Legal News of the Day

    One of the advantages of working from a home office is the number of distractions one can encounter.

    The news generally plays in the background; yes, I am a political junkie, but I also crank up the music when the world gets a bit too intense. Typically, I’m a country music fan but I also lean towards early jazz (Count Basie) and Big Band (Glenn Miller). AC/DC will also fill my speakers next to Five Finger Death Punch (content warning).

    Needless to say, there can be a lot going on in the background as I write, research and generally learn more about Ferrari - the car and history.

    Then something from the news catches my attention. One quick comment and it’s gone. Hey! Wait a minute. Did I just hear that?!

    A class action lawsuit has been filed in the state of California for business practices. It seems someone was denied a purchase because they had not previously purchased other items from that store.

    The condition of sale was predicated upon being deemed ‘worthy’ to purchase. This caught my eye, or ear, as was the case, and I had to investigate further.

    First, I should say I do not have a law degree. I did stay at a Holiday Inn Express once but that is no proof I know the law and I have tried most of my life to not be involved with the law. Civil or criminal. I’d like to keep it that way.

    With that said, what follows is a characterization of the actual class action lawsuit and my observations of that suit and how it may relate to Ferrari.

    The crux of the suit is as follows:

    A luxury brand manufacturer creates a product, and that product is sold in stores. The item itself is very high-end and limited in availability. Only a few are made, and the price reflects the quality.

    The product is so exclusive that only people who have previously made purchases of the lesser products this company sells could be considered as potential buyers.

    The company itself has operated for decades designing and manufacturing goods. Its image and reputation are well known and distinctive. It has expanded to locations around the world and sells its product directly to consumers.

    The company has forty-three stores in the USA with eight of those stores located in California.

    According to the lawsuit, “The desirability of… a symbol of rarefied wealth – is such that not even a global pandemic can dull demand for it. In the second quarter of 2021 … sales … more than doubled from a year ago and rose by 24% from their pre-pandemic June 2019 levels.”

    “Despite the price and exclusivity, … has become a household name and well known by the general public, both in name and by its distinctive design.”

    The court filing details the company and its practices. The case continues with the following:

    “The unique desirability, incredible demand and low supply of … gives Defendants incredible market power. Defendants implemented a scheme to exploit this market power by requiring consumers to purchase other, ancillary products from Defendants before they will be given an opportunity to purchase…. With this scheme Defendants were able to effectively increase the price … and, thus, the profits that Defendants earn…”

 

 

    “Sales Associates are tasked by Defendants with selecting those consumers who are qualified to purchase…These sales associates are directed by Defendants to only offer … to consumers who have established a sufficient ‘purchase history’ or ‘purchase profile’ with Defendants of Defendants’ ancillary products such as … Only once a consumer has a sufficient purchase history or purchase profile with Defendants, will the consumer be offered the opportunity to purchase a…”

    The impetus for the lawsuit began when the Plaintiffs attempted to make a purchase: “Plaintiff Cavalleri has spent tens of thousands of dollars at … and had been coerced into purchasing Ancillary Products in order to obtain access to … based on the practices alleged herein. In or about September 2022, Plaintiff contacted (the company) about purchasing another … but was told specialty … (products) are going to ‘clients who have been consistent in supporting our business.’ Plaintiff Cavalleri understood she would have to spend more on Ancillary Products to obtain access to another … As a result, Plaintiff Cavalleri was unable to purchase another … in September 2022.”

    “In or about 2023, Plaintiff Glinoga sought to purchase a …, but was counseled by Defendant’s sales associates to purchase Ancillary Products in order to potentially obtain a … Plaintiff Glinoga made multiple attempts to purchase … but was told on each occasion he needed to purchase other items and accessories. As a result, Plaintiff Glinoga was unable to purchase…”

    “Plaintiffs are informed and believes, and on that basis alleges, that Defendants tied Plaintiffs’ access to purchase … to a requirement that they spend more on other items, pursuant to the unlawful tying arrangement alleged herein.”

