Overstock to pay $6.8 million for false advertising after California court rejects appeal

By Elizabeth Alt | Jul 4, 2017

The California First District Court of Appeals recently rejected an appeal by online retailer Overstock.com that argued that the circuit court imposed excessive penalties.

SAN FRANCISCO — The California First District Court of Appeals recently rejected an appeal by online retailer Overstock.com that argued that the circuit court imposed excessive penalties. 

In a June 2 opinion written by Judge Maria Rivera, the appeals court said there is sufficient evidence to support the trial court’s finding that Overstock made false and misleading statements in violation of laws against unfair business practices and false advertising.

Overstock.com is an online retailer whose website compares the price it offers to an advertised reference price (ARP), which is referred to as a "list price." The company's advertising strategy was intended to instill a sense of confidence that the company offered products at good prices.

Before 2008, Overstock allegedly had no process in place to ensure that comparison prices were verified. Overstock allowed the list price to be set by finding the highest price an item was sold for in the marketplace, occasionally using an arbitrary formula. 

Emails were found in which an Overstock employee asked a supplier to raise the price of its goods on its own web site so that Overstock’s prices would be the lowest available online.

In 2007, a California resident reported Overstock to the district attorney after he bought two identical patio sets that were advertised on Overstock for $500 less than the retail price. The items arrived and the customer found them poorly made and allegedly had stickers advertising them available at Wal-Mart for over $200 less than the price he paid Overstock. 

The customer got a full refund, but the patio sets allegedly continued to be sold for the same price. Overstock had received other complaints about the same product, according to the appeals court decision.

In response to the district attorney’s investigation, Overstock’s vice president of marketing sent a letter to Overstock’s fulfillment partners in September 2007 to remind them that the “list price” associated with a product sold on the website must follow Overstock’s policy. 

The plaintiffs, referred to as "the people," began investigating potential claims against Overstock and entered into an agreement tolling the statute of limitations filed in 2010. The plaintiffs alleged unfair business practices and false advertising.

The trial court found Overstock had made untrue and misleading statements regarding pricing in violation of the Unfair Competition Law and the False Advertising Law. 

The court imposed civil penalties of $6.8 million and ordered injunctive relief, "prohibiting Overstock for five years from advertising an ARP based on a formula, multiplier or other method that would set it on any basis other than the actual price offered in the marketplace," according to court documents.

The court denied a request for customers to receive restitution because it found no practical way to determine what might be an appropriate award of restitution or how to identify those who should receive it. 

Overstock argued on appeal that the trial court improperly ordered injunctive relief, should have imposed a shorter period and the fines were disproportionate to the gravity of the offenses.

The appellate judges said the offending practices were numerous, persistent and willful. Rivera said the penalty the court set was both far below the maximum allowed by statute and well within Overstock’s ability to pay.

“We see no abuse of discretion in requiring Overstock to apply its current practice of revalidating prices every 90 days under the new requirements imposed by the injunction,” Rivera said in the decision.

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