United States: The Quarter Ham: California Court Of Appeal Affirms Judgment In Unfair Competition And False Advertising Case

You can still get your quarter ham "STARTING AT $23.99" from Honey Baked Ham, Inc. according to the California Court of Appeal in its unpublished decision on November 8, 2016. The Court of Appeal affirmed a trial court's judgment that Honey Baked Ham, Inc. did not engage in unfair competition or in false or deceptive advertising by publishing a newspaper advertisement that touted its tasty product as "STARTING AT $23.99." The challenged statement was surrounded by a notched border, the phrase "STARTING AT" was in a smaller font size than "$23.99," and it was followed, in even smaller font, by the words, "A limited number of Quarter Hams are available at each location. Offer available while supplies last." Wood v. Honey Baked Ham, No. B261248, 2016 Cal. App. Unpub. LEXIS 8150, at *3 (Ct. App. Nov. 8, 2016).

The plaintiff purchaser claimed to have mistaken the advertisement for a coupon good for the purchase of a quarter ham at the price of $23.99. She alleged that the advertisement was misleading because it was calculated to create the false impression that any purchaser who presented it could buy a quarter ham for $23.99 and that it was a deceptive "bait and switch" or "upsell" scheme calculated to lure customers into Honey Baked Ham's stores "with a lowball price" and then "pressure them into paying a higher price." Business and Professions Code section 17200, California's unfair competition law, "prohibits any unfair, unlawful, or fraudulent business act or practice." Cal. Bus. & Prof. Code § 17200. California's corresponding false advertising laws, Business and Professions Code section 17500 and Civil Code section 1770(a)(9), prohibit false or misleading advertising statements and advertising goods and services without the intent to sell them as advertised. Cal. Bus. & Prof. Code § 17500; Cal. Civ. Code § 1770(a)(9). The challenged statements are evaluated under a "reasonable" consumer standard. Honey Baked Ham, 2016 Cal. App. Unpub. LEXIS 8150, at *12-13. To state a claim, a plaintiff must show that "a significant number" of members of the public are "likely to be deceived." Id. at *16.

Here, the relevant inquiry was whether a consumer could reasonably interpret Honey Baked Ham's advertisement as a coupon to purchase a quarter ham at the exact price of $23.99. In concluding that Honey Baked Ham's advertisement was not misleading, the Court of Appeal agreed with the trial court that "STARTING AT" meant exactly what is said: that the price of a quarter ham started at $23.99 but could be higher and that it could not be reasonably interpreted as offering all quarter hams at a single price of $23.99. Id. The Court of Appeal noted that the plaintiff did not provide any evidence that the term "starting at" would likely deceive the public at large into believing that all quarter hams were priced at $23.99. Id. at *18. Indeed, "[c]ommon knowledge and experience" confirmed that the price of a quarter ham would depend on the size and weight of the particular ham. Id. at *17. In addition, the Court of Appeal found that the evidence did not compel a finding contrary to the trial court's finding that Honey Baked Ham did not engage in a deceptive "bait and switch" or "upsell" scheme, noting that the evidence showed that the store at which the plaintiff made her purchase sold quarter hams at prices at or below $23.99 throughout the day at issue and that all the plaintiff had to do was to ask for a smaller ham to purchase one at that price.

"Starting at" pricing can be a mechanism by which a seller advertises a product at a low price to draw consumers into a store or to a website. The risk from a consumer protection perspective is that upon arriving at the store or the website, the consumer will either find that the advertised product is not available or a salesperson will divert them away from the lowest priced item to a more expensive item in what is traditionally known as a "bait and switch." If a seller advertises a product which it has no intention of selling, but instead plans to sell a consumer a different product, usually at a higher price, the seller has engaged in unlawful "bait and switch" advertising. The FTC has a guide that addresses "bait advertising," 16 C.F.R. § 238 (2017). The focus of "bait and switch advertising" from the FTC's perspective is on the unavailability of the advertised product. For example, it would be deceptive to not have a sufficient quantity of the advertised product to meet reasonably anticipated demand, unless the advertisement clearly and adequately disclosed that the supply is limited and/or that the advertised products are only available at designated outlets. 16 C.F.R. § 238.3(c). In the Honey Baked Ham case, there was no allegation that Honey Baked Ham would not sell a quarter ham of the requisite weight at the advertised price or that it had run out of the hams at that price. In addition, the advertisement disclosed that there were a "limited number" of hams at each location, which placed consumers on notice that supplies were limited. Finally, there was no allegation that Honey Baked Ham failed to have in stock sufficient quantity of hams at the advertised price. In fact, both the trial court and the Court of Appeal noted that the store at which plaintiff purchased her ham sold a substantial number of smaller quarter hams for $23.99 or less throughout the day. Honey Baked Ham, 2016 Cal. App. Unpub. LEXIS 8150, at *9. Consequently, the plaintiff did not have a strong argument that the offer itself was deceptive in structure. Rather, it was more a question of whether the "starting at" language clearly communicated that larger quarter hams could cost more. The court held that "starting at" – even in smaller lettering – adequately communicated that $23.99 was a starting price and the product could be more expensive depending on size and weight. Id. at *17.

