Court Opinion

ID: 4198797
Source: CourtListenerOpinion
Date Created: 2017-08-24 20:03:47.032974+00
Date Added: 2024-06-11T09:36:39.952534
License: Public Domain

Filed 8/24/17
                CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                 SECOND APPELLATE DISTRICT

                           DIVISION ONE

 LINDA RUBENSTEIN,                         B272356

         Plaintiff and Appellant,          (Los Angeles County
                                           Super. Ct. No. BC555010)
         v.

 THE GAP, INC.,

         Defendant and Respondent.

      APPEAL from a judgment of the Superior Court of Los
Angeles County. Kenneth R. Freeman, Judge. Affirmed.
      Kirtland & Packard, Behram V. Parekh and Joshua A.
Fields 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
for Defendant and Respondent.
              ____________________________________
       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.

                                 2
        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

                                 3
“[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 (LiMandri), Gap had a duty
to disclose to consumers that factory store merchandise had never

                                 4
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.) “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

                                 5
constitute a cause of action.” (Blank v. Kirwan (1985) 39 Cal. 3d
311, 318.)
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.) 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

                                  6
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
competition, which it defines as ‘any unlawful, unfair or
fraudulent business act or practice.’ ([Bus. & Prof. Code,]
§ 17200.) Its purpose ‘is to protect both consumers and
competitors by promoting fair competition in commercial markets
for goods and services.’ ” (Kwikset Corp. v. Superior Court (2011)
51 Cal. 4th 310, 320.)
       a.    Selling Nonidentical Brand Name Clothing in a
             Factory Store is not Fraudulent.
       “A business practice is ‘fraudulent’ within the meaning of
[the UCL] if it is ‘likely to deceive the public. [Citations.] It may
be based on representations to the public which are untrue, and
“ ‘also those which may be accurate on some level, but will
nonetheless tend to mislead or deceive. . . . A perfectly true
statement couched in such a manner that it is likely to mislead or
deceive the consumer, such as by failure to disclose other relevant
information, is actionable under’ ” the UCL. [Citations.] The
determination as to whether a business practice is deceptive is
based on the likely effect such practice would have on a

                                 7
reasonable consumer.’ ” (Klein v. Chevron U.S.A., Inc. (2012) 202
Cal. App. 4th 1342, 1380–1381.)
       Although the likelihood of deception is often too fact-
intensive to decide on the pleadings, courts can and do sustain
demurrers on UCL claims when the facts alleged fail as a matter
of law to show such a likelihood. (See, e.g., Nolte v. Cedars-Sinai
Medical Center (2015) 236 Cal. App. 4th 1401, 1409; Hill v. Roll
Internat. Corp. (2011) 195 Cal. App. 4th 1295, 1307; Berryman v.
Merit Property Management, Inc. (2007) 152 Cal. App. 4th 1544,
1556–1557; Daugherty v. American Honda Motor Co., Inc. (2006)
144 Cal. App. 4th 824, 838; Bardin v. DaimlerChrysler Corp.
(2006) 136 Cal. App. 4th 1255, 1275.)
       This is such a case. As explained in discussing the FAL
cause of action, the SAC alleges no statement by Gap about the
quality of factory store merchandise or that it was previously for
sale in traditional Gap-owned stores. Gap’s use of its own brand
names in factory store names and on factory store clothing labels
is not likely to deceive a reasonable consumer for the simple
reason that a purchaser is still getting a Gap or Banana Republic
item. The SAC states that “[r]easonable consumers believe outlet
stores sell products that were previously available for purchase at
retail stores,” but alleges no facts showing this to be true.
Moreover, a consumer for whom the retail history of factory store
items is material can ask Gap employees about this. A
reasonable consumer would also inspect the quality of factory
store clothing items before buying them and could return items
after purchase if they turn out to be unsatisfactory. In the end,
the allegation that Gap is not living up to the quality standards it
has set for Gap and Banana Republic brands fails to state a cause
of action for a fraudulent business practice under the UCL.

