Arizona courts cannot order stores that post the wrong prices on items offered for sale to surrender their wrongfully obtained profits, the state Supreme Court ruled last week.
In a unanimous ruling on May 15, the justices said there are various remedies under the Consumer Fraud Act for stores that fail to comply with a state law that mandates shelf tags or other signs with accurate prices near the items being offered for sale. These include fines and reimbursement of affected consumers.
But Justice Andrew Hurwitz, writing for the court, said taking away their profits is not one of them. He said if the Legislature had wanted to allow what is known as “disgorgement” of ill-gotten profits, it would have made that part of the law.
Last week’s ruling is at least a partial victory for AutoZone, which has been fighting with the state Attorney General’s Office in court now for six years. But the decision did not go entirely in its favor.
Hurwitz rejected arguments by attorneys for the auto parts retailer that it can be found liable for defrauding consumers only if the state can prove the company purposely mispriced the items or deliberately did not post price tags. He said the state need not show intent if there is proof a retailer had a “practice” of mispriced and unpriced items.
That part of the ruling is also a setback for the Arizona Retailers Association, which had intervened in the case on their behalf because of the implications of the legal fight on merchants. Attorney Tim Berg who represents the retailers said, though, there are still some glimmers of hope that the decision will not subject retailers to the stiff fines available under the Consumer Fraud Act, even if there are multiple violations.
“What the case kind of leaves open is how many omissions are a ‘practice,’” he said of the ruling.
“If you have 100 in a single day, is it a practice?” Berg continued.
“I kind of think not,” he said. “But the court doesn’t tell you how many times.”
Berg also said he believes that any violations probably have to occur over some period of time rather than on a single day to be considered a practice. But that, too, was not spelled out in last week’s ruling.
At the root of the dispute is a 1993 law requiring price posting.
Arizona used to require that prices be stamped on each item. But state legislators, responding to retailer complaints of costs, and noting the availability of scanners, agreed to scrap that mandate.
In exchange, however, stores agreed to abide by new laws that require the price of every item to be posted on the shelf or near each display.
And the prices that are run up by the scanners at each register must match those shelf prices.
During a five-year period beginning in 2001, the state Department of Weights and Measures levied fines of $170,000 against AutoZone after finding repeated violations at its more than 90 stores in Arizona.
In 2006, though, then-Attorney General Terry Goddard filed suit. He said the fines apparently have failed to motivate the firm to comply with the law.
His ammunition was the state’s Consumer Fraud Act, which carries penalties of $10,000 per violation. That could add up to real money, with the state alleging 806 incidents of mispriced items and 2,814 items with no price at all, something Goddard called “systematic fraud against the consumer.”
But Goddard also sought to force AutoZone to surrender any profits it made from the unpriced and mispriced items. Last week’s ruling takes that option off the table.
Despite that, Tom Horne, who inherited the case after he was elected in 2010, minimized the significance of that restriction.
“We still have a right to penalties,” he said, including that $10,000-per-violation fine.
Hurwitz said there is another remedy if the state believes even that fine will be insufficient to penalize a company for violating the law. It can seek reimbursement of the consumers who were overcharged.
In fact, the original lawsuit had sought such relief. But Horne said that, in this kind of case, such a demand made little sense as there would be no way to identify individual consumers who paid more than they should have been charged.
Last week’s ruling is far from the last word. Instead, it sends the case back to a trial judge who will now hear the evidence the state has of violations.