What’s the News?

A federal judge for the Southern District of California recently held in Branca v. Nordstrom, Inc. that a class action could proceed with claims that Nordstrom made deceptive savings claims at a Nordstrom Rack store. In particular, the plaintiff alleged violations of California state law, claiming that Nordstrom listed higher “Compare At” prices next to sale prices, when the items had never been offered at that higher price by Nordstrom or other retailers.

Background on the Case

In 2013, plaintiff Kevin Branca visited a Nordstrom Rack store in San Marcos, California and purchased several items with price tags listing a “Compare At” price directly above a significantly reduced sale price. The reduced price was listed next to a corresponding percentage amount labeled “% savings.” Branca claims that, based on these representations, he believed that he was receiving a discount compared to prices offered for comparable items by other Nordstrom stores or other retailers. However, according to the complaint, the items were never sold at the advertised higher prices at Nordstrom stores or elsewhere. In September 2014, Branca filed a putative class action complaint, alleging violations of California state consumer protection and unfair competition laws. Nordstrom subsequently moved to dismiss the claims, arguing, among other things, that Branca lacked standing to lead the class action, and that Branca failed to state a claim under the relevant California statutes.

The Court’s Order

The court rejected Nordstrom’s motion to dismiss. First, the court held that Branca had standing to sue on behalf of the class, rejecting the company’s argument that his claims were too factually dissimilar from the rest of the class. While the similarity between the products purchased by the class members and the representative is one consideration, the court put more weight on the similarity between the types of alleged misrepresentations. Here, the court explained, the products purchased by the class members all bore price tags containing the same “Compare At” pricing scheme as those purchased by Branca. 

Next, the court held that Branca had sufficiently stated a claim under the relevant California statutes. Nordstrom had argued that Branca failed to specifically plead that Nordstrom knew or should have known that the price tags contained a false representation, as is required by the heightened pleading standard applicable when fraud is alleged. The court rejected this argument, explaining that Branca had, in fact, alleged “that Nordstrom intended for reasonable consumers to understand [the tags to display reduced prices].” Accordingly, the court rejected Nordstrom’s motion to dismiss and allowed Branca’s claims to proceed.

The Takeaway

Advertising items at a discounted price is a ubiquitous—and wholly permissible—advertising strategy when done properly. But this case should serve as a reminder to retailers that this is an unsettled area of the law, and that class action lawyers are focusing on fashion and retail companies’ pricing strategies. Indeed, other retailers have recently faced lawsuits over similar claims. In June, a class action suit was filed against Burlington Coat Factory, with plaintiffs claiming that the discount clothing retailer failed to substantiate its “compare” prices. Thus, retailers should be careful when using price comparisons, ensuring that the goods were previously offered at the higher price for a reasonable period of time. Further, when possible, retailers should conduct regular reviews of “sale” prices and outlet store prices to better understand if they are compliant with applicable state law, as well as the guidance provided by the Federal Trade Commission and the Council for Better Business Bureaus.