PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT WORK PRODUCT
CALDERWOOD & HARKNESS LLP
INTERNAL MEMORANDUM
TO: File — C&H Matter No. 1038-00004
FROM: Patrick Gallagher and Simone Laroche, reviewed and approved by Alan Ngo
DATE: April 15, 2024
RE: Cascade Retail Holdings Inc. — Initial Assessment of Civil Investigative Demand and Consumer-Protection Inquiry by the Washington State Attorney General's Office
CLIENT: Cascade Retail Holdings Inc. (Nasdaq: CRHI)
CONTACT AT CLIENT: Diana Prescott-Levy, General Counsel; Terence Ashford, Chief Compliance Officer
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I. Executive Summary
Calderwood & Harkness LLP ("C&H" or the "Firm") was formally retained by Cascade Retail Holdings Inc. ("CRH" or "Cascade") on April 9, 2024, to represent CRH in connection with a consumer-protection inquiry initiated by the Washington State Attorney General's Office ("AG" or "AG's Office"), Consumer Protection Division. This memorandum sets forth our initial assessment of the matter, including the scope of the AG's Civil Investigative Demand, the applicable legal framework, CRH's potential exposure, and our recommended response strategy.
On March 26, 2024, the AG issued a Civil Investigative Demand ("CID") to CRH under the authority of RCW 19.86.110, seeking documents and information regarding CRH's use of "compare-at," "original price," and "was/now" reference pricing on its ecommerce platform (cascaderetail.com) and across its 187 brick-and-mortar retail locations in 14 western U.S. states. The CID is expansive, containing 23 document requests and 14 interrogatories, and targets CRH's pricing practices with particular emphasis on a promotional pricing initiative known as the "Smart Price" program.
The investigation appears to have been triggered by 147 consumer complaints filed with the AG's Office between January 2023 and February 2024, alleging that CRH displayed inflated "original" prices that did not reflect the actual prices at which merchandise was offered for sale in the regular course of business. The complaints span both CRH's online platform and its in-store signage.
The central focus of the AG's inquiry is CRH's "Smart Price" promotional program, which was launched on October 15, 2023. The Smart Price program uses algorithmically generated reference prices produced by a proprietary model developed by Praxton Analytics LLC ("Praxton"), a Seattle-based data analytics firm retained by CRH in 2023 for that purpose. The algorithm generates "compare-at" or "original" reference prices that are displayed alongside current sale prices on product pages and in-store price tags to communicate purported discounts to consumers.
The AG's preliminary analysis of 2,340 SKUs across the six product categories at issue found that 68.4% of those SKUs — 1,601 in total — displayed reference prices that exceeded the highest price at which the item had actually been offered during the preceding 90-day period. The average overstatement across the affected sample was 37.2%. These preliminary findings, if representative of the broader universe of SKUs bearing Smart Price designations, indicate significant deficiencies in the Praxton algorithm's methodology and create meaningful regulatory exposure for CRH.
Prior to C&H's engagement, CRH's regular outside regulatory counsel, Dunlap, Mercer & Fosse LLP ("DMF"), partner Nora Chisholm, was consulted early in the inquiry following receipt of the CID. DMF had previously advised CRH on compliance with the Federal Trade Commission's Guides Against Deceptive Pricing in 2022. C&H was formally engaged on April 9, 2024, to handle the matter going forward.
CRH is a Delaware corporation headquartered at 4500 Overlake Boulevard, Suite 800, Bellevue, WA 98004. CRH is publicly traded on Nasdaq under the ticker symbol CRHI and reported fiscal year 2023 revenue of $3.47 billion. As of March 2024, CRH's market capitalization was approximately $5.1 billion. The company's public status and the materiality of the investigation require careful consideration of disclosure obligations and market impact in addition to the direct regulatory exposure.
This memorandum provides our initial assessment of the CID's scope, the applicable legal framework under the Washington Consumer Protection Act and related federal guidance, CRH's liability exposure and mitigating factors, and our recommended response strategy. Based on our preliminary assessment, we recommend a cooperative posture toward the AG's investigation, proactive engagement with the AG's Office, prompt internal remediation of the Smart Price program, and pursuit of an Assurance of Voluntary Compliance as the preferred resolution pathway, with a target total financial resolution in the range of $3.0 million to $4.5 million.
II. Background
A. The Civil Investigative Demand
On March 26, 2024, the Consumer Protection Division of the Washington State Attorney General's Office issued a Civil Investigative Demand to Cascade Retail Holdings Inc. under the statutory authority of RCW 19.86.110. The CID is directed to CRH as a corporate entity and was served on CRH's registered agent for service of process in the State of Washington.
