Today only, read our blog for free!

Well actually, it’s always free.  But have we just opened ourselves up to a class action lawsuit in California?  Perhaps.

According to the Ninth Circuit, the term “Discount Sale” provides consumers with important information about a product’s worth and prestige.  Falsely labeling a product’s “original price” as its “sale price” could, consequently, subject retailers to liability under California’s unfair competition and advertising laws.

In a recent case, a California plaintiff alleged that he purchased merchandise listed as “on sale” from a discount department store.  He stated that he would not have bought the merchandise had he not been misled by in-store price advertisements which indicated that the merchandise had been marked down from its “original” price; when, in fact, the “sale” price was allegedly the “original” price at which the store normally sold the products.

The retailer successfully moved to dismiss the case in district court arguing that the plaintiff did not satisfy California’s standing requirements under the Unfair Competition Law (UCL), Fair Advertising Law (FAL), and Consumer Legal Remedies Act (CLRA).  In 2004, California passed Proposition 64, which restricts standing for individuals alleging UCL and FAL claims to persons who “suffered injury in fact and have lost money or property as a result of the unfair competition.”  The retailer stated that under Proposition 64 the plaintiff did not “suffer an injury in fact,” or lose money or property because the plaintiff acquired the merchandise he wanted at the price that was advertised.  The retailer argued that the case should be dismissed based on lack of standing, even if the price advertised falsely represented a “sale.”

Plaintiff moved for reconsideration based on the California Supreme Court’s recent decision in Kwikset v. Superior Court.  In Kwikset, the California Supreme Court held that purchasers of goods falsely labeled “made in the U.S.A.” had standing to sue under the UCL and FAL when the purchasers alleged that the false labeling induced them to purchase goods that they would not have purchased otherwise.  The district court, however, denied reconsideration and concluded that Kwikset applied only to false advertisements regarding a product’s “composition, effects, origin, and substance.”

The Ninth Circuit disagreed with the district court’s narrow reading of Kwikset.  It stated that such a test eliminated consumers’ ability to bring UCL and FAL claims for other misleading marketing practices that have little to do with a product’s “composition, effects, origin, or substance.”  The Ninth Circuit held that if a customer purchases merchandise on the basis of false price information, and alleges that he or she would not have made the purchase but for the misleading information, that constitutes an economic injury sufficient to satisfy standing.  The court also stated that plaintiffs do not need to separately plead how much they would have paid for the merchandise had they known its true market value. 

While the Ninth Circuit’s decision  potentially leaves retailers who consistently discount vulnerable to unfair competition and false advertising lawsuits, it remains to be seen how much litigation really will follow.  Kwikset threatened to make way for an avalanche of lawsuits under California’s strict “made in U.S.A.” standards.  But to date no such avalanche has occurred.  Regardless, retailers may be wise to exercise caution when it comes to pricing claims in California.

Laura Arredondo-Santisteban*

Laura is a Venable summer associate and not admitted to practice law.