July 14, 2016
Buyers’ Remorse Part II: Deceptive
Pricing Litigation Against Retailers
By Seamus Duffy, Kate Gold, Meredith Slawe, Michael Stortz and Ginene Lewis
In September 2014, we wrote “Buyers’ Remorse:
Outlet Stores Under Fire,” highlighting a wave of
proposed class actions against retailers for alleged
deceptive pricing practices at outlet and factory
stores. These lawsuits generally allege that retailers
use a pricing technique at outlet stores to mislead
shoppers by suggesting that items sold at these
locations were originally advertised for sale at
higher prices in retail store locations. According
to this putative class of shoppers, the advertised
Manufacturer’s Suggested Retail Prices (MSRP)
or “Compare At” prices, together with discounted
“Now” prices, portray false savings to consumers
since the purportedly discounted items were
manufactured for exclusive sale at outlet stores
and always sold at the advertised “Now” prices.
This alleged false sense of savings purportedly
inspires shoppers to purchase more because they
think they are getting great deals. In bringing these
actions, plaintiffs commonly invoked California’s
Unfair Competition Law (UCL), False Advertising
Law (FAL), and the Consumer Legal Remedies Act
(CLRA).
pleading requirements for consumer protection
claims sounding in fraud. In Rubenstein v. Neiman
Marcus Grp. LLC, No. 14-cv-07155 (C.D. Cal.), the
Honorable S. James Otero allowed serial plaintiff
Linda Rubenstein two bites at the apple before
ultimately dismissing her lawsuit for failing to
plead with the requisite particularity that the
retailer used misleading advertising techniques for
its outlet store, Neiman Marcus Last Call (“Last
Call”). In dismissing the original complaint with
leave to amend, the court reasoned that, because
claims under UCL, FAL, and CLRA are subject to
the heightened pleading requirements of Federal
Rule of Civil Procedure 9(b), a plaintiff must allege
the “who, what, where, and how” of the alleged
misconduct. The court further explained that these
particular claims required the plaintiff to show
that reasonable consumers were likely deceived by
the listed “Compare To” prices on Last Call’s price
tags. In other words, conclusory allegations that
the individual plaintiff was personally misled by
alleged deceptive pricing were insufficient to meet
this “reasonable consumer” test.
Nearly two years after the first wave of cases,
it is worth taking stock of how these consumer
protection claims have been holding up in court.
While several actions settled before the courts could
weigh in on the merits of the claims, a few of these
cases offer insight into how courts are evaluating
deceptive pricing claims and what retailers can do
to shield against them.
Citing to the Federal Trade Commission’s Guides
Against Deceptive Pricing, the court concluded that
a reasonable consumer would most likely interpret
the “Compare To” language used in Last Call as
a “comparable value comparison” indicating that
merchandise of “like grade and quality” is sold
by Neiman Marcus or other retailers. The court
expressly rejected plaintiff’s contention that the
price comparison reasonably indicated that Neiman
Marcus’ flagship stores previously sold the exact
same items at a higher price. This interpretation,
according to the court, improperly characterized
the “Compare To” language as a “former price
comparison” which is generally indicated by
language such as “Formerly sold at $___” or “Were
$10, Now Only $7.50!”
“Compare At” Pricing Alone is
Insufficient to Support a Claim
for Relief
The biggest hurdle for a plaintiff to overcome
a motion to dismiss is meeting the heightened
Plaintiff later filed an amended complaint, arguing that Last
Call’s “Compare To” prices, coupled with the appearance
of Neiman Marcus’ name in outlet store advertisements,
misled reasonable consumers by suggesting that outlet
store items were originally sold at the retailer’s flagship
stores. The court again dismissed plaintiff’s claims, finding
that there was no evidence that Neiman Marcus advertised
that Last Call sold merchandise that was previously for sale
at its flagship stores. According to the court, the term “Last
Call” could just as easily refer to the outlet merchandise
from a prior season or the last call for a third-party
manufacturer’s clearance items. The dismissal was again
without prejudice.
