May Dept. Stores Co. v. State ex rel. Woodard

• Decision Date: 15 November 1993
• Docket Number: No. 92SC749,92SC749
• Citation: 863 P.2d 967
• Parties: The MAY DEPARTMENT STORES COMPANY, a New York corporation, d/b/a May D & F, Petitioner, v. The STATE of Colorado ex rel. Duane WOODARD, Attorney General of the State of Colorado, Respondent.
• Court: Colorado Supreme Court

Page 967

863 P.2d 967

The MAY DEPARTMENT STORES COMPANY, a New York corporation d/b/a May D & F, Petitioner, v. The STATE of Colorado ex rel. Duane WOODARD, Attorney General of the State of Colorado, Respondent.

No. 92SC749.

Supreme Court of Colorado En Banc.

Nov. 15, 1993.

Rehearing Denied Dec. 6, 1993.

Williams, Youle & Koenigs, P.C., Robert E. Youle, Karen DuWaldt, Denver, Ronald J. Dolan, Stephen J. Horace, St. Louis, MO, for petitioner.

Gale A. Norton, Atty. Gen., Raymond T. Slaughter, Chief Deputy Atty. Gen., Timothy M. Tymkovich, Sol. Gen., Garth C. Lucero, Deputy Atty. Gen., Jan Michael Zavislan, First Asst. Atty. Gen., Diana R. Maurer, Jack M. Wesoky, James R. Lewis, Asst. Attys. Gen., for respondent.

William C. MacLeod, Washington, DC, Graft, Thompson and Toedte, P.C., Alexander L. Thomson, Englewood, for amicus curiae Colorado Retail Council.

Justice ERICKSON delivered the Opinion of the Court.

The State of Colorado brought this action pursuant to the Colorado Consumer Protection Act to recover damages and to enjoin the May Department Stores Company, a New York corporation, d/b/a May D & F (May D & F). Following an eight-day trial to the court, the district court found May D & F's price comparison advertising violated the Colorado Consumer Protection Act (CCPA), sections 6-1-101 to -115, 2 C.R.S. (1992 & 1993 Supp.). The district court enjoined May D & F from using a promotional mark-up price as a reference price in its advertising in a department of May D & F called the "Home Store" without also disclosing May D & F's methods of determining the inflated promotional mark-up price. ¹ The district court also ordered May D & F to pay a civil penalty of $2,000 to the State for each of the four consumers who testified at trial regarding May D & F's deceptive practices.

The court of appeals reversed and remanded the case to the district court with directions to enter a different injunction and for further findings with respect to the monetary judgment in State ex rel. Woodard v. May Department Stores Co., 849 P.2d 802 (Colo.App.1992). May D & F appealed and we granted certiorari to review the court of appeals interpretation of the CCPA and its holdings concerning the trial court's injunction. We affirm the court of appeals interpretation of the CCPA and its remand to the trial court for further consideration of the injunctive relief, but reverse the court of appeals order for different injunctive relief. We return this case to the court of appeals with directions to remand to the trial court for further proceedings consistent with this opinion.

I

May D & F has operated department stores in Colorado for a number of years. ² Between 1986 and August 1989, May D & F set its retail prices using "Comparative Price Advertising" policies (1986 policy). In comparative-price advertising, a retailer compares its current selling price with a higher price in order to demonstrate savings or bargains to the consumer. The higher price, often referred to as the reference price, may be a former in-store price, a competitor's price, or a manufacturer's suggested retail price. Types of comparative price advertisements include percentage-off claims, dollars-off claims, and explicit price comparisons. ³ The comparative price advertisements in this case involve comparisons between current and former in-store prices established by May D & F.

The 1986 policy required May D & F to set two prices for an item sold in the Home Store. The first price was called the initial mark-up (IMU) price. The IMU price was May D & F's usual mark-up over its cost. May D & F determined the IMU price by using a formula that took into account the cost of goods to May D & F, May D & F's business expenses, and May D & F's profit goals. May D & F expected to sell most of the goods at the IMU price. The second price set by May D & F was the promotional mark-up (PMU) price which was substantially higher than the IMU price. Although May D & F represented the PMU price to customers as the "regular" or "original" price, May D & F did not expect to make significant sales at the inflated PMU price.

