People v. Superior Court (J.C. Penney Corp., Inc.)

Filed 5/6/19

Unmodified opinion attached

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION FOUR

THE PEOPLE, No. B292416

Petitioner, (Los Angeles County

Super. Ct. No. BC643036)

v.

SUPERIOR COURT OF THE STATE ORDER MODIFYING

OF CALIFORNIA, COUNTY OF LOS OPINION AND DENYING

ANGELES, REHEARING

Respondent;

[NO CHANGE IN

J.C. PENNEY CORPORATION, JUDGMENT]

INC., et al.,

Real Parties in Interest.

THE COURT:*

It is ordered that the opinion filed herein on April 16, 2019 be modified

as follows:

On page 19, line 18, in footnote 13, insert “potentially” after “situation”

On page 19, lines 19 and 20, in footnote 13, delete “is necessarily the

“prevailing” price at which it is sold” and substitute “could be determined to

be the “prevailing” price at which it is sold, upon an adequate factual

showing.”

On page 29, line 16, after “not,” insert “necessarily”

On page 29, line 18, delete “may not” and substitute “must establish why

they may”

On page 29, line 32, in footnote 18, insert “in this writ proceeding” after

“contend”

On page 29, line 33, in footnote 18, after “speech,” insert the following

sentence:

“Nothing in this opinion should be understood to preclude real parties

from litigating that contention in further proceedings.”

On page 36, lines 25 and 26, delete “necessarily constitutes the item’s

prevailing market price at the time the actual price is advertised” and

substitute “may constitute the item’s prevailing market price at the time the

actual price is advertised, as alleged in the complaints.”

On page 36, line 29, between “In our view,” and “that,” insert “on demurrer,”

On page 37, line 5, delete “properly determined on the basis of sales of that

item only” and substitute “potentially determined on the basis of sales of that

item only, as alleged in the complaints.”

On page 37, line 9, following “facts,” insert the following footnote:

“Nothing in this opinion should be understood to resolve whether the

market prices for some or all of real parties’ alleged exclusive in-house

goods are, in fact, properly determined solely by real parties’ prices for

those items.”

Real parties’ petition for rehearing is denied. The modification does not

change the judgment.

_________________________________________________________________

*MANELLA, P.J. WILLHITE, J. CURREY, J.

Filed 4/16/19

Unmodified opinion

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION FOUR

THE PEOPLE,

Petitioner, No. B292416

v. (Los Angeles County

Super. Ct. No. BC643036)

SUPERIOR COURT OF THE STATE

OF CALIFORNIA, COUNTY OF LOS

ANGELES,

Respondent;

J.C. PENNEY CORPORATION,

INC., et al.,

Real Parties in Interest.

ORIGINAL PROCEEDINGS in mandate. Carolyn B. Kuhl, Judge.

Petition granted.

Lieff Cabraser Heimann & Bernstein, Michael W. Sobol, Roger N.

Heller, Katherine C. Lubin, Facundo Bouzat; Michael N. Feuer, City

Attorney, Thomas H. Peters, Chief Assistant City Attorney and Michael J.

Bostrom, Assistant City Attorney for Petitioner.

Nelson & Fraenkel, Gretchen M. Nelson, and Gabriel S. Barenfeld for

Amicus Curiae on behalf of Petitioner.

Gibson, Dunn & Crutcher, Mark A. Perry; Christopher Chorba, Bradley

J. Hamburger, Lauren M. Blas, Ryan S. Appleby; Sheppard, Mullin, Richter

& Hampton, Moe Keshavarzi, Robert H. Philibosian, and A. Alexander Kuljis,

and Fred R. Puglisi for Real Party in Interest, J.C. Penney Corporation, Inc.

Morgan, Lewis & Bockius, Joseph Duffy and Joseph Bias, for Real

Party in Interest, Sears, Roebuck & Co. and Sears Holding Management

Corp.

Arnold & Porter Kaye Scholer, James F. Speyer, and Alex Beroukhim,

for Real Party in Interest, Kohl’s Department Stores, Inc.

Steptoe & Johnson, Stephanie A. Sheridan, Anthony J. Anscombe,

Meegan B. Brooks; Macy’s Law Department and Brian Michael Parsons for

Real Party in Interest, Macy’s, Inc.

Munger, Tolles & Olson, Mark R. Yohalem and Ariel C. Green for

Amicus Curiae on behalf of Real Parties in Interest.

No appearance for Respondent.

__________________________________________

In the underlying actions, petitioner Los Angeles City Attorney, acting

in the name of the People of the State of California, asserted claims under,

inter alia, Business and Professions Code section 17501 against real parties

in interest, alleging that they sold products online by means of misleading,

deceptive or untrue statements regarding the former prices of those products.

Real parties demurred to the claims, asserting that the statute contravenes

free speech rights and is void for vagueness. After the trial court sustained

real parties’ demurrer without leave to amend on the ground that the statute

was void for vagueness as applied to real parties, petitioner sought relief by

mandamus in this court. We conclude that real parties failed to demonstrate

any constitutional defect in the statute on demurrer, and thus grant the relief

requested.

FACTUAL AND PROCEDURAL BACKGROUND

2

On October 20, 2017, petitioner filed the first amended complaints in

the four underlying actions, which are directed separately against real

parties J.C. Penney Corporation, Inc. (J.C. Penney), Kohl’s Department

Stores, Inc. (Kohl’s), Macy’s Inc. (Macy’s), and Sears, Roebuck and Co. and

1

Sears Holdings Management Corporation (collectively, Sears). Each

complaint asserted a claim under the Unfair Competition Law (UCL) (Bus. &

Prof. Code, § 17200 et seq.), a claim under the false advertising law

(FAL)(Bus. & Prof. Code, § 17500 et seq.), and a claim under Business and

2

Profession Code section 17501, which is a provision of the FAL. Petitioner

3

sought civil penalties, together with declaratory and injunctive relief.

According to the complaints, real parties engaged in misleading,

deceptive, or false advertising by offering goods for sale online at prices

discounted from so-called “reference prices” that purported to reflect real

parties’ own former prices, but which did not do so. The complaints assert

that each real party “deliberately and artificially sets the false reference

prices higher than its actual former sales prices so that customers are

deceived into believing that they are getting a bargain when purchasing

products.”

Real parties demurred to the complaints, contending, inter alia, that

the section 17501 claims failed because the statute unconstitutionally limits

truthful speech and is void for vagueness. The trial court sustained the

demurrer to the section 17501 claims without leave to amend, on the ground

that the statute is unconstitutionally vague as applied to real parties. The

court denied real parties’ demurrers to the other claims.

1

For simplicity, we treat the action against Sears as involving a single

retail entity.

2

All further statutory citations are to the Business and Professions

Code, unless otherwise indicated.

3

At the request of real parties, the trial court ordered portions of the

complaint be sealed.

3

On September 4, 2018, the City Attorney filed his petition for writ of

mandate, seeking relief from the ruling regarding the section 17501 claims.

4

We issued an order to show cause why that ruling should not be vacated.

DISCUSSION

Petitioner contends the trial court erred in sustaining the demurrer to

the section 17501 claims. As explained below, we agree.

Regarding real parties’ challenge to section 17501 as an

unconstitutional regulation of free speech, as a preliminary matter we reject

petitioner’s contention that the statute targets only false, misleading or

deceptive commercial speech (see pt.C.2.b., post). We agree with real parties

that the plain language of the statute restricts protected commercial speech

and thus, the statute is subject to the test for constitutional validity set forth

in Central Hudson Gas & Elec. v. Public Serv. Comm’n (1980) 447 U.S. 557,

566 (Central Hudson). Because the undeveloped record before us is

inadequate to apply that test, real parties’ “free speech” challenge necessarily

fails on demurrer (see pt.C.2.b., post).

Regarding real parties’ contention that section 17501 is void for

vagueness, we conclude they have offered neither a successful facial

challenge -- that is, an attack on the general validity of the statute -- nor a

successful challenge based on the statute’s application to them. We reject at

the threshold their contention that a specific rule for evaluating facial

challenges was abrogated in Johnson v. United States (2015) ___ U.S. ___

[135 S.Ct. 2551] (Johnson). Under that rule, as set forth in Village of

Hoffman Estates v. Flipside, Hoffman Estates, Inc. (1982) 455 U.S. 489, 500

(Hoffman Estates) and Holder v. Humanitarian Law Project (2010) 561 U.S.

1, 18 (Holder), a facial challenge fails if the statute clearly applies to some or

all the challenger’s conduct. We conclude that the rule retains its vitality

post-Johnson and is properly employed here (see pt.D.2.a.ii., post).

4

After issuing the order to show cause, we granted requests from

Consumer Attorneys of California and from the Retail Litigation Center, Inc.,

the National Retail Federation, the California Retailers Assocation, and the

Chamber of Commerce of the United States of America to submit briefs as

amici curiae.

4

Applying that rule, we conclude the facial challenge fails even if the

statute’s impact on protected speech triggers a higher standard for clarity, as

the statute clearly applies to some of the misconduct alleged in the

complaints, and is not inherently unworkable or devoid of guidance to

retailers (see pt.D.3.b.i., post). For the same reasons, we reject the “as-

applied” challenge, insofar as it pertains to that alleged misconduct. With

respect to the remaining misconduct alleged in the complaints, we conclude

the record is insufficient to support a successful “as-applied” challenge on

demurrer. (see pt.D.3.b.ii., post).

A. Standard of Review

“Because a demurrer both tests the legal sufficiency of the complaint

and involves the trial court’s discretion, an appellate court employs two

separate standards of review on appeal. [Citation.] . . . Appellate courts first

review the complaint de novo to determine whether [the] complaint alleges

facts sufficient to state a cause of action under any legal theory, [citation], or

in other words, to determine whether [] the trial court erroneously sustained

the demurrer as a matter of law. [Citation.]” (Cantu v. Resolution Trust

Corp. (1992) 4 Cal.App.4th 857, 879, fn. omitted (Cantu).) Moreover, “[i]f

another proper ground for sustaining the demurrer exists, this court will still

affirm the demurrer[] even if the trial court relied on an improper

ground . . . .” (Id. at p. 880, fn. 10.)

“When reviewing a demurrer on appeal, appellate courts generally

assume that all facts pleaded in the complaint are true. [Citation.]” (Cantu,

supra, 4 Cal.App.4th at p. 877, fn. omitted.) We also assume the truth of

facts that may be inferred from those pleaded (Mead v. Sanwa Bank

California (1998) 61 Cal.App.4th 561, 564 (Mead)) but disregard unsupported

factual conclusions (id. at p. 568), as well as legal conclusions (Schep v.

Capital One, N.A. (2017) 12 Cal.App.5th 1331, 1336 (Schep)). Furthermore,

“[t]he complaint should be read as containing the judicially noticeable facts,

‘even when the pleading contains an express allegation to the contrary.’”

(Cantu, supra, 4 Cal.App.4th at p. 877, quoting Chavez v. Times-Mirror Co.

(1921) 185 Cal. 20, 23.) An appellate court may take judicial notice of facts

not subject to judicial notice by the trial court. (Taliaferro v. County of

Contra Costa (1960) 182 Cal.App.2d 587, 592.)