                                 8
       Rubenstein nevertheless argues that Gap had a duty to
disclose to consumers that factory store clothing items were not
previously sold in traditional Gap stores and were of lesser
quality. She notes in her opening brief that under LiMandri,
supra, 52 Cal. App. 4th 326, “four circumstances exist where a
defendant has an affirmative duty to disclose: (1) when a
defendant is in a fiduciary relationship with plaintiff; (2) when a
defendant had exclusive knowledge of material facts not known
to plaintiff; (3) when a defendant actively conceals a material fact
from plaintiff; or (4) when a defendant makes partial
representations but also suppresses some material facts.” (See
LiMandri, at p. 336.) Rubenstein argues that Gap had a duty
under circumstances (2), (3), and (4).
       Rubenstein first argues Gap had a duty to disclose that its
factory store clothing was not previously for sale at traditional
Gap stores because Gap made partial representations while
suppressing material facts. She again argues that use of Gap
and Banana Republic in the names of factory stores and on
clothing labels constituted representations that the items were of
brand name quality, yet they were not. This argument fails. As
a matter of law, Gap’s use of its own brand names to market less
expensive clothing lines in factory stores is not a partial
representation, even if the products are alleged to be inferior to
other brand name products. Nor is Gap’s placement of geometric
symbols on factory store clothing labels a partial representation,
as Rubenstein argues, because the most these symbols represent
is that the clothing is sold in factory stores.
       Moreover, as in Bardin v. DaimlerChrysler Corp.,
Rubenstein alleges no facts showing that reasonable consumers
expect Gap and Banana Republic factory store items to have been

                                 9
previously offered for sale in traditional Gap stores. (Bardin,
supra, 136 Cal.App.4th at p. 1262 [insufficient for plaintiffs to
plead that they “are lay persons and consumers, who reasonably
rightfully assumed that the manifolds in [defendant’s] vehicles
were quality components”]; id. at p. 1275.)
       Next, Rubenstein argues that Gap had a duty to disclose
under the third LiMandri circumstance because Gap “actively
conceal[ed] a material fact from the plaintiff.” Active
concealment occurs when a defendant prevents the discovery of
material facts. (5 Witkin, Summary of Cal. Law (10th ed. 2005)
Torts, § 798, p. 1155.) Rubenstein relies on Collins v. eMachines,
Inc. (2011) 202 Cal. App. 4th 249, in which the plaintiff alleged
active concealment of a product defect by a computer
manufacturer “through corporate directives to continue selling
the defective computers, and through a customer service
campaign designed to preclude consumer discovery of the . . .
Defect.” (Id. at p. 256.) Here, by contrast, the fact Gap is
supposed to have concealed is that Gap made factory store
clothing items exclusively for factory stores, yet neither the SAC
nor Rubenstein’s opening brief on appeal point to any facts
showing active concealment by Gap or that the nondisclosed fact
was material to consumers.
       Finally, Rubenstein argues that Gap had a duty to disclose
that factory store products were not previously sold in traditional
Gap stores because Gap had exclusive knowledge of this material
fact. This argument is unavailing. As noted, the SAC does not
allege facts showing that the sales history of factory store items is
material to reasonable consumers. Furthermore, any quality
issues with factory store merchandise were not in Gap’s exclusive
knowledge because consumers had the ability to examine and try

                                 10
on the apparel prior to purchase and to read garment labels for
information on fabrics and materials used in manufacture.
      The Attorney General as amicus curiae urges that even
absent a false or misleading representation or a duty to disclose
material information, a defendant may be liable for a fraudulent
business practice under the UCL. The Attorney General argues
that courts should not apply LiMandri, supra, 52 Cal. App. 4th
326, to analyze whether UCL defendants have a duty to disclose
material information, but should instead examine the context of a
business practice to determine whether it is likely to deceive
consumers by reinforcing their misleading expectations or
assumptions.1

