Apex Wholesale v. Fry's Electronics

Filed 6/15/06 Apex Wholesale v. Fry's Electronics CA4/1

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 977(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 977(b). This opinion has not been certified for publication or ordered published for purposes of rule 977.

COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA

APPEALS from a judgment and APPEAL from postjudgment orders of the Superior Court of San Diego County, Kevin A. Enright, Judge. Judgment reversed in part and affirmed in part; orders affirmed.

Story continue from Part IV ………

Former CCP section 2033, subdivision (o) provided in pertinent part: "If a party fails to admit the genuineness of any document or the truth of any matter when requested to do so under this section, and if the party requesting that admission thereafter proves the genuineness of that document or the truth of that matter, the party requesting the admission may move the court for an order requiring the party to whom the request was directed to pay the reasonable expenses incurred in making that proof, including reasonable attorney's fees. The court shall make this order unless it finds that (1) an objection to the request was sustained or a response to it was waived . . . , (2) the admission sought was of no substantial importance, (3) the party failing to make the admission had reasonable ground to believe that that party would prevail on the matter, or (4) there was other good reason for the failure to admit." (Italics added, repealed by Stats. 2004, ch. 182, § 22.)

"The determination of whether a party is entitled to expenses under [CCP] section 2033, subdivision (o) is within the sound discretion of the trial court. 'On appeal, the trial court's decision will not be reversed unless the appellant demonstrates that the lower court abused its discretion.' [Citation.]" (Wimberly v. Derby Cycle Corp. (1997) 56 Cal.App.4th 618, 637, fn. 10.) "An abuse of discretion occurs only where it is shown that the trial court exceeded the bounds of reason. [Citation.] It is a deferential standard of review that requires us to uphold the trial court's determination, even if we disagree with it, so long as it is reasonable. [Citation.]" (Stull v. Sparrow (2001) 92 Cal.App.4th 860, 864.)

Apex contends the court committed reversible error by placing the burden on Apex to show that Fry's denials of its RFA's were unreasonable instead of requiring Fry's to show the denials were reasonable.[1] Apex contends the court impliedly misallocated that burden in its written order denying cost of proof sanctions by stating: "The court cannot say Fry's failure to unequivocally admit these RFA[']s was unreasonable or that there was no other good reason to deny them." The full context of the portion of the court's ruling regarding the reasonableness of Fry's denials of the loss-leader RFA's is as follows:

"Although Fry's ultimately denied these requests, it also objected to them because in order for a retailer to be liable for selling a loss leader the retailer must intend to injure competition. The court cannot say Fry's failure to unequivocally admit these RFA[']s was unreasonable or that there was no other good reason to deny them. The term 'loss leader' can have a negative connotation of unlawfully selling an item below cost. So that plaintiff would not reach the wrong conclusion, Fry's accompanying interrogatory response[[2]] sought to clarify that although Fry's may sell items below cost, it did so for a variety of legally proper reasons.[[3]] Plaintiff complains that Fry's interrogatory response did not unequivocally admit to selling anything below cost, but the RFA[']s did not merely ask whether Fry's sold any items below cost." (Italics added.)

Read in context, the italicized statement Apex points to as showing the court misallocated the burden of proof is simply a finding (stated in the negative) that Fry's had good reason not to unequivocally admit the "loss leader" RFA's. The ensuing language of the order indicates the court based that finding on Fry's clarification that it sold items below cost "for a variety of legally proper reasons." At oral argument on the motion, Fry's counsel "accept[ed] the imposition of the burden on Fry's," and argued that Fry's had established good reason to deny the RFA's. Notwithstanding certain remarks by the court suggesting it viewed Apex as having the burden on the motion,[4] the written order ultimately entered on Apex's motion for cost of proof sanctions shows the court denied the motion based on Fry's showing that its denials were reasonable rather than Apex's failure to show otherwise. Thus, assuming it was Fry's burden to show its denials of the subject RFA's were reasonable, we conclude Fry's met that burden.

Regarding the court's statement that "[t]he term 'loss leader' can have a negative connotation of unlawfully selling an item below cost," Apex contends it is improper to deny an RFA on the ground its admission may carry "negative connotations." We view the issue raised by Apex as being whether it was reasonable for Fry's to deny selling "loss leaders" by explaining why the negative connotations of the term, as it was defined in the RFA's, did not apply to those sales.