5

“Second, if a trial court sustains a demurrer without leave to amend,

appellate courts determine whether . . . the plaintiff could amend the

complaint to state a cause of action. [Citation.]” (Cantu, supra,

4 Cal.App.4th at p. 879, fn. 9.)

B. Governing Principles

The key issues here concern the constitutionality and interpretation of

section 17501, which constitute questions of law we resolve de novo.

(Samples v. Brown (2007) 146 Cal.App.4th 787, 799.) Real parties offer both

facial and as-applied constitutional challenges to the statute. A facial

challenge “considers only the text of the measure itself, not its application to

the particular circumstances of an individual.” (Tobe v. City of Santa Ana

(1995) 9 Cal.4th 1069, 1084 (Tobe).) In contrast, an as-applied challenge

“contemplates analysis of the facts of a particular case or cases to determine

the circumstances in which the statute or ordinance has been applied and to

consider whether in those particular circumstances the application deprived

the individual to whom it was applied of a protected right. [Citations].”

(Ibid.)

A party challenging the constitutionality of a statute ordinarily must

carry a heavy burden. “Facial challenges to statutes . . . are disfavored.

Because they often rest on speculation, they may lead to interpreting statutes

prematurely, on the basis of a bare-bones record. [Citation.] . . . [¶]

Accordingly, we start from ‘the strong presumption that the [statute] is

constitutionally valid.’ [Citations.] ‘We resolve all doubts in favor of the

validity of the [statute].’ [Citation.] Unless conflict with a provision of the

state or federal Constitution is clear and unmistakable, we must uphold the

[statute]. [Citations.]” (Building Industry Assn. of Bay Area v. City of San

Ramon (2016) 4 Cal.App.5th 62, 90.) In the case of an as-applied challenge,

the pertinent party “must plead and prove the specific facts giving rise to the

alleged constitutional violation. [Citation.] To prevail, the [party] must

establish the particular application of the statute violates the [party’s]

constitutional rights. [Citation].” (Coffman Specialties, Inc. v. Department of

Transportation (2009) 176 Cal.App.4th 1135, 1145.)

To the extent we must construe section 17501, our inquiry applies

established principles. “The objective of statutory interpretation is to

6

ascertain and effectuate legislative intent. To accomplish that objective,

courts must look first to the words of the statute, giving effect to their plain

meaning,” with an eye to “avoid[ing] a construction making a statutory term

surplusage or meaningless.” (In re Jerry R. (1994) 29 Cal.App.4th 1432,

1437.) However, “the words must be construed in context, and provisions

relating to the same subject matter must be harmonized to the extent

possible. [Citation.]” (Lungren v. Deukmejian (1988) 45 Cal.3d 727, 735.) In

addition, “[b]oth the legislative history of the statute and the wider historical

circumstances of its enactment may be considered in ascertaining the

legislative intent.” (Dyna-Med, Inc. v. Fair Employment & Housing Com.

(1987) 43 Cal.3d 1379,1387.)

Here, the record presented to the trial court contains no legislative

history relating to Business and Professions Code section 17501. On our own

motion, we have taken judicial notice of former Penal Code section 654a -- the

predecessor of Business and Professions Code section 17501 -- and the

legislative acts enacting those statutes. (Boghos v. Certain Underwriters at

Lloyd’s of London (2005) 36 Cal.4th 495, 505, fn. 6.)

The trial court, in sustaining real parties’ demurrer, considered two

documents authorized by the Attorney General of the State of California: a

1957 opinion that interprets aspects of section 17501 (30 Ops.Cal.Atty.Gen.

127 (1957)), and a 1984 committee report that proposed a replacement

statute (Report of the Attorney General’s Committee on Sale and

5

Comparative Price Advertising (April 1984)). Only the 1957 opinion

provides material guidance regarding the issues before us. Generally,

“[o]pinions of the Attorney General, while not binding, are entitled to great

weight.” (Napa Valley Educators’ Assn. v. Napa Valley Unified School Dist.

(1987) 194 Cal.App.3d 243, 399.) That is because an Attorney General

5

The trial court took judicial notice of the 1984 report at the request of

real parties -- which petitioner did not oppose -- and appears to have taken

judicial notice of the 1957 opinion sua sponte. In sustaining real parties’

demurrer to the section 17501 claims, the court placed special emphasis on

the 1984 report as support for its conclusion that the statute is impermissibly

vague.

7

opinion “‘is not a mere “advisory” opinion . . . . ’ [Citation.] Individuals

affected by an Attorney General opinion ‘must regard the authoritative

opinion of the highest law enforcement officer of the state as having a definite

impact’ on their obligations under the subject laws.” (Natkin v. California

Unemployment Ins. Appeals Bd. (2013) 219 Cal.App.4th 997, 1006, quoting

Planned Parenthood Affiliates v. Van de Kamp (1986) 181 Cal.App.3d 245,

263.)

In contrast, little weight may reasonably be assigned to the 1984

report, in which a committee established by the Attorney General proposed a

replacement statute. That recommendation reflected testimony from

individuals -- including prosecutors and retailers -- regarding difficulties they

encountered in attempting to apply section 17501. Ordinarily, in resolving

questions of law, courts do not defer to the opinions of such individuals --

including lawyers -- in determining how a statute is to be construed or

applied. (Woods v. Union Pacific Railroad Co. (2008) 162 Cal.App.4th 571,

579; WRI Opportunity Loans II, LLC v. Cooper (2007) 154 Cal.App.4th 525,

532, fn. 3.) Furthermore, as the Legislature never amended the statute in

response to the 1984 report, it is reasonable to infer that the Legislature did

not view the committee as having identified defects in the statute warranting

curative action. (See Siskiyou County Farm Bureau v. Department of Fish &

Wildlife (2015) 237 Cal.App.4th 411, 431; Ventura v. City of San Jose (1984)

151 Cal.App.3d 1076, 1080.) Accordingly, although the 1984 report may

suggest meritorious questions regarding the statute, it provides little

guidance regarding the resolution of those questions and does not show they

cannot be resolved.

C. Free Speech Rights

Our initial focus is on whether section 17501 implicates free speech

rights under the First Amendment of the United States Constitution and the

free speech provision of the California Constitution (Cal. Const., art. I, § 2,

subd. (a)). Section 17501 consists of two paragraphs, the second of which

contains a prohibition concerning advertisements. The first paragraph sets

forth a standard relating to worth or value: “For the purpose of this

article the worth or value of anything advertised is the prevailing

market price, wholesale if the offer is at wholesale, retail if the offer

8

is at retail, at the time of publication of such advertisement in the

locality wherein the advertisement is published.” The second

paragraph states: “No price shall be advertised as a former price of

any advertised thing, unless the alleged former price was the

prevailing market price as above defined within three months next

immediately preceding the publication of the advertisement or

unless the date when the alleged former price did prevail is clearly,

6

exactly and conspicuously stated in the advertisement.”

Real parties contend the statute is subject to heightened scrutiny for

constitutional vagueness because the prohibition restricts protected

commercial speech, namely, the advertisement of truthful and nonmisleading

former prices; they further contend the prohibition violates the First

Amendment and the free speech provision of the California Constitution.

Although the trial court did not decide whether the statute is an invalid

regulation of free speech, the court ruled that the statute has an impact on

protected commercial speech, and thus applied heightened scrutiny in

evaluating it for vagueness. We therefore examine the extent to which the

statute restricts free speech rights.

1. Protection of Commercial Speech

“Under the First Amendment . . . , commercial speech is entitled to

protection from governmental regulation [citations], although it is entitled to

less protection than other constitutionally guaranteed speech. [Citations.]

[¶] Commercial speech is ‘expression related solely to the economic interests

6

In supplemental briefing, the parties directed our attention to a 1933

magazine article discussing the enactment of Assembly Bill 2384, which

established the original version of section 17501. After characterizing the bill

as a measure “designed to curb depression-born abuses,” the article states

that it “regulates comparative prices. With commodity prices shot to pieces

and last year’s bargains this year’s extravagant memories, unscrupulous

merchants have taken quick and unfair advantage. They advertise either

wholly fictitious values, slashing them to prices that are actually merely

current market prices, or else they compare present prices with figures that

prevailed in 1929, carefully concealing the vintage of the higher price.”

(Gerald J. O’Gara, The legislature goes “new deal” (July 1933) Western

Advertising, p. 20.)

9

of the speaker and its audience’ [citation] and ‘does no more than propose a

commercial transaction . . . .’ [Citation.] To that end, it serves the economic

interests of the speaker, while assisting consumers and furthering the

societal interest in the free flow of commercial information. [Citation.]”

(Bronco Wine Co. v. Jolly (2005) 129 Cal.App.4th 988, 1003-1004, fn. omitted

(Bronco Wine).) Generally, commercial speech that is false or “inherently

misleading” is not protected under the First Amendment. (Kasky v. Nike, Inc.

(2002) 27 Cal.4th 939, 954 (Kasky).)

Here, the prohibition in section 17501 is directed at commercial speech,

and relates to the content of advertising. Under the First Amendment, the

validity of a content-based restriction of commercial speech is subject to the

multi-stage test set forth in Central Hudson, in which the court stated: “At

the outset, we must determine whether the expression is protected by the

First Amendment. For commercial speech to come within that provision, it at

least must concern lawful activity and not be misleading. Next, we ask

whether the asserted governmental interest is substantial. If both inquiries

yield positive answers, we must determine whether the regulation directly

advances the governmental interest asserted, and whether it is not more

extensive than is necessary to serve that interest.” (Central Hudson, supra,

447 U.S. at p. 566.)

The free speech provision of the California Constitution also protects

truthful and nonmisleading commercial advertising while permitting the

imposition of sanctions for misleading commercial advertising. (Kasky,

supra, 27 Cal.4th at p. 959.) Absent exceptional circumstances, the

protection afforded commercial speech under the free speech provision is at

least as broad as the protection provided by the First Amendment. (Gerawan

Farming, Inc. v. Lyons (2000) 24 Cal.4th 468, 490-497.) In construing the

free speech provision, California courts have usually drawn the boundaries

between noncommercial speech and commercial speech, and between

protected and nonprotected commercial speech, with an eye to the analogous

boundaries under the First Amendment. (Kasky, supra, 27 Cal.4th at pp.

959, 969-970; see Beeman v. Anthem Prescription Management, LLC (2013)

58 Cal.4th 329, 341 (Beeman); People v. Superior Court (Olson) (1979) 96

Cal.App.3d 181, 192-195 (Olson).) In Olson, the appellate court examined

10

section 17500, the key provision of the FAL which -- as discussed further

below (see p. C.2., post), prohibits misleading or deceptive advertising, even if

true -- and concluded that section 17500 bars only commercial speech

unprotected under the First Amendment and the free speech provision of the

state Constitution. (Olson, supra, at p. 195; see also Keimer v. Buena Vista

Books, Inc. (1999) 75 Cal.App.4th 1220, 1230, fn. 10 (Keimer).)

