On January 10, 2017, a $4.2 million settlement was filed for preliminary approval in a deceptive pricing case against Visionworks, involving the retailer’s use of buy-one-get-one-free (BOGO) sale promotions for eyeglasses in its Ohio and Illinois store locations.
In Lenart v. Visionworks of America, Inc., 1:16-cv-02505, (N.D. Ohio), the plaintiffs alleged that Visionworks made its BOGO offers continuously and repeatedly, and that the price of the first pair of glasses was inflated in order to cover the cost of the purportedly “free” second pair. The plaintiffs argued that class members’ damages equaled 40 percent of the price they paid, based on the fact that Visionworks trained its associates to offer customers 40 percent off of the first pair of glasses, where the customer did not want to pay the BOGO price for two pairs of glasses.
This settlement comes after two-and-a-half years of litigation, including an interlocutory appeal to the Sixth Circuit, five dispositive motions, four discovery motions, and three mediation sessions.
The Lenart Settlement
The settlement is made on behalf of two classes, consisting of customers who completed a BOGO purchase at Visionworks stores located in Ohio or Illinois, respectively.
In the settlement agreement, Visionworks agreed to fund a “Gross Settlement Amount” of $4,209,280 to pay claims submitted by class members, attorneys’ fees, administration fees, and incentive awards for the two lead plaintiffs. The Gross Settlement Amount is comprised of two components: a maximum payment to Ohio claimants of $1,155,280; and a maximum payment to Illinois claimants of $3,054,000. Each claimant is entitled to up to $100 cash for every BOGO transaction he or she made during the statute of limitations within the state (those who paid a purchase price of less than $100 would receive a cash payment equal to the purchase price). The plaintiffs’ motion for preliminary approval noted that the average price of eyeglasses purchased under the BOGO promotion was approximately $400, and that “therefore, each claiming class member will receive the equivalent of a 25 percent refund on average.”
The parties also agreed that plaintiffs’ counsel may petition for a one-third fee ($1,401,031) from the gross settlement amount of $4,203,093, and that the fee would be applied proportionately to the Ohio and Illinois caps.
Assuming the fee is approved, there would be enough funds available under the two caps for more than 26 percent of the Ohio and Illinois classes to make claims and recover the full $100 amount (though if a claimant is paid less than $100 for the BOGO transaction, he or she would receive a full refund of that purchase price, rather than $100). If more than 26 percent of a state class makes claims, then the amount of each claimant’s recovery would be reduced from $100 proportionately.
Something Is Brewing in the Buckeye State
California is certainly still home to the most pricing litigation and the biggest settlements in the country. Ohio, however, should not go unnoticed as a high-risk area for these kinds of claims.
Most notably, the nationwide pricing litigation against Tween Brands — which infamously settled for $50 million (See Sedgwick’s Retail Practice Alert, November 2015) — was likely sparked by a similar case brought in the Court of Common Pleas for Lake County, Ohio. That case, Perez v. Tween Brands Inc., settled in 2015 for $6 million ($3 million for the class, plus $3 million in attorneys’ fees). Preliminary approval was granted on January 23, 2016, and similar suits were filed against the retailer in Pennsylvania, Maryland, Florida, Missouri, Ohio, and California in February through July of 2016.
Michaels has also settled a pricing case in Ohio, in March 2015, in a case alleging that the retailer perpetually offered its custom framing services at a discount. See Henry v. Michaels, Case No. 12CV001097 (Lake Cty. C.P.). Under the settlement, each claimant received a merchandise credit voucher for $32.50; the settlement provided that if fewer than 40 percent of class members made a claim, Michaels would distribute $275,000 in $10 merchandise credit vouchers to customers as they entered Michaels stores in Ohio, plus an additional $200,000 in store gift cards to Ohio public schools ($475,000 total). The settlement provided for $990,000 in attorneys’ fees and a $10,000 incentive award to the plaintiff.
Notably, most courts have dismissed claims brought under the Ohio Consumer Sales Practices Act (OCSPA), after finding that the plaintiff did not allege actual damages, as required to state a class claim. In Johnson v. Jos. A. Bank Clothiers, Inc., 2014 WL 64318, 7 (S.D.Ohio, 2014), for example, the district court was asked to determine whether the plaintiff had sufficiently alleged an actual injury caused by the retailer’s buy-one-get-three-free promotion. Like in Lenart, the plaintiff alleged that the one suit was marked up to include the costs of the “free” suits. The court granted the defendant’s motion to dismiss for failing to allege actual damages, because he did not allege that the suits he purchased were not worth the $795 he paid.