In RFA Nos. 17 and 19, Apex defined the term "loss leader" as any item sold at less than cost "[w]here the purpose is to induce, promote or encourage the purchase of other merchandise." (§ 17030, subd. (a).) Fry's could reasonably view these RFA's as having a negative connotation in that they asked Fry's to admit it sold loss leaders for the sole purpose of inducing, promoting or encouraging the purchase of other merchandise. To the extent RFA Nos. 17 and 19 do not carry negative connotations, Fry's could still reasonably deny them on the ground it had other legitimate purposes for selling goods below cost.

In RFA Nos. 18 and 20, Apex defined the term "loss leader" as any item sold at less than cost "[w]here the effect is to divert trade from or otherwise injure competitors." (§ 17030, subd. (c).)! This definition clearly has negative connotations and, considering that Fry's was asked to admit or deny selling loss leaders under that definition, we conclude Fry's denial and accompanying explanation were reasonable.

Fry's denial of RFA Nos. 18 and 20 was reasonable for the additional reason that those RFA's were improper compound requests. Former CCP 2033, subdivision (c) (5) (now Code of Civil Procedure section 2033.060, subdivision (f)) prohibits RFA's from, among other things, containing subparts or compound requests. In People ex rel. Dept. of Transportation v. Ad Way Signs, Inc. (1993) 14 Cal.App.4th 187, the California Department of Transportation obtained a summary judgment on its declaratory relief claim that the defendant's billboard was placed and maintained in violation of permit requirements of the California Outdoor Advertising Act (Bus. & Prof. Code, § 5200 et seq.). The Court of Appeal reversed, in part because the summary judgment was based on an admission in response to an improper compound RFA. The court explained: "The first clause of the [RFA] pertained to matters within appellant's personal knowledge, namely, whether Ad Way moved the display in December 1981. The second clause, however, asked appellant to admit the legal effect of action Caltrans claims to have taken at some unspecified date and time in regard to the permit. Specifically, Caltrans presented appellant with the statement, 'thereafter, State Permit No. 21502 was cancelled by plaintiff.' " (People ex rel. Dept. of Transportation v. Ad Way Signs, Inc., supra, at p. 200, italics added.)

RFA Nos. 18 and 20 are similarly compound, as they requested Fry's to admit to selling loss leaders – a matter within Fry's personal knowledge – and to also admit the effect of its action on unspecified competitors at unspecified times (i.e., that the effect of its actions was to divert trade from or otherwise injure competitors). Because the second part of the request asked Fry's to admit to a matter that could not be presumed to be within its personal knowledge, Fry's denial of RFA Nos. 18 and 20 was reasonable.

The court did not exceed the bounds of reason in finding Fry's reasonably refused to unequivocally admit RFA Nos. 17 through 20 and, accordingly, denying Apex's motion for cost of proof sanctions.

IV

FRY'S APPEAL

A. The Court Did Not Err in Permanently Enjoining Fry's from Violating Section 17504

The judgment states that the court "found in favor of [Apex] and against Defendants Fry's and Randy Fry on both the Second and Third causes of action by granting the injunction sought relative to Business and Professions Code Section 17504."[5] The judgment permanently enjoins Fry's and Randy Fry "from advertising any consumer goods for sale at a single unit price where the goods are sold only in multiple units and not in single units unless the advertisement also discloses, at least as prominently, the price of the minimum multiple unit in which they are offered. No restitution shall be ordered in connection with the Court's issuance of this injunction." Fry's contends the permanent injunction should be reversed because (1) section 17504, subdivision (b) does not require the multiple unit price to be displayed at least as prominently as the single unit price and (2) there is insufficient evidence that continued violations of section 17504 were likely to occur.

" 'A permanent injunction is a determination on the merits that a plaintiff has prevailed on a cause of action . . . against a defendant and that equitable relief is appropriate.' [Citation.] The grant or denial of a permanent injunction rests within the trial court's sound discretion and will not be disturbed on appeal absent a showing of a clear abuse of discretion. [Citation.] The exercise of discretion must be supported by the evidence and, 'to the extent the trial court had to review the evidence to resolve disputed factual issues, and draw inferences from the presented facts, [we] review such factual findings under a substantial evidence standard.' [Citation.] We resolve all factual conflicts and questions of credibility in favor of the prevailing party and indulge all reasonable inferences to support the trial court's order. [Citation.]" (Horsford v. Board of Trustees of California State University (2005) 132 Cal.App.4th 359, 390.) "[A] court's power to grant injunctive relief to prevent future unfair business practices is ' "extraordinarily broad. " ' [Citation.]" (People v. First Federal Credit Corp. (2002)