The AG personnel identified in the CID are as follows:
• Lead Assistant Attorney General: Meredith Calloway-Voss
• Investigating Assistant Attorney General: Jordan A. Kittridge
• Investigator: Sandra Pietsch
The AG's Office address listed on the CID is 800 Fifth Avenue, Suite 2000, Seattle, WA 98104. All correspondence and productions are to be directed to AAG Calloway-Voss at that address, with a copy to AAG Kittridge.
The CID contains 23 document requests and 14 interrogatories. The document requests span a range of subject matters, from CRH's internal pricing policies and procedures to transactional data, consumer complaint records, communications with third-party consultants, and board and management-level materials. The interrogatories seek detailed descriptions of CRH's reference-pricing methodology, identification of responsible personnel, and quantitative data regarding the scope of reference-pricing practices during the relevant period. A detailed analysis of each request and interrogatory is provided in Sections III and VII of this memorandum.
The CID specifies a return date of April 26, 2024, for the initial production of responsive documents, with interrogatory responses due on the same date. Given the volume of potentially responsive materials and the need for a thorough privilege review, we intend to propose a rolling production schedule to the AG's Office, with the first substantive production targeted for approximately April 23, 2024, and subsequent productions continuing through late May 2024. We anticipate that the AG's Office will be receptive to this approach provided CRH demonstrates a good-faith effort to comply in a timely manner.
B. The Consumer Complaints
The AG's investigation was precipitated by a significant volume of consumer complaints. Between January 2023 and February 2024, a total of 147 consumer complaints were filed with the AG's Office through the AG's consumer-protection complaint portal and by direct correspondence. These complaints allege, in substance, that CRH displayed inflated "original" or "compare-at" prices that did not reflect prices at which merchandise was actually offered for sale in the regular course of business.
The complaints span both CRH's online platform, cascaderetail.com, and its brick-and-mortar retail locations. A number of the complaints include screenshots from the CRH website showing product listings with "compare-at" prices significantly higher than the prices consumers reported having previously seen for the same products. Several complaints also describe in-store signage displaying "was/now" pricing that consumers believed to be inaccurate.
It is notable that the volume of complaints increased significantly following the October 15, 2023 launch of the Smart Price program. While some complaints predate the Smart Price launch and may relate to CRH's earlier, manual reference-pricing practices, the majority of the complaints appear to have been filed in the November 2023 through February 2024 period, coinciding with the period during which the Praxton algorithm was actively generating reference prices across CRH's product catalog. This temporal correlation is likely to feature prominently in the AG's case.
The nature and volume of these complaints provide the AG's Office with a strong factual basis for its investigation. Under Washington law, a pattern of consumer complaints demonstrating that a pricing practice has the capacity to deceive a substantial portion of the public is significant evidence of a potential violation of RCW 19.86.020. We note, however, that consumer complaints alone are not dispositive — the AG must still demonstrate through evidence that the reference prices at issue were, in fact, not bona fide former prices or otherwise did not accurately represent a legitimate basis for comparison.
C. Cascade's "Smart Price" Promotional Program
The centerpiece of the AG's investigation is CRH's "Smart Price" promotional program, which was launched on October 15, 2023. The Smart Price program replaced CRH's prior manual reference-pricing process with an automated, algorithmically driven system designed to generate "compare-at" or "original" reference prices for products across CRH's online and in-store channels.
The algorithm underlying the Smart Price program was developed by Praxton Analytics LLC, a data analytics firm based at 2020 Westlake Avenue N, Suite 310, Seattle, WA 98109. Praxton's principal and the designer of the proprietary model is Dr. Leila Farzan, a data scientist and pricing-analytics specialist. Praxton was retained by CRH in 2023 — we understand through the company's marketing and pricing strategy function, not at the direction of legal counsel — to build algorithmic reference-price models for CRH's ecommerce listings, with subsequent adaptation for in-store use.
The Smart Price algorithm generates "compare-at" or "original" reference prices that are displayed alongside current sale prices on product detail pages on cascaderetail.com and on in-store price tags and promotional signage. The visual presentation conveys a price discount to consumers by juxtaposing the reference price (displayed in a strikethrough font online, or as a "was" price on in-store tags) with the current sale price, along with a calculated savings percentage.
The precise methodology underlying Praxton's model is central to the AG's concerns and, accordingly, to our assessment. The key questions that the AG's investigation is likely to focus on include:
(a) What data inputs feed the Praxton algorithm — specifically, whether the algorithm relies on CRH's own historical actual offering prices, competitor prices, manufacturer suggested retail prices ("MSRP"), or some combination thereof;
(b) What lookback window the algorithm applies when determining a reference price — i.e., how far back in time the algorithm looks to identify a "former" price, and whether that lookback window is consistent with the requirement that the reference price reflect a genuine, bona fide price at which the product was offered for a reasonably substantial period of time;
(c) Whether the algorithm includes any validation or quality-assurance mechanism to ensure that the generated reference price actually corresponds to a price at which CRH offered the product; and
(d) Whether the algorithm accounts for regional pricing variations across CRH's 187 store locations, or whether it applies a uniform national reference price that may not reflect actual offering prices in all markets.
