Providing a defense victory in the burgeoning litigation at outlet stores, a California federal court judge granted Dooney & Bourke's motion to dismiss, albeit with leave for plaintiff to amend.

Monica Rael asserted that the purported "discount" prices listed on products at the defendant's outlet stores were not based on actual retail prices but were in fact "phantom markdowns" in an effort to trick consumers into thinking they were saving more money. Rael claimed she saw a handbag at a D&B factory store advertised at "40% off," or $136.80 instead of $228, and decided to buy it because she believed she was receiving a price discount.

She later sued, alleging violations of California's Unfair Competition Laws, False Advertising Laws, and Consumer Legal Remedies Act, among other causes of action. Dooney & Bourke moved to dismiss the suit. The defendant argued that Rael lacked factual support for her allegations, did not allege a misleading price comparison, and that her suggestion that price comparisons against nondiscounted retail channels are prohibited was wrong as a matter of law.

U.S. District Court Judge Jeffrey T. Miller agreed.

Although Rael alleged that the pricing scheme was deceptive because the "sale" price was compared to a false "original" price, she neglected to include facts "to illustrate why the 'original' purchase price or any other D&B product sold at the outlet was false or misleading," the court said. A declaration from her counsel was insufficient in that it simply restated conclusory statements and added "no factors or substance" to the complaint.

"[E]ven assuming [the lawyer's] submission is competent and relevant, [he] does not in any way specify the details of his investigation," Judge Miller wrote. "Did he visit any D&B retail or outlet stores? Did he visit the D&B website, and if so, on which dates? Which products, if any, are discounted beyond the 90-day period? Did he attempt to search for the handbag purchased by Plaintiff to determine if its pricing was false and if so, on what basis?"

The plaintiff's suggestion that the falsity of the scheme was established by the fact that all the items sold in the D&B outlet stores are defendant's own merchandise—meaning the only basis for what constitutes an "original" or "market" price are the prices at which the defendant regularly sells its outlet store products—was unpersuasive, the court added.

The items at the outlet store may be discounted or overruns but it did not establish the products were somehow inferior, the court said, and Rael "seems to ignore the function of outlet stores and the consumer expectations tied to it."

"If Plaintiff's contention is that it is generally illegal to move an item from a retail store to an outlet store and mark it as reduced compared to the retail price, Plaintiff has provided no legal authority to support it," the court said. "If, on the other hand, Plaintiff's argument is more specific to Defendant's own outlet pricing scheme, the complaint contains no facts to illustrate how the pricing scheme is false or misleading aside from the blanket conclusion that all outlet merchandise is, by definition, substandard."

At oral argument, the plaintiff attempted to clarify her position by asserting that a consumer may not know she is in an outlet (as opposed to a retail) store, so it would be reasonable for a consumer to see a "40% off" price tag and conclude the product is a retail product sold concurrently at its regular price at other D&B stores or sold at the regular price at the same outlet store within 90 days of that sale. But Rael failed to plead any of these factual allegations, Judge Miller wrote.

The court dismissed the plaintiff's suit in its entirety, granting her leave to file a second amended complaint.

To read the order in Rael v. Dooney & Bourke, click here.

Why it matters: Outlet stores and allegations of deceptive pricing have been a recent target for consumer class actions. The Rael order was a welcome ruling for defendants, with Judge Miller reminding plaintiffs that factual allegations are necessary to move the suit forward.