Kohl's must face a consumer class action alleging false advertising for goods that the retailer said were on sale when they were routinely sold at the advertised "sale" price, according to a decision from the Ninth U.S. Circuit Court of Appeals.
Looking to take advantage of a bargain, Antonio Hinojos purchased a Samsonite suitcase at Kohl's advertised as 50 percent off the "original" price of $299.99 and shirts that were said to be marked down upwards of 30 percent from their "original" prices. He then sued the retailer for violations of California's Unfair Competition Law, Fair Advertising Law, and Consumer Legal Remedies Act, claiming that the items were not actually on sale and that Kohl's routinely sold them at the advertised "sale" price. Hinojos purchased the merchandise on the basis of false price information – and would not have done so but for the misrepresentation, he claimed.
In dismissing the suit, a federal district court concluded that Hinojos lost neither money nor property because he acquired the merchandise that he wanted, even assuming that the price was a false sale.
The Ninth Circuit disagreed and relied heavily upon a 2011 decision from the California Supreme Court, Kwikset Corp. v. Superior Court. In that case, the court said that the plaintiff had standing to sue over the defendant's false "Made in the USA" claims because processes and places of origin matter to some consumers and that to some, "labels matter."
In Hinojos, the Ninth Circuit took a broad interpretation of Kwikset, even in light of Proposition 64, which restricts standing for plaintiffs who allege violations of the unfair competition and fair advertising laws. A consumer has satisfactorily alleged "lost money or property" so long as "false advertisements induced him to buy a product he would not have purchased or to spend more than he otherwise would have spent," the court said.
"In fact, the deceived bargain hunter suffers a more obvious economic injury as a result of false advertising than the Kwikset consumer who was duped into buying foreign-made goods, because the bargain hunter's expectations about the product he just purchased is precisely that it has a higher perceived value and therefore has a higher resale value."
According to the Ninth Circuit, Hinojos did everything required by Kwikset to allege an economy injury: he alleged that the advertised discounts conveyed false information about the goods he purchased and that he would not have purchased the goods absent the misrepresentation. The plaintiff was not required to state at what price he would have purchased the merchandise in question had the "original" price not been misrepresented. Such an amount will be relevant to the calculation of restitution, the panel noted, but not required at the pleading stage.
An opposite holding would ignore the fact that, to consumers "a product's 'regular' or 'original' price matters," the Ninth Circuit said. "Misinformation about a product's 'normal' price is…significant to many consumers in the same way as a false product label would be. That, of course, is why retailers like Kohl's have an incentive to advertise false 'sales.' It is also why the California legislature has prohibited them from doing so."
Further, a plaintiff who has standing under the UCL and FAL's "lost money or property" requirement will presumptively have suffered damage for the CLRA, the court said.
To read the decision in Hinojos v. Kohl's Corp., click here.
Why it matters: "In sum, price advertisements matter," the panel determined. The Ninth Circuit's broad interpretation of the Kwikset holding provided a road map for consumers making false ad allegations: the defendant made a false representation about a product, the plaintiff purchased the product in reliance on the misrepresentation, and he or she would not have purchased it otherwise. The decision also offered other examples of marketing claims that could be actionable under a similar standard, like "not available in stores," "available for a limited time only," "50% of customers who purchased product X also purchased our product," and "the same model of shoe worn by LeBron James."