Class action lawsuit alleging Kohl’s Department Stores misrepresented ‘original’ prices can move forward, appeals court rules

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by John Chapman

You have probably, at some point, purchased merchandise that was marketed as being “on sale” because the proffered discount seemed too good to pass up. Retailers, well aware of consumers’ susceptibility to a bargain, therefore have an incentive to lie to their customers by falsely claiming that their products have previously sold at a far higher “original” price in order to induce customers to purchase merchandise at a purportedly marked-down “sale” price. Because such practices are misleading—and effective—the California legislature and other state legislatures have prohibited them.

Antonio Hinojos has brought a class action lawsuit against Kohl’s Department Stores alleging he made a purchase because he was misled by advertisements stating that the merchandise was marked down from an “original” or “regular” price that was fictitious. Hinojos alleges that he purchased several items that were advertised as being substantially reduced from their “original” or “regular” prices but that it turns out were, in reality, routinely sold by Kohl’s at the advertised “sale” prices rather than the purported “original” or “regular” prices. Hinojos alleges that the advertised “original” or “regular” prices did not reflect prevailing retail market prices during the three months immediately preceding the publication of the advertisements in question. He alleges he would not have purchased the products at Kohl’s in the absence of Kohl’s misrepresentations.

Hinojos filed a putative class action complaint in California Superior Court asserting causes of action under California’s Unfair Competition Law and California’s Fair Advertising Law The district court dismissed the claims, determining that Hinojos did not have standing to bring the claims because Hinojos had acquired the merchandise he wanted at the price advertised. Hinojos appealed to the Ninth Circuit Court of Appeals, which just recently reversed the dismissal. Hinojos v. Kohl’s Corp., No. 11-55793 (9th Cir. May 21, 2013).

The question on appeal was whether Hinojos had alleged he “lost money or property” as was required to sue Kohl’s to enforce California’s prohibition on deceptive marketing practices. Kohl’s argued, and the district court agreed, that Hinojos lost neither money nor property because he acquired the merchandise he wanted at the price that was advertised, even if the advertised price was falsely represented as a “sale.”

However, after the district court ruled, the California Supreme Court published its opinion in Kwikset Corp. v. Superior Court (Cal. 2011). The California Supreme Court held that the purchasers of goods falsely labeled “made in U.S.A.” had standing to bring claims that the false labeling induced them to purchase the goods and they would not have purchased otherwise. The court explained precisely what a plaintiff must allege when he wishes to satisfy the economic injury requirement in a case involving false advertising: “[a] consumer who relies on a product label and challenges a misrepresentation contained therein can satisfy the standing requirement of section 17204 by alleging … that he or she would not have bought the product but for the misrepresentation.”

Following Kwikset, the Ninth Circuit held that when a consumer purchases merchandise on the basis of false price information, and when the consumer alleges that he would not have made the purchase but for the misrepresentation, he has standing to sue under the UCL and FAL because he has suffered an economic injury. The court of appeals found that Hinojos had done everything Kwikset required to allege an economic injury under the UCL and FAL. He alleged that the advertised discounts conveyed false information about the goods he purchased, i.e., that the goods he purchased sold at a substantially higher price at Kohl’s in the recent past and/or in the prevailing market. He also alleged that he would not have purchased the goods in question absent this misrepresentation. The court of appeals thus reversed the district court’s dismissal of the claims.

Consumer class action litigation at HO&P

At Heygood, Orr & Pearson, we have represented numerous class action plaintiffs in various consumer class actions in California and elsewhere. Heygood, Orr & Pearson is AV-rated, the highest legal and ethical rating available from the leading law firm rating service. Our partners Michael Heygood, Jim Orr, and Eric Pearson are all Board Certified in Personal Injury Trial Law by the Texas Board of Legal Specialization. Mr. Heygood and Mr. Orr are additionally Board Certified in Civil Trial Advocacy Law by the National Board of Trial Advocacy. Our partners been voted by their peers as “Super Lawyers” in the state of Texas for several years in a row.*

If you believe you may have a proposed class action complaint, contact us for a free consultation by calling toll-free at 1-877-446-9001 or by filling out the free consultation form on this page to find out more about your legal options.

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Michael Heygood, James Craig Orr, Jr. and Eric Pearson were selected to the Super Lawyers List, a Thomson Reuters publication, for the years 2003 through 2013.