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More Pricing Litigation On The Docket In 2017
The current wave of retail pricing litigation began nearly three years ago, and has already targeted more than 60 retailers in more
than 100 lawsuits. Very few of these cases have progressed past the pleadings stage. Thus, hundreds of retailers (both those
involved in the litigation, and those trying to avoid it) have been forced to make important business decisions about their pricing
without any court guidance as to how these cases will or should actually play out.
2017 will hopefully bring some long-awaited answers. Several cases are currently on appeal, numerous cases are gearing up for or
have already begun the class certification and summary judgment phases, and a handful of cases are slated for trial. Moreover, at
least ten cases have motions to dismiss pending, which could also change the tide of the still somewhat-limited case law.
Below, we summarize the evolution of deceptive pricing litigation and set forth several ways that the litigation will likely develop
further in the coming year.
The Last Three Years of Pricing Litigation
In January 2014, four U.S. senators sent a letter to the Federal Trade Commission asking the agency to look into claims that
merchants may be selling lower quality items produced specifically for outlet stores, without properly informing consumers about
the difference between those items and the higher-quality products found in regular retail stores. In summer 2014, the first
smattering of suits was filed against outlet-style retailers, including Saks Off Fifth, Nordstrom Rack, Neiman Marcus Last Call,
Ralph Lauren Factory Store and Michael Kors Outlet.
At the time, it was unclear how courts would respond to the plaintiffs’ claims that “Compare At” or MSRP are deceptive.
Michael Kors settled its case straight out the gate for nearly $5 million, and the cases against Ralph Lauren and Saks were
voluntarily dismissed.
In spring 2015, motions to dismiss were granted in Branca v. Nordstrom and Rubenstein v. Neiman Marcus, based on the courts’
finding that the plaintiffs had failed to adequately allege that reasonable consumers would be misled by the retailers’ “Compare
At” and “Compared To” pricing. Soon after, another motion to dismiss was granted in Rubenstein, and the case was dismissed
with prejudice (an appeal is pending, as discussed further below).
Many retailers were hopeful that the language in these opinions — including that reasonable consumers would most likely
interpret the retailers’ use of “Compare At” as reflecting a comparison to non-identical merchandise — would put an end to the
deceptive pricing litigation. Just months after the Branca and Rubenstein decisions were issued, however, in July 2015, a new
series of lawsuits was filed against several discount retailers known for “Compare At” pricing, such as Ross and Burlington Coat
Factory.
These retailers all filed motions to dismiss, relying heavily on Branca and Rubenstein. Although motions to dismiss were granted
in some of these cases, several courts (including Judge Otero, who decided Rubenstein), denied the retailers’ motions. Around the
same time, the court in Branca denied Nordstrom’s motion to dismiss the plaintiff’s amended complaint; plaintiffs jumped on
Branca II as a basis on which to distinguish the previous decision. And then, in a two-week period beginning in late October
2015, Tween Brands and J.C. Penney settled their deceptive pricing cases for $50 million each.
In the six months after the motions for preliminary settlement approval were filed in Spann v. J.C. Penney and Rougvie v. Tween
Brands, the number of deceptive pricing cases more than doubled, and the number of firms bringing these cases almost tripled.
Originally published on Law360, February 24, 2017. Posted with permission.(subscription required)
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Notably, both Spann and Rougvie involved “perpetual sales” claims — rather than allegations of false “Compare At” prices —
based on the allegation that the retailer perpetually offers items at a discount from the listed “original” price, thereby making the
listed “original” price deceptive.
Not surprisingly, most of the suits filed after Spann and Rougvie incorporated perpetual sales claims, alleging, for example, both
that the outlet’s price comparisons are deceptive (the classic “Compare At” claim), and that the listed offer prices are deceptive,
because the store constantly offers customers some percentage off that amount.
Relying on Branca I and Rubenstein and their progeny, several courts have dismissed complaints for failing to allege factual
support for their claims that a given reference price is deceptive. Several of these cases have followed the same trajectory as Branca,
however: after the original complaint was dismissed for failure to state a claim, the plaintiff amended her complaint to add the
necessary factual support for her claims, and the court denied the subsequent motion to dismiss.
A few outlier decisions have rejected the strict pleading standard used in Branca I and Rubenstein, allowing the plaintiff to state a
claim without any facts to support her claim that the retailer’s pricing is inaccurate.
Very few of these cases have progressed past the pleadings stage. Plaintiffs have voluntarily dismissed several cases, often after the
defendant introduced evidence showing that the price was in fact accurate, that the alleged purchase never actually took place, or
that the plaintiff had manufactured a claim.
Additionally, several retailers have opted to settle rather than defend these cases after their motions to dismiss were denied.
