Jerome's Furniture Warehouse v. Ashley Furniture Indus., Inc.

JEROME'S FURNITURE WAREHOUSE, a California Corporation, Plaintiff, v. ASHLEY FURNITURE INDUSTRIES, INC., a Wisconsin Corporation;and DOES 1 through 50, inclusive, Defendant.

Case No.: 20CV1765-GPC(BGS)

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF CALIFORNIA

April 19, 2021

ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT'S MOTION TO DISMISS

[Dkt. No. 21.]

Before the Court is Defendant's motion to dismiss the first amended complaint pursuant to Federal Rule of Civil Procedure 9(b) and 12(b)(6). (Dkt. No. 21.) Plaintiff filed an opposition. (Dkt. No. 24.) Defendant replied. (Dkt. No. 26.) Based on the reasoning below, the Court GRANTS in part and DENIES in part Defendant's motion to dismiss the first amended complaint.

Background

On September 9, 2020, Plaintiff Jerome's Furniture Warehouse ("Plaintiff"or "Jerome's") filed a complaint against its competitor Defendant Ashley Furniture Industries, Inc. ("Defendant" or "Ashley"). On January 15, 2021, the Court granted Defendant's motion to dismiss the complaint with leave to amend. (Dkt. No. 19.) On February 3, 2021, Plaintiff filed a first amended complaint ("FAC") alleging 1) false advertising arising under the Lanham Act, 15 U.S.C. § 1125(a)(1)(B); 2) unfair competition under California's Business and Professions Code section 17200 et seq. ("UCL")' and 3) violation of California's False Advertising Law ("FAL") under Business and Professions Code section 17500 et seq. (Dkt. No. 20, FAC.) On February 17, 2021, Defendant filed the instant motion to dismiss all causes of action in the FAC which is fully briefed. (Dkt. Nos. 21, 24, 26)

Plaintiff has been selling quality furniture and home furnishings to retail customers since 1954. (Dkt. No. 20, FAC ¶ 8.) Its business model offers quality product and outstanding customer service at the lowest prices possible. (Id.) It has built its brand and customer goodwill through "Jerry's price" which the consumers have come to recognize as a no-haggle price where the customer can expect to purchase furniture and home furnishings with confidence that the stated price reflects a fair and honest price with no hidden fees or terms. (Id. ¶ 9.)

Defendant is also a retail seller of furniture since 1987 but in contrast to Plaintiff's no-haggle price, its business practices include false and misleading advertising intended to deceive customers into falsely believing that it offers prices and financing that cannot be beaten by Plaintiff or other competitors. (Id. ¶¶ 4, 10.) In fact, the State Attorney General for the State of Arizona initiated an action against Ashley's practice of using false, inaccurate and/or inadequate disclaimers about the terms of its sales in advertisements which resulted in a consent judgment regulating the manner in which Ashely advertises. (Id. ¶¶ 11-13; id., Ex. A.)

Plaintiff alleges four misrepresentations in Defendant's advertisements. First, it claims that Defendant's use of the term "PLUS" is misleading. (Id. ¶¶ 14-35.) From July 28, 2020 through August 10, 2020, Defendant distributed print advertisements throughout San Diego County and southern California stating "40% OFF PLUS! 60 MO. NO interest NO down payment NO minimum purchase." (Id. ¶ 14.) This is one example of ads that Plaintiff routinely employs misrepresenting a percentage off in addition tointerest free payments. (Id. ¶ 20.) Plaintiff avers that these advertisements mislead consumers into believing that Ashley will honor 40% off its regular advertised prices for all its merchandise and honor 60 months to pay off the 40% discounted purchase interest free with no down payment and no minimum purchase. (Id. ¶ 15.) It is not until the customer is on the sales floor and after they have selected merchandise to buy that they learn that the offer is either 40% off already inflated prices or 60 months interest free payments. (Id. ¶¶ 14, 18.) These ads are also misleading because the ads do not disclose that most of the merchandise at the Ashley stores are excluded from the advertised sale due to on site "manager's specials" and/or other exclusions discovered once a customer enters the stores. (Id. ¶ 16.) The disclaimer that the sale in the ad cannot be combined with any other promotion or discount is on the second page of the ad and in microscopic fine print. (Id.)

For days before and after December 26, 2020, Defendant also ran a large billboard advertisement along the Interstate 15 freeway near the Ontario exit in Corona, California promoting a "New Year 2021 Super Sale" stating "50% OFF! PLUS 36 MONTHS" with no disclaimers. (Id. ¶¶ 23, 24.) This billboard is materially identical to other billboard advertisements by Defendant throughout Southern California and the rest of the country. (Id. ¶ 24.) The billboard ad misrepresents to the public that Ashley is offering both 50% off the regular advertised purchase price of all merchandise plus 36 months interest free payments. (Id.) These representations are made despite the fact it routinely refuses to honor both features of the sale and many items are excluded from the offer. (Id.)