104 Cal.App.4th 721, 735-736.)

1. Construction of section 17504, subdivision (b)

Fry's contends the court erred as a matter of law in determining that section 17504, subdivision (b) requires the multiple unit price to be displayed at least as prominently as the single unit price. Fry's argues that section 17504, subdivision (b) does not create a standard of false advertising apart from section 17500, but rather merely creates a safe harbor provision. Fry's reasons that under section 17504, subdivision (b), the display of the single unit price in an advertisement of a multiple unit item cannot form the basis of false advertising under section 17500 if the advertisement also displays, at least as prominently, the minimum multiple unit price. For advertisements that do not display the minimum multiple unit price as prominently as the single unit price or, in Fry's words, advertisements that fall outside the safe harbor provision of section 17504, subdivision (b), Fry's argues there is no liability unless the plaintiff proves the advertisement's display of the single unit price constitutes false advertising or unfair competition. Fry's contends there was no evidence here that its advertisements of multiple unit goods constituted false advertising or unfair competition.

Fry's further argues that section 17504, subdivision (b) could reasonably be interpreted as prohibiting a retail seller from advertising a single unit price more prominently than the multiple unit price only if some other statutory provision prohibited retailers from advertising the single unit price of a multiple unit item. If there were such a provision, Fry's argues, section 17504, subdivision (b) could be reasonably construed as providing an exception to the statutory prohibition. Fry's reasons that because there is no general statutory prohibition against a retail seller advertising the single unit price of a multiple unit good, the only statutory restrictions against such advertising are the general prohibition against false advertising in section 17500 and the unfair competition provisions of section 17200.

Fry's interpretation of section 17504, subdivision (b) does not accord with the plain meaning of the subdivision's language. Section 17504, subdivision (b) states, in essence, that subdivision (a) does not "prohibit a retail seller from advertising any consumer good or service for sale at a single unit price where the goods . . . are sold only in multiple units . . . as long as the as the advertisement also discloses, at least as prominently, the price of the minimum unit in which they are offered." (Italics added.) The necessary corollary of this language is that subdivision (a) does prohibit a retail seller from advertising any consumer good or service for sale at a single unit price where the goods are sold only in multiple units if the advertisement does not disclose, at least as prominently, the price of the minimum unit in which they are offered. The court did not erroneously construe section 17504, subdivision (b).[6]

2. Sufficiency of the evidence

We reject Fry's contention that the injunction portion of the judgment must be reversed because there is insufficient evidence that continued violations of section 17504 were likely to occur. "The injunctive remedy should not be exercised 'in the absence of any evidence that the acts are likely to be repeated in the future. [Citation.]' Injunctive relief can be denied where the defendant voluntarily discontinues the wrongful conduct. [Citation.]" (Cisneros v. U.D. Registry, Inc. (1995) 39 Cal.App.4th 548, 574, quoting Mallon v. City of Long Beach (1958) 164 Cal.App.2d 178, 190.)

Here, the court in its statement of decision noted it had ruled in Apex's favor on the section 17504 issue in its order on a motion for summary adjudication. The court was referring to its order granting Apex's motion for summary adjudication of defendants' 22nd and 24th affirmative defenses to Apex's third cause of action for unfair competition to the extent the cause of action was based on violation of section 17504. The 22nd affirmative defense alleged that "any purported wrongful acts by Defendants have ceased and there is no reasonable likelihood that such acts will reoccur." The 24th affirmative defense alleged that "the purported conduct of Defendants complied with applicable law; therefore, the conduct was neither unfair nor unlawful." The court ruled that certain advertisements of Fry's presented in support of Apex's motion violated section 17504 on their face because they prominently displayed a single unit price and stated a minimum multiple unit price in significantly smaller print. The court ruled that a declaration by Kolder failed to raise a triable issue of fact as to either defense because it "confirms that this practice is ongoing."

