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Consumer Class Actions Take a Hit: Court Holds Made-For-Outlet Products Not Deceptive

January 18, 2018

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In the face of a growing number of lawsuits against retailers for deceptive sales, advertising and pricing practices, a California court recently affirmed dismissal of a consumer’s false advertising lawsuit against The Gap, holding that it is not false advertising for the retailer to put its brand and trademark on lesser quality goods sold at its outlet stores.

In Rubenstein v. The Gap, Inc., 14 Cal. App. 5th 870 (Cal. App 2d 2017), plaintiff argued that that advertising a Gap Factory or Banana Republic Factory item as “Gap” or “Banana Republic” was deceptive because the item was of lesser quality than a Gap or Banana Republic item. The California Court of Appeals rejected the argument that a brand’s use of its own name for its factory or outlet stores is deceptive. The court stated, “Gap’s use of its own brand name labels on clothing that it manufactures and sells at

A New Year for Online Businesses: DOJ Ends 2017 by Withdrawing Website Accessibility Rulemaking

2017 was a busy year for retailers and businesses with an online presence, as they faced a wave of demand letters and lawsuits alleging that their websites are inaccessible to the visually impaired and/or hearing impaired in violation of Title III of the Americans With Disabilities Act of 1990 (the “ADA”).  As we have previously reported, courts across the country weighed in on the issue throughout the year.  To bring an end to 2017, the Department of Justice (“DOJ”) withdrew its proposed rulemaking for accessible websites.

In July 2010, the DOJ announced an Advanced Notice of Proposed Rulemaking related to the issuance of new regulations to cover the accessibility of websites of public accommodations.  While businesses with an online presence were waiting for those regulations to be promulgated, plaintiffs began taking the issue to the courts, resulting in a patchwork of conflicting decisions.  As we previously reported, in

Beware of Listing Phantom Prices: Ann Taylor Settles False Discount Class Action

December 28, 2017

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Fashion retailer Ann Taylor has settled a false discounting class action in New York federal court alleging that prices at its outlet stores were listed as “marked down” from prices that never applied to the items. The named plaintiffs claim they were misled into believing they were getting a large discount, and would not have made the purchase if they knew the items were not heavily discounted.

The class action is just one of a growing number of deceptive pricing actions filed against retailers. As we previously reported, retailers can also face an action by the Federal Trade Commission or public prosecutors for such practices. This growing trend and Ann Taylor’s potential $6.1 million exposure should put retailers on notice of the repercussions associated with using phantom prices in an effort to advertise discounts.

The settlement has received preliminary approval from District Judge Paul Oetken, and provides both monetary and

Pier 1 Settles Class Action Over Call-In Shifts for $3.5 Million

December 27, 2017

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Pier 1 Import has agreed to pay $3.5 million to settle a class action lawsuit brought on behalf of about 9,300 retail store associates in California.  The lawsuit alleged the company owed workers pay for when they are scheduled to call the store to ask if they should report for work or stay home.

California requires employers to provide “reporting time pay” to employees.  Employers must provide a few hours of pay when an employee reports to work for a scheduled shift but is dismissed a short time later because business is slow.

The complaint alleged that Pier 1 violated this law by requiring employees to call in one to two hours before the scheduled shift.  Employees complained that the call-in shifts were mandatory, and required employees to schedule their time around the possibility that they may work after a call-in shift.  Pier 1 Import has since discontinued the scheduling

A Commentary on CFPB’s Delay in Announcing Further Delay of the Prepaid Card Rule

The Consumer Financial Protection Bureau has issued a brief press announcement that the Prepaid Card Rule would be further revised and that the effective date for compliance will be further postponed from the current deadline in April 2018.

The announcement creates more worry than relief – it’s just a tease. The announcement did not say what changes would be made or when the new deadline will be. It only said that amendments to “certain aspects” of the rule would be coming “soon after the new year.”  No doubt the Bureau meant for this announcement to be helpful to someone, but it is not clear if anyone is actually helped.

Prepaid card issuers are scrambling to implement the systems changes and new business processes necessary to support the sweeping changes required by the rule. With this announcement, they must now wonder which of those efforts will turn out to

New Tax Law Provides Relief for Retailers, Who Successfully Lobbied for Reform

The new tax law signed by President Trump today is the broadest rewrite of federal tax law in three decades and will have a widespread impact for retailers. The legislation is generally effective for taxable years beginning on or after January 1, 2018, but certain provisions could have a retroactive impact.

The final bill, which has been submitted to President Trump for signature, eliminates a wide range of corporate tax breaks and uses the money to lower rates for all businesses, large and small alike. The corporate tax rate is reduced from 35 percent to 21 percent, and owners of pass-throughs receive a deduction with respect to certain qualified income from pass-throughs.