We do not yet have a complete understanding of the Praxton algorithm's methodology. Obtaining full documentation of the model from Dr. Farzan and her team is among our immediate priorities, as discussed in Section VIII below.
D. CRH's Prior Regulatory Counsel Involvement
CRH has a prior relationship with outside regulatory counsel on pricing-compliance matters. In 2022, CRH engaged Dunlap, Mercer & Fosse LLP ("DMF"), specifically partner Nora Chisholm (999 Fourth Avenue, Suite 3100, Seattle, WA 98104), to advise the company on compliance with the Federal Trade Commission's Guides Against Deceptive Pricing, 16 CFR Part 233. The scope of DMF's 2022 engagement included a review of CRH's then-existing reference-pricing practices and the preparation of compliance recommendations.
The existence of the 2022 DMF engagement is a double-edged sword. On one hand, it demonstrates CRH's good-faith effort to understand and comply with applicable pricing standards. On the other hand, it establishes that CRH was aware of the regulatory requirements governing reference pricing well before the Smart Price program was launched — and the AG may argue that CRH's subsequent adoption of an algorithm that generated noncompliant reference prices is more culpable in light of that awareness.
Following CRH's receipt of the CID on March 26, 2024, CRH initially consulted DMF partner Nora Chisholm for advice on the demand. DMF was involved in a preliminary capacity before the decision was made to engage C&H to handle the matter on a going-forward basis. C&H was formally engaged on April 9, 2024, pursuant to an engagement letter executed by Diana Prescott-Levy, General Counsel.
Communications between CRH and DMF regarding the 2022 FTC compliance review, as well as any communications with DMF following receipt of the CID, are potentially privileged and will need to be identified and logged as part of the document collection and production process. We address privilege considerations in greater detail in Section III.C below.
III. Scope and Analysis of the CID
A. Document Requests (23 Requests)
The CID contains 23 separate document requests, which we have grouped thematically below for purposes of analysis. The requests are broad in scope, spanning CRH's pricing policies, the Smart Price program, consumer-facing materials, complaint records, financial and transactional data, internal communications, third-party consultant materials, and board-level oversight materials. We address each thematic grouping in turn.
1. Pricing Policies and Procedures (Requests 1–4)
Requests 1 through 4 seek all internal policies, standard operating procedures, training materials, and written guidelines governing the setting of "original," "compare-at," "was," and "list" prices for products sold on cascaderetail.com and in CRH's retail store locations. These requests encompass both the current policies in effect and any prior versions of such policies, including those in effect before the launch of the Smart Price program. The requests also seek any documentation of changes made to pricing policies in connection with the Smart Price launch.
These requests are straightforward and should be fully responsive. CRH's compliance function, under the oversight of CCO Terence Ashford, should be able to identify the relevant policy documents with relative ease. We recommend producing all responsive policy documents without objection, subject to a privilege review of any documents reflecting legal advice embedded in policy guidance.
2. Smart Price Program Materials (Requests 5–9)
Requests 5 through 9 target the Smart Price program specifically. They seek all documents related to the conception, development, internal approval, launch, and ongoing operation of the Smart Price promotional program. This includes, but is not limited to:
• Business cases, proposals, and internal presentations prepared in connection with the development or approval of the Smart Price program;
• The contract and all amendments between CRH and Praxton Analytics LLC, including statements of work, service-level agreements, and any specifications or requirements documents provided to Praxton;
• All communications between CRH personnel and Praxton Analytics LLC regarding the design, testing, calibration, validation, and deployment of the algorithmic reference-price model;
• Technical specifications and documentation of the Praxton algorithm, including descriptions of data inputs, weighting methodologies, lookback windows, and output parameters;
• Testing and validation reports, including any pilot-program results or A/B testing conducted before or after the October 15, 2023 launch; and
• Internal presentations to CRH management or the CRH board of directors regarding the Smart Price program, its expected financial impact, and its operational performance.
These requests go to the heart of the AG's inquiry and will require careful attention. The Praxton contract and related communications are responsive and should be produced, though we note the privilege considerations discussed in Section III.C regarding whether any of the Praxton communications may be subject to protection. As discussed below, we believe the privilege argument is weak with respect to Praxton materials because Praxton was retained as a business consultant, not at the direction of or for the purpose of providing legal advice.
We recommend full production of responsive Smart Price program materials, subject to privilege review.