In its statement of decision after trial, the court correctly noted that evidence presented to the jury "showed that even after the Court's ruling in favor of the plaintiff on the Section 17504 issue, the corporate defendant had on two occasions advertised in ways the Court had previously found inappropriate." The court also correctly noted that although Kolder had directed that, in the court's words, "the font size for the individual unit [price] as well as the bundled unit [price] be the same in the advertisement of products[,]" Kolder could not recall whether she directed that the two prices be printed in the same color, and she testified that she did not tell the purchasing managers anything about the use of bursts.[7] The court further noted Kolder's testimony that a burst is used in an advertisement to draw attention and that Fry's had "no policy on whether a single unit price should be bursted while the bundle price is not." The court found Apex met its burden of proving Fry's violated section 17504 by not disclosing the minimum multiple unit pricing "at least as prominently" as the single unit pricing. The court also found that "in light of the evidence presented, . . . the acts are likely to recur." "

We conclude substantial evidence supports these findings.[8] The court could reasonably conclude that Fry's use of bursts in the advertisements in question violated section 17504's requirement that multiple unit prices be disclosed "at least as prominently as" single unit prices. Based on Kolder's testimony that Fry's lacked a policy against such use of bursts and the evidence of Fry's violations of section 17504 after the court's summary adjudication ruling on the issue, the court could reasonably find that violations of section 17504 by Fry's were likely to recur. We find no abuse of the court's broad discretion to grant injunctive relief to prevent future unfair business practices.

DISPOSITION

Apex's request for judicial notice is denied. Fry's request that we not consider Apex's lodged exhibits is denied. The judgment is reversed as to the adjudication of Apex's fourth cause of action for intentional interference with prospective economic advantage in favor of Fry's. The judgment is otherwise affirmed. The orders denying Apex's motion for JNOV as to its first cause of action and denying Apex's motion for cost of proof sanctions are affirmed. The parties are to bear their own costs on appeal.

NARES, J.

WE CONCUR:

BENKE, Acting P. J.

IRION, J.

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[1] Apex states in its opening brief: "[T]he issue presented here is not APEX's entitlement to . . . [CCP] § 2033[, subdivision] (o) costs of proof. The questions are, who bears the burden of proof in making and defending such a motion, and what are those burdens?"

[2] The interrogatory reference is to Judicial Council form interrogatory No. 17.1 which accompanies RFA's and asks the responding party to state, among other things, all facts upon which the party bases the response if the response is other than an unqualified admission.

[3] As to each of Apex's RFA Nos. 17 through 20, Fry's stated the following in its response to interrogatory No. 17.1: "To the extent that Fry's has ever sold below some measure of cost, such sale was done in good faith and for legitimate and lawful business purposes. For example and not by way of limitation: 1) Fry's competes with numerous others, and Fry's will lower its prices to match a competitor's price. 2) Fry's reduces prices at times below some measure of its cost, in order to stimulate interest in its stores and attract new and additional customers for the many and diverse products sold by Fry's. 3) Fry's does not sell goods below an appropriate measure of its costs. 4) Fry's sometimes reduces the price of merchandise that does not sell within Fry's initial time projections in order to reduce inventory. 5) Fry's always advertises merchandise at competitive prices with the intention of selling those items."

[4] For example, the court stated at oral argument: "I'm not convinced the plaintiff has shown that the four factors under [CCP section] 2033[, subdivision] (o) applies [sic] here. And in that regard, I'm not convinced that Fry's acted unreasonably."

[5] Section 17504 provides, in relevant part: "(a) Any person, partnership, corporation, firm, joint stock company, association, or organization engaged in business in this state as a retail seller who sells any consumer good or service which is sold only in multiple units and which is advertised by price shall advertise those goods or services at the price of the minimum multiple unit in which they are offered. [¶] (b) Nothing contained in subdivision (a) shall prohibit a retail seller from advertising any consumer good or service for sale at a single unit price where the goods or services are sold only in multiple units and not in single units as long as the advertisement also discloses, at least as prominently, the price of the minimum multiple unit in which they are offered."

[6] In any event, whether Fry's failure to display a minimum unit price at least as prominently as the item's multiple unit price is deemed a violation of section 17504, subdivision (b) or simply false or misleading advertising under section 17500, the conduct is unlawful and subject to being enjoined under section 17203.

[7] Kolder described "bursts" as "those starry things" that contain "little additional blurbs" to draw the reader's attention to the contents of the burst.

[8] Kolder admitted to being aware of the court's summary adjudication ruling on the issue of section 17504. She testified that Fry's changed its advertising to make the "individual price type font . . . the same size as the multiunit type font." Kolder was shown an offending advertisement and admitted it was published after the change in advertising that she testified to implementing. She admitted Fry's used bursts and had no policy as to whether the single unit price of a multiple-unit item would be placed inside a burst, and she identified several advertisements by Fry's in which bursts were used in that way.