Burlington Coat Factory’s experience shows that even settlement is not necessarily a clear path out of this litigation. On May 9,
2016, Burlington Coat Factory agreed to pay up to $29.62 million to settle a suit targeting its “Compare At” pricing. The court
denied the parties’ motion for preliminary approval on June 20, 2016; the parties filed an amended motion with a revised
settlement agreement, but that was similarly denied on Oct. 27, 2016.
The parties filed yet another amended settlement agreement on Dec. 6, 2016, this time offering class members the option of
redeeming their $7.50 merchandise credit vouchers for cash. Preliminary approval was granted on Jan. 26, 2017.
Class Certification and Summary Judgment Are Largely New Territory
The few cases that have reached the later stages have reached conflicting results.
On the one hand, in Spann v. J.C. Penney, Judge Olguin of the Central District of California denied J.C. Penney’s motion for
summary judgment in March 2015, ruling that regardless of whether the items plaintiff purchased were actually worth the
amount she paid for them, the plaintiff would be entitled to relief if she could prove that she would not have purchased items
from the retailer if she had known that their advertised price comparisons were inaccurate.
Two months later, the court granted the plaintiff’s motion for class certification, recognizing three possible restitutionary models:
(1) “complete restitution, measured by the full purchase price paid” (full refund model); (2) “restitution based on the false
‘transaction value’ promised by J.C.Penney” (the percentage of the promised discount, applied to the amount paid); or (3)
“restitution measured by the net profits that J.C. Penney received from sales of its products based on deceptive price
comparisons” (profit disgorgement).
In Russell v. Kohl’s and Chowning v. Kohl’s, on the other hand, Judge Klausner, also of the Central District, reached the opposite
outcomes as to both class certification and summary judgment. In Russell v. Kohl’s, on Dec. 4, 2015, Klausner denied the
plaintiff’s motion for class certification as to restitution, finding that the “restitution inquiry is highly individualized”:
“Circumstances such as whether a class member used coupons, how many products she purchased, which products she
purchased, and the disparity between the stated and actual ARP on those specific products will drive the determination of any
restitution award.”
The court scolded the plaintiff for “flit[ting] between numerous theories of restitution (disgorgement, rescission with restitution,
false discount value),” without explaining in-depth or introducing an expert to show how any single theory would be appropriate.
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In Chowning, on March 15, 2016, Klausner specifically rejected each of the restitutionary models used in Spann (and referenced
in the class certification motion in Russell) in his order granting summary judgment in favor of the defendant as to restitution.
The court explained that none of the restitutionary models proposed by the plaintiff accounted for the value received by the
plaintiff in the form of the purchased product.
The court said that where the value of an item exceeds the amount a consumer paid for it, the consumer would not be entitled to
restitution:
[A] retailer can continue to advertise with false “original prices” and remain immune from paying restitution as long as the retail
value of the items is higher than the price charged. For instance, a retailer can sell an item for $35 dollars between January and
March, then advertise in April that the item has an ‘original price’ of $80 but is now on sale for $30. Even though the item never
sold for $80, the retailer can evade restitution under the price/value differential measure simply by arguing that, despite the
misrepresentation, the value of the item ($35) exceeded the price consumers paid ($30).
We are not aware of any other class certification or summary judgment motions to be decided in this wave of litigation. This will
change in 2017 — at least eight cases are already slated to reach the summary judgment, class certification, and/or even trial
stages in the upcoming year.
Motions for class certification have already been filed in Knapp v. Art.com (the parties subsequently filed a notice of settlement)
and Stathakos v. Columbia. Not surprisingly, the plaintiffs in both cases urged the court to adopt the Spann court’s approach
rather than Judge Klausner’s.
In Stathakos, Columbia filed its opposition and cross-motion for summary judgment on Jan. 31, 2017. Columbia urged the court
to follow Chowning instead of Spann, arguing that Spann runs counter to the California Court of Appeal’s decision in In re
Tobacco II, where the court explained that that where the consumer received something of value, the only “proper measure” of a
monetary award was price paid less value received.
The hearing in Stathakos is set for March 28, 2017.
Moving into 2017
There are numerous other ways this case law will progress in 2017.
First, according to the FTC’s Regulatory Review Schedule, the agency is scheduled to review its Guides Against Deceptive Pricing
(Guides) 2017. The Guides were originally set to be reviewed in 2012, but the FTC continued the review date. Courts have
generally found the current Guides very persuasive in these cases, and will likely be similarly persuaded (if not more so) by the
revised version.
Motions to dismiss are currently pending in more than ten cases. Many of these motions were filed many months ago. In Nunez
v. Saks Fifth Avenue, for example, Saks filed its motion to dismiss in mid-February 2016. Given that courts in this wave of
litigation have decided motions to dismiss in only about two dozen pricing cases, and that several of these cases have reached
divergent outcomes, these pending motions could change the course of these cases at the pleadings stage.