      1 The Attorney General points to Klein v. Chevron U.S.A.,
Inc. as concluding that an alleged failure to disclose was
potentially deceptive without performing a LiMandri analysis to
determine whether a duty to disclose existed. Yet in Klein a duty
to disclose existed because the defendant was alleged to have
made partial representations that were misleading. Among other
things, the defendant sold gasoline in non-temperature-adjusted
“gallons” even though consumers received less than a gallon of
fuel, and the defendant charged “taxes” on the greater number of
non-temperature-adjusted “gallons” even though it remitted taxes
to the government on the basis of the smaller number of
temperature-adjusted gallons. (Klein v. Chevron U.S.A., Inc.,
supra, 202 Cal.App.4th at p. 1351 [“Because Chevron and other
retailers do not compensate for temperature increases in motor
fuel at the retail level, California consumers pay ‘hundreds of
millions dollars’ more in purported ‘taxes’ than the retailers
actually pay to the government”]; id. at p. 1382 [“because
Chevron advertised motor fuel in ‘gallon’ units without disclosing
the effects of thermal expansion, members of the public expected

                                11
      We decline to adopt the Attorney General’s position, which
is contrary to a good deal of Court of Appeal precedent on the
importance of a duty to disclose.2 Moreover, even if we did adopt
this position, it would not change the result in this case because
Rubenstein’s SAC does not allege sufficient facts to show that a
reasonable consumer expects or assumes that Gap Factory Store
merchandise was previously offered for sale in traditional Gap
stores.
      In sum, the trial court correctly ruled that Rubenstein had
not alleged a “fraudulent” violation of the UCL.
      b.     Selling Nonidentical Brand Name Clothing in a
             Factory Store is not Unlawful.
      “By proscribing ‘any unlawful’ business practice, ‘[Business
and Professions Code] section 17200 “borrows” violations of other
laws and treats them as unlawful practices’ that the unfair
competition law makes independently actionable.” (Cel-Tech
Communications, Inc. v. Los Angeles Cellular Telephone Co.
(1999) 20 Cal. 4th 163, 180.) “Thus, a violation of another law is a
predicate for stating a cause of action under the UCL’s unlawful

and assumed that they would receive a standardized amount of
motor fuel in each purchase and that the stated price reflected
the actual cost of that fuel”].)
      2See, e.g., Graham v. Bank of America, N.A. (2014) 226
Cal. App. 4th 594, 613–614; Brakke v. Economic Concepts, Inc.
(2013) 213 Cal. App. 4th 761, 772; Levine v. Blue Shield of
California (2010) 189 Cal. App. 4th 1117, 1136; Buller v. Sutter
Health (2008) 160 Cal. App. 4th 981, 987; Berryman v. Merit
Property Management, Inc., supra, 152 Cal.App.4th at pages
1556–1557; Daugherty v. American Honda Motor Co., Inc., supra,
144 Cal.App.4th at page 838.

                                12
prong.” (Berryman v. Merit Property Management, Inc., supra,
152 Cal.App.4th at p. 1554.) We have rejected Rubenstein’s claim
that Gap’s alleged conduct violated the FAL, and below we
conclude the SAC fails also to allege a violation of the CLRA. As
these two statutes are the bases for Rubenstein’s allegations of
unlawful practices by Gap, she cannot state a cause of action
under the “unlawful prong” of the UCL.
      c.     Selling Nonidentical Brand Name Clothing in a
             Factory Store is not Unfair.
      In this court, the test for determining whether a business
practice is unfair in consumer cases arising under the UCL is the
same as that used under section 5 of the Federal Trade
Commission Act (15 U.S.C. § 45(n)). (Camacho v. Automobile
Club of Southern California (2006) 142 Cal. App. 4th 1394, 1403;
Klein v. Chevron U.S.A., Inc., supra, 202 Cal.App.4th at p. 1376
& fn. 14.) “[A] business practice is ‘unfair’ if (1) the consumer
injury is substantial; (2) the injury is not outweighed by any
countervailing benefits to consumers or competition; and (3) the
injury could not reasonably have been avoided by consumers
themselves.” (Klein, at p. 1376 & fn. 14 [applying and following
Camacho].)
      The SAC fails to allege an unfair business practice. The
injury alleged is not substantial because consumers are getting
Gap and Banana Republic brand name items for low prices, and
there is no allegation that Gap ever made any representations
about the retail history or quality of factory store merchandise. A
consumer who cared about whether the items were identical to
other Gap merchandise could have asked a sales associate
whether this is true. As for any quality issues, consumers could
have examined factory store apparel before purchasing it, read

