Antitrust Law Daily Wrap Up, ADVERTISING—S.D. Cal.: Failure to show why discount pricing was false and misleading leaves consumers holding the bag, (Jul 26, 2016)

By Glenn Sulzer, J.D.

Allegations that a company engaged in false discount pricing by offering outlet store merchandise at purported discounts from fabricated original prices could not be sustained absent facts indicating why and how the pricing was false and directly related to the purchase of the merchandise, according to a federal district court in San Diego, California. The plaintiffs were, however, allowed leave to amend their complaint to plead facts supporting their claim (Rael v. Dooney & Bourke, Inc., July 22, 2016, Miller, J.).

False discount pricing. Plaintiffs charged that Dooney & Bourke (D&B) violated California’s Unfair Competition Law, False Advertising Law, and the Consumer Legal Remedies Act by misleadingly advertising luxury hand bags and fashion accessories at discounted "savings’" prices. The advertised discounts, plaintiffs alleged, were phantom markdowns, as they represented market prices that were artificially inflated and were never the original prices for the bags and fashion accessories sold at D&B’s retail factory outlet stores. The market or original prices, the plaintiffs further maintained, were never offered for sale in the outlet stores, for outlet qualify products, and were not the prevailing marketing retail prices at the outlet stores within the 3 months immediately preceding the publication of the advertised former prices, as required by California law.

Initially, the trial court noted that, under Rule 9(b) of the Federal Rules of Civil Procedure, a plaintiff alleging fraud must "state with particularity the circumstances constituting fraud." The standard has been interpreted as requiring the allegation of facts showing "why" an advertisement is false.

Applying the Rule 9(b) pleading requirements, the court found that the plaintiffs alleged no facts illustrating why the original price of any D&B product sold at the outlet was false and misleading. The plaintiff suggested that falsity was established by the fact that all items sold in the out stores were D&B’s own exclusive, branded, outlet-specific merchandise. Because there was no other market for the products offered at D&B’s outlet store, the discounts, which compared outlet prices to non-existent retail prices of the products, were necessarily false.

The court found the conclusory allegations to be insufficient to establish how and why D&B’s discount pricing was false and misleading. However, while D&B’s motion to dismiss was granted, the plaintiffs were allowed leave to amend their complaint. Among other requirements, the amended complaint would need to plead facts establishing that a reasonable consumer would harbor a reasonable expectation that products sold in D&B’s outlet store were retail products sold at higher, regular prices at other D&B retail stores.

Multi-state claims. In addition to the claims brought under California law, the plaintiffs asserted violations of consumer protection laws in 40 other states and the District of Columbia. The plaintiffs, however, did not allege injuries in fact that were fairly traceable to the actions of D&B or other facts sufficient to establish standing to bring the multi-state claims. Accordingly, the multi-state claims were dismissed.

The case is No. 16cv0371 JM(DHB).

Attorneys: Brittany Courtney Casola (Carlson Lynch Sweet Kilpela & Carpenter LLP) for Monica Rael. Charles E. Loeser (Cravath Swain & Moore LLP) and Robert Sean Freund (Greenberg Traurig LLP) for Dooney & Bourke, Inc.

Companies: Dooney & Bourke, Inc.

Cases: Advertising StateUnfairTradePractices CaliforniaNews