On a cautionary note, it is wise for advertisers to remember that the Honey Baked Ham case considered only California unfair and deceptive acts and practices (UDAP) statutes and that some other states have more specific statutes that deal with advertisements where there is a range of possible prices and only the lowest price is advertised. Consider the law in Massachusetts (which is not the only state with price range regulations): In that state, it is considered an unfair or deceptive act to state or imply that any products are being offered for sale at a range of prices or at a range of percentage discounts unless, among other things, the highest price or lowest discount in the range is clearly and conspicuously disclosed in at least the same size as the type size of the lowest price or highest discount in the range. See 940 Mass. Code Regs. 6.03(11).

There are arguable distinctions between retail store price range advertising and sales involving a single product, such as ham, that is priced according to weight. But, it is important to remember that "starting at" pricing can under some circumstances connote a range of prices, and specific state laws on price advertising can come into play beyond the general UDAP laws.

It is also important for advertisers to remember that some municipalities have local laws that can apply in cases where there is an implied range of prices for items offered in an advertisement. In New York City, for example, the municipal consumer protection (New York City Administrative Code, tit. 20: CONSUMER AFFAIRS, sec. 5-12) law states that when a range of prices is stated, or the existence of a range is implied, the highest price must be stated in figures at least as tall and broad as the figures in the lowest price stated. Furthermore, the New York City regulation specifically includes "starting at" as an example of a phased that connotes a range of prices.

And, why was it important to consider whether the challenged advertisement in the Honey Baked Ham case was surrounded by a notched border? At issue here not only was whether consumers would understand the meaning of "starting at" but also whether the challenged advertisement was an "advertisement" or a "coupon." Why would that matter? Generally, an advertisement for an item at retail is an invitation to the consumer to come into the store and offer money in exchange for the advertised product. Acceptance occurs at the moment the seller accepts that payment. In contrast, a coupon, like the kind you might find in your Sunday circulars, is more than an invitation to make an offer. It is an offer to sell the consumer the specific products identified for the specific price or discount at a specific store location during the time period identified. A coupon is usually time-limited and often is subject an array of promotional terms. The plaintiff in the Honey Baked Ham case alleged that the public statement from the ham seller was a unilateral contract in the form of a coupon. She demanded fulfillment of the terms of that contract notwithstanding the use of the phrase "starting at." The court found that the advertising was "advertising," not a coupon, notwithstanding the notched border, and then the court proceeded to interpret the advertising language.

TAKEAWAY: Price is almost always a material term in advertising. When an advertised price is presented in a format that might lead consumers to believe that the advertising is a precise and definite promotional offer, there is a risk that a court could conclude that the seller is contractually bound by its terms. In such a case, the phrase "starting at" might not give the advertiser the flexibility to charge a higher price. In a lawful advertisement, a seller must present the price of an item in a truthful and non-misleading fashion. Use of "starting at" as a qualifier can work in some instances to communicate that the prices will vary by weight/size/condition, etc., but consider using more descriptive words such as "Starting at $XX.XX for a 5 lb. quarter ham." Moreover, think about whether the use of "starting at" implies a range of prices for items sold at retail. There may be specific regulations that apply depending on where you are advertising that could mandate font size or even the volume of items that are available at the advertised low price (or highest discount).

This article is presented for informational purposes only and is not intended to constitute legal advice.

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