Challenging Price Premium Allegations Can Pay Off for Defendants

Faegre Drinker Biddle & Reath LLP

Faegre Drinker Biddle & Reath LLP

Motions to dismiss in consumer fraud cases often focus on the element of deception—whether a reasonable consumer would be deceived by the statement or practice at issue. But there is another element of statutory consumer fraud claims that deserves closer scrutiny at the pleading stage—injury. Where plaintiffs claim that they were injured because they paid a “price premium” but do not allege facts to support that claim, defendants should consider moving to dismiss for failure to adequately plead injury.

State consumer protection statutes typically include injury as a required element for a private cause of action. New York General Business Law Sections 349 and 350, for example, require a plaintiff to establish that she purchased a product because of the allegedly deceptive business practice and did not receive the full value of the purchase. Similarly, plaintiffs suing under California’s Unfair Competition Law, False Advertising Law, or Consumer Legal Remedies Act must establish that they suffered an “economic injury” caused by the practice or advertising at issue.

Plaintiffs commonly rely on a “price premium” theory to satisfy the injury requirement under these statutes. A price premium is simply an alleged overpayment. For example, in a lawsuit challenging the use of the term “natural” on a granola bar label, the plaintiff would allege that the granola bar is priced higher than it would be if it was not labeled “natural.” And an allegation along those lines, perhaps specifying the price that the plaintiff actually paid, is often all that a complaint says regarding injury.

Such conclusory allegations of a price premium should not suffice. Under the Twombly/Iqbal pleading standard, legal conclusions, even if couched as facts, are insufficient; plaintiffs must allege facts that establish the required elements of their claims. To allege injury based on a price premium theory, a plaintiff needs to allege facts demonstrating that a price premium exists, such as the prices of comparable products without the featured special characteristic.

A handful of decisions have recognized that plaintiffs must do more than invoke the concept of a “price premium” to allege injury. A good example is Babaian v. Dunkin’ Brands Grp. Inc., No. 17-4890, 2018 U.S. Dist. LEXIS 98673, at *15-20 (C.D. Cal. June 12, 2018). The plaintiff claimed that it was misleading to refer to donuts as “blueberry” or “maple” because the donuts did not actually contain blueberries or maple syrup. He alleged that he suffered an economic injury when he purchased the donuts because they were worth less than what he paid, and he would not have bought them at all if he had known they did not contain blueberries or maple syrup. The court concluded that these allegations were insufficient. The court found that neither the plaintiff’s “subjective willingness to pay” nor the allegedly higher cost and greater “health value” of real blueberry and maple ingredients supported a plausible inference that Dunkin’ extracted a price premium for its donuts. And although the plaintiff offered a list of competitors that sold similar products with real blueberry and maple ingredients, the court concluded that this fact did not support the price premium allegation in the absence of pricing information for these competitors’ products. Accordingly, the court granted Dunkin’s motion to dismiss.

Other decisions in California and New York have applied a similar analysis and granted motions to dismiss consumer fraud claims for products such as restaurant foods, candy, and apparel because the plaintiffs failed to allege facts supporting their price premium theory of injury. See Harris v. McDonald’s Corp., No. 20-CV-06533-RS, 2021 WL 2172833, at *2 (N.D. Cal. Mar. 24, 2021); Colella v. Atkins Nutritionals, Inc., 348 F. Supp. 3d 120, 143 (E.D.N.Y. 2018); DaCorta v. AM Retail Grp., Inc., No. 16-CV-01748, 2018 WL 557909, at *7-8 (S.D.N.Y. Jan. 23, 2018); Borenkoff v. Buffalo Wild Wings, Inc., No. 16-cv-8532, 2018 WL 502680, at *4 (S.D.N.Y. Jan. 19, 2018); Izquierdo v. Mondelez Int’l, Inc., No. 16-cv-04697, 2016 WL 6459832, at *7 (S.D.N.Y. Oct. 26, 2016).

Challenging price premium allegations may prove especially effective in cases involving value-priced products, where the notion that there is a price premium may be implausible on its face and where the plaintiff would be hard-pressed to cite an example of a comparable product with a lower price. See Harris, 2021 WL 2172833, at *2 (allegation that soft-serve ice cream sold at quick-service restaurants carried a price premium was “counter-intuitive” “given the pricing shown in the complaint and the context of the market”).

These decisions show that challenging the adequacy of a plaintiff’s price premium allegations can be a winning argument at the pleading stage. The argument pairs well with the more common reasonable-consumer argument; the two provide independent grounds for dismissal, and the combination may reassure a judge who would be hesitant to dismiss a case based only on the reasonable consumer test.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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