3. Consumer-Facing Advertising and Signage (Requests 10–12)
Requests 10 through 12 seek samples of consumer-facing materials displaying reference prices. Specifically, the requests seek:
• Representative samples of online product detail pages from cascaderetail.com displaying "compare-at," "original," or "was/now" pricing for products in the six identified product categories during the period October 15, 2023 through March 15, 2024;
• Copies of email marketing campaigns, digital advertisements, and social media advertisements referencing price discounts or savings based on reference-price comparisons during the same period; and
• Photographs or digital reproductions of in-store signage, shelf tags, and promotional displays bearing reference-pricing information, together with any internal guidelines governing the format and content of such signage.
Production of these materials will require coordination with CRH's marketing team and its content-management system administrators. Online product pages may be archived in CRH's content-management system, and email campaigns should be retrievable from CRH's email marketing platform. In-store signage may present a greater challenge, as physical signage may not be systematically archived. We will work with CRH to identify and collect whatever samples are available.
4. Consumer Complaints and Responses (Requests 13–14)
Requests 13 and 14 seek all internal records of consumer complaints regarding pricing or reference pricing, including complaints received through CRH's customer-service channels (phone, email, online chat, and social media), as well as CRH's responses to such complaints. The requests also seek any internal summaries, analyses, or reports regarding consumer complaints about pricing.
CRH's customer-service function should maintain records of consumer complaints in a customer-relationship management ("CRM") system. We will need to coordinate with CRH's IT and customer-service teams to extract complaint data related to pricing and reference-pricing issues. The volume of responsive complaints may be significant, as consumer complaints received directly by CRH may exceed the 147 complaints filed with the AG's Office.
These materials are directly relevant to the AG's investigation and should be produced in full.
5. Financial and Transactional Data (Requests 15–18)
Requests 15 through 18 seek point-of-sale data, pricing histories, and transactional records for SKUs in the six identified product categories. Specifically, the AG seeks:
• Historical pricing data for each SKU in the six categories sufficient to establish the actual prices at which each product was offered for sale — both online and in-store — during the period January 1, 2023 through March 15, 2024;
• Point-of-sale transaction data, including the sale price, date of sale, store location (for in-store transactions), and order identifier (for online transactions), for all transactions involving products bearing "compare-at" or "original" reference-price designations;
• Records of any price changes made to products in the six categories during the relevant period, including the date, the old price, the new price, and the reason for the change; and
• Gross merchandise sales data, broken down by product category, for the period October 15, 2023 through March 15, 2024, for products bearing reference-price designations.
These requests are data-intensive and will require extraction from CRH's point-of-sale and inventory-management systems. We have engaged Stormfield Document Solutions LLC (discussed below) to assist with data processing. The data is critical because it will allow the AG — and us — to verify whether the reference prices generated by the Praxton algorithm actually corresponded to prices at which CRH offered the products during the applicable lookback period.
We recommend full compliance with these requests, subject to reasonable objections regarding format and temporal scope, which we discuss in Section VII.
6. Internal Communications (Requests 19–20)
Requests 19 and 20 seek internal communications — including emails, memoranda, instant messages, and chat messages — among CRH personnel regarding reference-price setting, the Smart Price program, and any concerns about pricing accuracy. Request 19 specifically identifies the following custodians:
• Raymond Soo, Vice President, Marketing & Pricing Strategy;
• Members of the merchandising team;
• Members of the marketing team; and
• Any other personnel with responsibility for pricing strategy or the Smart Price program.
Request 20 seeks communications reflecting any internal concerns raised by CRH personnel about the accuracy or appropriateness of reference prices, including any communications with CRH's legal or compliance functions regarding such concerns.
These requests are significant from a liability standpoint. Internal communications expressing doubt about the accuracy of the Praxton algorithm's outputs or raising concerns about the legitimacy of reference prices would be highly damaging if they exist. Conversely, the absence of such communications — or the presence of communications reflecting genuine confidence in the algorithm's methodology — could support CRH's position that any noncompliance was inadvertent.
We will need to conduct custodial interviews with Raymond Soo and other key personnel to understand the scope of potentially responsive communications before finalizing our collection and production approach. We recommend full production of responsive, non-privileged communications.
7. Third-Party Consultant Materials (Requests 21–22)
Request 21 seeks all reports, analyses, deliverables, and work product from Praxton Analytics LLC relating to the algorithmic reference-price model, including the model's technical documentation, validation reports, and any recommendations made by Praxton regarding the model's design or implementation.
Request 22 broadens the scope to include materials from any other third-party consultants, advisors, or vendors engaged by CRH in connection with pricing strategy, reference-pricing practices, or pricing compliance.
These requests will encompass the Praxton engagement agreement and deliverables, as well as any materials from the 2022 DMF engagement relating to FTC pricing-guidance compliance. As noted, materials from the DMF engagement will be reviewed for privilege and logged accordingly.
