitations.” Retailers should read this portion of the decision as emphasizing that exclusions must be disclosed every place a promotion is advertised, and not just on the most conspicuous signage.

Second, Banana Republic presented a declaration from one of its project managers, who testified that there were no “40% Off” promotions in any Banana Republic stores on the date of one plaintiff’s purchase. The court held that whether the signage was posted at the time of the plaintiff’s purchases was a disputed fact, because the plaintiff remembered it being there. “The evidence of Banana Republic’s promotional campaign is insufficient on summary judgment to defeat plaintiffs’ deposition testimony concerning the advertising they observed.” This portion of the holding is dangerous for retailers, as there have already been numerous deceptive pricing cases where plaintiffs misremembered facts about their purchases. If plaintiffs’ weak memories are able to create disputed facts, even in the face of the company’s business records, that may signal that retailers will have a harder time getting rid of pricing cases moving forward.