Afforded a second opportunity to amend her complaint,
Ms. Rubenstein alleged that, even in the case of
“comparable value comparison” as described by the FTC,
the federal guidelines required that Neiman Marcus be
“reasonably certain” that the listed “Compared To” price is
the actual price that merchandise of like grade and quality
would be offered by other retailers in the area. According to
Rubenstein, Neiman Marcus failed to meet this requirement
and therefore violated California’s consumer protection
laws. Ultimately dismissing the complaint, this time with
prejudice, the court held that this newly asserted theory
was not sufficiently pled since plaintiff failed to allege
any support for her conclusory contention that Neiman
Marcus was not reasonably certain about its items’ market
prices. The court explained that, without a showing that
merchandise of like grade and quality was not in fact
offered by other retailers at the listed “Compare To” price,
the court could not discuss how the retailer’s statements
were false and misleading.
Interestingly, shortly after the first and second dismissal
of Ms. Rubenstein’s complaint, two similar putative class
actions pending in the United States District Court for the
Southern District of New York against Michael Kors and
Ralph Lauren settled. In Gattinella v. Michael Kors (USA),
Inc., No. 14-cv-05731 (S.D.N.Y.), the parties reached a classwide resolution of claims in which Michael Kors agreed to
establish a settlement fund of $4,487,000 and modify the
methods by which it markets and labels outlet store items.
Branca v. Ralph Lauren Corp., No. 14-cv-07097 (S.D.N.Y.),
on the other hand, did not involve a class settlement. The
named plaintiff and Ralph Lauren entered a confidential
individual resolution.
Beware: Consumer Surveys and
Retailer Pricing Manuals May Get
Plaintiffs Past the Motion to Dismiss
Stage
While dismissal of the Neiman Marcus action and
subsequent settlements appeared to signal an early end
to this flurry of litigation, a later decision in a similar case
against Nordstrom suggests otherwise. Branca v. Nordstrom,
Inc., No. 14-cv-02062 (S.D. Cal.). On October 9, 2015, the
Honorable Michael M. Anello declined to dismiss plaintiff
Kevin Branca’s second amended complaint after dismissing
his prior complaints on grounds similar to those expressed
by Judge Otero in the Neiman Marcus case. In the operative
complaint, Mr. Branca included two new allegations
that, according to the court, bolstered his claims and, in
turn, satisfied the heightened pleading requirements and
reasonable consumer test that Ms. Rubenstein was unable
to meet.
To support the claim that his interpretation of
Nordstrom’s “Compare At” prices used at its outlet
stores (Nordstrom Rack) was objectively reasonable, Mr.
Branca cited an online survey of California shoppers in
his second amended complaint. Mr. Branca alleged that
an overwhelming majority of survey participants (90
percent of 206 consumers) reported that they believed
Nordstrom Rack’s price comparison language indicated
the associated items were previously sold at the “Compare
At” price at Nordstrom department stores or elsewhere.
Nordstrom vigorously challenged plaintiff’s reliance on this
questionable survey, arguing that this undisclosed “expert
evidence” did not satisfy the Daubert standard. The court,
however, rejected Nordstrom’s argument, reasoning that,
at the motion to dismiss stage, it was required to presume
the truth of the survey data incorporated into the complaint
even without seeing the actual questionnaire or results.
The court also found that the plaintiff’s reliance on
Nordstrom’s Full Line and Rack Supplier Compliance
Manual, which was incorporated by reference but not
attached to the complaint, sufficiently supported his
claim that the retailer’s “Compare At” prices were false
and misleading. This Manual, according to Mr. Branca,
demonstrated that the “Compare At” price was not
associated with a market price since it described “Compare
At” as “Higher (original) price” in one place, the MSRP
in another place, and then referred to the lower sales
price as “Regular Retail.” Although acknowledging the
Manual offered no information regarding how the retailer
calculated its “Compare At” prices, the court construed
the allegations in a light most favorable to plaintiff and
determined that the Manual provided sufficient support for
the asserted claims at this early stage of the case.