Additionally, several of these cases are currently on appeal. The appeal in Rubenstein v. Neiman Marcus was heard by the Ninth
Circuit on Feb. 17, 2017. At the oral argument (attended by the authors), Judge N. Randy Smith did not seem persuaded that
the plaintiff had pled enough facts to support his claim that Neiman Marcus Last Call’s “Compare To” pricing could reasonably
be interpreted by consumers as reflecting a former price; Judge Richard C. Tallman, by contrast, seemed very receptive to the
plaintiff’s argument that "Compare To" on its face could reasonably be interpreted to mean a former price at a full price Neiman
Marcus store.
Although the court will not necessarily decide whether “Compare To” or similar pricing is deceptive on its face, the decision will
likely offer a least some guidance for retailers who offer price comparisons. It is impossible to predict how quickly the court will
issue a decision, but the Ninth Circuit takes on average 20-40 days after oral argument to issue a decision.
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Judge Klausner’s decision in Chowning v. Kohl’s is also on appeal with the Ninth Circuit; the plaintiff’s opening brief is due
March 14, 2017, and Kohl’s answering brief is due April 13, 2017.
The First Circuit is also considering one of these cases, Shaulis v. Nordstrom, which involves claims that Nordstrom Rack’s
“Compare At” pricing is deceptive under Massachusetts law. The District of Massachusetts granted Nordstrom’s motion to
dismiss in August 2015, largely based on its finding that the plaintiff did not suffer actual damage: “In short, plaintiff’s subjective
belief that she did not receive a good value, without more, is not enough to establish the existence of a Chapter 93A injury.” Oral
argument was heard on Oct. 6, 2016.
The Sixth Circuit is also set to consider the pricing issue this year. In Gerboc v. ContextLogic Inc., the Northern District of Ohio
granted the defendant’s motion to dismiss the plaintiff’s unjust enrichment, fraud and class OCSPA claims after finding that
“Mr. Gerboc has not alleged any actual damages and the failure to allege ‘an injury above and beyond the reliance on the
misrepresentation itself is fatal’ to his fraud claim.”
This decision was in line with other decisions from Ohio district courts, which have dismissed plaintiffs’ claims for failing to
allege actual damage. On Nov. 17, 2016, the plaintiff in Gerboc filed a motion for entry of final judgment and for immediate
interlocutory appeal, claiming that “[c]ourts at both the state and federal level have varied significantly on the issue of damages in
these ‘fictitious sales’ claims.”
In support, the plaintiff cited two state court decisions where the courts refused to dismiss pricing claims based on injury-related
arguments. The Gerboc court granted the plaintiff’s motion for entry of final judgment, allowing the plaintiff to appeal its
decision granting the defendant's motion to dismiss. The plaintiff filed a Notice of Appeal to the Sixth Circuit on Dec. 19, 2016,
and filed his appellant brief on Feb. 13, 2017. ContextLogic’s response is due March 14, 2017.
Finally, People of California v. Overstock.com may be easy to forget, as it has been on appeal for nearly two years, with very little
movement. The suit arose in 2010, when a group of California district attorneys sued Overstock for listing as each product’s
reference price either the highest price that Overstock could find anywhere for the product or a price that was calculated by
multiplying the item’s wholesale cost by an arbitrary multiplier.
On Feb. 19, 2014, after a full bench trial, the Alameda County Superior Court held that Overstock’s pricing practices were
fraudulent and misleading, and ordered Overstock to pay $6.8 million in civil penalties ($3,500 for each day it used faulty price
comparisons). Overstock immediately filed an appeal, which the parties finished briefing in January 2015. Although Overstock
requested oral argument, oral argument has not yet been scheduled.
Conclusion
Deceptive pricing claims have the potential to target retailers of all sizes, and across all industries. As discussed above, 2017 will
see a number of big decisions in this area. In-house counsel should make sure to monitor these developments, and take steps to
assess and limit their business’s risk.
—By Stephanie Sheridan and Meegan Brooks, Sedgwick LLP
About the Authors
Stephanie A. Sheridan
Partner
San Francisco
415.781.7900
[email protected]
Stephanie Sheridan is a partner at Sedgwick LLP in San Francisco; her practice
concentrates on business and commercial litigation, with a distinct emphasis on
defending consumer class actions, product liability and matters involving California
Business & Professions Code Section 17200 and the Consumer Legal Remedies Act.
Meegan B. Brooks
Associate
San Francisco
415.781.7900
[email protected]
Meegan Brooks is an associate in Sedgwick’s San Francisco office, where she
practices commercial litigation, and represents international retailers in all
aspects of litigation.
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