The National Retail Federation had lobbied for tax reform and called passage of the tax bill “a major victory for retailers, who currently benefit from few of the deductions and credits that lower tax bills for other industries and consequently pay

Online Retailers Support Challenges to Repeal of Net Neutrality Rules

December 15, 2017

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In response to the Federal Communications Commission’s vote yesterday to dismantle the net neutrality rules regulating businesses that connect consumers to the internet, online retailers have responded that they will support legal and legislative efforts to challenge the repeal.

The FCC’s action reversed the agency’s 2015 Open Internet Order, during the Obama administration, to have stronger oversight over broadband providers. That order, commonly referred to as net neutrality rules, prohibits internet service providers from blocking websites, charging more for access to certain websites, or secretly slowing, or “throttling,” website content. The federal government will also no longer regulate high-speed internet delivery as if it were a utility, like phone service.

“The FCC has effectively ended net neutrality, undoing years of hard work and bipartisan agreement,” said Bill McClellan, Vice President of Government Affairs for the Electronic Retailing Association (ERA). “It is unfortunate that the FCC has disregarded the will of

Prop. 65 Point-of-Sale Warnings Expiring for BPA in Food and Beverage Products

The California Proposition 65 regulation allowing a point-of-sale warning for bisphenol-A (BPA) in food and beverage products expires on December 30, 2017.  After that date, retailers and manufacturers likely cannot rely on the point-of-sale warning, and may have to rely instead on product label or shelf warnings, or reformulation of food containers without BPA.

California’s Office of Environmental Health Hazard Assessment (OEHHA) has refused to extend the regulation, on grounds that manufacturers have had sufficient time to phase out use of BPA.  OEHHA’s refusal has been appealed to the California Environmental Protection Agency and the Governor’s Office, but is likely to stand.

Therefore, after December 30th, retailers could be held liable for the sale of products containing BPA unless a Proposition 65 compliant warning is provided. While the safe harbor level for dermal exposure to BPA is less than 3 micrograms per day, there is no safe harbor threshold for

Restaurants vs. Apparel: A Different Recipe for Restructuring a Retail Footprint

With the holiday season now upon us, analysts are closely watching the restaurant industry, particularly the casual dining segment. Reminiscent of the conditions in 2008-2009, many are speculating whether the increase in online consumer shopping that served as a catalyst for the current “Retail Apocalypse” will reduce crucial holiday shopper foot traffic and push some teetering dining chains over the edge.

In the first half of Q4 2017 alone, there were at least three Chapter 11 filings by national and regional casual dining chains, including Romano’s Macaroni Grill and Vasari LLC, the second largest franchisee of Dairy Queen franchises. In Q2 2017, Ignite Restaurant Group commenced its Chapter 11 cases to conduct a 363 sale process for Joe’s Crab Shack and Brick House. Meanwhile, industry commentators are keeping a close watch on some household name chains and other mid-market brands such as Bravo Brio and Bertucci’s.

Following in the footsteps

Don’t Get TARRed: FTC Continues to Scrutinize Misleading Marketing and Sales Methods

November 22, 2017

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The Federal Trade Commission has taken Tarr, Inc. and 18 other entities to task for fake news, unsubstantiated advertising claims, and fake celebrity endorsements.

A stipulated order for permanent injunction and monetary judgment announced on November 15, 2017 imposes a $179 million penalty against the online marketer on charges it sold weight-loss, muscle-building, and wrinkle-reduction products to consumers using unsubstantiated health claims, fake magazine and news sites, bogus celebrity endorsements, and phony consumer testimonials.

The injunction includes, among other things:

  • A permanent ban on the use of negative option features to sell dietary supplements, cosmetics, foods or drugs, products sold on a trial or sample basis, or products that are sold as add-ons when consumers purchase other products. Negative options occur when a customer accepts a supposedly free trial offer, but is enrolled in a continuity program, through which they are charged for the initial supply of products if

Online Retailers Beware: Court Holds Website Violates ADA Despite Lack of Physical Store

Courts across the country continue to weigh in on the issue of website accessibility. Last week, the U.S. District Court for the District of New Hampshire denied a motion to dismiss filed by online food delivery servicer Blue Apron.  In denying the motion, the court found that Blue Apron’s website is a place of public accommodation – despite the fact that Blue Apron operates only online and has no traditional brick and mortar locations. Access Now, Inc. v. Blue Apron, LLC, Case No. 17-cv-00116, Dkt. No. 46 (D. N.H. Nov. 8, 2017).

