The Origins of Pricing Litigation

The avalanche of pricing litigation began in January of 2014, when four U.S. senators sent a letter to the Federal Trade Commission (FTC) asking it to investigate claims that merchants may be selling lower-quality items produced specifically for outlet stores, without properly informing consumers about the difference between those items and the higher-quality products found in regular retail stores. In the summer of 2014, the first smattering of suits was filed against outlet-style retailers, including Saks Off Fifth, Neiman Marcus Last Call, Ralph Lauren Factory Store and Michael Kors Outlet.

While many retailers filed motions to dismiss—some of which were granted—others opted for big-ticket settlements right out of the gate. For example, Michael Kors settled for nearly $5 million in June of 2015. Several months later, Tween Brands agreed to settle its deceptive pricing cases on a nationwide basis for $50.8 million. In October of 2015, after years of litigation, including several motions to dismiss, J.C. Penney, too, agreed to settle for $50 million—but on behalf of a California-only class. No doubt as a result of these large settlement numbers, in the months that followed, filings of pricing class actions more than doubled, and the number of plaintiffs’ firms bringing these cases more than tripled.

The Ninth Circuit’s Chowning Decision

To date, very few of these cases have progressed past the pleadings stage. Where plaintiffs have survived motions to dismiss, the parties have typically settled. However, in the handful of cases that have gone further, defendants have fared well.

In June of 2018, the Ninth Circuit clarified that restitution in these cases is limited to the difference between the “price paid versus value received.” Chowning v. Kohl’s Dep’t Stores, Inc., No. 16-56272, 2018 WL 3016908, at *1 (9th Cir. June 18, 2016). In Chowning, the plaintiff purchased several articles of clothing at a discount from higher “original” reference prices—a dress for $21.00 (with a reference price of $70.00), a robe for $26.99 (with a reference price of $46.00) and activewear for $9.99 (with a reference price of $30.00). The Chowning Court held that because plaintiff failed to prove that the clothing she received was worth less than what she paid, she was not entitled to restitution. The Ninth Circuit further held that, regardless of a deceptive reference price, customers cannot receive a full refund for their purchases as long as they received “some value” from the articles purchased. 

Although Chowning created a significant barrier for plaintiffs, it failed to put an end to these cases, as retailers had hoped. In 2019, at least 35 pricing suits were filed. While the number of new filings stalled during the COVID-19 pandemic (not surprising given the closure of stores), they have now caught up to their pre-pandemic heights, with several new plaintiffs’ firms entering the fray.    

Trends Gleaned from Post-COVID Filings

Several trends have emerged in the many dozens of cases filed in recent years. A running theme is that the plaintiffs’ bar has crafted several thoughtful strategies to strengthen their claims, maximize damages and circumvent Chowning. 

Online Tracking: Previously, the concept of using scraping technology to catalog retailers’ online prices on a daily basis in order to show that items were perpetually on sale was not a common tool used by plaintiffs’ firms. Now, however, several firms use similar technology, making online pricing especially susceptible to lawsuits given how easy it is to track with these tools.

Bigger-Ticket Items: While pricing suits have historically targeted discount and outlet retailers, many recent suits have focused on more expensive items, including furniture, jewelry, flooring, custom closets and computers. The reason for this change is likely because more expensive items beget higher damages. Additionally, where a retailer sells less diverse items, it may be easier for plaintiffs to develop a damages model that can be used across different products. 

Mass Arbitration: Retailers are not immune to the growing phenomenon of mass arbitration, and pricing suits present particular risks. Prominent plaintiff mass arbitration firms, known for obtaining nine-figure settlements and filing claims on behalf of tens of thousands of consumers at a time, have jumped into the deceptive pricing arena—making these cases even more perilous for retailers. The high price of mass arbitrations (which involves thousands of dollars in filing fees alone per claim) can be a daunting threat in cases involving hundreds, or even thousands, of claimants.

Claims in New States: While California historically has been home to the vast majority of pricing cases (by our count, 64.8% since 2014), the plaintiffs’ bar has tested a variety of new jurisdictions, often in states with particularly favorable pricing regulations and attractive statutory penalties.