Here, the key question is whether section 17501 regulates unprotected

commercial speech. Generally, “[w]ith regard to misleading commercial

speech, the United States Supreme Court has drawn a distinction between,

on the one hand, speech that is actually or inherently misleading, and, on the

other hand, speech that is only potentially misleading. Actually or inherently

misleading commercial speech is treated the same as false commercial

speech, which the state may prohibit entirely. [Citations.] By comparison,

‘[s]tates may not completely ban potentially misleading speech if narrower

limitations can ensure that the information is presented in a nonmisleading

manner.’ [Citations.]” (Kasky, supra, 27 Cal.4th at p. 954.) The

distinguishing mark of unprotected commercial speech is that it is “‘more

likely to deceive the public than to inform it.’” (Bronco Wine, supra, 129

Cal.App.4th at p. 1004, quoting Central Hudson, supra, 447 U.S. at p. 563,

italics omitted.)

2. Analysis

The crux of real parties’ “free speech” contention is that section 17501

restricts protected commercial speech because it “bans vast amounts of

truthful speech about former prices.” Petitioner counters that the statute,

properly construed, applies only to false, misleading, or deceptive advertising

of former prices. As explained below, we conclude that by its plain terms, the

statute forbids certain common forms of truthful price advertising -- and thus

restricts significant amounts of protected commercial speech. As further

explained, however, on the limited record before us, real parties’ “free speech”

constitutional challenge fails on demurrer.

a. Section 17501

As real parties’ contentions require us to interpret the prohibition

contained in section 17501, we begin by examining the statute and its

provenance. Section 17501 is one of three provisions enacted in 1941 as the

11

original components of Article 1 of Chapter 1, Division 7, Part 3 of the

Business and Professions Code, which sets forth the FAL’s primary

prohibitions against false and misleading advertising. (Stats. 1941, ch. 63, §

1, pp. 727-728.) The three provisions -- sections 17500, 17501, and 17502 of

the Business and Professions Code -- were derived from a single predecessor

statute, former Penal Code section 654a. (See People ex rel. Mosk v. National

Research Co. of Cal. (1962) 201 Cal.App.2d 765, 769, fn.1.)

Of the three provisions, the most prominent is section 17500, which “is

the major California legislation designed to protect consumers from false or

deceptive advertising.” (Olson, supra, 96 Cal.App.3d at p. 190.) Section

17500 makes it “unlawful for any person . . . with intent directly or

indirectly to dispose of real or personal property or to perform

services . . . or to induce the public to enter into any obligation

relating thereto, to make or disseminate . . . before the public in this

state, . . . in any newspaper or other publication . . . or in any other

manner or means whatever . . . any statement, concerning that real

or personal property or those services . . . 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.” The

prohibition in section 17500 is broad in scope, as it encompasses “‘not only

advertising which is false, but also advertising which[,] although true, is

either actually misleading or which has a capacity, likelihood or tendency to

deceive or confuse the public.’” (Kasky, supra, 27 Cal.4th at p. 951, quoting

Leoni v. State Bar (1985) 39 Cal.3d 609, 626).) Under section 17500, such

conduct is a misdemeanor; additionally, an action for violation of section

17500 or other provisions of the FAL may be brought either by a public

prosecutor or by other persons with standing, and the remedies available

include restitution and injunctive relief (§ 17535).

Sections 17501 and 17502, by their plain language, enhance or

supplement section 17500. Section 17501 sets forth a specific prohibition not

found in section 17500. Similarly, section 17502 establishes an immunity

12

from liability for entities that publish “an advertisement in good faith[]

7

without knowledge of its false, deceptive, or misleading character.”

The conclusion that Business and Professions Code section 17501 was

intended to extend beyond section 17500 derives additional support from

their history. In 1915, the Legislature enacted a version of former Penal

Code section 654a that contained two components, viz., the predecessor of the

current version of Business and Professions Code section 17500 and the

predecessor of the current version of section 17502. The first component was

based on the so-called “Printers’ Ink Model Statute,” which was drafted in

1911 at the request of the Printers’ Ink advertising journal, and promoted by

8

that journal as a basis for legislation. (Olson, supra, 96 Cal.App.3d at p. 190

& fn. 7; Note, The Regulation of Advertising (1956) 56 Colum.L.Rev. 1019,

1058-1059.) The second component constituted the final portion of the 1915

version of former Penal Code section 654a. In 1933, the Legislature amended

former Penal Code section 654a by inserting the predecessor of the current

version of Business and Professions Code section 17501 between the initial

9

two components of the statute. The structure of former Penal Code section

7

Section 17502 states: “This article does not apply to any visual or

sound radio broadcasting station, to any Internet service provider or

commercial online service, or to any publisher of a newspaper, magazine, or

other publication, who broadcasts or publishes, including over the Internet,

an advertisement in good faith, without knowledge of its false, deceptive, or

misleading character.”

8

The Printers’ Ink Model Statute was eventually adopted in many

states, either in its original form or with modifications. (Olson, supra, 96

Cal.App.3d at p. 190, fn. 7.)

9

Following the 1933 amendment, former Penal Code section 654a

provided:

“Any person . . . who, with intent to sell . . . real or personal

property . . . or to induce the public . . . to enter into any obligation relating

thereto . . . shall make . . . in any . . . advertising medium . . . or by means of

any . . . advertising device, . . . an advertisement . . . which [] shall contain

13

654a thus manifested the Legislature’s intent to strengthen that statute by

adding the predecessor of Business and Professions Code section 17501.

any statement . . . concerning such real or personal property . . . which . . . is

false or untrue, . . . or which is deceptive and misleading, and which is

known, or which by the exercise or reasonable care should be known, to be

false or untrue, deceptive or misleading, by the person . . . circulating or

placing before the public said advertisement, shall guilty of a misdemeanor.

“For the purpose of this section, the worth or value of anything

advertised shall be taken to be the prevailing market price, wholesale if the

offer is at wholesale, retail if the offer is at retail, at the time of publication of

such advertisement in the locality wherein the advertisement is published.

“No price shall be advertised as a former price of any advertised thing,

unless said former price was the prevailing market price as above defined

within three months next immediately preceding the publication of said

advertisement or unless the date when said former price prevailed shall be

clearly, exactly and conspicuously stated in the said advertisement.

“Provided, however, that this act shall not apply to any publisher of a

newspaper, magazine, or other publication, who publishes said advertisement

in good faith, without knowledge of its false, deceptive, or misleading

character.”

14

b. Scope of Prohibition in Section 17501

The key question concerns the extent to which section 17501 implicates

free speech rights. Our inquiry into the scope of the prohibition necessarily

begins with its express terms, as a statute’s language “is generally the most

reliable indicator of legislative intent.” (Hassan v. Mercy American River

Hospital (2003) 31 Cal.4th 709, 715.) The prohibition states: “No price

shall be advertised as a former price of any advertised thing, unless

the alleged former price was the prevailing market price as above

defined within three months next immediately preceding the

publication of the advertisement or unless the date when the alleged

former price did prevail is clearly, exactly and conspicuously stated

in the advertisement.”

Because the prohibition must be construed within section 17501,

viewed as a whole, we examine it in light of the preceding paragraph, which

focuses on “worth” and “value”: “For the purpose of this article the

worth or value of anything advertised is the prevailing market price

. . . at the time of publication of such advertisement in the locality

wherein the advertisement is published.” Generally, in a commercial

setting, the value or worth of an item is its market value, which may be

shown by the market price. (Bagdasarian v. Gragnon (1948) 31 Cal.2d 744,

10

753; Yellen v. Fidelity & Casualty Co. (1931) 115 Cal.App. 434, 441) In

10

As our Supreme Court has explained, “‘value,’ in connection with legal

problems, ordinarily means market value.” (Bagdasarian v. Gragnon, supra,

31 Cal.2d at p. 753; Bullock’s, Inc. v. Security-First Nat’l. Bank of Los Angeles

(1958) 160 Cal.App.2d 277, 282 [“‘When applied without qualification to

property of any description, [“value”] necessarily means the price it will

command in the market,’” quoting Bouv., Law Dict., Rawle’s Third Revision,

p. 3387]; see Joint Highway Dist. v. Ocean S. R. Co. (1933) 128 Cal.App. 743,

754.) The term “worth” is usually attributed the same meaning. (Yellen v.

Fidelity & Casualty Co., supra, 115 Cal.App. at p. 441; Black’s Law Dict.

(10th ed. 2014) p. 1844, col. 2 [“worth n. . . . 1. The monetary value of a

thing”].) Ordinarily, value or worth, so understood, is not established by a

single sale, but “‘by the haggling of the market.’” (Guild Wineries &

Distilleries v. County of Fresno (1975) 51 Cal.App.3d 182, 187, quoting Janss

15

turn, the term “market price” ordinarily refers to the prevailing price at

which the item is offered by sellers in the pertinent market. (Black’s Law

Dict. (10th ed. 2009) p. 1381, col. 1 [“market price” . . . . The prevailing price

at which something is sold in a specific market. See at-the-market price”; “at-

the-market price. The price at which a good or service is offered, or will fetch,

within a specified area: esp., the retail price that store owners in the same

vicinity generally charge for a particular thing or its equivalent.”].)

Viewed in context, the prohibition, by its plain language, forbids any

advertisement of the former price of an “advertised thing” that does not

express the market price information regarding former worth or value, as

specified in the statute. Simply put, the prohibition bans any advertised

claim regarding the former price of an item (1) unless the advertised former

price was “the prevailing market price as [] defined [in section 17501] within

the three months next immediately preceding the publication of the

advertisement” or (2) unless the advertised former price was the prevailing

market price -- as defined in section 17501 -- on a clearly specified date. So

understood, the prohibition imposes standardized market-based meanings on

permissible former price claims, and proscribes all other former price claims -

- including discount advertising that conveys the seller’s own former price for

an item, unless that advertised former price coincides with one of the

11

specified two market prices.

Corp. v. Board of Equalization of Blaine County (1970) 478 P.2d 878, 881.)

11

In supplemental briefing, petitioner contends the prohibition, as

interpreted above, “contains no ‘ban’ on truthful speech,” and “expressly

allows for retailers to advertise any truthful former price, so long as the

retailer also identifies the date when the price was offered.” The crux of

petitioner’s argument is that in the clause, “unless the date when the alleged

former price did prevail is clearly, exactly and conspicuously stated in the

advertisement,” the term “prevailed” refers to the retailer’s own price on the

specified date, rather than the prevailing market price for the date. We

reject that interpretation, as it would require us to impose a new meaning on

the term “prevail” different from its meaning in the other portions of the

statute. By its plain language, the prohibition clearly bans all truthful

former price claims regarding the retailer’s own prices that do not coincide

16

Because the meaning of the elements of the prohibition discussed above

is clear, we need not look beyond the statutory language to consider the

statute’s legislative history or other factors. (Jackpot Harvesting Co., Inc. v.

Superior Court (2018) 26 Cal.App.5th 125, 141.) Moreover, nothing before us

supports an alternative interpretation of the prohibition. Because the

prohibition was enacted as a provision of former Penal Code section 654a, it

is reasonable to infer that the Legislature’s intent was to enhance the then-

existing protections against false, deceptive and misleading advertisements

contained in that statute. As interpreted above, the prohibition does, in fact,

ban certain forms of false, deceptive, and misleading advertisements

regarding former prices -- albeit at the cost of banning a considerable amount

of truthful and nonmisleading advertising regarding former prices, including

a good deal of discount advertising by individual retailers regarding their

own former prices. For example, if a retailer offered widely sold brands of

Halloween costumes, the prohibition would preclude the retailer from

advertising, “All Halloween costumes 50 percent off our former prices,” on the

day after Halloween, unless those prices coincided with one of the two

requisite market prices.

