Rubenstein v. Gap, Inc.

• Citation: 14 Cal.App.5th 870,222 Cal.Rptr.3d 397
• Decision Date: 24 August 2017
• Docket Number: B272356
• Court: California Court of Appeals
• Parties: Linda RUBENSTEIN, Plaintiff and Appellant, v. THE GAP, INC., Defendant and Respondent.

14 Cal.App.5th 870

222 Cal.Rptr.3d 397

Linda RUBENSTEIN, Plaintiff and Appellant,

v.THE GAP, INC., Defendant and Respondent.

B272356

Court of Appeal, Second District, Division 1, California.

Filed August 24, 2017

Kirtland & Packard, Behram V. Parekh and Joshua A. Fields, EI Segundo, for Plaintiff and Appellant.

Xavier Becerra, Attorney General, Nicklas A. Akers, Senior Assistant Attorney General, Michele Van Gelderen, Supervising Deputy Attorney General, and Tina Charoenpong, Deputy Attorney General, for the State of California as Amicus Curiae on behalf of Plaintiff and Appellant.

Morgan, Lewis & Bockius, Joseph Duffy and Esther K. Ro, Los Angeles, for Defendant and Respondent.

LUI, J.

Plaintiff and appellant Linda Rubenstein appeals from a judgment entered after the trial court sustained the demurrer of defendant and respondent The Gap, Inc. (Gap) without leave to amend. The trial court found that Rubenstein could not state claims under our state's Unfair Competition Law (UCL), Business and Professions Code section 17200 et seq. ; False Advertising Law (FAL), Business and Professions Code section 17500 et seq. ; or Consumers Legal Remedies Act (CLRA), Civil Code section 1750 et seq., because she failed to allege a misrepresentation or an actionable omission on the part of Gap. Instead, she alleged only that Gap deceptively sells lesser-quality Gap and Banana Republic clothing items at Gap and Banana Republic "Factory Stores," items that are never sold at "traditional" Gap and Banana Republic stores. We affirm the judgment.

BACKGROUND

Rubenstein filed her operative second amended complaint (SAC) on August 31, 2015, purporting to allege causes of action under the FAL, UCL, and CLRA. The factual basis for all of the causes of action was identical: (1) Gap uses "Gap" and "Banana Republic" in naming its factory stores, which are located in outlet malls; (2) Gap also places "Gap" and "Banana Republic" labels in the clothing items Gap sells at the factory stores, even though the clothing is allegedly of lesser quality than clothing sold at traditional Gap and Banana Republic stores; and (3) Gap does not disclose to consumers that factory store items are not sold at traditional stores and are of lesser quality, but instead puts three geometrical symbols on factory store clothing labels to differentiate these items.

On the basis of these facts, Rubenstein alleges that she "was misled about the quality and authenticity of Defendant's Products," and this caused her to purchase products from Gap and Banana Republic Factory Stores. Rubenstein concludes that, like her, reasonable consumers expect factory stores to be outlet stores, and expect outlet stores to offer for sale at a discounted price items that were once for sale at retail stores. Thus, according to Rubenstein, "In using the names of the retail stores in the names of the Factory Stores and on the labels of the Factory Store Products, Defendant was communicating to the public that the Factory Store products are the same products and of the same quality that consumers have come to associate with the Gap and Banana Republic brands."

Each cause of action of the SAC was based on Gap's alleged misrepresentation in using the Gap and Banana Republic brand names for items that had never been sold in traditional Gap and Banana Republic stores and/or were of lesser quality, and also on Gap's failure to disclose these facts to consumers. In the first cause of action, Rubenstein alleged that Gap "misled consumers by making untrue statements and failing to disclose what is required as stated in [the FAL]." The second cause of action alleged "[t]he material misrepresentations, concealment, and non-disclosures by Defendant ... are unlawful, unfair, and fraudulent business practices prohibited by the UCL." The third cause of action alleged that these same practices violated the CLRA by "[r]epresenting that goods ... have sponsorship, approval, characteristics, ingredients, uses, benefits, or quantities that they do not have," by "[r]epresenting that goods ... are of a particular standard, quality, or grade, or that goods are of a particular style or model, if they are of another," and by "[a]dvertising goods ... with intent not to sell them as advertised." ( Civ. Code, § 1770, subd. (a)(5), (7), (9).)

Rubenstein prayed for injunctive relief, restitution, damages, exemplary damages, attorney fees, and costs of suit, and for certification of a putative class of purchasers of Banana Republic Factory Store or Gap Factory Store clothing in California.