In so finding, the court relied on binding precedent in the First Circuit, and noted that other Courts of Appeals, namely the Third, Fifth, Sixth and Ninth Circuits, have held that in order to be considered a “public accommodation,” an online business must have a nexus to an actual, physical space. Id. at pp. 9-10.  This decision highlights

Time is Running Out for Retailers to Register DMCA Agent, Preserve Safe Harbor Protections

Retailers who host third-party content and comments on their websites have until the end of 2017 to register as internet service providers through the new online system in order to preserve their protections under the Digital Millennium Copyright Act’s (“DMCA”) safe harbor provisions. The online system launched about a year ago, and if service providers do not register before the end of 2017, any designations submitted before December 2016 will expire and become invalid, which could result in a service provider losing the safe harbor protections.

Previously, agent designations were submitted to the Copyright Office in paper form.  The Copyright Office would then make those forms available through an online index of internet service providers.  The paper-generated directory contains significant inaccuracies and outdated information.  Under the new system, DMCA agents are required to register through the online system, and update their contact information to renew their designations at least every three

States Urge Reversal of Physical Presence Rule That Bars Collecting Sales Tax From Online Retailers

November 16, 2017

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Thirty-six state attorneys general, most recently joined by California and Hawaii, have filed an amici curiae brief urging the U.S. Supreme Court to reconsider the “physical presence test”.  The test requires that a retailer have a physical presence within a state before being subject to the collection of sales and use tax by such a state.

The test was established by the 25-year-old case of Quill v. North Dakota, long before the existence of online retailers and e-commerce, as we know, today.  The crux of the argument against the physical presence test is that out-of-state online retailers that sell goods to in-state residents receive an unfair pricing advantage over in-state retailers because the out-of-state online retailers are not required to collect sales or use tax from the customer.

The attorneys general filed the brief in support of a petition submitted by the state of South Dakota asking

Dollar Tree Wins California Pay Stub Class Action

November 10, 2017

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Dollar Tree Wins California Pay Stub Class Action

November 10, 2017

Authored by: Bryan Cave and Traci Choi

A California federal jury has returned a verdict in favor of Dollar Tree in Francisca Guillen v. Dollar Tree Stores, Case No. 2:15-cv-03813, finding that providing pay stubs on cash register receipts did not violate state law requiring accessible wage statements.

Plaintiff Francisca Guillen filed the lawsuit in the Central District of California representing a class of 5,400 retail employees, alleging that workers had to print their direct deposit wage statements from the cash registers, rather than receiving a paper statement or having an online portal. Guillen further complained that corporate workers of Dollar Tree had access to wage statement information on the company’s website.

Dollar Tree successfully defended its practices, contending that its register stub system was designed to be convenient and free for store associates, who may not have access to the internet or a printer at home. Further, the register statements included all of the information required

California Proposition 65 Actions Expected to Target Furfuryl Alcohol in Food and Beverages

The next wave of lawsuits involving California Proposition 65 and food products may allege exposure to furfuryl alcohol, a chemical commonly found in a wide variety of thermally processed foods and listed as a carcinogen under Proposition 65. The warning requirement for furfuryl alcohol took effect on September 30, 2017.  As of the date of this post, there have been no 60-day notices alleging exposure without a warning. Given the prevalence of this chemical, however, future enforcement actions seem likely.

Furfuryl alcohol forms when amino acids react with sugar in a process known as the “Maillard reaction” that gives many foods a golden brown color.  Much like acrylamide, which has been the subject of numerous 60-day notices and lawsuits, furfuryl alcohol can be found in a wide variety of foods, including:

  • baked goods
  • coffee
  • pasteurized milk
  • alcoholic beverages such as wine and beer
  • ice cream
  • juice beverages
  • toasted nuts

Master Servicer Agreements Can Streamline Contracting, but Steer Clear of Pitfalls

Retailers often use master service agreements (“MSAs”) to repeatedly contract for the same services.  MSAs spell out most but not all of the terms between the parties. Their purpose is to speed up and simplify future contracts because the initial negotiation process is done once, at the beginning of the relationship.

Retailers should keep the following mind when preparing and using MSAs:

  • A MSA may not be appropriate for all projects. MSAs are usually generic. The terms may or may not be appropriate for each project.
  • Have as few MSA forms as possible.
  • Standardize MSA terms among parties working on the same project to minimize conflicts in common terms (especially indemnity provisions).
  • Specifically state that field personnel are not permitted to agree to any fundamental changes in the risk allocation scheme for a particular operation or job.
  • Additional terms may need to be added for highly specialized projects or scopes of work.
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