Our interpretation of the prohibition finds support in the 1957 Attorney

General opinion and Spann v. J.C. Penney Corp. (C.D. Cal. 2015) 307 F.R.D.

508 (Spann). The Attorney General stated that sections 17500 and 17501

have application “in the so-called ‘comparative advertising’ field,” which

encompasses advertisements of an item’s value or worth, and advertisements

of an item’s former selling price. (30 Ops.Cal.Atty.Gen. 127, 129 (1957).) The

Attorney General further concluded that under the statutes, both types of

advertisement “must coincide with the same standard, the ‘prevailing market

price,’ which means the actual selling price of the article in the open market.”

(Ibid.)

As discussed further below (see pt.D.3.b.i., post), in Spann, the plaintiff

asserted a putative class action against real party J.C. Penney, asserting

claims under section 17501, based on allegations resembling those relevant

here. (Spann, supra, 307 F.R.D. at pp. 512-513.) The plaintiff requested an

with the specified prevailing market prices, regardless of whether the retailer

specifies the date on which its claimed former prices obtained.

17

order certifying the class, which the trial court granted. (Id. at p. 533.) In so

ruling, the court concluded that according to the “clear language” of section

17501, “when a retailer advertises a ‘former’ or ‘original’ price and compares

it with a sale price, that ‘former’ or ‘original’ price must refer to the prevailing

market price of the item.” (Id. at p. 526.)

Petitioner insists the legislative purpose behind section 17501 was “not

[to] limit or penalize protected or truthful speech.” We recognize our

obligation, “if possible, to construe [the] statute in a fashion that renders it

constitutional” (In re M.S. (1995) 10 Cal.4th 698, 710), and that in

extraordinary circumstances, a court may disregard statutory language that

conflicts with manifest legislative intent (Times Mirror Co. v. Superior Court

(1991) 53 Cal.3d 1325, 1334, fn.7; Kramer v. Intuit Inc. (2004) 121

Cal.App.4th 574, 578-581). However, those principles are inapplicable here,

as there is no way to confine the prohibition to nonprotected commercial

speech without rewriting it. (Vasquez v. State of California (2008) 45 Cal.4th

243, 253 [“We may not rewrite the statute to conform to an assumed

intention that does not appear in its language”]; City of Sacramento v. Public

Employees’ Retirement System (1994) 22 Cal.App.4th 786, 793-797.)

Nor does anything before us suggest the existence of a legislative intent

to focus section 17501 exclusively on false, misleading, and deceptive

commercial speech. As explained above, the prohibition operates by

affirmatively defining two limited classes of permissible former price claims

12

while banning all other such claims. In order to construe the prohibition as

targeting only nonprotected commercial speech, it would be necessary to

imply new language qualifying the prohibition so that it does not ban

protected commercial speech. Given the prohibition’s grammatical structure,

it is impossible to impose that qualification simply by inserting the phrase,

“false, misleading, or deceptive” somewhere in the prohibition. Petitioner has

12

We note that in 1933, when the predecessor of section 17501 was

enacted, the precise extent to which commercial speech enjoyed constitutional

protection was uncertain, as there was relatively little litigation regarding

that issue. (See Gerawan Farming, Inc. v. Lyons, supra, 24 Cal.4th 468 at

pp. 487, 494-497.)

18

identified no appropriate qualifying language, and has submitted no evidence

that the Legislature inadvertently omitted language of that type.

Although the complaints suggest what appears to be an alternative

interpretation of section 17501, that interpretation neither complies with the

canons of statutory interpretation nor restricts the prohibition to

nonprotected commercial speech. Each complaint alleges that the relevant

“market” is the pertinent real party’s “own offering of the items.” To the

extent those allegations are intended to state a general interpretation of

section 17501, they suggest that the statutory term “prevailing market price”

means the price in a single “market,” understood as the business operation of

the retailer making the price claim. So construed, the prohibition would ban

any advertised former price claim unless it (1) was the retailer’s own

“prevailing” price “within three months next immediately preceding the

publication of the advertisement” or (2) was the retailer’s own “prevailing”

price on a specified date.

The proposed interpretation is untenable. First, it disregards the

common meaning of the term “prevailing market price,” and would render a

portion of the standard surplusage. As noted above, the prohibition refers to

the definition of an advertised item’s prevailing market price stated in the

standard, that is, “the prevailing market price . . . at the time of publication

of such advertisement in the locality wherein the advertisement is published.

(§ 17501, italics added.) Accordingly, if the phrase “prevailing market price”

generally meant the price set by the retailer responsible for the

advertisement -- that is, the retailer’s own price -- the italicized phrase would

be superfluous to the definition of “prevailing market price.” Indeed, had the

Legislature intended the phrase to refer to the price offered by the business

responsible for the advertisement, it could easily have done so, and omitted

13

the use of the terms “market” and “prevailing market price.” (See Goebel v.

13

In so concluding, we do not reject the possibility that under the statute,

as properly construed, a retailer’s own former price for a good may sometimes

constitute the requisite former market price. As explained further below (see

pt. D.3.b.i., post), that situation occurs when the good in question is an “in-

house” item sold only by the retailer, as the retailer’s price for such a good is

necessarily the “prevailing” price at which it is sold.

19

City of Santa Barbara (2001) 92 Cal.App.4th 549, 559.) Second, under

petitioner’s interpretation, the prohibition would not target only false and

misleading commercial speech, as it would ban certain truthful claims by

individual retailers, for example, claims regarding an item’s former market

value (as based on the prices offered by other sellers in the market) when

that differed from the retailer’s own former price. In sum, we conclude that

the prohibition, properly construed, bans a considerable amount of

commercial speech protected under the First Amendment and the free speech

14

provision of the California Constitution.

c. Failure of Constitutional Challenge Based on Free

Speech Rights on Demurrer

The remaining question is whether the prohibition, as interpreted

above, is an invalid regulation of commercial speech. Our focus is on whether

there is an adequate justification for the prohibition. (See Gerawan Farming,

Inc. v. Kawamura (2004) 33 Cal.4th 1, 21-24; City of Corona v. AMG Outdoor

Advertising, Inc. (2016) 244 Cal.App.4th 291, 306; Baba v. Board of

Supervisors (2004) 124 Cal.App.4th 504, 518-520.) Under the Central

Hudson test, the prohibition is valid only if it is narrowly tailored to directly

advance a substantial governmental interest. (Central Hudson, supra, 447

14

In a related contention, relying on Zauderer v. Office of Disciplinary

Counsel of Supreme Court (1985) 471 U.S. 626 (Zauderer) and Beeman,

supra, 58 Cal.4th 329, petitioner contends that section 17501 merely compels

commercial speech, and thus is not subject to the Central Hudson test. We

disagree. Zauderer and Beeman examined regulations that did not ban a

general class of commercial speech, but merely compelled disclosures in

specified circumstances. In Zauderer, the pertinent regulation was an Ohio

State Bar rule requiring attorneys advertising contingency-fee rates to

include information regarding the payment of court costs (Zauderer, supra,

471 U.S. at p. 663); in Beeman, the pertinent regulation was a statute

requiring prescription drug insurance claims processors to provide certain

cost information to consumers (Beeman, supra, at p. 336). Each court

characterized the regulation as facilitating, rather than impeding, the flow of

information. (Zauderer, supra, 471 U.S. at p. 650; Beeman, supra, at p. 356.)

In contrast, the prohibition in section 17501 bans an entire class of

commercial speech, with two narrow exceptions.

20

U.S. at pp. 567-570.) Generally, the test cannot be applied “in the abstract,”

or on the basis of speculation or conjecture. (Gerawan Farming, Inc. v.

Kawamura, supra, at p. 22.) As our Supreme Court has explained, under the

Central Hudson test, establishing the validity of a statute regulating

protected commercial speech requires a factual showing regarding the

Legislature’s actual grounds for enacting the statute and its efficacy in

achieving the legislative objective. (Gerawan Farming, Inc. v. Kawamura,

supra, 33 Cal.4th at pp. 21-24.) In addition to establishing that the statute

addresses a governmental interest that is, “‘in fact,’” substantial, the record

must disclose “substantial evidence” that the statute directly advances the

interest in question and is narrowly tailored to achieve that objective. (Id. at

p. 23.)

Although the proponent of a statute restricting protected commercial

speech ordinarily bears the burden of justifying it (Edenfield v. Fane (1993)

507 U.S. 761, 770), that rule is inapplicable here, as real parties assert their

challenge on demurrer. Because the challenge depends on facts extrinsic to

those necessary to state petitioner’s section 17501 claims, it amounts to an

15

affirmative defense. However, “[a] demurrer based on an affirmative

defense cannot properly be sustained where the action might be barred by the

defense, but is not necessarily barred.” (CrossTalk Productions, Inc. v.

Jacobson (1998) 65 Cal.App.4th 631, 635.) Accordingly, real parties’

challenge fails unless it is conclusively demonstrated by the facts pleaded in

the complaints or subject to judicial notice. (See Gold v. Los Angeles

Democratic League (1975) 49 Cal.App.3d 365, 376; Keimer, supra, 75

Cal.App.4th at pp. 1229-1230.)

Here, the meager record permits no evaluation of the validity of the

section 17501 under the Central Hudson test. In view of the broad sweep of

the prohibition contained in the statute, we question whether an adequate

justification exists for the prohibition. Nonetheless, the record before us does

not establish that the requisite justification does not exist. For that reason,

15

Generally, an affirmative defense relies on a fact that is independent of

the factual allegations essential for the plaintiff’s claim. (Bevill v. Zoura

(1994) 27 Cal.App.4th 694, 698.)

21

real parties “free speech” challenge necessarily fails on demurrer. (Gerawan

16

Farming, Inc. v. Kawamura, supra, 33 Cal.4th at pp. 21-24.)

D. Vagueness

We turn to real parties’ contention that section 17501 is void for

vagueness under the due process clauses of the United States and California

Constitution. For the reasons discussed below, we reject the contention.

1. Governing Principles

“It is a well-settled rule that ‘a statute which either forbids or requires

the doing of an act in terms so vague that [people] of common intelligence

must necessarily guess at its meaning and differ as to its application, violates

the first essential of due process of law.’” (Connor v. First Student, Inc.

(2018) 5 Cal.5th 1026, 1034, quoting Connally v. General Const. Co. (1926)

269 U.S. 385, 391 (Connally).) Statutes “that are not clear as to the regulated

conduct are void for three reasons: (1) to avoid punishing people for behavior

that they could not have known was illegal; (2) to avoid subjective

enforcement of the laws based on arbitrary and discriminatory enforcement

by government officers; and (3) to avoid any chilling effect on the exercise of

First Amendment freedoms. [Citation.]” (Concerned Dog Owners of

California v. City of Los Angeles (2011) 194 Cal.App.4th 1219, 1231

(Concerned Dog Owners).)

“As to the first two applications, the Fourteenth Amendment due

process guarantee against vagueness requires that laws provide adequate

warning to people of ordinary intelligence of the conduct that is prohibited,

and standards to protect against arbitrary and discriminatory enforcement.

