While McDuffee v. Sports Warehouse, No. 37-2017-00001781-CU-BTNC (S.D. Superior Court), is certainly not the first pricing case to reach a high-cost settlement in California, it is the first we’re aware of that could, at least theoretically, allow a single consumer to walk away with over one million dollars in cash.

As discussed below, the settlement, if approved by the court, will establish a $3 million dollar settlement fund, which, after accounting for attorneys’ fees, settlement administration costs, and plaintiff’s incentive award, is to be divided among any class member(s) who submit claims.

Background of the Case

Sports Warehouse runs a number of sporting good retail websites, including Tennis Warehouse, Derby Warehouse, Riding Warehouse, Inline Warehouse, and Total Pickleball. Plaintiff purchased a tennis racquet from Tennis Warehouse for $129.00. The racquet was allegedly listed as: “Sale: $129.00 Was: $179.00,” with the word “Sale” and “$129.00” highlighted in bright red text, plus a red flag on the advertisement page. Plaintiff alleged the higher price was false because the racket was not offered or sold by Sport Warehouse for $179 for “any reasonably substantial time” prior to plaintiff’s purchase, nor was it sold by other retailers for that price.

Plaintiff filed this case in San Diego Superior Court on January 17, 2017, bringing claims under California’s Unfair Competition Law, False Advertising Law, and Consumer Legal Remedies Act, in addition to claims for breach of contract, breach of warranty, and unjust enrichment. Defendant removed the case to federal court, where it filed a motion to dismiss. Plaintiff then filed a motion to remand and a First Amended Complaint, which slightly limited the class definition, to only include current California citizens (rather than all persons who made purchases while residing in California). Purportedly based on that change, the parties stipulated to remand the case. Soon after the case was remanded, the parties notified the state court of their plans to attend mediation.

The Settlement

Following two days of mediation, the parties reached a settlement agreement, requiring a $3,000,000 settlement fund, to be distributed as follows: up to $1 million in attorney’s fees and $30,000 in costs to class counsel; up to $5,000 to plaintiff as an incentive fee; up to $175,000 to the claims administrator; and the remaining $1.79 million to be distributed to class members who submit valid and timely claim forms.

Because the fund is non-reversionary, the entire $3M will be paid out - regardless of how many, or how few, class members make claims. The class consists of an estimated 150,000 members. This means that if each class member submits a claim (which of course, they won’t), and each has made the same number of qualifying purchases, then each would receive $11.93. If 5% of the class (7,500 people) make claims, which is typical of many settlements, then each will receive $238.67. If only ten people make claims, each will receive $179,000; if only one class member makes a claim, she will be the lucky recipient of $1.79 million.

As part of the settlement, Sports Warehouse also agreed to change its pricing practices, and has reportedly stopped using price comparisons altogether. Other changes, which have thus far cost $160,000 to implement, include modifying software programs and related websites, investigating its advertisement practices, training employees, and retaining consultants. Sports Warehouse also agreed that if it resumes using price comparisons, it will implement a compliance program, which will consist of at least annual monitoring, training, and auditing to ensure compliance with federal and California price comparison laws. The “value” of this compliance program is purportedly estimated at $250,000, over a ten-year period.

Conclusion

While some may legitimately question whether this case was worth the $3 million that Sports Warehouse agreed to pay, this case should serve as a reminder to retailers that these cases are not going away, and that some retailers are willing to pay large sums of cash to escape claims. Given the high costs of litigation, retailers should consult counsel experienced in this area to make sure they are buttoned up in their own pricing practices, in order to best protect against such suits.