May D & F utilized a six-month selling period to sell merchandise. The PMU price was offered for approximately ten days out of every six-month selling season. After ten days, May D & F reduced the PMU price, represented to the public as the "original" selling price, to the IMU price, represented to the public as the "sale" price. May D & F informed its customers through in-store displays and other media advertisements that the "sale" price was a substantial reduction from the "original" or PMU price. During the selling period, the merchandise would also be sold at a variety of "sale" prices which discounted the price from the IMU price for a short period of time. When these sales were completed, the price would return to the IMU price. After the six-month selling period ended, May D & F offered the merchandise at the PMU price again for ten days.

In August, 1989, May D & F orally modified its 1986 pricing policy (the 1989 policy). ⁴ The 1989 policy altered the 1986 policy in two significant ways. First, the PMU reference prices were reduced and were identified internally as "regular" prices rather than "original" prices. Second, the PMU reference price was in effect for at least twenty-eight out of each ninety-day selling period. ⁵ Because the PMU reference price was in effect for nearly one third of a selling period, the 1989 reference price was set at a price lower than the 1986 reference price to induce more sales during the initial sales period.

After a trial to the court, the court found that May D & F's price comparison advertising violated three sections of the CCPA. §§ 6-1-105(1)(i) (advertising goods with the intent not to sell them as advertised), 6-1-105(1)(l ) (making false statements concerning the price of goods or amounts of price reductions), and 6-1-105(1)(u), 2 C.R.S. (1992) (failing to disclose material information concerning the goods). The district court reasoned:

May D & F's "original" price for practically all of its merchandise in the Home Store was a fictitious high price established as a reference price for the purpose of subsequently advertising bargain reductions from that price. The clear expectation of May D & F was to sell all or practically all merchandise at its "sale" price. May D & F's "regular" price, pursuant to the 1989 policy was certainly a step in the right direction, but May D & F's failure to disclose to the public its subjective and unique method of setting its "regular" price for reference purposes, and, its unique schedule or calendar for establishing when those "regular" prices are in effect, have been shown at trial to effect (sic) consumers' choices and conduct concerning merchandise to their detriment.

The trial court determined May D & F knew the merchandise would not sell at the PMU or "original" price, the advertised reduced price was a false claim, and the IMU price was the true "regular" price of the merchandise.

To remedy May D & F's violation of the CCPA, the trial court enjoined the following acts: (1) May D & F's use of the PMU as a reference price without disclosure of the method by which May D & F determined the PMU price; (2) May D & F's use of unique advertising terminology without disclosure of May D & F's definition of the advertising terms; and (3) May D & F's use of sales periods of limited duration to convey a false sense of urgency to purchase. The district court also ordered May D & F to pay the State civil penalties in the amount of $2,000 for each of the four consumers who testified at trial as victims of May D & F's deceptive practices and to pay the State's attorney fees.

The court of appeals held that the district court's injunctive order would not prevent May D & F from engaging in even the most egregious deceptive practices under the 1986 and 1989 policies and mandated its own injunctive relief. ⁶ May Dep't Stores Co., 849 P.2d at 808. The court held that the CCPA requires imposition of penalties both for consumers who responded to a misleading advertisement and for each day a deceptive advertisement appeared in a particular media outlet. The court of appeals reversed the trial court's injunctive order and remanded the case with directions to enter a new injunction consistent with the views expressed in the court of appeals opinion. The court of appeals also remanded the case for further findings and determination with respect to the civil penalties under section 6-1-112, 2 C.R.S. (1992). Because it was unclear how the trial court calculated its civil penalties, the court of appeals directed the trial court, on remand, to calculate civil penalties based on the number of false advertisements published by May D & F measured as one advertisement in one media outlet per day and based on each consumer who undertook some activity in response to the false advertisements. The court of appeals further directed the trial court to consider various factors, both mitigating and aggravating, in assessing the amount of civil penalties.

We affirm the court of appeals interpretation of the CCPA, reverse the court of appeals order for injunctive relief and return this case to the court of appeals with directions to remand to the trial court for further proceedings consistent with this opinion.

II

This appeal involves judicial interpretation of the CCPA's civil penalties provision specifically, the language providing that a violation of the CCPA "shall constitute a separate violation with respect to each consumer or transaction involved." ⁷ § 6-1-112(1), 2 C.R.S. (1992). The court of appeals interpreted this language to mean a violation occurred for each consumer involved and for each day a deceptive advertisement appeared in a particular media outlet. May D & F contends that the phrase "consumer or transaction involved" was misinterpreted by the court of appeals in two ways. ...