[Citation.] . . . [¶] The third application of constitutional vagueness applies

when [the statute] ‘clearly implicates free speech rights.’” (Concerned Dog

16

We note that in supplemental briefing, petitioner contends the statute

can be shown to be valid under Central Hudson test, and has directed our

attention to evidence relevant to one of its prongs, namely, whether the

statute serves a substantial governmental interest. Real parties’ “free

speech” challenge to the statute thus cannot be resolved on demurrer, as

doing so would deny petitioner an opportunity to make a full evidentiary

showing regarding the application of the Central Hudson test. (See Tobe,

supra, 9 Cal.4th at p. 1092.)

22

Owners, supra, 194 Cal.App.4th at p. 1231.) Generally, when a statute

regulates protected speech, it is subject to heightened scrutiny for clarity.

(Holder, supra, 561 U.S. at p. 18; Concerned Dog Owners, supra, at pp. 1231-

1232.)

2. Standards Applicable to Real Parties’ Challenges

Here, real parties assert facial and as-applied challenges to section

17501, and the trial court, in concluding that the latter was successful,

subjected the statute to heightened scrutiny due to its potential impact on

free speech. At the threshold of our inquiry, we must resolve two issues

regarding our standards for evaluating the challenges, namely, whether real

parties can assert a successful facial challenge if section 17501 clearly applies

to some of their alleged misconduct, and whether their challenges require

heightened scrutiny.

a. Propriety of Facial Challenge

The parties dispute whether real parties’ facial challenge fails if the

statute clearly applies to some of their alleged misconduct. Relying primarily

on Hoffman Estates, supra, 455 U.S. 489, petitioner contends that real

parties cannot successfully challenge the statute as void for vagueness if

some of their alleged conduct is clearly subject to the statute. Real parties

maintain that under Johnson, supra, 135 S.Ct. 2551, they are permitted to

assert a facial challenge even if their conduct clearly falls within the ambit of

section 17501. As explained below, we agree with petitioner.

i. Facial Vagueness Challenges Before Johnson

We begin by setting forth the key rules regarding facial vagueness

challenges prior to Johnson. When the challenged statute did not implicate

free speech rights, the standard for a successful facial challenge was high:

the party asserting the challenge was obliged to show that the statute was

“impermissibly vague in all of its applications.” (Hoffman Estates, supra, 455

U.S. at p. 495; People ex rel. Gallo v. Acuna (1997) 14 Cal.4th 1090, 1116

(Gallo).) Furthermore, the court’s evaluation of a facial challenge inquired at

the threshold whether the statute clearly applied to the challenger’s conduct.

(Hoffman Estates, supra, at p. 495 [“A court should . . . examine the

complainant’s conduct before analyzing other hypothetical applications of the

law”]; Maynard v. Cartwright (1988) 486 U.S. 356, 361 [“Vagueness

23

challenges to statutes not threatening First Amendment interests are

examined in light of the facts of the case at hand; the statute is judged on an

as-applied basis.”].)

Under this “as-applied inquiry first” rule, the facial challenge failed if

the statute clearly applied to some or all of the challenger’s conduct.

(Hoffman Estates, supra, 455 U.S. at p. 495 [“A plaintiff who engages in some

conduct that is clearly proscribed cannot complain of the vagueness of the law

as applied to the conduct of others”]; Tobe, supra, 9 Cal.4th at p. 1095 [“If the

statute clearly applies to a criminal defendant’s conduct, the defendant may

not challenge it on grounds of vagueness”]; Allen v. Sacramento (2015) 234

Cal.App.4th 41, 55 [facial challenge to ordinance unsuccessful where

ordinance clearly applied to challengers].) Although criminal statutes

received greater scrutiny than civil statutes, the “as-applied” determination

did not hinge on whether the statute’s application was perfectly clear, even in

the case of criminal statutes (Hoffman Estates, supra, 455 U.S. at p. 502); it

was sufficient that the bulk of the alleged conduct “readily f[e]ll” within the

scope of the statute (see Holder, supra, 561 U.S. at p. 21). Additionally, the

challenger was not permitted to defeat the determination by raising abstract

or hypothetical questions regarding the statute’s application in situations

remote from the challenger’s concrete circumstances. (Id. at pp. 21-25.)

The principal decision regarding these rules was Hoffman Estates.

There, a merchant asserted a facial vagueness challenge to a city ordinance

requiring retailers to secure a license in order to sell items “‘designed or

marketed for use’” with illegal cannabis or drugs. (Hoffman Estates, supra,

455 U.S. at p. 491.) After determining that the statute implicated no

cognizable free speech interests, the court examined it under the “as-applied

inquiry first” rule. (Id. at pp. 495-504.) Upon finding the statute clearly

applied to at least some of the merchant’s conduct, the court concluded that

the facial vagueness challenge failed, notwithstanding the existence of

ambiguities relating to the merchant’s conduct. (Ibid.)

Here, the parties dispute whether Johnson abrogated the use of the

“as-applied inquiry first” rule in the context of real parties’ facial vagueness

challenge to section 17501, which restricts protected commercial speech.

Prior to Johnson, the fact that the challenged statute restricted protected

24

commercial speech did not displace the application of the “as-applied inquiry

first” rule to a facial vagueness challenge. (Harell v. Florida Bar (11th Cir.

2010) 608 F.3d 1241, 1253-1257 [relying on rule to reject facial vagueness

challenges to bar regulations restricting attorney advertising before

examining issues relating to validity of regulations under Central Hudson

test]; Hunt v. City of Los Angeles (9th Cir. 2011) 638 F.3d 703, 710, 714-718

[relying on rule to reject facial vagueness challenge to statute before

determining it to be valid regulation of commercial speech under Central

Hudson test]; NAACP v. City of Philadelphia (E.D.Penn. 2014) 39 F.Supp.3d

611, 614-616 [relying on rule to reject facial vagueness challenge to airport

billboard regulations before determining regulations were valid under First

Amendment]; see City of Vallejo v. Adult Books (1985) 167 Cal.App.3d 1169,

1173-1177 [relying on rule to reject vagueness challenge to zoning ordinance

before determining ordinance did not contravene First Amendment].) Rather

-- as discussed further below (see pt.D.2.b., post) -- that fact potentially

required the employment of a higher standard of scrutiny in determining

whether the statute clearly applied to the challenger’s conduct. (Holder,

supra, 561 U.S. at pp. 20-25; see Hoffman Estates, supra, 455 U.S. at p. 498.)

ii. Continuing Vitality of “As-Applied Inquiry First”

Rule

For the reasons discussed below, we conclude that Johnson did not

abolish the use of the “as-applied inquiry first” rule here. In Johnson, a

criminal defendant asserted a vagueness challenge to the “residual clause” of

the Armed Career Criminal Act, (18 U.S.C. § 924(e)(2)(B)), under which a

defendant was subject to an increased sentence where the offense “involve[d]

conduct that present[ed] a serious potential risk of physical injury to

another.” (Johnson, supra, 135 S.Ct. at p. 2555.) Under prior case law

establishing a categorical approach to deciding whether an offense met the

statutory definition, a court was required to assess risk based on “a judicially

imagined ‘ordinary case’ of a crime, not to real-world facts” relating to a

particular defendant’s own conduct. (Id. at p. 2557.) Without analyzing

whether the residual clause clearly applied to the specific crime of the

defendant, the court concluded the clause was unconstitutionally vague. (Id.

at pp. 2560-2561.) Pointing to persistent difficulties courts had encountered

25

in attempting to apply the test for risk, the court found the test effectively

unworkable and the residual clause fatally vague.

While Johnson addressed the facial challenge to the statute without

first attempting to apply it to the defendant’s conduct, the high court noted

that some of its prior holdings contradicted the notion that “a vague provision

is constitutional merely because there is some conduct that clearly falls

within the provision’s grasp.” (Johnson, supra, 135 S.Ct. at p. 2561.) The

court noted it had previously struck down criminal statutes whose language

was so plainly incapable of satisfactory definition that the court deemed it

unnecessary to address whether the challenger’s conduct arguably fell within

it. (Ibid.) In United States v. L. Cohen Grocery Co. (1921) 255 U.S. 81, 91,

the court invalidated a criminal statute prohibiting grocers from charging an

“unjust or unreasonable rate” for a commodity; in Coates v. Cincinnati (1971)

402 U.S. 611, 614, the court struck down a criminal statute prohibiting

people on sidewalks from engaging in “annoying” conduct.

To the extent Johnson declined to look first at the defendant’s conduct,

it created uncertainty regarding the high standard for a successful facial

challenge. Nevertheless, it neither expressly overruled Hoffman Estates nor

even mentioned it. As one circuit court observed, the unifying tenet of the

prior cases on which the court relied was that a criminal statute that ‘“simply

has no core’ and lacks ‘any ascertainable standard for inclusion and

exclusion’” is impermissibly vague, regardless of the facts of the particular

case. (United States v. Cook (7th Cir. 2019) 914 F.3d 545, 550; see United

States v. Jones (7th Cir. 2012) 689 F.3d 696, 703, abrogated on other grounds

in Johnson, supra, 135 S.Ct. at p. 2563.) Similarly, Johnson itself involved

an unusual statute whose application had been demonstrably problematic.

(Johnson, supra, 135 S.Ct. at p. 2560 [“The clause has ‘created numerous

splits among the lower federal courts,’ where it has proved ‘nearly impossible

to apply consistently,’” quoting Chambers v. United States (2009) 555 U.S.

122, 133 (con. opn. of Alito, J.), abrogated on other grounds in Johnson,

supra, 135 S.Ct. at p. 2562.) As the court observed, “this Court’s repeated

attempts and repeated failures to craft a principled and objective standard

out of the residual clause confirm its hopeless indeterminacy.” (Johnson,

supra, 135 S.Ct. at p. 2558.)

26

In our view, Johnson did not put an end to the “as-applied inquiry first”

rule. Rather, the decision appeared to involve an exceptional statute in

which the key defect could be established without examining the statute as

applied to the challenger’s circumstances. Indeed, after Johnson, both

federal and California courts have continued to rely on the “as-applied

inquiry first” rule. (Cook, supra, 914 F.3d at pp. 549-555 [applying rule in

rejecting facial vagueness challenge to criminal statute]; Doe v. Valencia

College (11th Cir. 2018) 903 F.3d 1220, 1233 [relying on rule in rejecting

facial vagueness challenge to school rule regulating unprotected student

speech]; Ledezma-Cosimo v. Sessions (9th Cir. 2017) 857 F.3d 1042, 1047

[applying rule in rejecting facial vagueness challenge to deportation statute];

United States v. Bramer (8th Cir. 2016) 832 F.3d 908, 909 [applying rule in

rejecting facial vagueness challenge to criminal statute]; Arigoni Enterprises,

LLC v. Town of Durham (2d Cir. 2015) 629 Fed.Appx. 23, 25 [applying rule in

rejecting facial vagueness challenge to zoning ordinance]; In re Gary H.

(2016) 244 Cal.App.4th 1463, 1476 [applying rule in rejecting facial

vagueness challenge to criminal statute]; but cf. Henry v. Spearman (9th Cir.

