Friday, September 01, 2017

More outlet cases: traditional price claims survive; value claims are harder

Two cases:

Dennis v. Ralph Lauren Corp., 2017 WL 3732103, No. 16cv1056 (S.D. Cal. Aug. 29, 2017)

Plaintiff stated a consumer protection claim by alleging that Polo Ralph Lauren’s clothing sold at factory stores uses a price tag which represents two prices to the consumer, the “Value Was” price, and the “Our Price” price,” conveying to the consumer that the clothing previously sold at the “Value Was” price, when in fact that was never the prevailing market price, at the factory store or otherwise.  Comment: I don’t see the sense in trying to use “Value” to evade falsity about prices; among other things, if you distinguish “Value” from market price, “Value Was” suggests that the “value” has now diminished.

Marino v. Coach, Inc., 2017 WL 3731954, No. 16-CV-1122 (S.D.N.Y. Aug. 28, 2017)

Plaintiffs alleged that Coach misled consumers into believing that products sold at Coach outlet and factory stores were deeply discounted, when, in fact, the goods are manufactured exclusively for Coach Factory stores and are not being sold at a discounted price at all. They brought claims for fraud, breach of express warranty, unjust enrichment, and violations of at least twenty state consumer protection statutes.

Coach allegedly manufactures certain goods exclusively for sale in Coach Factory stores, identified by a style number beginning with “F,” whereas mainline or retail products have five-digit style numbers with no letters. Coach Factory goods are marketed with an “MFSRP” or “Manufacturer’s Suggested Retail Price,” which is allegedly “illusory” because Coach Factory goods are never actually sold for the MFSRP.  Coach apparently agreed that the MFSRPs were intended to give an impression of quality. According Coach’s own declaration, disclaimers posted in Coach Factory stores state that the MFSRPs are “an indication of value based on the quality of the material used, our commitment to craftsmanship and the high standards demanded by Coach.”  (Uh-hunh.  I thought modern economics indicated that price reflects value in an efficient marketplace.) Plaintiffs allegedly purchased accessories – wristlets, sunglasses, and a handbag – and paid prices ranging between 40% and 70% less than the purported MFSRPs.  These labels allegedly created a false impression of the existence of a discount, as well as a false impression of quality, enhanced by comparison to Coach retail products and prices given that at least some of Coach’s factory-only products are designed to appear similar to Coach goods sold in retail stores. For example, the CAC includes a side-by-side comparison of the Coach Factory “Phoebe” handbag is visually similar to the “Edie” bag sold in Coach retail stores. The Phoebe bag is sold in Coach Factory stores with a hangtag showing an MFSRP of $395, while the Edie bag is sold in retail stores for $325. Consumers viewing the two similar bags allegedly base their expectations for the quality of the Phoebe bag on its similarity to the Edie, but the Phoebe bag is actually of lesser quality, made from “fabric remnants” rather than a larger, more desirable, single piece of fabric.

Coach challenged plaintiffs’ standing under Spokeo, Inc. v. Robins, __ U.S. __, 136 S. Ct. 1540 (2016), arguing that the plaintiffs alleged, at best, bare procedural violations that didn’t amount to cognizable injury under Article III. Nope. Plaintiffs alleged that they wouldn’t have bought the products without the allegedly false advertising; that’s a concrete injury in fact.  However, they didn’t have standing to seek injunctive relief.  Coach also argued that plaintiffs lacked standing to bring claims on behalf of a multi-state subclass because they didn’t personally possess claims under the consumer protection laws of any other state. That depended on what law applies to the absent class members’ claims and whether the injury recognized by those laws was sufficiently similar to plaintiffs’ injury that class treatment is appropriate, so the court deferred consideration of this until certification.

The court analyzed the consumer protection claims under Rule 9(b); plaintiffs didn’t disagree that Rule 9(b) applied.  The court found that the “how” and “why” of the fraud was in part inadequately alleged. The straightforward theory of deception was that MFSRPs were deceptive because consumers understand them to represent former prices, but they don’t; that was adequately pleaded.  The “more nuanced” theory of deception was that Coach designs outlet-only goods that appear similar to retail products and tags the outlet-only products with MFSRPs that are similar to the prices of the retail goods, causing consumers to believe they are buying products of similar quality to the similar retail products.  The court found that the complaint didn’t adequately allege the “how” or “why” of this product-confusion theory. Plaintiffs didn’t allege that they bought the Phoebe bag, or identify any Coach mainline products – or family of products – to which plaintiffs believed the outlet goods that they purchased were similar. To proceed on this theory, plaintiffs would have to identify the retail goods that are deceptively similar to the outlet goods that the Plaintiffs actually purchased.

Under New York’s consumer protection law, it isn’t enough to allege that one wouldn’t have bought an item but for the appearance of a discount; that’s not injury under New York law, or Massachusetts law.  It is sufficient injury under California law.  Assuming that New Hampshire followed the East Coast model, it was still possible that the New Hampshire plaintiff could amend her complaint to allege injury distinguishable from such “ephemeral” injury, if the MFSRP’s caused her to believe that she was purchasing a product of higher quality than she received.  It wasn’t enough if she merely believed she was getting a bargain.

The New Hampshire plaintiff also plausibly alleged that the MFSRPs were misleading. Coach argued that disclaimers in its stores explain that the MFSRPs are intended to be indicators of “value.” “Whether, in the face of such disclaimers, a reasonable consumer could nonetheless believe that the MFSRPs are former prices is an issue of fact to be resolved at a later stage of this litigation, as is the significance of Coach’s disclaimers.” Further, unlike “compare at” advertising, MFSRPs – “Manufacturer’s Suggested Retail Prices” – allude directly to a price for the item, “which makes it more plausible that a reasonable consumer could believe that the MFSRP on the hangtag represents a former price.”

The express warranty claim failed, because at best  the MFSRPs were “implicit” warranties of a former price. They also weren’t warranties of product quality, because an inference that the Coach Factory products are of better quality than they actually are was “too vague and general to be actionable as an express warranty of anything related to the actual goods.”

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