Nordstrom recently filed a Motion for Reconsideration,
which the court took under advisement on May 31, 2016. In
the motion, Nordstrom asserts several compelling reasons
why the court should amend its decision and ultimately
dismiss the latest iteration of the complaint, including
recent developing case law arising from the Central
District of California’s dismissal of similar actions against
Ross Stores, Inc. (“Ross”) and DSW Shoe Warehouse, Inc.
(“DSW”). The opinions dismissing both of these actions,
according to Nordstrom, support the proposition that,
without conducting a pre-suit investigation, Mr. Branca
cannot truthfully allege that neither Nordstrom nor any
other retailer sold the purchased items at the “Compare
At” price. In the Ross action, for example, the court
explained that plaintiffs could sufficiently plead a deceptive
pricing claim by “conduct[ing] a reasonable investigation
into their claims . . . [to] allege, for instance, that the items
they purchased bore a ‘Compare At’ price of $X but were
sold at other retailers for a lower price of $Y . . . [or] that
the purchased items were offered for sale exclusively in
Defendant’s stores.” Order Granting Defendant’s Motion to
Dismiss at 6, Jacobo v. Ross Stores, Inc., No. 15-cv-04701 (C.D.
Cal. Feb. 23, 2016) [Dkt. No. 45]. In opposition, Mr. Branca
argued that this “pre-suit investigation” requirement was
not applicable to his case since the relevant information,
particularly concerning pricing and product origin, was in
Nordstrom’s possession. Mr. Branca further asserted that
such an investigation was unnecessary since the complaint
alleges that the purchased clothing was sold exclusively at
the outlet store and therefore had no prevailing market price
other than the price at which Nordstrom itself sold them.
Nordstrom’s second ground for reconsideration relates
to the consumer survey that Mr. Branca expressly relied
upon, but declined to attach for transparent reasons, in his
papers. Nordstrom contended that, contrary to Mr. Branca’s
representations to the court, the results of the now disclosed
survey did not support his claim that reasonable consumers
believed Nordstrom’s “Compare At” prices referred to the
price of the item sold elsewhere. Attaching the questionnaire
and survey results to the Motion for Reconsideration,
Nordstrom argued that the survey was specifically designed
to elicit the precise results alleged by Mr. Branca and
deliberately avoided questions that would have produced
meaningful data about subjective consumer beliefs (that
would have, in turn, undermined his claims). Plaintiff
denied Nordstrom’s assertions and argued that issues
regarding the reliability, design and methodology should be
addressed during expert discovery.
As of the date of this article, the court has not issued an
order and opinion regarding Nordstrom’s Motion.
Named Plaintiff’s Standing to
Assert Claims Arising from Unseen
Advertisements and Unbought Items
The Nordstrom action also provides insight into how courts
may analyze challenges to a named plaintiff’s standing
to assert claims on behalf of class members. For instance,
Judge Anello analyzed whether a named plaintiff had
standing to assert claims under the UCL, FAL, and CLRA
insofar as they arose from advertisements the named
plaintiff did not actually see or rely upon when making his
or her purchase. The court firmly rejected standing under
these circumstances. Looking to the elements of Branca’s
claims and applicable Ninth Circuit case law, Judge Anello
explained that plaintiff’s standing to assert claims only
extended to those arising out of advertisements he actually
relied upon when purchasing items from Nordstrom’s Rack.
As such, because plaintiff never alleged that he relied upon
the Nordstrom’s Rack website, store name, or any other
advertising besides the listed “Compare At” prices, the
court found he lacked standing to assert claims arising from
anything other than the outlet store price tags.
