Tuesday, September 30, 2008

Retailer’s Selling Returned Item as “New” Could Violate Texas Deceptive Trade Practices Law

This posting was written by Andrew Soubel, Editor of CCH State Unfair Trade Practices Law.

Although a consumer failed to state a Texas Deceptive Trade Practices—Consumer Protection Act (DTPA) claim for a retailer’s misleading statements about its reason for reducing the price of a grinder and for "bait advertising," the consumer successfully stated DTPA claims for the retailer’s nondisclosure of material information and for representing that the grinder was new when it had been returned.

The consumer alleged that the retailer violated the DTPA by reducing the price of the grinder without informing the consumer that the grinder had been purchased, returned, and refurbished. The consumer also alleged that the retailer knew or should have known that the grinder had not been reassembled properly.

When the customer used the grinder, the grinding wheel came off and ripped into his leg, causing a severe injury. The consumer eliminated any fact issues as to whether there was a price reduction when he incorporated the testimony of the retailer's representative, who stated that the purchase receipt revealed that the grinder was sold at full price.

The consumer failed to produce any evidence that the retailer made any misleading statements regarding a price reduction. Because there were no issues of material fact, the court dismissed the claim.
Bait Advertising

The complaint failed to allege facts sufficient to state a DTPA claim against the retailer for "bait advertising." Bait advertising is a practice by which a seller seeks to attract customers by advertising low prices for products that the seller does not intend to sell in more than nominal amounts. However, the court found the consumer failed to allege any evidence that he bought the grinder in reliance upon any advertising, much less "bait advertising."

Nondisclosures, Misrepresentations

Nevertheless, the consumer did state a DTPA claim against the retailer for not disclosing that the grinder had previously been purchased and returned. Under the DTPA, a deceptive act occurs if a defendant fails to disclose material information to a consumer. There must be an intent to induce the consumer into a transaction he would not otherwise have entered, and the defendant's actions must be the producing cause of an injury.

In this instance, there was sufficient evidence indicating that the grinder had been previously purchased and that the product was defective when sold. The consumer sufficiently alleged fact issues as to whether the retailer knew of the defect, whether the retailer intended to induce the consumer into the transaction, and whether the conduct was a producing cause of his injuries to state a claim, the court found.

Passing Off “Used” as “New”

Finally, the consumer alleged that the grinder was a returned item that had been disassembled and refurbished and that the retailer passed it off as new. It is a violation of the DTPA to represent that merchandise is original or new if it has been reconditioned, reclaimed, or used.

Texas had little case law addressing this section of the DTPA, but cases generally held that returned items that were subsequently sold as new fit the definition of "used." The court held that the consumer sufficiently raised fact issues as to whether the grinder was in fact a used item that was returned with a defect, whether the fact was material to the transaction, and whether the misrepresentation was a producing cause of the consumer's injuries to state a claim.

The decision is Jackson v. Wal-Mart Associates, Inc., CCH State Unfair Trade Practices Law ¶31,657.

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