A retailer’s motion to dismiss a putative class action challenging price advertising with “compare at” claims was rejected by a California federal court.

Kevin Branca filed suit against Nordstrom Rack, alleging that the retailer used deceptive pricing claims to trick consumers into thinking they were saving money. Price tags featured the price for an item next to a higher price, with the statement “compare at.” For example, while shopping at a San Marcos, Calif. Nordstrom Rack, Branca purchased a pair of pants for $79.97 with a “compare at” price of $150 and a hooded sweatshirt for $29.97 with a “compare at” price of $65.

Branca claimed the defendant made up the “compare at” price in violation of multiple state laws because the retailer never sold or intended to sell the items at the mainline Nordstrom store. Accordingly, there could not be a legitimate former price or prevailing market price for the items.

Nordstrom countered with a motion to dismiss, contending that Branca lacked standing to represent a class of consumers that purchased different items with different “compare at” statements. While the court agreed that standing could not be based simply on the Nordstrom Rack name, website, and general advertising, the plaintiff’s allegations about the price tags were sufficient to establish standing.

Courts focus on whether the alleged misrepresentations are sufficiently similar across product lines in applying a “substantial similarity” test between the various products and alleged misrepresentations at issue, U.S. District Court Judge Michael M. Anello wrote.

“[T]he differences across the products are of little import to the alleged misrepresentations,” the court said. “Here, Plaintiff does not allege that his claims depend on what type of product a consumer purchased from Nordstrom Rack; it is immaterial for the purposes of his claims whether one purchased a pair of shoes versus a hat, so long as the item bore a ‘Compare At’ tag. His allegations do not relate to the exact prices, percentages of savings listed on the tags, or specific characteristics of the underlying products, which would vary by product. Rather, his claims relate to the consistent format of the tags, i.e., the juxtaposition of two prices, one higher than the other, the term ‘Compare At’ and a percentage, labeled ‘% Savings.’ Moreover, all of the products are marketed to the same consumers, Nordstrom Rack shoppers. Thus, product composition is of little importance and the similarity amongst the purported misrepresentations is most important.”

Nordstrom’s argument that the plaintiff failed to identify a false or misleading statement made by the company also failed to sway the court.

“The Court finds Plaintiff sufficiently alleges his claim that the tags are deceptive,” Judge Anello wrote. “Plaintiff pleads with particularity how and why he was personally deceived by the ‘Compare At’ tags.” His claims are subject to the reasonable consumer test, a standard the plaintiff was able to satisfy for purposes of the state’s Unfair Competition Law, False Advertising Law, Consumers Legal Remedies Act, and Business and Professions Code.

“Plaintiff sufficiently alleges that reasonable consumers would be deceived by Nordstrom’s tags,” the court said. “He states reasonable consumers would be deceived in the same way and for the same reasons as he was,” and presented survey evidence that demonstrated 90 percent of 206 participants interpreted the “compare at” tag to mean that the associated item was previously sold for the “compare at” price.

Branca also alleged that the “compare at” prices were false because they were never intended for sale at a location other than a Nordstrom Rack store and that Nordstrom actually intended them to be misleading, the court said.

The court denied Nordstrom’s motion to dismiss, moving the suit forward. To read the order in Branca v. Nordstrom, Inc., click here.

Why it matters: Deceptive pricing suits are the latest trend in consumer class actions. In addition to Nordstrom, retailers operating outlet stores have faced similar complaints, with Michael Kors agreeing to an almost $5 million settlement over the pricing at its outlet locations. The issue has also attracted attention from federal legislators, with a group of senators writing to the Federal Trade Commission to request an investigation into whether outlet stores are engaging in deceptive advertising and pricing.