Facts of Case. Plaintiff Linda Rubenstein brought a putative class action in the Central District of California alleging that Neiman Marcus made allegedly false or misleading statements with regard to the pricing of its merchandise. Specifically, Plaintiff alleged violations of various California Laws and Federal Trade Commission (FTC) Guidelines based on Neiman’s use of “Compared To” on its price tags at its Last Call stores. After Plaintiff’s fourth attempt to file a sufficient complaint, the District Court dismissed Plaintiff’s case with prejudice. Judge Otero found Plaintiff had failed to both state a claim and allege fraud with particularity, as required by the Federal Rules of Civil Procedure. Plaintiff appealed to the Ninth Circuit.
Holding. In an unpublished opinion issued on April 18, 2017, the Ninth Circuit reversed and remanded, which is surprising given the tone of oral argument. The Ninth Circuit held that Plaintiff alleged “enough fact[s] to raise a reasonable expectation that discovery will reveal evidence” to support her California’s Consumer Legal Remedies Act, False Advertising and Unfair Competition law claims. The Ninth Circuit also found Plaintiff had alleged her claim with sufficient specificity to satisfy the Federal Rules of Civil Procedure’s heightened pleading standards for allegations of fraud. Though discussed at length during oral argument, the unpublished decision did not even cite Ashcroft v. Iqbal, the Supreme Court case controlling pleading standards.
Right to Further Discovery. The bottom line — in a surprising turn given the panel’s aggressive questioning of Plaintiff’s lawyer — is that the Court thought Plaintiff ought to have an opportunity to conduct discovery regarding Neiman’s pricing policies.
Compliance with FTC Guidelines Not Sufficient. The Court was explicit that the “district court erred in holding that Rubenstein’s purported failure to state a violation of the FTC Guides [sic] automatically shielded Neiman Marcus from liability under the FAL, CLRA, and UCL.” Doc. At 5.
Relaxing 9(b) Pleading Standards? Citing decades-old precedent, the Court stated that “Rule 9(b) ‘may be relaxed as to matters within the opposing party’s knowledge.’” The Court held that “identif[ying] the circumstances constituting fraud” is sufficient.
The Comparative Bright Side?
Limited to “Compared To.” A sound argument can be made that the Ninth Circuit’s decision is limited to use of “Compared To” in pricing, given the specificity of its analysis.
Not Published. The good news for retailers and other potential defendants is this decision was not published, meaning it does not carry the same weight it would if the decision were a published opinion.
The Ninth Circuit’s decision was a surprise given the tone of oral argument and the Ninth Circuit’s recent jurisprudence regarding the heightened pleading standards required when alleging fraud. The Ninth Circuit’s decision can be found here. Oral arguments can be heard here or watched here.