8. Board and Management Materials (Request 23)
Request 23 seeks board presentations, executive committee materials, audit committee materials, and compliance reports referencing reference-pricing practices, the Smart Price program, or consumer complaints regarding pricing. This request is relevant to the AG's assessment of whether CRH's senior leadership was aware of potential issues with the Smart Price program and what, if any, governance and oversight mechanisms were in place.
We will coordinate with Diana Prescott-Levy to identify responsive board and committee materials. These materials should be produced, subject to privilege review, as they are directly relevant to the AG's inquiry and any withholding would undermine CRH's cooperative posture.
B. Interrogatories (14 Interrogatories)
The CID's 14 interrogatories seek detailed narrative responses and factual information regarding CRH's reference-pricing practices, the Smart Price program, and related compliance measures. The key interrogatories include the following:
Interrogatory 1 requests identification of all individuals with knowledge of or responsibility for reference-pricing practices at CRH, including each individual's name, title, department, and a description of their role in relation to reference pricing. This will require us to prepare a comprehensive list of relevant CRH personnel, which will also inform our custodial identification for document collection.
Interrogatory 2 requests a detailed description of the methodology used by Praxton Analytics' algorithm to generate reference prices, including the mathematical model, data inputs, weighting factors, and any assumptions built into the model. This interrogatory goes to the core of the AG's concerns and will require close coordination with Dr. Farzan and the Praxton team to formulate an accurate and complete response.
Interrogatory 3 requests identification of all data sources used by the Praxton algorithm in generating reference prices, including whether the algorithm uses CRH's own historical actual offering prices, competitor prices, manufacturer suggested retail prices, wholesale cost data, or other inputs.
Interrogatory 4 requests a description of the lookback window applied by the Praxton algorithm — i.e., the time period over which the algorithm examines historical pricing data to determine a reference price — and any variations in the lookback window by product category, season, or other factor.
Interrogatories 5 and 6 request the total number of SKUs displaying "compare-at" or "original" reference prices, broken down by product category and by sales channel (online vs. in-store), during the period October 15, 2023 through March 15, 2024.
Interrogatory 7 requests a description of CRH's internal quality-assurance or compliance-review processes for reference pricing, including any manual audits, automated checks, or exception-flagging mechanisms designed to identify potentially inaccurate reference prices.
Interrogatory 8 requests the total revenue and transaction volume attributable to products bearing reference-price displays during the period October 15, 2023 through March 15, 2024, broken down by product category.
Interrogatory 9 requests a description of any changes made to the Praxton algorithm or to CRH's reference-pricing practices since the receipt of the CID, including any adjustments made to the algorithm's methodology, data inputs, or lookback windows.
Interrogatory 10 requests identification of the person or persons within CRH who approved the launch of the Smart Price program and a description of the approval process, including what information was presented to decision-makers and what, if any, legal or compliance review was conducted prior to launch.
Interrogatories 11–13 request descriptions of CRH's pricing-compliance training programs, the role of the compliance function in overseeing reference-pricing practices, and the reporting relationship between the pricing and compliance functions.
Interrogatory 14 requests a description of any prior federal or state regulatory inquiries, investigations, or proceedings concerning CRH's pricing practices, including the outcome of any such matters. We are not aware of any prior enforcement actions against CRH on pricing issues, which is a favorable fact.
We recommend preparing thorough, accurate responses to all interrogatories, consistent with our cooperative posture. Responses should be drafted in close coordination with CRH personnel to ensure factual accuracy and should be reviewed for privilege implications before submission.
C. Privilege Considerations
The document collection and production process will require careful attention to privilege. We have identified the following categories of potentially privileged materials:
Communications with Dunlap, Mercer & Fosse LLP. The 2022 DMF engagement regarding FTC pricing-guidance compliance generated attorney-client privileged communications and attorney work product. These communications reflect legal advice provided by counsel regarding CRH's compliance with applicable pricing regulations and are protected by the attorney-client privilege and the work-product doctrine. Similarly, any communications between CRH and DMF following receipt of the CID in March 2024 are privileged. These materials should be withheld from production and logged on a privilege log.
Communications with Calderwood & Harkness LLP. All communications between CRH and C&H from the engagement date of April 9, 2024 onward are privileged, as are any pre-engagement communications made for the purpose of retaining C&H. These materials will be withheld and logged.
Internal legal department analyses. Communications involving CRH's in-house legal department — specifically General Counsel Diana Prescott-Levy and members of her team — that reflect the provision or receipt of legal advice are protected by the attorney-client privilege. However, we note that not all communications involving in-house counsel are privileged; communications in which counsel is acting in a business capacity rather than providing legal advice may not be protected. We will need to review these materials on a document-by-document basis.