                                13
the clothing labels for materials used in manufacture, and
returned merchandise after purchase if it was unsatisfactory.
Indeed, Rubenstein does not allege that any of the clothing items
she purchased at Gap and Banana Republic Factory Stores had
any quality issues.3
4.     Rubenstein’s CLRA Claim Fails As Well.
       “The CLRA makes unlawful, in Civil Code section 1770,
subdivision (a) . . . various ‘unfair methods of competition and
unfair or deceptive acts or practices undertaken by any person in
a transaction intended to result or which results in the sale or
lease of goods or services to any consumer.’ ” (Meyer v. Sprint
Spectrum L.P. (2009) 45 Cal. 4th 634, 639.) The CLRA proscribes
27 specific acts or practices. (Civ. Code, § 1770, subd. (a)(1)–(27).)
In the SAC, Rubenstein alleges that Gap violated the CLRA by
“[r]epresenting that goods . . . have . . . characteristics . . . that
they do not have,” “[r]epresenting that goods . . . are of a
particular standard, quality, or grade . . . if they are of another,”
and “[a]dvertising goods . . . with intent not to sell them as
advertised.” (Id., § 1770, subd. (a)(5), (7), (9).) In her opening
brief, Rubenstein also argues that Gap violates the CLRA’s
prohibition on “[r]epresenting that a transaction confers or
involves rights, remedies, or obligations that it does not have or
involve, or that are prohibited by law.” (Id., § 1770, subd.
(a)(14).)

      3 Because we decided that Rubenstein cannot state a claim
under the FAL or the UCL, we need not decide whether the trial
court properly ruled that Rubenstein also lacks statutory
standing under the UCL and the FAL. (See Bus. & Prof. Code,
§§ 17204, 17535.)

                                  14
       Rubenstein’s CLRA cause of action fails because the SAC
alleges no advertising or representation of any kind that Gap
made about the characteristics or quality of its factory store
merchandise. Indeed, the SAC does not allege a single
affirmative representation by Gap regarding factory store
clothing other than a true one—the brand of the clothing is Gap
or Banana Republic. Nor did Gap have a duty to disclose the
retail history of factory store clothing or that it was of lesser
quality than clothing sold in other Gap stores. (See Daugherty v.
American Honda Motor Co., Inc., supra, 144 Cal.App.4th at
p. 835 [to be actionable under the CLRA, an omission “must be
contrary to a representation actually made by the defendant, or
an omission of a fact the defendant was obliged to disclose”].)
Because the facts as alleged show no violation of the CLRA, the
trial court properly sustained Gap’s demurrer to the third cause
of action.
5.     The Trial Court Acted Within Its Discretion in
       Denying Leave to Amend.
       When a demurrer to a complaint is sustained without leave
to amend, “we decide whether there is a reasonable possibility
that the defect can be cured by amendment: if it can be, the trial
court has abused its discretion and we reverse; if not, there has
been no abuse of discretion and we affirm. [Citations.] The
burden of proving such reasonable possibility is squarely on the
plaintiff.” (Blank v. Kirwan, supra, 39 Cal.3d at p. 318.) “While
such a showing can be made for the first time to the reviewing

                                15
court [citation], it must be made.” (Smith v. State Farm Mutual
Automobile Ins. Co. (2001) 93 Cal. App. 4th 700, 711; see Code Civ.
Proc., § 472c.)
       Rubenstein has not carried her burden of demonstrating
how her complaint might be amended. Neither in her trial court
demurrer opposition papers nor in her appellant’s opening brief
did Rubenstein explain how she would further amend her
complaint if given leave or offer any additional facts she could
allege in a third amended complaint. Accordingly, the trial court
properly sustained Gap’s demurrer without leave to amend.
There was no error. (See Hill v. Roll Internat. Corp., supra, 195
Cal.App.4th at p. 1307.)
                           DISPOSITION
       The judgment is affirmed. Each party to bear its own costs
on appeal.
     CERTIFIED FOR PUBLICATION.

                                         LUI, J.
We concur:

     CHANEY, Acting P. J.

     JOHNSON, J.

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