Phantom Savings: Bargain Shoppers Cry Foul Over Alleged Fictitious Pricing Schemes

On March 19, 2017, Marilu Calderon went shopping at the Kate Spade outlet store in Carlsbad, California, and a “Flavor of the Month” charm pendant caught her eye.  The price on the tag was $78.00, but in-store signs stated that the product was an additional 60% off.  Ms. Calderon thought that was a good deal, so she purchased the pendant for $31.20.

Five months later, in New Jersey, Brenda Tripicchio did some shopping at the Tanger Factory Outlets in in Atlantic City.  Stopping by the Polo Ralph Lauren Factory Store, her eye was drawn to a men’s dark blue long-sleeve, button-up shirt.  The tag on the shirt listed two prices: (i) a small print price of $98.50 (“VALUE WAS”) and (ii) a larger print price of $74.99 (“OUR PRICE”).  Ms. Tripicchio felt like the lower price was a real bargain, so she bought the shirt.  After applying an additional advertised discount of 15%, she paid $63.98.

These straightforward tales of apparent bargain hunting victories are at the heart of two federal court complaints filed within the last two weeks: Calderon v. Kate Spade & Co. (S.D. Cal.) and Tripicchio v. Ralph Lauren Corp., (S.D.N.Y.).  Ms. Calderon and Ms. Tripicchio allege that, after making their purchases, they learned that the higher “reference” prices for the pendant ($78.00) and the shirt ($98.50) were fake, meaning that the “deal” they got was not as great as the deal they thought they gotHad they known the truth, they allege, they would not have purchased the items.

These types of claims are not new.  They have been a regular occurrence over the past several years, particularly in states with robust consumer protection statutes like California, New York, and Massachusetts.  Indeed, many retailers have made substantial payments to settle similar “fictitious pricing” claims, including:

  • Michael Kors ($4.9 million in June 2015);
  • J.C. Penny ($50 million in November 2015);
  • Tween Brands, Inc. and Ascena Retail Group ($50.8 million in July 2016);
  • Burlington Coat Factory ($27.5 million in June 2017);
  • Ann Taylor ($6.1 million in January 2018);
  • Nieman Marcus ($2.9 million in April 2018); and
  • Ross ($4.9 million in September 2018).

Plaintiffs have extracted these settlements notwithstanding the absence of any case law explicitly adopting their theory of alleged harm.  To the contrary, most courts to confront the issue have dismissed fictitious pricing claims, usually on the basis that plaintiff has not alleged or suffered any actual injury.

For example, the Seventh Circuit confronted in Kim v. Carter’s Inc. a fact pattern almost exactly like that posed in Ms. Calderon’s recent case against Kate Spade.  See 598 F.3d 362 (7th Cir. 2010).  Plaintiff alleged a scheme in which Carter’s included an inflated “Suggested Price” on the price tag, accompanied by a “30% off” sign next to the merchandise.  The Seventh Circuit affirmed the district court’s dismissal of a claim brought under Illinois’ consumer protection statute in which plaintiffs alleged that Carter’s tricked them into purchasing children’s clothing by advertising substantial savings off of “Suggested Prices” that were allegedly phony.  The Court held that private parties must show “actual damage” to maintain an action under Illinois’ consumer protection statute, and that means “actual pecuniary loss.”  The Court found that there was no loss where “the plaintiffs agreed to pay a certain price for Carter’s clothing, which they do not allege was defective or worth less than what they actually paid for.”

More recently, the First Circuit addressed the issue in Shaulis v. Nordstrom, Inc., 865 F.3d 1 (1st Cir. 2017).  There, plaintiff alleged that Nordstrom sold her a sweater for $49.97 that included a price tag bearing not only the sale price, but also a sham “Compare At” price of $218.  Plaintiff filed suit under Massachusetts’ consumer protection statute, Chapter 93A, alleging that she was wrongfully enticed to purchase the sweater by the inflated “Compare At” price (which led her to believe she was getting a great deal).  Like the Seventh Circuit, the First Circuit upheld the lower court’s dismissal of the complaint on the basis that plaintiff failed to plead any injury; in the words of the court, she “identifies no objective injury traceable to the purchased item itself – for example, that the sweater was poorly made or that its materials were misrepresented.”

Federal district courts have also gotten in on the act.  In January 2018, Judge Nelson Roman of the Southern District of New York dismissed a claim targeting Bass outlet stores for its use of allegedly false reference prices.  Interpreting New York’s consumer protection statute, Judge Nelson ruled that “simply alleging that a plaintiff ‘would not have purchased’ the product but for the deceptive practices is, alone, insufficient.”  A plaintiff must allege a “connection between the misrepresentation and any harm from, or failure of, the product.”

Notwithstanding these setbacks, plaintiffs’ class action counsel continue to press fictitious pricing claims.  Part of that is no doubt the product of the Ninth Circuit’s willingness to let these cases advance beyond the motion to dismiss stage.  Just three months before the First Circuit’s opinion in Shaulis, the Ninth Circuit reversed a district court’s dismissal of a price comparison claim for lack of standing (i.e., absence of any injury-in-fact).  The panel cited decisions suggesting that, under California’s consumer protection laws, the injury analysis is perhaps less demanding than under in other states, and cautioned that “whether a business practice is deceptive will usually be a question of fact non appropriate for a decision on [a motion to dismiss].”  That decision and others like it undoubtedly breathed some new life into fictitious pricing claims.

The recent filings by Ms. Calderon and Ms. Tripicchio underscore the continued risk to national retailers posed by sales pricing claims.  The substantial settlement payments that occurred between 2015 and 2017 ($128M+) have fueled fictitious pricing claims even as the courts have laid the ground work for getting them tossed on motions to dismiss.  Until additional circuits join the First and the Seventh in proscribing these claims, expect them to proliferate.

Note, however, that the risk of fictitious pricing claims is not limited to class actions.  A number of states have regulations specifying the circumstances under which “sales” claims can be made.  Look for a future post addressing regulatory enforcement of pricing claims at the state level.

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