Communications with Praxton Analytics LLC. We have assessed the potential for privilege protection over communications between CRH and Praxton Analytics LLC. In general, communications with third-party consultants are not protected by the attorney-client privilege unless the consultant was retained at the direction of counsel for the purpose of assisting counsel in providing legal advice. Here, Praxton was retained by CRH's marketing and pricing strategy function as a business consultant to build an algorithmic pricing model — not at the direction of counsel or for the purpose of providing legal advice. Accordingly, we believe that the privilege argument with respect to Praxton communications is weak, and we do not recommend asserting privilege over the Praxton materials. Any attempt to claim privilege over the Praxton materials would likely be challenged by the AG and could undermine CRH's credibility and cooperative posture.
We will prepare a detailed privilege log identifying all withheld documents, the basis for the privilege claim, and the information required under applicable law.
D. Document Collection and Production Plan
We have developed a document collection and production plan designed to enable timely, rolling production of responsive materials to the AG's Office. The key elements of the plan are as follows:
Custodians. We have identified the following initial custodians for document collection:
• Raymond Soo, Vice President, Marketing & Pricing Strategy
• Terence Ashford, Chief Compliance Officer
• Diana Prescott-Levy, General Counsel
• Members of the merchandising team (specific custodians to be identified through interviews)
• Members of the marketing team (specific custodians to be identified through interviews)
• CRH IT systems administrators (for system-level data extraction)
Additional custodians may be identified as the collection process proceeds and as we gain a better understanding of the relevant organizational structure through custodial interviews.
Electronic data sources. Responsive documents are expected to reside in the following electronic systems:
• CRH's enterprise email system (Microsoft / Exchange)
• Shared network drives and collaboration platforms (Aldermere Systems, Teams)
• The Smart Price platform database (Praxton-built system)
• The cascaderetail.com content-management system
• CRH's point-of-sale and inventory-management systems
• CRH's customer-relationship management (CRM) system (for complaint data)
• Board portal (for board and committee materials)
E-discovery Vendor. We have engaged Stormfield Document Solutions LLC, located at 820 SW Washington Street, Suite 450, Portland, OR 97205, as the e-discovery vendor for this matter. Stormfield will be responsible for data ingestion, processing, hosting, and production. Stormfield has been engaged by C&H and will operate under the Firm's direction; accordingly, Stormfield's work product in connection with this matter is protected by the work-product doctrine.
Rolling Production Schedule. We propose the following rolling production schedule:
• First production (target: April 23, 2024): Approximately 12,400 documents, consisting primarily of pricing policies and procedures, Smart Price program documentation, the Praxton contract and specifications, and consumer-facing advertising samples. This first production will demonstrate good-faith compliance and provide the AG's Office with a substantial body of responsive material.
• Second production (target: late May 2024): The remaining responsive documents, including transactional and financial data, internal communications, consumer complaint records, and board-level materials. This production will incorporate the results of custodial interviews and broader data extraction.
Estimated total production volume: We estimate that the total production will encompass approximately 20,000 to 25,000 documents. This estimate is preliminary and may be revised as the collection process proceeds.
We intend to communicate this proposed rolling schedule to the AG's Office promptly and to seek the AG's agreement to the schedule. We anticipate that a cooperative approach, coupled with a substantial initial production, will be well received.
IV. Legal Framework
A. Washington Consumer Protection Act — RCW 19.86 *et seq.*
The Washington Consumer Protection Act ("CPA"), codified at RCW 19.86 et seq., is the primary statutory authority under which the AG's investigation is proceeding. The CPA is a broad consumer-protection statute modeled on the Federal Trade Commission Act and is construed liberally to effectuate its purpose of protecting the public from unfair or deceptive business practices.
RCW 19.86.020 provides the operative prohibition: "Unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce are hereby declared unlawful." This provision is the foundation of the AG's inquiry into CRH's reference-pricing practices. The display of a fictitious or inflated former price as a basis for a price comparison — suggesting to consumers that they are receiving a discount from a genuine prior price when, in fact, the reference price does not reflect an actual, bona fide offering price — constitutes a deceptive act or practice within the meaning of RCW 19.86.020.
To establish a violation of RCW 19.86.020 in an enforcement action brought by the AG, the AG must demonstrate three elements:
(1) An unfair or deceptive act or practice;
(2) Occurring in trade or commerce; and
(3) Affecting the public interest.
The second and third elements are readily satisfied here: CRH's pricing practices occur in the course of retail trade and commerce, and a pattern of deceptive pricing affecting thousands of consumers across multiple product categories plainly affects the public interest.
The critical element is the first — whether CRH's reference-pricing practices constitute an "unfair or deceptive act or practice." Under Washington law, the standard is whether the practice "has the capacity to deceive a substantial portion of the public." Hangman Ridge Training Stables, Inc. v. Safeco Title Ins. Co., 105 Wn.2d 778, 785 (1986). This is an objective standard; the AG is not required to prove that CRH intended to deceive consumers. The focus is on the tendency or capacity of the practice to mislead, not on the actor's subjective intent.