Similarly, the court in Ice v. Hobby Lobby, 2015 WL 5731290 (N.D. Ohio Sept. 29, 2015) granted in part Hobby Lobby’s motion for judgment on the pleadings. Quoting the Seventh Circuit’s decision in Camasta v. Jos. A. Bank Clothiers, Inc., 761 F.3d 732, 740 (7th Cir. 2014), the court explained: “In other words, the plaintiffs agreed to pay a certain price for the defendant’s merchandise, did not allege the merchandise was defective or worth less than what they actually paid, and did not allege that they could have shopped around and found a better price in the marketplace.” The Ice court denied Hobby Lobby’s motion as to the plaintiff’s unjust enrichment claim, however, for reasons unrelated to the “actual injury” issue (the court held that the plaintiff was permitted to plead unjust enrichment in the alternative even though he also alleged a breach of contract claim). On November 9, 2016, Hobby Lobby notified the court that it was interested in resolving the unjust enrichment claim through an individual settlement.
On November 6, 2016, the court in Gerboc v. ContextLogic, Inc., 1:16-cv-00928 (N.D. Ohio) granted the defendant’s motion to dismiss the plaintiff’s unjust enrichment, fraud, and OCSPA claims based on similar reasoning. Citing Ice v. Hobby Lobby and Johnson v. Jos. A. Bank, the court explained, “Mr. Gerboc has not alleged any actual damages and the failure to allege ‘an injury above and beyond the reliance on the misrepresentation itself is fatal’ to his fraud claim.” (The court denied the motion as to the plaintiff’s individual claims, holding that actual damages are not required to bring individual claims under the OCSPA.)
On November 17, 2016, the plaintiff in Gerboc filed a motion for entry of final judgment and for immediate interlocutory appeal, claiming that “Courts at both the state and federal level have varied significantly on the issue of damages in these ‘fictitious sales’ claims.” In support, the plaintiff cited two state court decisions where the courts refused to dismiss pricing claims based on injury-related arguments, including from Henry v. Michaels, discussed above, where the court denied Michael’s motion to dismiss, because “it does not appear beyond doubt that Plaintiff can prove no set of facts” in support of his OCSPA and unjust enrichment claims. The Gerboc court granted the plaintiff’s motion for entry of final judgment, allowing the plaintiff to appeal its decision granting the defendant's motion to dismiss. The plaintiff filed a Notice of Appeal to the Sixth Circuit on December 19, 2016.
BOGO Cases On the Rise
As we discussed in our November 2016 Pricing Litigation Alert, BOGO cases have been relatively rare in this wave of deceptive pricing litigation, at least until recently. With a few exceptions (such as the Jos. A. Bank cases above), claims of false reference prices — such as inflated “former” prices, or false “Compare At” prices — have dominated the deceptive pricing landscape. However, at least three new BOGO cases have been filed in the last few months, suggesting that this kind of claim may be on the rise.
In Puckett v. My Pillow Inc., 0:17-cv-00029 (D. Minn.), filed in the District of Minnesota on January 4, 2017, the plaintiff made claims similar to those at issue in Lenart: that the defendant offers BOGO promotions for its pillows, thereby suggesting that the customer can receive the second item for “free,” when in fact the cost of the second pillow is included in the BOGO price. An almost identical lawsuit was filed against My Pillow in Montana just days later.
Sharpe et al. v. Puritan’s Pride, et. al, 1:16-cv-06717 (N.D. Cal) involved similar claims. That case, filed in California Superior Court in October 2016, and removed to the Northern District of California on November 21, 2016, involved a series of similar promotions purporting to offer free products with purchase, such as buy-two-get-three-free, and buy-one-get-two-free.
As Lenart makes clear, not all pricing cases are brought in California, nor are they all based on claims of false reference pricing. Pricing cases are pending across the country, and are beginning to target a wider variety of pricing practices. Retailers should consult with counsel experienced in this area in order to take steps to avoid the risks inherent in certain pricing practices.