Court Says Stores Can Be Sued Over Questionable “Discounts”

We’ve written before — most recently about JCPenney — about retailers who mark up the original price of an item in order to make the “sale” price look better than it is. Some may say this is harmless marketing, as the retailer is going to charge that price regardless. Others say it’s a deliberately deceptive act intended to lure consumers into thinking they are getting a deal.

A few years back, a Kohl’s shopper in California filed suit against the retailer, saying that items he’d purchased at the store were labeled as “on sale,” but were really just being sold at the same price as they usually were.

Among the items listed in the suit are Samsonite luggage advertised at 50% off; Chaps polo shirts listed as 39% off, and a variety of shirts that were supposedly marked down anywhere from 32% to 40% off their original retail prices. However, the plaintiff contends that those higher prices were fictional.

He filed suit, alleging violations of California’s Unfair Competition Law and Fair Advertising Law. In 2010, a U.S. District Court dismissed the case, saying that because the plaintiff didn’t actually lose any money or property, he had no standing to continue with his complaint.

However, earlier this week, the 9th Circuit Court of Appeals disagreed, reversing the lower court’s ruling and allowing the lawsuit to continue.

In its ruling, the panel cited the following from the state’s Fair Advertising Law:

No price shall be advertised as a former price of any advertised thing, unless the alleged former price was the prevailing market price… within three months next immediately preceding the publication of the advertisement or unless the date when the alleged former price did prevail is clearly, exactly and conspicuously stated in this advertisement.

The panel believes that this would seem to encompass the allegations made against Kohl’s by the plaintiff.

Then there is the question of whether or not the plaintiff had suffered the requisite loss of money or property as a result of the allegedly false discounts. The panel cited the case of Kwikset v. Superior Court, which held that California consumers who had purchased items falsely labeled as “Made in the U.S.A.” had standing under these laws because the advertising induced them to purchase goods they would not have otherwise bought.

The district court had rejected the plaintiff’s assertion that the Kwikset case provided the precedent for his lawsuit. That court ruled that the Kwikset case only applied to false advertising of a product’s “composition, effects, origin, and substance.”

But the appeals court felt that this interpretation of Kwikset was too literal:

“The district court’s ‘composition, effects, origin, and substance’ test ignores the fact that, to other consumers, a product’s ‘regular’ or ‘original’ price matters; it provides important information about the product’s worth and the prestige that ownership of the product conveys…

“Misrepresentation about a product’s ‘normal’ price is, therefore, significant to many consumers in the same way as a false product label would be… That, of course, is why retailers like Kohl’s have an incentive to advertise false ‘sales.’… In fact, the deceived bargain hunter suffers a more obvious economic injury as a result of false advertising than the Kwikset consumer who was duped into buying foreign-made goods, because the bargain-hunger’s expectations about the product he just purchased is precisely that it has a higher perceived value and therefore a higher resale value.”

The appeals court ruling does not deal with the validity of the plaintiff’s claims against Kohl’s, only whether or not he has standing to bring the lawsuit.

Kohl’s Must Defend Claim It Falsely Advertised Sale [Courthouse News]