Critically, the AG need not prove actual consumer reliance or individual consumer harm to establish a violation. The AG's burden is to show that the practice has the capacity to deceive, not that any particular consumer was actually deceived or suffered quantifiable damages. This significantly lowers the AG's evidentiary burden compared to a private consumer action.
The capacity-to-deceive standard is particularly relevant to CRH's situation. Even if CRH's pricing inaccuracies were the result of a technical flaw in the Praxton algorithm rather than a deliberate scheme to mislead consumers, the AG can establish a violation by showing that the inflated reference prices had the objective capacity to deceive consumers into believing they were receiving larger discounts than were actually being offered.
B. Civil Investigative Demand Authority — RCW 19.86.110
The AG's authority to issue the CID is grounded in RCW 19.86.110, which authorizes the Attorney General to issue civil investigative demands "whenever the attorney general has reason to believe that any person may be in possession, custody, or control of any original or copy of any book, record, report, memorandum, paper, communication, tabulation, map, chart, photograph, mechanical transcription, or other tangible document or recording" that the AG believes to be relevant to an investigation under the CPA.
Under this authority, CIDs may demand:
(a) Production of documentary material for inspection, copying, and analysis;
(b) Answers to written interrogatories; and
(c) Oral testimony under oath.
The statute provides that noncompliance with a CID may result in a petition by the AG to the superior court for an order compelling compliance. If CRH were to fail to respond adequately to the CID, the AG could seek judicial enforcement, which would compound the reputational and legal risk.
CRH has an obligation to respond to the CID in good faith, producing all responsive, non-privileged documents and providing complete and accurate interrogatory responses. A deficient or non-responsive production could be cited by the AG as evidence of non-cooperation and could negatively influence the AG's posture toward a negotiated resolution. Accordingly, as discussed throughout this memorandum, we strongly recommend a cooperative and thorough approach to CID compliance.
C. Remedies Available to the AG
The Washington CPA provides the AG with a range of remedial tools. Understanding the full scope of available remedies is essential to our assessment of CRH's exposure.
Injunctive Relief (RCW 19.86.080). The AG may bring an action in superior court to enjoin deceptive practices and to obtain restitution for affected consumers. An injunction could require CRH to cease using the current Smart Price reference-pricing methodology, to adopt specific pricing standards going forward, and to submit to ongoing compliance monitoring.
Civil Penalties (RCW 19.86.140). The AG may seek civil penalties of up to $7,500 per violation of RCW 19.86.020. The per-violation penalty structure creates the potential for enormous theoretical exposure in a case involving high-volume retail transactions. If each sale of a deceptively priced item is treated as a separate violation — which is the AG's typical position in retail pricing cases — then the total penalty exposure is a function of the number of affected transactions, which could number in the hundreds of thousands or millions over the relevant period. While courts retain discretion to impose penalties at levels below the statutory maximum, and the AG's Office typically negotiates penalties at levels well below the theoretical maximum in settlement, the statutory framework provides significant leverage.
Restitution. The AG may seek consumer restitution for consumers who purchased products bearing misleading reference-price designations. Restitution in reference-pricing cases is typically calculated based on the difference between the savings represented by the reference-price comparison and the actual savings (if any) available to consumers — in essence, the amount by which consumers were misled as to the value of the discount they received. The AG may seek restitution on an aggregate basis without requiring proof of individual consumer reliance.
Assurance of Voluntary Compliance (RCW 19.86.100). The AG may accept an Assurance of Voluntary Compliance ("AVC") from a person who has engaged in or is about to engage in a practice that violates the CPA. An AVC is a negotiated agreement between the respondent and the AG's Office, typically requiring the respondent to cease the offending practice, implement prospective compliance measures, and pay a financial component (which may include consumer restitution, a civil penalty, and AG costs). Importantly, an AVC is not an admission of a violation. However, an AVC may be filed with and enforced by the court as a consent decree; a subsequent violation of the AVC may subject the respondent to additional penalties.
Attorney's Fees and Investigative Costs. The AG may recover reasonable attorney's fees and investigative costs incurred in connection with the investigation and any enforcement action.
D. Federal Guidance — FTC Guides Against Deceptive Pricing (16 CFR Part 233)
While not directly binding as state law, the Federal Trade Commission's Guides Against Deceptive Pricing, codified at 16 CFR Part 233, provide an influential analytical framework that Washington courts and the AG's Office regularly look to in evaluating reference-pricing practices. The FTC Guides are particularly relevant to this matter because CRH's prior engagement of DMF in 2022 was specifically focused on compliance with these Guides.