The court also addressed whether a named plaintiff had
standing to assert claims based on outlet store items he
or she did not purchase. Acknowledging that there was
no controlling authority on this issue, the court looked to
other federal district courts in California before holding that
differences across outlet store items was of little importance
since Branca’s claims related to the “consistent format of
tags, i.e., the juxtaposition of two prices, one higher than
the other, the term ‘Compare At’ and a percentage, labeled
‘% Savings.’” Order at 9, No. 14-cv-02062 (S.D. Cal. Oct. 9,
2015) [Dkt. No. 30]. The court distinguished Mr. Branca’s
case from a class action against Ghirardelli Chocolate
Company in the United States District Court for the
Northern District of California where the court determined
that the named plaintiff lacked standing. In that case, there
were substantial differences between the composition of the
chocolate products, the accompanying labels, and the target
customers. According to Judge Anello, Mr. Branca’s case was
more analogous to cases brought against Jamba Juice and
Dreyer’s Ice Cream, where the respective courts found that,
despite differences in the products, the product labels that
the class claims relied upon remained consistent from item
to item.
Take Away
While retailers have experienced some level of success
with this first wave of litigation, the pending action against
Nordstrom demonstrates that plaintiffs are paying close
attention to the pleading deficiencies raised by the court
and attempting to cure those concerns by pointing to the
retailers’ own pricing policies. Indeed, in a more recent
action against Burberry filed in the United States District
Court for the Southern District of New York, the plaintiff has
relied on a 1992 empirical marketing study to support his
claim that customers reasonably believed that discounted
items sold at Burberry outlet locations were previously sold
at the referenced higher prices in traditional shops.
Plaintiffs are also taking advantage of consumer protection
statutes in states other than California. For example,
in a consolidated action against Coach, one of the four
complaints asserts deceptive pricing claims under New
Hampshire law. The other three actions, however, assert
claims under the consumer-friendly statutes of California.
As plaintiffs’ counsel maintain interest in pursuing these
actions – and leveraging the class action device to drive up
the value of the cases and potential settlements – retailers
must not get tripped up under various state consumer
protection statutes and should continue to closely monitor
this trend of class action litigation, particularly the latest
suits against Nordstrom, Coach, and Burberry. Retailers
also should be especially careful when advertising
discounted prices and work to draft defensive advertising
and pricing policies that clearly explain the basis of pricing
techniques used at its outlet stores. These policies should be
conspicuously reflected in all marketing mediums, including
websites, in-store signage, and promotion materials. It is
notable to the authors that several stores have recently
added prominent displays in their store locations to reflect
that “Compare At” pricing, for example, reflects estimated
prices for comparable merchandise in retail store locations.
***
Drinker Biddle’s Class Actions Team represents a number of leading retailers in consumer class actions in jurisdictions
across the country and advises them on a range of compliance issues. Please do not hesitate to contact the authors or your
Drinker Biddle & Reath contact with any questions or for additional information.
Seamus Duffy
Kate Gold
Michael Stortz
Ginene Lewis
Partner
Philadelphia
(215) 988-2440
[email protected]
Meredith C. Slawe
Partner
Los Angeles
(310) 203-4029
[email protected]
Partner
San Francisco
(415) 591-7583
[email protected]
Partner
Philadelphia
(215) 988-3347
[email protected]
Associate
Philadelphia
(215) 988-2707
[email protected]
Retail Industry Team:
Thomas J. Barton
Jeff Eichen
Cheryl Orr
Randy Rucker
(302) 467-4236
(415) 591-7503
(312) 569-1157
[email protected]
[email protected]
[email protected]
[email protected]
Harry S. Cherken
Douglas J. Hefner
Doug Raymond
Meredith C. Slawe
(202) 230-5802
(215) 988-2548
(215) 988-3347
[email protected]
[email protected]
[email protected]
[email protected]
Kenneth Dort
Andrew B. Joseph
Jeffrey J. Lopez
(609) 716-6594
(215) 988-2721
(973) 549-7264
(312_ 569-1458
(202)842-8866
[email protected]
[email protected]
[email protected]
www.drinkerbiddle.com
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