Thursday, October 05, 2017

Kate Spade fails to toss outlet lawsuit alleging inferior quality compared to boutiques

Irvine v. Kate Spade & Co., 2017 WL 4326538, No. 16-CV-7300 (S.D.N.Y. Sept. 28, 2017)

Plaintiffs alleged that Kate Spade marks merchandise sold at outlets with an illusory and arbitrarily higher price from which a substantial “discount” is then offered, in violation of New York’s GBL § 349 and Florida’s Deceptive and Unfair Trade Practices Act (FDUTPA). Plaintiffs bought merchandise at outlet stores; the products were marked with unique four-letter identifiers and advertised with two prices: Tags on the goods themselves listed a figure referred to as “Our Price,” while signs advertised steep discounts ranging from twenty to seventy percent off; the two prices appeared again on sales receipts along with a number reflecting the relevant percentage “off” the product, and a final total amount of “savings.”

However, the goods at Kate Spade outlets were allegedly fundamentally different than the goods at Kate Spade boutiques, and had never been offered for sale at the “Our Price” figure either at Kate Spade boutiques or at third-party retailers. These products were allegedly “of inferior craftsmanship and utilized different hardware, materials, logos and product demarcations.” Plaintiffs alleged that they wouldn’t have made their purchases, or would’ve paid less than they did, but for their “mistaken belief” that they were purchasing “boutique-quality merchandise at substantially reduced outlet prices.”

The parties disputed whether Rule 9(b) applied, requiring the claims to be pled with particularity.  Courts have divided both for §349 and FDUTPA.  The court here reasoned that plaintiffs’ claims weren’t “premised on allegations of fraud,” as they didn’t claim actual reliance or knowing intent to induce reliance.  Thus, the court concluded that only Rule 8(a) applied.

The parties treated the statutes the same in other ways, and the court analyzed the claims under both states’ laws together. The court accepted one theory of deceptiveness and rejected another.  First, plaintiffs alleged that Kate Spade “misrepresented the existence, nature and amount of price discounts” in their outlet stores by “tout[ing] steep discounts” from former retail prices that “did not constitute the prevailing market retail prices or values.”  Although this conduct is generally unlawful, that didn’t mean that the plaintiffs had standing—both NY and Florida required actual injury.  Allegations that a plaintiff paid a price premium or didn’t receive the product for which she paid would suffice, but under this theory neither occurred.  Deception itself is not injury.  Neither is pleading that one wouldn’t have bought a product but for a deceptive practice.  It wasn’t enough to allege conclusorily that the deception induced them to pay more than they were subjectively willing to pay otherwise—that disappointment isn’t cognizable.  In the absence of allegations that, for example, Kate Spade sells the same products for a lower price when they don’t have the allegedly deceptive “Our Price” anchoring them, there was no connection between the alleged deception and the injury.  (Query how the research about anchoring and perceptions of value should play into this; the court accepts a similar theory below when connected to quality, but it seems to me that the same manipulation of perceptions of value could also lead people to pay more than they’d otherwise pay under the pure “deceptively marketed” theory.)

Second, plaintiffs alleged that Kate Spade “touted its artificially inflated former ‘our price’ price as a value anchor to create the illusion of greater” quality, even though “the Outlet Merchandise was of inferior quality.”  It was plausible that the “Our Price” labels conveyed an implicit message of quality and that that message is false or misleading.  By alleging that the goods they purchased at the Kate Spade outlets were worth less than than the “discounted” prices they paid, plaintiffs alleged a plausible, and cognizable, injury. 

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