October 29, 2015
Major retailers recently have faced a spate of class-action complaints alleging that they have engaged in misrepresentations and false advertising through the deceptive use of a marketing strategy known as “price anchoring,” whereby retailers advertise items with “sale” prices that are compared on the advertisement with “original” prices. Plaintiffs in these cases contend that the comparison “original” prices are false and deceiving in that they do not represent “true” prices for the items, thus leading consumers to falsely believe that they received bargains when they purchased the items at the marked “sale” prices. Courts facing these complaints generally have been reluctant to dispose of them in the early stages of litigation, allowing claims to proceed despite retailers’ protestations that plaintiffs have failed to allege facts showing that the amount they paid exceeded the actual value of what they received. As a result, the rising tide of class-action complaints alleging deceptive marketing practices appears unlikely to abate in the near future.
The majority of the cases against national retailers have been brought in California, where plaintiffs’ attorneys seek to take advantage of California’s aggressively enforced consumer-protection laws. In those cases, courts have relied on the Ninth Circuit’s opinion in Hinojos v. Kohl’s Corp., 718 F.3d 1098 (9th Cir. 2013), to hold that a plaintiff plausibly alleges an injury where he alleges that his purchase was made on the basis of false price information. In Kohl’s Corp., the Ninth Circuit held that a consumer suffers an economic injury, and therefore has standing to sue under California’s consumer-protection laws, where the buyer is led to believe that the item possesses a higher resale value than it actually does. In Lucas v. Jos. A. Bank Clothiers, No. 14-cv-1631, 2015 WL 2213169 (S.D. Cal. May 8, 2015) (Burns, J.), the court relied on this holding to conclude that the plaintiffs adequately pled that the amounts paid to Jos. A. Banks exceeded the value of what they received. In Spann v. J.C. Penney Corp., 307 F.R.D. 508 (C.D. Cal. 2015), the court similarly relied on Kohl’s Corp. to determine that plaintiffs alleged suffering a common injury justifying the certification of a class.
The Spann court’s decision granting class certification also poses future perils for retailers who would argue that an advertised “original” price is representative of the price for similar items sold by competing retailers. In Spann, plaintiffs brought a claim under California’s False Advertising Law, pursuant to which a retailer may not advertise a price as the “former” price of a product unless it was the “prevailing market price” of the product during the preceding three months. The items at issue were sold exclusively at J.C. Penney, and plaintiffs indicated their intent to introduce J.C. Penney’s internal pricing guidelines as evidence that J.C. Penney rarely, if ever, sold at the “original” prices advertised. According to the plaintiffs, the guidelines required that only 5 to 10 percent of the item’s initial shipment be sold at the “original” price and in many cases allowed other discounts (such as buy-one-get-one-free promotions) to be applied to purchases at the “original” price. J.C. Penney argued that the “prevailing market price” instead encompassed the price at which competing retailers sold similar items. The court sided with the plaintiffs, concluding that under California’s False Advertising Law the “prevailing market price” refers only to the price at which those same items were previously sold. The court proceeded to grant class certification based in part on its conclusion that the introduction and analysis of J.C. Penney’s internal guidelines and data constituted the type of common issue that predominated over any individualized inquiries. Facing the court’s order granting class certification, J.C. Penney filed a notice on September 11 informing the court that the parties had reached a settlement.
J.C. Penney is unlikely to be the last company forced to settle this type of suit. Following the plaintiff-friendly trend in courts’ decisions, plaintiffs’ attorneys are seeking out and filing additional class-action complaints against major retailers over allegedly deceptive pricing. In July, plaintiffs’ attorneys brought suits against Burlington Coat Factory, The TJX Companies (owner of the T.J. Maxx and Marshalls brands), and Kohl’s Department Stores. August saw a suit filed against Sears Roebuck & Co., and on October 2, Columbia Sportswear Co. was the latest company hit with a putative class action on the basis of allegedly deceptive marketing. Most recently, on October 26, Burlington Coat Factory saw its motion to dismiss denied without oral argument in Horosny v. Burlington Coat Factory of California, LLC, No. 2:15-cv-05005 (C.D. Cal.), as the court held that plaintiffs adequately pled a claim under California law where they alleged that the “compare at” prices on Burlington price tags failed to provide qualifying disclosures indicating which items Burlington meant to compare.
Clients should review their internal pricing practices to assess their risk exposure in light of these suits. Clients who utilize “price anchoring” in their advertising and sales strategies should consult an attorney to determine the best practices for continued utilization of this advertising technique.