    As a class action lawsuit there are questions that must be answered to show the ‘class’ was damaged versus an individual. These questions are as follows:

    a.   “Whether the … and Defendants’ ancillary products are separate and distinct.

    b.   Whether Defendants implemented a policy to ensure that their sales associates would only sell … to consumers with a sufficient purchase history of Defendants’ ancillary products; and

    c.   Whether Defendants have sufficient economic power in the market for … to coerce at least some consumers into purchasing Defendants’ ancillary products.

    d.   Whether Defendants unlawfully tied the sale of… to the sale of ancillary products; and

    e.   Whether Plaintiffs and the members of the Class and Subclass have been damaged by the wrongs complained of herein, and if so, the measure of those damages and the nature and extent of other relief that should be afforded.”

    The lawsuit continues on to cite The Sherman Act, which prohibits “monopoliz[ation] of any part of the trade or commerce among the several states, or with foreign nations.” (15 U.S.C. §2). It then details the sales conditions outlined above and how the Defendant violated this act.

    It also details a violation of the Cartwright Act. California Business & Professions Code § 16700 et seq., which prohibits, inter alia, the combination of resources by two or more persons to restrain trade or commerce, or to prevent market competition. (Cal. Bus. & Prof. Code, §§ 16720, 16726).

    “Under the Cartwright Act, a ‘combination’ is formed when the anticompetitive conduct of a single firm coerces other market participants to involuntarily adhere to the anticompetitive scheme.”

    The Cartwright Act also makes it “unlawful for any person to lease or make a sale or contract for the sale of goods, merchandise, machinery, supplies, commodities for use within the State, or to fix a price charged therefor, or discount from, or rebate upon, such price, on the condition, agreement or understanding that the lessee or purchaser thereof shall not use or deal in the goods, merchandise, machinery, supplies, commodities, or services of a competitor or competitors of the lessor or seller, where the effect of such lease, sale, or contract for sale or such condition, agreement or understanding may be to substantially lessen competition or tend to create a monopoly in any line of trade or commerce in any section of the State.” (Cal. Bus. & Prof. Code, § 16727).

    “As detailed above, Defendants have unlawfully tied their (product) to their ancillary products through their sales associate incentive program.”

    And finally, a violation of California’s Unfair Competition Law Cal. Bus. & Prof. Code, § 17200, et seq.

    “Plaintiffs have standing to pursue this cause of action as Plaintiffs have suffered injury in fact and have lost money or property as a result of Defendants’ actions as delineated herein.”

    “Defendants’ scheme, as delineated herein, constitutes unlawful business practices in violation of California Business and Professions Code sections 17200, et seq.”

    “Accordingly, Defendants’ violated, and continues to violate, California Business and Professions Code section 17200’s proscription against engaging in unlawful business acts or practices.”

    “As a direct and proximate result of Defendants’ unlawful business practices, Plaintiffs and the Class have suffered injury in fact and lost money or property, in that they purchased ancillary products from Defendants that they did not want or could have purchased elsewhere.”

 

 

    I freely admit I have removed identifying references to the company named in the lawsuit. I find the premise interesting because it would appear there are parallels to the business practice of a certain automobile manufacturer.

    If you were to add the word ‘Ferrari’ in the missing spots it would almost describe what it is like to buy an exclusive item from them.

    In August 2016, I wrote “Man Bites Dog or Ferrari Gets Sued” about a lawsuit the late Preston Henn had brought for not being allowed to purchase a LaFerrari Aperta. His denial sparked the litigation and ultimately Henn dropped the suit. Maybe it was the two cars Ferrari may have ‘gifted’ him that helped  ease the pain.

    There is no denying to own a Ferrari is special, and exclusive. Because I’m at the center of history, information and yes, sometimes rumor, I get the chance to see and hear from many different people.

    I found this case to be fascinating and you can do your own research. The actual court filing can be found under Cavalleri et al v. Hermes International.

    Handbags are not Ferraris, but the sales aspect would appear to be similar. I think Ferrari would want to closely watch this case as it moves forward.

    One lawsuit in California will not change the entire sales philosophy of a company like Ferrari, but it could ultimately affect sales in California.

    Back to the news of the day.