The advertised-discount provision of California’s False Advertising Law, California Business and Professions Code § 17501, lives to fight another day. A coalition of national department stores, having found themselves brought together by the regulatory lasso of the Los Angeles City Attorney, recently took a big swing at the validity of that statute by objecting to its constitutionality on vagueness and free-speech grounds. The stores’ argument connected with the district court, but was ultimately thrown out by the California Court of Appeals.
The statute at issue is undoubtedly wonky:
For the purpose of this article the worth or value of any thing 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.
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.
In effect, the statute creates a scheme in which retailers who wish to offer time-based discounts (as opposed to baseline, perennial prices keyed to MSRPs) may only do so with reference to a “prevailing market price”—a price that they may not know, may not know how to calculate, and may not have ever charged. This framework forecloses some very obvious, truthful statements: namely, a simple percentage discount off of a ticketed price, even if the ticket was the actual price charged by the retailer for any time over the previous three months. Say goodbye, it would seem, to advertisements touting 50% off Halloween costumes on November 1.
After the department stores succeeded in demurring the City Attorney’s case on constitutional grounds, the government obtained mandamus review from the Court of Appeals to defend the enforceability of the False Advertising Law. On appeal, the retailers raised two constitutional challenges: vagueness and improper impingement upon free speech.
In reviewing the case on a mandamus petition, the Court of Appeals acknowledged the statute’s somewhat surprising scope, and pointed in a footnote to its origin in 1933 as a means to regulate unscrupulous depression-era brokers who “advertise either wholly fictitious values, slashing them to prices that are actually merely current market prices, or else . . . compare present prices with figures that prevailed in 1929, carefully concealing the vintage of the higher price.” While the concept may have rung true in the commodity-based economy of the Dust Bowl, its continuing wisdom is unclear in an era in which differentiated products, “by reference to name, brand, or other distinctive features,” properly provide sellers “a little pocket of monopoly power.”
But an appellate court does not have discretion to second guess the legislature’s policy judgment, and a facial constitutional challenge is perhaps the most difficult way to overwrite a statute. The retailers’ vagueness challenge accordingly failed twice: first on its face, and second as applied. The department stores argued that the statute was impermissibly vague because it relied on “unintelligible” definitions of “market” and “prevailing market price.” The court was unpersuaded, largely because the California Attorney General had been providing guidance on the topic since at least 1957. And while the prevailing market price, to be determined under the AG’s (relatively commonsensical) method, may be difficult in practice to calculate, “no fatal unclarity attends that determination.” The as-applied variant failed too, because the record was insufficiently developed to support it.
The department stores’ free-speech challenge created a closer call. In a reversed posture, the court’s finding of the statute’s clear imposition of the “market-price-or-nothing” put the government on its heels, as it was forced to admit that the statute would clearly prohibit a form of truthful advertising. The statute’s saving grace? Procedural posture. While the appellate court clearly tipped its hand regarding the impermissibility of the restriction on commercial speech, it was constrained by the limited record from striking it down: “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.” Whether that question gets answered differently on a fuller record remains to be seen.
The parties now find themselves back in litigation. While the retailers’ (and their amici) bold constitutional attack may have ultimately fallen short, they have exposed—at least, in the eyes of one court—a potential fundamental weakness in the False Advertising Law, and the scrimmage will likely cause both sides to reformulate their game plans going forward.