Gap demurred to the SAC. Gap argued that Rubenstein could not establish liability under any of her proposed causes of action because she did not allege a misrepresentation by Gap or any duty to disclose that clothing sold in factory stores had not been offered for sale in traditional Gap and Banana Republic stores. Gap argued that Rubenstein's claims rested on the untenable position that it was unlawful for Gap to use its Gap and Banana Republic brand names when selling its own merchandise in factory stores because the brand names implied a certain level of quality that was allegedly lacking. Gap also argued that Rubenstein lacked statutory standing because she failed to allege how the items she purchased were not of the quality she expected or how the amount she paid exceeded the value she received.

Rubenstein opposed the demurrer, contending that reasonable consumers are likely to be deceived by Gap's naming practices. According to Rubenstein, use of the Gap and Banana Republic brand names on factory stores and the clothing they carry leads consumers to believe they are purchasing items of a certain quality at a discount, when in fact they are buying lesser-quality apparel. Rubenstein also argued that under LiMandri v. Judkins (1997) 52 Cal.App.4th 326, 60 Cal.Rptr.2d 539 ( LiMandri ), Gap had a duty to disclose to consumers that factory store merchandise had never been offered for sale in traditional Gap stores. Finally, Rubenstein argued that she had standing because the SAC alleged that she would not have paid as much for the items she purchased, if she purchased them at all, had she known that they were not of the same quality she had come to expect from the Gap and Banana Republic brands.

The trial court sustained the demurrer without leave to amend, concluding that "[t]he mere labeling of the Defendant's stores as the ‘Gap Factory Store’ or ‘Banana Republic Factory Store’ does not constitute any actionable misrepresentation about the quality or attributes of the products sold at those stores." For the same reason, the trial court found that Rubenstein had not lost money or property as a result of an alleged violation of the UCL or the FAL, and therefore lacked statutory standing. The trial court entered judgment on March 18, 2016, and Rubenstein filed a notice of appeal on May 12, 2016.

DISCUSSION

1. Standard of Review

We review de novo the trial court's order sustaining a demurrer. ( Moore v. Regents of University of California (1990) 51 Cal.3d 120, 125, 271 Cal.Rptr. 146, 793 P.2d 479.) "In reviewing the sufficiency of a complaint against a general demurrer, we are guided by long-settled rules. ‘We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. [Citation.] We also consider matters which may be judicially noticed.’ [Citation.] Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. [Citation.] When a demurrer is sustained, we determine whether the complaint states facts sufficient to constitute a cause of action."

( Blank v. Kirwan (1985) 39 Cal.3d 311, 318, 216 Cal.Rptr. 718, 703 P.2d 58.)

2. The SAC Fails to State a Claim for Violation of the FAL.

The FAL makes it "unlawful for any ... corporation ... with intent directly or indirectly to dispose of real or personal property ... or to induce the public to enter into any obligation relating thereto, to make or disseminate or cause to be made or disseminated before the public in this state ... in any newspaper or other publication, or any advertising device ... or in any other manner or means whatever, including over the Internet, any statement, concerning that real or personal property ... or concerning any circumstance or matter of fact connected with the proposed performance or disposition thereof, which is untrue or misleading, and which is known, or which by the exercise of reasonable care should be known, to be untrue or misleading." ( Bus. & Prof. Code, § 17500.) "In short, [the FAL] ‘prohibits advertising property or services with untrue or misleading statements.’ " ( McCann v. Lucky Money, Inc. (2005) 129 Cal.App.4th 1382, 1388, 29 Cal.Rptr.3d 437.) An advertising statement is misleading if members of the public are likely to be deceived. ( Ibid. )

Rubenstein's SAC alleges no advertising or promotional materials or any other statements disseminated by Gap to consumers that its factory store clothing items were previously for sale in traditional Gap stores or were of a certain quality. Instead, Rubenstein alleges only that Gap's use of its own brand names—Gap and Banana Republic—in naming factory stores and on the labels of factory store clothing items was deceptive because the apparel is not of the brand name quality that Rubenstein has come to expect. As a matter of law, Gap's use of its own brand name labels on clothing that it manufactures and sells at Gap-owned stores is not deceptive, regardless of the quality of the merchandise or whether it was ever for sale at other Gap-owned stores. Retailers may harm the value of their brands by selling inferior merchandise at factory stores, but doing so does not constitute false advertising. Under these allegations, the trial court properly dismissed the FAL cause of action.

3. The SAC Also Fails to State a Claim for Violation of the UCL.

"The UCL prohibits, and provides civil remedies for, unfair...