Antitrust Law Daily Wrap Up, ADVERTISING—C.D. Cal.: Consumers’ challenge to retailers’ ‘Compare At’ pricing survives dismissal, (Aug 19, 2016)

By E. Darius Sturmer, J.D.

Massachusetts-based TJX Companies and three of its well-known retailer subsidiaries, TJ Maxx, Marshalls, and HomeGoods, could face liability under California false advertising and unfair competition law for their allegedly deceptive use of "Compare At" and MSRP price information on the price tags of products they sold in the state, the federal district court in Los Angeles has held. Four California residents had standing to pursue, and adequately asserted, the claims on behalf of themselves and all other consumers who had bought items at the defendants’ stores in California since July 2011, the court found. A motion to dismiss the consumers’ consolidated complaint was, therefore, denied (Chester v. The TJX Companies, Inc., August 18, 2016, Wright, O.).

The complaining consumers contended that the retailers’ uniformly-placed "Compare At" and MSRP prices were misleading because they were reasonably assumed by consumers to constitute "prices at which the principal retail outlets in California have sold, or are selling, those products in any substantial volume," rather than what the retailer quietly defined them as: the mere estimates by the retailers’ buying staff of prices for which catalogs, specialty, or department stores may have sold similar items.

Standing. The consumers could have suffered the requisite injury in fact to assert claims under California’s Unfair Competition Law (UCL), False Advertising Law (FAL) and Consumer Legal Remedies Act (CLRA), the court found. It rejected arguments by the retailers that (1) the consumers’ "failure to identify the products they purchased, specify the corresponding selling and ‘Compare At’ prices, and allege what the ‘Compare At’ prices should have been" was fatal to standing, and that (2) the consumers could not show that they were injured without a showing that the "Compare At" prices "were not a reasonable indicator of prevailing market prices." The crux of each of these arguments rested on the merits of the case, which could not be determined on a motion to dismiss, the court said.

Further, the consumers had standing to raise putative class action claims for items purchased by unnamed class members, in the court’s view. Referencing a similar suit challenging Nordstrom Rack’s "Compare At" pricing scheme under the same statutes, the court pointed out "a challenge to reference pricing is more analogous to cases challenging labeling practices, not the products themselves, and thus the variance in product is of little importance in comparison to the misrepresentation scheme." The consumers in the instant suit were challenging labeling that remains consistent across all of the items in each of the defendants’ stores. To limit the putative class claims to those items actually purchased by the named plaintiffs was "to make a mockery of the false advertising class action itself," the court stated.

Prospective injunctive relief. Also rejected was an argument that the consumers’ failure to allege that they intended to buy items from the retailers in the future stripped them of standing to pursue prospective injunctive relief. Such limitation on the judiciary’s ability to enjoin deceptive practices was "inconceivable," the court remarked.

Sufficiency of allegations. The consolidated complaint adequately stated claims under the UCL, FAL, and CLRA, the court determined. The consumers sufficiently contended the price tags at issue could mislead a reasonable consumer, and that a reasonable consumer did not believe "Compare At" referred to an estimated value instead of an actual item in a competitor’s store. While the FTC Guidelines allowed for price comparisons between items based on good faith estimates, those comparison prices had to be "based on actual prices, not ‘estimates’ of prices at which ‘a comparable item’ in another store or catalog ‘may’ have been sold," the court stated. Further, retailers using reference pricing had to make clear to the consumer that a comparison was being made with other merchandise." The defendants failed to sufficiently communicate their definition of "Compare At" to their customers merely by sticking a link at the bottom of a webpage and sign near the return counter of their stores, the court declared.

Nowhere on the tag placed on every item in every store was there "even an asterisk or hint that the comparison price is not comparing the same item or may not be based on real sales," the court observed. It was unrealistic to expect consumers to have to search for the retailers’ definition of the phrase. The retailers’ "game of relying on the plain definition of the phrase to get people to shop at its stores while also claiming that the phrase’s definition [was] qualified beyond recognition [was] not very sportsmanlike," the court proclaimed.

Rule 9(b) standards. The complaint satisfied the heightened pleading standards required by Federal Rule of Civil Procedure 9(b) for deceptive practices claims under the UCL, FAL, and CLRA as well, the court added. The complaining consumers clearly pleaded the "who, what, when, where, and how" of the supposedly fraudulent conduct by: (1) describing the defendants’ use of "Compare At" pricing tags to mislead them into believing that the reference price reflected the selling prices offered at other similar retailers in the region; (2) detailing when and where each purchased an item with a suspect price reference tag; and (3) meeting a reasonable consumer test. They were not required to know what the proper reference price should have been in order to satisfy the "how" hurdle of the Rule 9(b) test.

The case is No. 5:15-cv-01437-ODW (DTB).

Attorneys: Christopher J. Morosoff (Law Office of Christopher J. Morosoff) for Staci Chester. Anne Johnson Palmer (Ropes & Gray LLP) and Jay T. Ramsey (Sheppard, Mullin, Richter & Hampton LLP) for The TJX Companies, Inc., TJ Maxx of CA, LLC, Marshalls of CA, LLC, and HomeGoods, Inc.

Companies: The TJX Companies, Inc.; TJ Maxx of CA, LLC; Marshalls of CA, LLC; HomeGoods, Inc.

Cases: Advertising StateUnfairTradePractices CaliforniaNews