2018) 899 F.3d 703, 708 [stating precedent did not foreclose possibility that

Johnson nullified rule, without deciding issue].) Those decisions include at

least one invoking the rule in the context of a statute restricting commercial

speech. (Contest Promotions, LLC v. City and County of San Francisco (9th

Cir. 2017) 704 Fed.Appx. 665, 668 [applying rule in rejecting facial vagueness

challenge to statute otherwise determined to be valid regulation of

commercial speech under Central Hudson test].)

The remaining issue is whether we should follow the “as-applied

inquiry first” rule. Real parties contend, in effect, that the exceptional

circumstances in Johnson are also present here, as their facial and as-applied

challenges rely on the same claim, namely, that the statute is entirely

meaningless. Pointing to the 1984 committee report, they assert that the

statute’s key terms “individually and in combination create an

incomprehensible statute that is void for vagueness on its face.” They offer

the same contention in challenging the statute for vagueness as applied,

arguing that it “contains a series of terms that have no defined, predictable,

understandable application either singly or in combination. Thus, even if the

27

allegations in the . . . complaints are accepted as true . . . , the conduct

therein described is not ‘clearly proscribed’ by [s]ection 17501 -- because

[s]ection 17501 ‘clearly proscribes’ nothing.” (Italics omitted.)

We are not persuaded. As our Supreme Court has explained, an

overarching principle in evaluating vagueness challenges is that “abstract

legal commands must be applied in a specific context. A contextual

application of otherwise unqualified legal language may supply the clue to a

law’s meaning, giving facially standardless language a constitutionally

sufficient concreteness.” (Gallo, supra, 14 Cal.4th at p. 1116.) In view of that

principle, real parties’ contentions cannot be resolved adequately without

examining section 17501 in the context of the misconduct alleged against

them. In our analysis below (see pt.D.3., post), we therefore follow the “as-

applied inquiry first” rule, with due attention to whether the statute’s

application to the facts alleged in the complaint establishes that it is not

17

fatally vague.

b. Heightened Scrutiny

The remaining question before conducting that analysis is whether, in

view of our conclusion that section 17501 restricts protected commercial

speech, a higher standard of clarity is required in our application of the “as-

17

After oral argument, real parties directed our attention to Bucklew v.

Precythe (2019) 139 S.Ct. 1112. [2019 U.S. LEXIS 2477], which discussed as-

applied and facial challenges under the Eighth Amendment of the United

States Constitution. In holding that a person sentenced to death must show

a less painful alternative method of execution, regardless of whether the

person asserts an as-applied or a facial challenge, the court stated that

“classifying a lawsuit as facial or as-applied affects the extent to which the

invalidity of the challenged law must be demonstrated and the corresponding

‘breadth of the remedy,’ but it does not speak at all to the substantive rule of

law necessary to establish a constitutional violation.” (Id. at p. *31; see also

id. at pp. *26-*34.) Our decision comports with that principle, as we conclude

that absent the extraordinary circumstances present in Johnson, as-applied

and facial vagueness challenges alike fail if the relevant statute clearly

applies to the challenger’s conduct.

28

applied inquiry first” rule. In the context of a facial or as-applied vagueness

challenge to a statute restricting protected speech, heighted scrutiny may be

required in evaluating whether the statute clearly applies to the challenger’s

conduct. (See Hoffman Estates, supra, 455 U.S. at p. 498; Holder, supra, 561

U.S. at pp. 20-25.)

The nature of the heightened standard of clarity was discussed in

Holder. There, legal rights groups and individuals asserted constitutional

challenges to a federal statute making it a crime to “knowingly provid[e]

material support or resources” -- including a “‘service’” such as “‘training’” or

“‘expert advice’” -- “‘to a foreign terrorist organization.’” (Holder, supra, 561

U.S. at p. 1; 18 U.S.C. §§ 2339A(b)(1), 2339B.) The plaintiffs alleged they

wished to support the humanitarian and political activities of two designated

terrorist groups, but refrained from doing so for fear of prosecution under the

statute. (Id. at p. 10.) They argued the statute prohibited them from

educating the groups on how to use specific legal means to achieve peaceful

political goals. (Id. at p. 14.) The plaintiffs challenged the statute on the

grounds that it contravened the First Amendment and was void for

vagueness as applied to them. (Ibid.) The Ninth Circuit concluded that

regardless of whether the ban clearly applied to the plaintiffs, it was void for

vagueness as applied to them because it appeared to restrict free speech. (Id.

at p. 19.)

Relying on Hoffman Estates, the United States Supreme Court rejected

the Ninth Circuit’s ruling, stating: “[T]he Court of Appeals contravened the

rule that ‘[a] plaintiff who engages in some conduct that is clearly proscribed

cannot complain of the vagueness of the law as applied to the conduct of

others.’” (Holder, supra, 561 U.S. at p. 20, quoting Hoffman Estates, supra,

455 U.S. at p. 495.) The court further explained: “That rule makes no

exception for conduct in the form of speech. [Citation.] Thus, even to the

extent a heightened vagueness standard applies, a plaintiff whose speech is

clearly proscribed cannot raise a successful vagueness claim under the Due

Process Clause of the Fifth Amendment for lack of notice. And he certainly

cannot do so based on the speech of others. . . . [O]ur precedents make clear

that a Fifth Amendment vagueness challenge does not turn on whether a law

applies to a substantial amount of protected expression.” (Ibid.) The high

29

court found that notwithstanding a heightened standard of scrutiny, the

vagueness challenge failed, reasoning that “most” of plaintiffs’ conduct

“readily f[e]ll” within the scope of the statute, and the plaintiffs otherwise

raised only hypothetical questions regarding the statute’s application in

situations remote from their concrete circumstances. (Id. at p. 21.)

In view of Holder, when a regulation restricts protected speech, the

application of the “as-applied inquiry first” rule may involve a higher

standard of clarity in determining whether the challenger’s own conduct falls

under the statute. Here, it is unclear that real parties’ challenges trigger

that standard, notwithstanding our conclusion that section 17501 restricts

protected commercial speech. Because the section 17501 claims are

predicated on what is alleged to be real parties’ false, misleading, or

deceptive advertising, the claims do not encompass any protected commercial

18

speech by real parties. Furthermore, due to the limited constitutional

protection afforded commercial speech, real parties may not invoke the

statute’s impact on the protected commercial speech of other parties.

(Hoffman Estates, supra, 455 U.S. at pp. 496-500.) Nonetheless, it is

unnecessary to decide whether heightened scrutiny is mandated here, as we

conclude that even under such a standard of clarity, real parties have

18

The trial court, in overruling real parties’ demurrers to petitioners’

other causes of action, concluded that the complaints’ allegations stated

causes of action for false, misleading, or deceptive advertising under section

17500. Before us, real parties have not challenged that ruling. Accordingly,

for purposes of this writ proceeding, the allegedly false, misleading, or

deceptive former price advertising must be viewed as unprotected commercial

speech, as section 17500 targets such speech (Olson, supra, 96 Cal.App.3d at

p. 195; Keimer, supra, 75 Cal.App.4th at p. 1230). Because the section 17501

claims are directed at the same former price advertising, real parties may not

contend that the prohibition in section 17501 is being applied to their

protected speech.

30

identified no defects or ambiguities sufficient to deny them notice regarding

19

the propriety of their alleged conduct.

3. Analysis

19

Real parties have failed to establish any other tenable basis for

heightened scrutiny of the statute. They suggest that section 17501 is

subject to the enhanced standard of clarity appropriate for criminal statutes

because criminal penalties are potentially available for violations of section

17501 (§ 17534). In Ford Dealers Assn. v. Department of Motor Vehicles

(1982) 32 Cal.3d 347 (Ford Dealers Assn.), our Supreme Court rejected a

contention closely resembling that asserted by real parties. There, an

association of automobile dealers challenged the validity of certain

regulations relating to Vehicle Code section 11713, which bans the

dissemination of the false or misleading statements to the public by licensed

automobile dealers. (Id. at pp. 354-356.) In challenging the regulations as

void for vagueness, the association contended heightened scrutiny was

required because criminal penalties were available for violations of Vehicle

Code section 11713. (Id. at p. 366, fn. 12.) The court declined to apply that

standard, noting that the statute was a “remedial” statute -- that is,

“designed to protect the public” -- and thus subject to liberal construction to

effectuate its purposes, that potential criminal liability under the statute was

not at issue in the particular case, and that “only the civil, administrative

aspects of the statute [were] before the court.” (Id. at pp. 356, 367, fn. 12.)

The rationale in Ford Dealers Assn. applies here. Like the statute at

issue there, section 17501 is a remedial statute subject to liberal construction

to effectuate the protection of consumers, and the instant complaints do not

seek criminal penalties. We therefore decline to subject the statute to the

heightened standard of clarity appropriate for criminal statutes.

Sessions v. Dimaya (2018) ___ U.S. ___, ____ [138 S.Ct. 1204, 1213],

upon which real parties rely, is distinguishable. There, the United States

Supreme Court applied heighted scrutiny to a civil statute authorizing the

deportation of persons with criminal convictions, noting that it had long

subjected such laws to enhanced scrutiny in view of the severity of

deportation as a penalty. That consideration is not pertinent here.

31

As explained below, we reject real parties’ facial and as-applied

vagueness challenges. Their facial challenge to section 17501 fails in its

entirety because the statute clearly prohibits some of the misconduct alleged

in the complaints; furthermore, the as-applied challenge relating to the

remaining misconduct fails on demurrer for want of factual allegations

sufficient to support the challenge.

Generally, “‘[i]n considering whether a legislative proscription is

sufficiently clear to satisfy the requirements of fair notice, “we look first to

the language of the statute . . . .” [Citations.] . . . [Citation.] The

Legislature’s intent “as exhibited by the plain meaning of the actual words of

the law,” must be followed “‘“whatever may be thought of the wisdom,

expediency, or policy of the act.”’” [Citations.]’ [Citations.]” (Benson v.

Kwikset Corp. (2007) 152 Cal.App.4th 1254, 1269.) The standards for conduct

in the statute may also be “fleshed out . . . by reference to any of the following

sources: (1) long established or commonly accepted usage; (2) usage at

common law; (3) judicial interpretations of the statutory language or of

similar language; (4) legislative history or purpose.” (Sechrist v Municipal

Court (1976) 64 Cal.App.3d 737, 745; see Ford Dealers Assn., supra, 32 Cal.3d

at pp. 365-369.)

At the outset, we note that the trial court, in accepting the as-applied

challenge, directed its attention primarily to petitioner’s legal conclusions

regarding the application of section 17501, as alleged in the complaints.

However, “we are not limited to [petitioner’s] theor[ies] of recovery in testing

the sufficiency of [the] complaint[s] [on] demurrer, but instead must

determine if the factual allegations of the complaint[s] are adequate to state

a cause of action under any legal theory.” (Barquis v. Merchants Collection

Assn. (1972) 7 Cal.3d 94, 103, italics omitted.) For that reason, in evaluating

real parties’ vagueness challenges, we look to the factual allegations in the

complaints, rather than any legal conclusions they may contain.

a. Allegations in Complaints

The complaints assert that real parties offer goods for sale online at

prices purportedly discounted from so-called “reference prices” that are

“deliberately and artificially” stated to be higher than real parties’ actual

32

former prices. Some of the goods are “in-house” goods exclusive to each real

party, and the others are nonexclusive goods also sold by competing retailers.