The key principles of the FTC Guides relevant to CRH's situation are as follows:
Former Price Comparisons (16 CFR § 233.1). When a seller offers a reduction from its own former price, the former price must be the actual, bona fide price at which the article was offered to the public on a regular basis for a reasonably substantial period of time. If the former price was not genuine — for example, if the product was never actually offered at that price, or was offered at that price only for an insignificant period — then the reference to a "former" price is deceptive because it creates a false impression of a bargain.
Comparable Value Comparisons (16 CFR § 233.2). When a seller represents that its price is lower than a "comparable" or "compare-at" price charged by others, the seller must have a reasonable basis for the comparison — the "compare-at" price must genuinely reflect the price at which the article is being offered by others in the relevant market area.
Advertising "List" or "Suggested Retail" Prices (16 CFR § 233.3). A seller may not advertise a reduction from a manufacturer's list or suggested retail price if that list or suggested retail price does not correspond to the price at which the article is generally sold in the relevant market.
The AG's concern with CRH's Smart Price program appears to center primarily on the former-price and comparable-value principles. If the Praxton algorithm is generating reference prices based on MSRP, competitor list prices, or other sources that do not reflect CRH's own actual historical offering prices — or if the algorithm is using an inappropriately long or otherwise inadequate lookback window — then the resulting reference prices may violate both the FTC Guides and the Washington CPA's prohibition on deceptive pricing practices.
We note that CRH's prior engagement of DMF in 2022 to advise on FTC pricing-guidance compliance suggests that CRH was well aware of these standards at the time the Smart Price program was designed and launched. The AG may argue that CRH's decision to deploy an algorithm without adequate validation against these known standards was at best negligent and at worst willfully indifferent to the risk of noncompliance.
V. The AG's Preliminary Findings
A. Sample Analysis
The AG's Office, through Investigator Sandra Pietsch, conducted a preliminary analysis of CRH's reference-pricing practices during the period January 1, 2024 through March 15, 2024. The analysis examined a sample of 2,340 SKUs across the six product categories identified as the focus of the investigation. The sample was drawn from product listings on cascaderetail.com and from in-store price-tag data collected during undercover visits to CRH retail locations in the Seattle, Portland, and Boise metropolitan areas.
The AG's preliminary findings are as follows:
Finding 1: Of the 2,340 SKUs sampled, 1,601 SKUs (68.4%) displayed a "compare-at" or "original" reference price that exceeded the highest price at which the item had actually been offered for sale by CRH during the preceding 90-day period.
Finding 2: The reference prices displayed on the 1,601 affected SKUs were, on average, 37.2% above the actual highest offering price during the applicable 90-day lookback window.
Finding 3: In certain product categories — particularly women's apparel and consumer electronics accessories — the rate of overstatement exceeded 75%, with individual SKUs displaying reference prices as much as 85% above the actual highest offering price.
These findings are significant and, if representative of the broader universe of SKUs bearing Smart Price designations, indicate a systemic problem with the Praxton algorithm's methodology. A noncompliance rate of 68.4% across a sample of over 2,300 SKUs is not consistent with isolated errors or edge cases; it suggests a fundamental design flaw in the way the algorithm generates reference prices.
We note that the AG's methodology — using a 90-day lookback window and comparing the reference price against the highest actual offering price during that period — is a reasonable approach and is broadly consistent with the FTC Guides' requirement that a "former price" reflect a price at which the item was offered "for a reasonably substantial period of time." If the Praxton algorithm is using a lookback window shorter than 90 days, or is drawing on data sources other than CRH's own actual offering prices, the discrepancy between the AG's analysis and the algorithm's outputs would be explained.
We intend to conduct our own independent analysis of the same data set to verify the AG's findings and to understand the root cause of the overstatement. This analysis is an immediate priority.
B. Six Product Categories at Issue
The AG's investigation is focused on six product categories in which "compare-at" or "original" reference pricing was prominently displayed during the relevant period:
1. Women's apparel
2. Men's footwear
3. Home textiles
4. Small kitchen appliances
5. Outdoor furniture
6. Consumer electronics accessories
These categories were likely selected by the AG's Office for several reasons. First, they are categories in which "compare-at" reference pricing is commonly and prominently used in CRH's marketing — these are product categories where the display of a purported discount is a significant driver of consumer purchasing decisions. Second, the consumer complaints filed with the AG's Office disproportionately involved products in these categories. Third, these categories collectively represent a substantial share of CRH's merchandise sales and involve a large number of individual SKUs, providing a broad data set for analysis.
We note that the limitation of the investigation to six product categories is potentially favorable to CRH, as it narrows the scope of the inquiry relative to CRH's entire product catalog. However, if the AG's findings in these six categories reveal systemic issues with the Praxton algorithm, the AG may seek to expand the investigation to additional product categories. We should be prepared for that possibility.
C. Estimated Affected Transaction Volume