• Missouri: For a short span, Missouri was an enticing jurisdiction for potential plaintiffs, given its regulations presuming that price comparisons to a former price are deceptive unless retailers could show the former price was offered 40% of the time, or actually charged 10% of the time, in recent purchases. See Code Regs. Ann. Tit. 15, § 60-7.060(2). However, on Nov. 14, 2023, the Eighth Circuit gutted these cases by holding that a plaintiff who buys an item on sale has not suffered ascertainable loss—as required to bring a claim under Missouri’s Merchandising Practices Act (MMPA)—where the amount paid does not exceed the actual value received. Hennessey v. Gap, Inc., 86 F.4th 823, 830 (8th Cir. 2023).
• Nevada: We were concerned that Nevada would become a new popular jurisdiction for these cases after a Nevada district court denied Kate Spade’s motion to dismiss in a pricing case in 2020. Thankfully, in 2022, the Nevada Supreme Court expressly overruled the Kate Spade decision when it held in another case that a consumer fraud claim cannot be sustained under Nevada law “where a party has received the true value of the goods they purchased.” Leigh-Pink v. Rio Properties, LLC, 512 P.3d 322, 327 (Nev. 2022). 
• New Jersey, Oregon, Washington: Additional cases have been filed in New Jersey and Oregon, each of which have regulations for former prices and impose statutory penalties in some circumstances. Appeals are pending in both the New Jersey Supreme Court and the Ninth Circuit. Another appeal was recently filed in the Ninth Circuit under Washington law, involving loss arguments similar to those in Hennessey v. Gap. (Benesch’s Retail Team is handling three of these pending appeals.)
• New York, Illinois, Ohio: Interestingly, several new cases have been filed in jurisdictions with case law that historically has been favorable to defendants, including New York, Illinois and Ohio. In New York, several district courts have dismissed pricing claims based on the New York Court of Appeals’ decision in Small v. Lorillard Tobacco Co., Inc., 720 N.E.2d 892 (N.Y. 1999), which held that deception alone is not an “actual injury” needed to state a claim under New York law and that a plaintiff cannot state a claim by asserting that she “would not have purchased” a product “but for” the allegedly deceptive practices. Likewise, the Seventh Circuit has repeatedly held that plaintiffs must allege the item was “defective or worth less than what they actually paid” in order to state a claim under Illinois law. Kim v. Carter’s, Inc., 598 F.3d 362, 365 (7th Cir. 2010); see also Camasta v. Jos. A. Bank Clothiers, Inc., 761 F.3d 732, 740 (7th Cir. 2014). The Sixth Circuit has similarly rejected such claims brought under Ohio law, finding “a plaintiff must have suffered an injury or loss”; without showing the product is worth less than what the plaintiff paid, the claims fail. See Gerboc v. ContextLogic, Inc., 867 F.3d 675, 680-82 (6th Cir. 2017). We are continuing to monitor these new filings.

Undisclosed Fees and Surcharges: Five years ago, we predicted (here) that fees and surcharges would emerge as a new focus of pricing litigation. This prediction has borne out—not just in the form of numerous class actions, but also legislation at both the state and federal levels. Indeed, in the wake of the COVID pandemic, undisclosed fees have become a focus for the Biden administration, which has focused on resort fees, airline fees and online ticketing fees. California has also enacted a strict ban on so-called “junk fees,” which takes effect in July 2024, and led the FTC to issue a Notice of Proposed Rulemaking on Unfair and Deceptive Fees. (For more information, see Retailers: Beware Legislator and Regulator Junk Fee Focus.) Just last month, the New York legislature proposed a similar ban, requiring businesses to “clearly and conspicuously display … the total price of the good or service being offered or advertised,” which must include all mandatory fees associated with the transaction. We expect this new legislation will usher in an unprecedented wave of fee-related litigation, resulting in large payouts. Indeed, Verizon just agreed to pay up to $100 million to settle a nationwide class action in New Jersey—brought under general state consumer protection laws, and not a specific “junk fee” ban—claiming the company charged an “unfair” and inadequately disclosed “administrative charge” to customers’ monthly bills. 

Conclusion

Pricing litigation is not slowing down, and no retailer—even those that previously settled similar pricing cases—is immune. (Indeed, we have now seen suits filed against retailers that previously settled pricing class actions—over the same claims.) Given the constantly and rapidly changing landscape in pricing litigation, coupled with the central role that prices must always play in the increasingly competitive retail industry and the potentially high cost to settle these cases, retailers should consult counsel experienced in this area to ensure they are protected and take steps to implement robust pricing protocols.