Defendant is aware of the effects of its misleading advertisements and this business practice of misleading ads confuses and misleads consumers into its stores. (Id. ¶ 27.) Kerry Lebensburger, Ashley's Senior Vice President of Business Development, coaches Defendant to engage in these misleading methods of advertising in order to confuse and deceive members into patronizing its stores. (Id.) In an email to Defendant's retail chains, he wrote "80% read the headline, only 20% of those then read the content." (Id.)This explains why its headlines never include the fine print and its confusing and contradictory fine print is hidden at the bottom of the second page of the ads. (Id.)

On August 6, 2020, Plaintiff's representatives visited Defendant's store on Miramar Road in San Diego, California to determine if it would honor its advertised terms of sales within the stores. (Id. ¶ 31.) At the time, the promotion was "50% off plus 60 months no interest" which was in print advertisement and also on the door of Defendant's store. (Id.) While in the store, Plaintiff's representatives noted that nearly all items within Defendant's upholstery and dining department and all "14-piece packages" were already marked down with "manager's special"; therefore, the promotion was not applicable to those items. (Id. ¶ 32.) In the bedroom section, while none of the items were marked down with "manager's specials" all were marked up to roughly double Plaintiff's prices for similar pieces. (Id. ¶ 33.) On these items, the salesperson represented that they could receive 40% off the already double marked up prices but could not take advantage of the 60 months no interest payments. (Id.) The salesperson explained that "PLUS" meant the second sales term was "another" sales option available but Plaintiff's representatives could not receive both. (Id.)

Second, Plaintiff claims that Defendant falsely and misleadingly advertises by overstating the actual "regular price" of its merchandise in special print advertising for the purpose of falsely inflating the "savings" to be realized from its "sale price." (Id. ¶¶ 36-42.) For example, in Defendant's New Years Super Sale print ad distributed throughout San Diego County and valid from December 25, 2020 through January 11, 2021, Defendant intentionally misrepresented the "regular price" of the Ballinasloe 3-piece sectional sofa as $2,299.00 and offered a sale price of $1,150.00 causing consumers to perceive a savings of $1,149.00. (Id. ¶ 36.) However, the actual regular advertised price for the set is $1,300.00 and can be viewed by the price listed on its website as of the date of the FAC. (Id. ¶ 37.) By falsely inflating regular prices, it misrepresents discounts that do not, in fact, exist and which represent a false discount under the regulations of the Federal Trade Commission, 16 C.F.R. § 233.1(a) and 16 C.F.R. § 233.3. (Id. ¶ 38.)Again, in a November 24, 2020 internal communication, Mr. Lebensburger suggested to stores, "Raise prices, then offer a discount if willing to wait for delivery . . . the longer you wait the more you save, up to 40% off for 4 months." (Id. ¶ 40.) This indicates that Ashley is fully aware of the unfair advantage by using misleading advertisement over ethical retailers. (Id.)

Third, Plaintiff asserts that Defendant misrepresents the quality of its merchandise by falsely overstating the savings consumers can expect to receive. (Id. ¶¶ 43-44.) By grossly inflating the regular price of its products, it misleads consumers into believing that its goods are of higher quality than they really are. (Id. ¶ 44.)

Finally, Plaintiff maintains that Defendant misleads by setting "time limits" on its sales. (Id. ¶ 45.) By promoting its false and misleading advertisement for a "limited time only" it creates a false sense of urgency as those who will respond to the ad believes they need to "act fast" and visit the stores before the sale ends. (Id.) This creates foot traffic to its stores through false and/or misleading statements. (Id.) Based on the examples of ads presented, the real terms of the promotions seldom change at all. (Id.)

Defendant only reveals the truth of the misleading advertisements after a customer has decided to purchase a product and by that point, they are reluctant to leave and start a new search. (Id. ¶ 48.) It is well known in the industry that higher volumes of "foot traffic" leads to higher sales. (Id. ¶ 49.) As a result of its false and misleading advertising practices, Defendant dupes the customers but also pulls sales away from Plaintiff and other honest retailers. (Id. ¶¶ 49, 50.)

Discussion

A. Legal Standard as to Federal Rule of Civil Procedure 12(b)(6)

Federal Rule of Civil Procedure ("Rule") 12(b)(6) permits dismissal for "failure to state a claim upon which relief can be granted." Fed. R. Civ. P. 12(b)(6). Dismissal under Rule 12(b)(6) is appropriate where the...