According to the complaints, following an investigation of real parties’

online websites, petitioner found that large percentages of the “daily

offerings” were offered at (or above) the represented reference price only for

periods of 30 days or fewer during the 90-day period preceding the pertinent

advertisements. Depending on the particular real party, the complaints

assert that 19.38 percent to 51.29 percent of the daily offerings were never

offered at (or above) the reference price; that 48.65 percent to 88.08 percent of

the daily offerings were offered at (or above) the reference price for only 14

days or fewer; and that 83.76 percent to 98.55 percent of the daily offerings

were offered at (or above) the reference price for only 30 days or fewer.

As noted above (see pt.C.2.b., ante), the complaints assert that for

purposes of section 17501, the relevant market is the pertinent real party’s

“own offering[] of the items.” In connection with that assertion, each

complaint specifically alleges that with respect to the in-house goods, the real

party is the only possible “market” regarding those goods. With respect to

nonexclusive items sold by other retailers, however, each complaint asserts

that even if the “market” relating to those items encompasses other retailers,

real parties’ reference prices do not coincide with the prevailing market

prices because real parties’ actual prices were consistently below the

advertised reference prices.

b. Clarity of Section 17501

As explained below, the complaints state theories of liability regarding

the in-house goods and the nonexclusive goods that rely on the same

provisions of section 17501, but differ with respect to the markets in which

the pertinent prevailing market prices must be determined. We conclude

that real parties’ facial challenge fails in its entirety because the statute is

clear as applied to the “in-house goods” theory, and real parties have

otherwise failed to show the statute is unclear as applied to the “nonexclusive

goods” theory.

i. In-House Goods

The theory of liability clearly applicable to the in-house goods is set

forth in Spann, supra, 307 F.R.D. 508. That decision concluded that under

33

section 17501, when a retailer sells in-house goods, the retailer’s actual prices

regarding those goods constitute their market prices. (Id. at pp. 526-527.)

For that reason, the retailer’s actual prices for the in-house goods provide an

adequate basis for determining whether the retailer’s advertised former price

claims comply with section 17501. (Ibid.)

In Spann, the plaintiff asserted a putative class action against real

party J.C. Penney, asserting claims, inter alia, under the FAL, including

section 17501. (Spann, supra, 307 F.R.D. at pp. 512-513.) The claims were

predicated on allegations that J.C. Penney advertised false former prices and

false price discounts for “‘its private branded and exclusive branded apparel

and accessories’” on its Internet site and in its stores. (Id. at p. 512.) The

plaintiff requested an order certifying the class, which the trial court granted.

(Id. at p. 533.)

In so ruling, the court rejected J.C. Penney’s contention that the section

17501 claim was not suitable for class litigation. (Spann, supra, 307 F.R.D.

at p. 523.) J.C. Penney argued that under the statute, in order to determine

the “‘prevailing market price,’” the plaintiff was obliged to “analyze each item

sold in the market (i.e., by other retailers in the geographic area), not simply

the price at which [real party] previously offered the items,” and “consider

‘price data from [real party] and competing retailers at different times in

different, numerous local markets throughout California[.]’” (Ibid.) The

court disagreed, reasoning that the market relating to J.C. Penney’s in-house

goods consisted solely of its sales operations because only J.C. Penney sold

those goods. (Id. at pp. 526-527.) The court thus concluded that the

prevailing market prices for such in-house goods were established by J.C.

Penney’s own sales price data, for purposes of evaluating whether J.C.

Penney’s claimed former prices coincided with the former prevailing market

prices specified in section 17501. (Ibid.)

The theory set forth in Spann clearly applies to the false or deceptive

former price claims alleged in the complaints, insofar as they relate to in-

house goods. The complaints generally assert that each real party’s former

price claims for advertised items “pervasively” violated section 17501 because

they reflected neither the prevailing market prices of the in-house goods

34

during the pertinent preceding three-month period nor the prevailing market

prices on specified dates. Those allegations encompass “thousands” of in-

house goods.

The complaints allege that real parties did not specify dates in their

former price claims, and otherwise assert in detail that their actual former

prices for advertised items were usually less than their claimed former prices

for the items. The complaints allege (1) that for significant percentages of the

daily offerings, the items were never sold at (or above) the claimed former

prices during the 90-day period preceding the advertisements; (2) that for

virtually half or more of the daily offerings, the items were sold at (or above)

the claimed former prices for only 14 days or fewer during the 90-day period;

and (3) that for the vast majority of the daily offerings, the items were sold at

(or above) the claimed former prices for only 30 days or fewer during the 90-

day period.

As discussed further below, these allegations support the reasonable

inference that for a considerable amount of the advertised in-house goods, the

claimed former price was greater than the actual prevailing market price

during the statutory three-month period. Because real parties’ daily offerings

did not specify dates upon which the claimed former prices obtained, the

complaints clearly state a theory of liability under section 17501, namely,

that real parties’ claimed former prices for their in-house goods did not

coincide with the prevailing market prices for the relevant three-month

period.

Because the facial challenge fails if section 17501 clearly applies to real

parties, our focus is on whether they have identified any fatal vagueness in

the application of the Spann theory to the facts as alleged in the complaints.

We thus disregard hypothetical problems of application outside those

concrete circumstances, including all such problems identified in the 1984

20

committee report. (Holder, supra, 561 U.S. at pp. 20-25.)

20

The same is true of other contentions raised by real parties and amici.

Real parties argue that section 17501 has been rendered unworkable by

unspecified factual changes in retailing wrought by the Internet. Relying on

facts not alleged in the complaints, amici maintain that the term “prevailing

35

We reject real parties’ suggestion that the statutory terms “market”

and “prevailing market price” are unintelligible. As explained above (see pt.

B.3.b., ante), those terms have established meanings sufficient to determine --

at least in broad outline -- what section 17501 bans and what it permits.

Indeed, the terms, so construed, have long been used in the California

Uniform Commercial Code to state a specific measure of damages relating to

failed sales transactions (Cal. U. Com. Code, §§ 2708, 2713, 2723, 2724). In

that context, courts have recognized that although it is sometimes impossible

to identify the relevant market or market price, the existence of those items

generally presents factual questions. (Southern Pacific Milling Co. v.

Billiwhack Stock Farm, Ltd. (1942) 50 Cal.App.2d 79, 88.)

The 1957 Attorney General opinion and Spann reached similar

conclusions regarding the terms “market” and “prevailing market price” in

section 17501. The Attorney General found no uncertainty in the term

“prevailing market price” used in the statute, noting that several statutes

and judicial decisions applied similar terms. (30 Ops.Cal.Atty.Gen., supra, at

p. 128.) The court in Spann concluded that under the statute, the

determination of the relevant market price ordinarily presents factual

questions: “[T]he prevailing market price must take into account where, and

at what price, the item in question is offered for sale. [Citations.] At bottom,

this is a simple and straightforward inquiry that assesses what is the item’s

proper market and where and how is the item marketed.” (Spann, supra, 307

F.R.D. at p. 526.)

Real parties and amici contend the specific definition of “prevailing

market price” relevant to the statutory prohibition is unworkable. The

prohibition relies on the definition in the standard set forth in section 17501,

which provides that the “prevailing market price” is that which obtains “at

the time of publication of such advertisement in the locality wherein the

advertisement is published.” (§ 17501, italics added.) Real parties and amici

maintain that the italicized terms have no clear meaning.

market price” is well defined only for markets for generic or bulk

commodities, and thus is inapplicable to sellers of nongeneric goods. These

contentions cannot support vagueness challenges asserted on demurrer.

36

The clear import of the definition is that a retailer, in selecting the

medium for the advertised item, determines the particular market in which

the prevailing market prices are to be identified. The relevant market is the

one that exists in the locality of consumers likely to see the advertisement at

the time it is published, and consists of the vendors then competing to sell the

advertised item to them. Accordingly, when, for example, a retailer advertises

an item on a specified date in a newspaper whose circulation is limited to Los

Angeles, the relevant market price is that which prevails among the retailers

selling the advertised item to consumers in Los Angeles on the date in

question. Because the term “prevailing” ordinarily means “common,” and

applies to “what is predominant or widespread beyond others of its kind or

class at a time or place indicated . . . .” (Webster’s Third New Internat. Dict.

Unabridged (1976) p. 1797), in a typical case, the relevant market price will

be the common or predominant price among the sellers in the market where

the item is advertised.

The 1957 Attorney General opinion offered the same interpretation of

the definition, concluding that -- depending on the content of the

advertisement -- the prevailing market price was determined by the actual

sales prices of similar goods, or the same good, on the “open local market.”

(30 Ops.Cal.Atty.Gen., supra, at p. 129.) The Attorney General further

stated: “[I]t is not any price on the market that the statute refers to, for

. . . there is often more than one price for the same goods appearing

simultaneously on the market, but the most common one.” (Ibid.; see Haley

v. Macy’s Inc. (N.D. Cal. 2017) 2017 U.S. Dist. LEXIS 210486, *6, *18-*19

[term “prevailing market price,” as used in section 17501, is not

unconstitutionally vague because prevailing means “predominant” or “most

widely occurring”].)

Under the Spann theory, as alleged in the complaints, the application

of the statutory definition of “prevailing market price” is clear. Although

each real party’s online advertisements reach a widespread group of

consumers, the real party is the only retailer selling its in-house goods to

those consumers. For that reason, the real party’s advertised actual price for

an in-house item necessarily constitutes the item’s prevailing market price at

the time the actual price is advertised.

37

Real parties’ demurrer maintained that the statute did not preclude

determining the prevailing market price of an advertised in-house item on

the basis of similar products offered by other retailers. In our view, that

contention fails in light of the principle that statutes be given their “plain,

commonsense meaning.” (Kavanaugh v. West Sonoma County Union High

School Dist. (2003) 29 Cal.4th 911, 919.) The statutory definition, so

understood, identifies the relevant market price as that for the “advertised

thing,” that is, the exclusive in-house item as advertised. Accordingly, if the

advertisement specifies a precise item -- say, by reference to name, brand, or

other distinctive features (for example, J.C. Penney’s “Christina® Dot Print

Flyaway Bandeaukini Swim Top – Maternity,” which is alleged to be an

exclusive in-house product) -- the market and therefore the market price is

properly determined on the basis of sales of that item only. (See In re High

Fructose Corn Syrup Antitrust Litigation (7th Cir. 2002) 295 F.3d 651, 658

[noting that when seller’s product is differentiated, seller has “a little pocket

of monopoly power”].) Our conclusion finds additional support from Spann,

which rejected the same contention on essentially similar alleged facts.

(Spann, supra, 307 F.R.D. at pp. 523-528.)

Real parties and amici further contend the term “time of publication,”

as used in the definition, has no clear meaning. However, California law has

long provided that when an act is relevant to the operation of a statute, it is

ordinarily treated as falling on a full day, rather than a fraction of a day.

(Municipal Improv. Co. v. Thompson (1927) 201 Cal. 629, 632 [“The law takes

no notice of fractions of a day. Any fraction of a day is deemed a day unless in

a particular case it is necessary to ascertain the relative order of occurrences

on the same day.”].) The time of publication is reasonably construed as a

particular day, absent special circumstances. No such circumstances are

alleged in the complaints; on the contrary, the complaints refer to real

parties’ “daily offerings.” (Italics added.)

