Monday, May 15, 2017

Another outlet price deception case, with pictures

Stathakos v. Columbia Sportswear Co., 2017 WL 1957063, No. 15-cv-04543 (N.D. Cal. May 11, 2017)

The parties sued Columbia, bringing the usual California claims, for alleged use of deceptive and misleading reference prices on merchandise in its company-owned Columbia outlet stores.  Columbia sold two categories of garments: (i) “Inline Styles,” which were regular products produced for sale at any of defendants’ stores, wholesale partners, or online; and (ii) “Outlet Special Makeup Builds,” which, starting in 2014, were designed specifically for, and sold only at, defendants’ outlet stores.  Before 2014, Columbia’s price tags at the outlet stores showed both the higher price at which a garment previously sold Inline and the lower price at which it could be purchased at the outlet.  Outlet Builds also had price tags showing two prices; these clothes were “styles based off an in-line style, with slight aesthetic modifications,” and so the higher price tag represented the price at which the “corresponding inline style sold for” whereas the lower price was the “price at which the item could be purchased at the outlet (absent a special sale at the outlet).”  But the Outlet Builds were never sold anywhere other than outlet stores and never sold for the higher reference price. There were about 580 Outlet Builds through the time of the litigation.

Plaintiffs’ expert Ms. Goldaper, a fashion industry veteran, was allowed to opine on the differences between the Outlet Builds and their supposed main store (inline) counterparts, which she opined were often material.  (Out of the garments she reviewed, she found seven with major material differences from their counterparts, nine had modest differences, two were counterparts, and one had no counterpart whatsoever.)

Plaintiffs’ expert Dr. Compeau was also allowed to opine on consumer behavior, specifically: (i) a review of the extant literature demonstrates that consumers are affected and influenced by reference prices; (ii) defendants utilize reference prices extensively; (iii) because the Outlet Builds are never sold anywhere but the outlet stores and never at the reference price, the reference prices were false and suggest savings to the consumer; and (iv) the reference prices deceived consumers into buying Outlet Builds that they otherwise would not have bought.  However, he was not allowed to opine on a defendant’s corporate intent, or on legal conclusions/matters outside the scope of his expertise, though he could opine on whether practices might mislead consumers.

Columbia argued that their reference prices were valid under section 17501 of the FAL, which reads: “No price shall be advertised as a former price of any advertised thing, unless the alleged former price was the prevailing market price as above defined....” A 1957 Attorney General Opinion stated that the “phrase ‘prevailing market price’ means the predominating price that may be obtained for merchandise similar to the article in question on the open market and within the community where the article is sold.” But California’s false advertising laws were not so narrow.  Even if the reference prices satisfied the definition of “former price,” there could still be deception: the evidence would let a jury conclude that consumers could not distinguish based on the price tags between garments which were Outlet Builds that were never sold for the advertised reference price and Inline styles sold at the outlets which were at some point sold for the advertised reference price.

With respect to five items plaintiffs bought after the original complaint was filed, defendants got summary judgment, because plaintiffs couldn’t have relied on the idea that they were getting discounted original store merchandise. But there were triable fact issues on the other items they purchased.

Plaintiffs sought monetary relief.  Columbia argued that the only possible measure of monetary relief here was the difference between the actual value of the garments and the price paid, but that isn’t the only measure of restitution.  Relevant principles: restitution can’t be ordered just to deter; any proposed method for calculating restitution has to account for the benefits a plaintiff received; and the amount must represent a measurable loss supported by the evidence.

Plaintiffs argued that three different methods could work: (1) full refund, (2) promised discount, and (3) disgorgement of profits.  The first wouldn’t work, even though plaintiffs alleged that they wouldn’t have bought the garments without the supposed discount; under California law, a full refund may be available as a means for restitution only when “plaintiffs prove the product had no value to them.” (E.g., Trump University programs.  Makaeff v. Trump Univ., 309 F.R.D. 631 (S.D. Cal. Sept. 18, 2015).) But these plaintiffs “undeniably obtained some value from the garments they purchased”; they considered the color, fit and function of the garments before they bought.

Turning to “promised discount,” plaintiffs argued that you could start with the reference price, the outlet price, and an actual purchase price, and calculate the percentage of the promised discount between reference and outlet price, then apply that percentage to the actual purchase price, giving the benefit promised by Columbia. Courts have split on this theory of damages; the court agreed with the other court that rejected this model.  This discount model “seeks to award Plaintiff the bargain she expected to receive without any focus on the amount of money she lost in the process.”  Usually, plaintiffs allege some sort of price premium enabled by the misrepresentation, which could be calculated.  A proper measure of restitution could be the difference between the price plaintiffs actually paid and the price a reasonable consumer would have paid absent the reference price, but the promised discount model here didn’t purport to measure that difference.  Instead, the model assumed that plaintiffs would have purchased such products only if the “promised discount” were applied to the actual purchase price. This is the equivalent of “awarding plaintiffs expectation damages, without accounting for the amount of money plaintiffs actually lost in the process,” and that’s not what restitution does.

Disgorgement: “Restitutionary disgorgement,” which focuses on the plaintiff’s loss, is allowed under California law, but not “nonrestitutionary disgorgement,” which focuses on the defendant’s unjust enrichment.  Again, plaintiffs’ model for disgorgement focused on Columbia’s gain without accounting for benefits plaintiffs gained.

The court did, however, certify a Rule 23(b)(2) class, though it rejected a damages class. Columbia’s main argument on commonality centered on its expert’s survey. Its expert opined that (i) consumers were driven, in large part, by the garment’s attributes rather than price; (ii) only a few consumers rated the perceived discount as a very important factor; (iii) many consumers would have still purchased the item knowing that the reference price only concerned a price at which a similar item sold; and (iv) there was no uniform understanding of what the reference prices represented.  This wasn’t enough to rebut the presumption of reliance and materiality at this stage of the case.  Plaintiffs’ rebuttal expert, Dr. Poret, identified flaws in the coding that arguably supported plaintiffs’ theory that many people were deceived and considered the amount of savings they received significant.

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