In The People v. Overstock.com, Inc. (No. A141613 filed June 2, 2017), Division Four of the First Appellate District affirmed a trial court judgment against Overstock for injunctive relief and over $6 million in civil penalties based on claims of unfair business practices and false advertising.
In the underlying action the People, through a number of district attorneys, filed an action against Overstock alleging causes of action for violations of the Unfair Competition Law (Bus. & Prof. Code §17200) (“UCL”) and False Advertising Law (Bus. & Prof. Code §17500) (“FAL”) relating to alleged untrue and misleading statements on Overstock’s website. The statements concerned pricing, price reductions, source of production, and shipping charges for its products. The underlying trial court issued a 93-page detailed statement of decision outlining the unfair practices in which Overstock engaged and finding Overstock had made knowingly untrue and misleading statements regarding the pricing of its products in violation of the UCL and FAL. The trial court also imposed civil penalties of $6,828,000 under §§17206 and 17536 of the Bus. & Prof. Code and ordered injunctive relief prohibiting Overstock from engaging in improper and misleading advertising for a period of five years.
Overstock appealed, arguing the penalties imposed by the trial court were excessive and that the order of injunctive relief was improper. On appeal, the court found that, in assessing civil penalties, a court is to consider the relevant circumstances of the violation including, but not limited to, the nature and seriousness of the misconduct, the number of violations, the persistence of the misconduct, the length of time over which the misconduct occurred, the willfulness of the defendant’s misconduct, and the defendant’s assets, liabilities, and net worth. In reviewing the trial court’s findings the appellate court reiterated that Overstock regularly overstated the original or “list” prices for items on its website so that consumers would believe they were receiving a discount by purchasing from them. In some cases, Overstock would even apply a multiplier to its selling price of a product to determine the “list price” of an item or would invite a third-party fulfillment center to set a high list price so that the Overstock price would be comparatively attractive.
The UCL and FAL authorize civil penalties of up to $2,500 for each violation. Based on the trial court’s findings, Overstock engaged in improper pricing practices with regard to a large number of goods advertised for purchase on its website since at least 2007.
Given the consideration of a number of factors, including the persistence of Overstock’s conduct, the number of violations, and the number of years over which the violations took place, the appellate court concluded the trial court did not abuse its discretion in calculating the amount of civil penalties for Overstock. In fact, the court found the amount was set both far below the maximum allowed by statute and well within Overstock’s ability to pay and thus was not constitutionally disproportionate to the gravity of the offense.
In light of the Overstock opinion, it is important to remember the statutory penalties available for violations of the UCL and the FAL are cumulative per violation. Thus, a simple finding that a company has violated either statute can have grave financial consequences. Depending on the amount of violations, types of violations, and amount of time during which violations occur, an award could be significant and may be not be found to be disproportionate to the offenses.
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