Real parties and amici also contend the term “locality” is necessarily

vague, arguing that it has numerous possible meanings, and that the advent

of the Internet has made its application “even more question-begging” due to

the Internet’s broad reach. We disagree. Generally, the term “locality,”

viewed in context (that is, “the locality wherein the advertisement is

38

published”), operates to identify the market for the “advertised item” as the

consumers targeted by the advertisement and the sellers competing to sell

the item to them. So understood, the Internet raises no special difficulty

regarding the term, as it is merely a medium that reaches a very large group

of consumers. In the context of advertising former prices of in-house goods,

the term “locality” plays no role in identifying relevant competing sellers, as

21

only real parties sell their in-house goods.

Additionally, real parties and amici maintain that the key terms in the

statutory prohibition are vague. Central to the Spann theory, as set forth

above, is one of the two exceptions to the prohibition against former price

claims, namely, the provision permitting such a claim when “the alleged

former price was the prevailing market price [as defined in the statute] within

the three months next immediately preceding the publication of the

advertisement.” (§ 17501, italics added.) Real parties and amici contend the

italicized terms have no clear meaning.

Broadly speaking, the provision, by its plain language, permits a

former price claim only when the claimed former price coincides with the

requisite three-month market price. Because the provision refers to “the”

prevailing market price during the pertinent three-month period, the

requisite market price is reasonably viewed as the common or predominant

price during that period. For that reason, in a typical case, a retailer may

21

Real parties’ reliance on Connally, supra, 269 U.S. 385 is misplaced.

There, the United States Supreme Court examined an Oklahoma statute that

obliged the state to pay state employees “‘not less than the current rate of per

diem wages in the locality where the work is performed.’” (Id. at p. 388.) The

court concluded the statute was void for vagueness because the term

“locality,” as used in the statute, had no clear meaning, stating: “Two men,

moving in any direction from the place of operations, would not be at all

likely to agree upon the point where they had passed the boundary which

separated the locality of that work from the next locality.” (Id. at p. 394.) In

contrast, as explained above, no such problems attend the term under the

Spann theory.

39

avoid liability under the statute by advertising a former price that obtains on

22

all or most of the days within the pertinent three-month period.

Nonetheless, as discussed above, the appropriate measure of the prevailing

market price depends on the specific nature of the market. (See Spann,

supra, 307 F.R.D. at pp. 526-527.)

In Spann, relying on expert testimony, the trial court accepted the

statistical “mode” price of an advertised item -- that is, the most commonly

occurring price -- as the appropriate objective standard for determining the

prevailing three-month market price for that item. (Spann, supra, 307

F.R.D. at pp. 516-517, 527-528.) Spann lacks a full description of the expert’s

precise methodology. However, the most straightforward application of the

concept of the mode to the facts alleged here is to identify the three-month

prevailing price for an item as the price offered in the majority of the “daily

offerings” for the period, if there is one, and otherwise as the most frequently

occurring price in those offerings.

Although difficulties may arise in some contexts in determining

whether a former price claim coincides with the requisite three-month

market price, no fatal unclarity attends that determination under the

complaints’ allegations. The complaints allege that for significant

percentages of the advertised items, the actual prices were always below the

claimed former prices during the 90-day period; that for approximately half

or more than half of the advertised items, the actual prices were below the

claimed former prices on all but 14 days (or fewer) during the 90-day period;

and that for the vast majority of the advertised items, the actual prices were

below the claimed former prices on all but 30 days (or fewer) during the 90-

day period.

22

In a statute, the term “month” means “calendar” month, absent any

qualification (Sprague v. Norway (1866) 31 Cal. 173, 176; Civ. Code, § 14,

subd. 4), and a “preceding[]” period stated in months is determined by

“counting backward” the requisite number of calendar months (see Scoville v.

Anderson (1901) 131 Cal. 590, 596). Accordingly, the three-month statutory

period here will vary in length from 89 to 92 days, depending upon the

specific date when the advertisement was published.

40

In view of the allegations, under any reasonable specification of a

requisite three-month market price for the in-house goods -- including the

measure suggested by Spann -- it is clear that the three-month market prices

were often -- and perhaps always -- less than the claimed former prices. The

allegations thus suffice to establish that real parties routinely advertised

former price claims for in-house goods not coinciding with the three-month

market prices. For that reason, much or all of real parties’ alleged conduct

“readily fall[s]” within the scope of the statute. (Holder, supra, 561 U.S. at p.

23

21.)

Real parties suggest the statute is void for vagueness as applied to

them because it does not resolve whether the actual prices charged for in-

house items in their brick-and-mortar stores may serve as the basis for their

online former price claims. However, that contention fails on demurrer

because the reasonable inferences raised by the complaints’ factual

allegations contradict the contention’s presupposition, namely, that the prices

in the brick-and-mortar stores support the online former price claims.

Indeed, the complaints allege that each real party has adopted specific

policies ensuring that its online sales prices “are, by the company’s own

design, in substantial parity with” the sales prices in its “brick-and mortar”

23

We recognize that the complaints rely on a 90-day period, rather than a

three-month period. The complaints’ allegations are thus technically

defective, as the three-month period will comprise 89 to 92 days (see fn. 19,

ante). Nonetheless, those minor defects are immaterial to whether the

complaints state clear claims under section 17501, in view of the patent

falsity of the former price claims as alleged in the complaints.

We also observe that the complaints allege that a retailer necessarily

contravenes the provision in question by publishing a former price that

obtains on fewer than half the number of days within the three-month period.

The complaints assert that a seller violates the statute by advertising a

reference price for a product “higher than that which it actually offered and

sold the product for a majority of the days on which it was offered during the

preceding 90 days.” However, we are not bound by that legal conclusion.

41

24

stores. In sum, because the statute clearly applies to real parties with

respect to their former price claims regarding their in-house goods, their

facial challenge to section 17501 fails; for the same reason, their as-applied

challenge fails insofar as it asserts that the statute’s application is unclear

25

with respect to their former price claims regarding their in-house goods.

(Hoffman Estates, supra, 455 U.S. at pp. 497-504.)

24

Real parties’ demurrer contended the allegations were defective

because they were pleaded on information and belief. We disagree. As

Witkin explains, “[i]t sometimes happens that a plaintiff . . . lacks knowledge

and the means of obtaining knowledge of facts material to his or her cause of

action . . . . Usually the matters are peculiarly within the knowledge of the

adverse party, and the pleader can learn of them only from statements of

others. In this situation, the pleader may plead what he or she believes to be

true as the result of information . . . the pleader has received.” (4 Witkin,

Cal. Procedure (5th ed. 2008) Pleading, § 398, pp. 537-538.) However, “[i]t is

improper to plead on information and belief when the pleader had actual or

presumed knowledge of the facts.” (Id. at § 399, p. 539.)

Here, real parties are likely to have records of the prices for in-house

items sold in their brick-and-mortar stores. In contrast, petitioner could have

obtained that price data only by visiting real parties’ brick-and-mortar stores

on a daily basis during its investigations in order to monitor the prices of the

“thousands” of in-house goods. Nothing in the complaints suggest that was

possible. For that reason, the price information in question must be regarded

as “peculiarly” within real parties’ knowledge. (4 Witkin, supra, Pleading, §

398, p. 538.)

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In a related contention, amici argue that the application of the phrase,

“the prevailing market price . . . within the three months next immediately

preceding the publication of the advertisement,” is uncertain with respect to

online retailers who publish continuous advertisements for items. We

disagree. Because the statute plainly aims at providing market price

information useful to consumers, the three-month period is properly

construed as a “rolling” period, that is, one whose beginning and end changes

each day, thus requiring a daily recalculation of the prevailing market price

during the three-month period. (Cf. City of Brentwood v. Central Valley

Regional Water Quality Control Board (2004) 123 Cal.App.4th 714, 727-733

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ii. Nonexclusive Goods

We turn to the as-applied challenge, insofar as it is directed at the sole

tenable theory of liability alleged in the complaints regarding nonexclusive

goods, namely, the theory that disregards the complaints’ erroneous legal

conclusion that each real party’s business operation constitutes the “market.”

That theory relies on the allegations that even if the “market” relating to

nonexclusive goods encompasses other retailers, real parties’ claimed former

prices do not coincide with the requisite market prices.

The theory in question thus differs from the Spann theory primarily

with respect to the market or markets in which the prevailing market prices

are to be determined. Under section 17501, as construed above (see

pt.D.3.b.i., ante), the market for each nonexclusive item advertised by a real

party consists of all the retailers selling the “advertised item” to the

consumers targeted by the real party’s advertisement. In those markets, the

real party’s actual price for a nonexclusive item will not establish the item’s

prevailing market price. (Spann, supra, 307 F.R.D. at p. 526 [ordinarily, “the

prevailing market price is not simply the retailer’s actual original price”].)

Regarding the nonexclusive goods, the complaints rely on the same

factual allegations regarding real parties’ advertising, but contend real

parties’ claimed former prices did not coincide with the requisite three-month

market prices because real parties’ actual prices were consistently below the

claimed former prices. Although on demurrer we are not bound by all factual

conclusions alleged in a complaint, the inference asserted here is, in fact,

reasonable because in competitive markets, the actual prices offered by

vendors selling the same item tend to converge on the market price. (Knapp

v. Art.com, Inc. (N.D.Cal. 2016) 2016 U.S. Dist. LEXIS 78128, *6 [plaintiff

adequately stated section 17501 claim on basis of similar factual allegations

supporting same inference]; see In re High Fructose Corn Syrup Antitrust

Litigation, supra, 295 F.3d at pp. 657-658 [when sellers of identical item

compete, no seller can generally set its own price above or below the market

price, absent special circumstances].) Accordingly, the factual allegation that

real parties’ advertised former prices were consistently higher than their

[concluding that statutory period was “rolling” because that interpretation

best effectuated legislative intent].)

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actual prices supports the inference that those advertised prices were not the

prevailing market prices during the requisite three-month period. The

complaints thus state a cognizable theory of liability under section 17501

with respect to the nonexclusive goods.

We must reject any as-applied challenge to the “nonexclusive goods”

theory on demurrer because it is premature, that is, it hinges on facts neither

pleaded in the complaints nor subject to judicial notice. (Tobe, supra, 9

Cal.4th at pp. 1083, 1088, 1092-1093.) Because the “nonexclusive goods”

theory differs from the Spann theory with respect to the pertinent markets --

and thus potentially the appropriate measure of prevailing market prices --

the key issues raised by the as-applied challenge attend the application of the

statutory terms “market” and “prevailing market price.” No facts regarding

the markets in which real parties sell nonexclusive goods have been pleaded

in the complaints or submitted for appropriate judicial notice. As explained

in Holder, real parties may not predicate their as-applied challenge on

hypothetical problems not tied to their concrete circumstances. (Holder,

supra, 561 U.S. at pp. 23-25.) Accordingly, as with real parties’ “free speech”

challenge, on the record before us their as-applied challenge fails.

DISPOSITION

Let a peremptory writ of mandate issue directing that respondent trial

court vacate its order sustaining real parties’ demurrer to the section 17501

claims without leave to amend, and enter a new order denying that

demurrer. Petitioner is awarded costs.

CERTIFIED FOR PUBLICATION.

MANELLA, P. J.

We concur:

WILLHITE, J. CURREY, J.

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