Court sides with beauty retailer over injury theory

Eye of the Investor

We’ve reached the latest installment in the sprawling, social-media-inspired class action brought by consumers against Ulta Beauty and its subsidiary, Ulta Salon.

If you’re not familiar with the Ulta brand name, the company is a beauty retailer with a massive presence in the United States of more than 1,000 stores nationwide in 2018, with ambitions to open 400 to 700 more. Ulta recently vaulted onto the Fortune 500 list of companies at #471 and boasts more than $5 billion in quarterly revenues.

The company’s success has been meteoric.

Social Media Meltdown

But then came the lawsuits.

We covered the earlier chapters of this novella back when one of the original class actions was launched in March of last year, and a few months later when Ulta responded with its motion to dismiss (by that time, the plaintiff list had swelled to 20 individuals).

The spark that set off the class actions was a social media meltdown that occurred in January 2018. Customers joined with former employees online to accuse Ulta of allegedly refurbishing, repackaging and reselling products that had been returned by customers. Bolstered by the testimony of former managers, the complaints claimed that these practices were directed by Ulta’s corporate office. A report cited in one complaint maintained that used makeup products from Ulta (and other retailers) contained several nasty bugs, including E. coli. Generally, the plaintiffs alleged breach of warranty, unjust enrichment and consumer fraud.

Ulta hit back, moving to dismiss the class action on a broad variety of fronts, such as failure to plead fraud with particularity and failure to state a claim under various state unfair and deceptive practice statutes. It had the most success, however, in arguing that the plaintiffs lacked standing because they were suing over the purchase of products that were new, and not used. The motion maintained lack of standing to sue for class members who did not purchase the same beauty products as the plaintiffs or on behalf of class members in other states whose claims will be governed by different jurisdictions.

The Takeaway

The court largely agreed with the plaintiffs, allowing the case to proceed.

One key instance where the court favored Ulta was in the first accusation of lack of standing; the court dismissed the plaintiffs’ attempts to sue for damages for new products, finding the allegations of injury for this category of product to be insufficient to confer standing.

“[S]ome portions of plaintiff’s complaint suggest that the commingling of new and used products on Ulta shelves reduced the value of all Ulta products,” the court wrote in its recent opinion. The plaintiffs were arguing that purchasers of new Ulta products were suffering injury, because “if they received new products, they still received less than they bargained for … had they known of the risk that they might receive a used product that might cause an infection, they would have paid less or even shopped elsewhere.”

But this argument didn’t cut it. “In this case, to the extent plaintiffs or class members purchased new products, it was not the … [product] with which they walked out of the store … that was ‘defective or dangerous,’” the court maintained. “Therefore, such purchasers have not suffered an injury-in-fact,” as is necessary for standing.

So the case will go on, and we will learn through certification how the court’s injury ruling affects the size of the class.