If you have any questions, please contact the experienced business formation attorneys at Maya Murphy, P.C. at (203) 221-3100 or at JMaya@Mayalaw.com.

The list reads like a who’s who of the retail fashion world. But it’s not the kind of list that companies are fighting to join.

J. Crew Group Inc., Coach Inc., Burberry Group Inc., Tommy Hilfiger, Calvin Klein, Carter’s Inc. and OshKosh are among the latest to find themselves named as defendants in separate deceptive pricing class action lawsuits filed this year. They join a list of at least 30 retailers, including Macy’s Inc., Gap Inc. and Kate Spade, among others, that have faced similar class actions.

And plaintiffs aren’t asking for small amounts. One judge ordered a retailer to pay $6.8 million, while another shopping chain agreed to settle for up to $50 million.

Michael Kors settled a suit in New York for $4.8 million and a promise to change the language it used for comparison prices ( Gattinella v. Michael Kors USA, 14-cv-5731). Southern District Judge William Pauley approved the settlement in February.

Customers who once were thrilled paying $29 for an item with a price tag that states “Compare At” or “Originally Sold For” $79 are now claiming that this marketing practice is deceptive. They argue that certain items were never sold for the higher price, and they would not have purchased the products were it not for deep discounts.

These lawsuits have found their way into courtrooms in California, Massachusetts, New Jersey and New York.

Retailers started seeing scattered deceptive pricing suits about five years ago, when customers began claiming that factory outlet stores were deceiving customers with their marketing tactics. But in more recent years, the lawsuits began to hit off-price retailers such as Saks Off 5th and Nordstrom Rack. They even spread to online retailers such as Amazon.com and Overstock.com.

It was in 2014, though, that the landscape began to change. Four members of Congress wrote a letter to the Federal Trade Commission, urging that it demand more transparency in outlet and discount stores’ pricing models. The agency issued updated guidance, but that was it.

James Kohm, associate director of the FTC Enforcement Division for consumers, said that the commission has had guidelines about fair pricing since 1964. It has “used its authority in this area cautiously,” he adds, because it doesn’t want “to do more harm than good.”

If the FTC did strictly enforce reference price advertising, Kohm explained, retailers would have to sell merchandise at the higher price for a certain length of time, and customers could miss out on discounts.

In the absence of regulatory enforcement, action became heated in the courts. In February 2014, a California judge ordered Overstock.com to pay $6.8 million after he found that the Salt Lake City-based online retailer “consistently used [advertised reference prices] in a manner designed to overstate the amount of savings to be enjoyed by shopping on the Overstock site.”

In 2015, J.C. Penney agreed to settle a suit brought in California for up to $50 million.

Much of the action has been in California. The law there generally requires that reference prices must have been sold at the “prevailing market price” during the 90 days preceding the sale offer, which is particularly favorable for plaintiffs. (Other states that specify a time frame require far less.) And the judge in the Overstock case ruled that plaintiffs did not have to prove that they suffered harm beyond being misled.

Not all the lawsuits have succeeded, even in California. Plaintiffs there sued Amazon.com in late 2014, but a judge dismissed the suit since Amazon customers agree to arbitration when they create an Amazon account prior to their first purchase.

In Massachusetts, suits brought against Kohl’s and Nordstrom Rack were tossed; the judges ruled that consumers had not truly suffered losses. Judges in other cases ruled that plaintiffs had failed to provide sufficient evidence that the advertising was deceptive.

Still, the wave of filings isn’t expected to slow down. Perkins Coie partner Jason Howell expects that the pace will depend in part on how courts rule on the pending cases, and how transparent advertisers are in setting their prices.

Howell anticipates that more are likely to settle, “given the general expense, uncertainty and disruption of litigation.” But they might not “if they feel good about their legal arguments, pricing rationale and litigation budget, and want to set defendant-favorable precedent, at least in part to dissuade copycat lawsuits.”

Coach is one company that didn’t expect to be facing this kind of lawsuit. In an interview in January, the luxury handbag retailer’s general counsel,Todd Kahn, expressed confidence in the company’s pricing. Coach customers are sophisticated and know if there is value in a $200 handbag, he said: “We are very proud of what we offer.” But that didn’t stop plaintiffs from suing in California in mid-February. Kahn declined to comment on the suit.

Gonzalo Mon, a partner with Kelley Drye & Warren on the defense side, believes there is a good argument that consumers aren’t injured by the practices that have been challenged. His firm represented Kohl’s in its Massachusetts case. In February, the judge in that case wrote: “There is no sum that could be awarded to [the plaintiff] that could compensate her without providing a windfall.”

Mon is surprised that there are so many cases. “I would have suspected more retailers would have seen what was going on and tried to make changes themselves,” he said. He anticipates that at least some retailers will reach a point where they say: “We don’t want to be the next big lawsuit.”

For questions regarding business law, consult our business law group at Maya Murphy, P.C. at (203) 221-3100 or at JMaya@Mayalaw.com.

Source: New York Law Journal