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Massachusetts District Court Dismisses Class Action Alleging Deceptive Pricing by Kohl’s

Retailers across the country have been facing  private class action lawsuits alleging that certain discount pricing practices constitute false advertising based on the allegation that the discount is fictitious.  Discount retailer, Kohl's, recently obtained dismissal of one such action.

The advertising of goods and services is overseen by a number of regulatory agencies on the federal and state level.  The Federal Trade Commission (“FTC”) is generally considered the leading regulator, enforcing its actions through Section 5 of the FTC Act, which prohibits deceptive or unfair marketing acts or practices. 

In the former/comparative pricing context, the FTC has issued long-standing “Guides Against Deceptive Pricing” (the “Pricing Guides”), which are set forth at 16 C.F.R. §233.  The Pricing Guides set forth the circumstances under which sellers can compare their prices to competitors’ prices, manufacturer’s suggested retail prices, and their own former prices.   The key component of the Pricing Guides is that a discount must be bona fide and relate to the offering for sale of the same or comparable merchandise in the same vicinity for a reasonable prior period of time. 

Each of the states has its own version of Section 5 of the FTC Act, whose laws and attorneys general typically look to the FTC’s positions as guidance.   As such, a number of states have similarly codified former/comparative pricing laws, many of which are similar to the FTC’s Pricing Guides, but some have differences.  While the FTC has not enforced the Pricing Guides for many years, the states, and more recently the plaintiffs’ bar, have pursued retailers on what may be characterized as technical violations of the myriad confusing and sometimes-inconsistent laws.  

On February 1, 2016 the U.S. District Court for the District of Massachusetts dismissed a class action arising out of allegedly deceptive and misleading labeling and marketing of merchandise by discount retailer Kohl’s Department Stores, Inc.  The amended complaint in Mulder v. Kohl’s Department Stores, Inc. alleged that Kohl’s engaged in false advertising of its merchandise by listing fictional “comparison prices” on products’ price tags and LED displays throughout the store at which it had never previously sold that merchandise and that were “intentionally selected so that Kohl’s could advertise phantom markdowns.”

The court found that, even accepting Mulder’s allegations as true, the fact that she “may have been manipulated into purchasing the items because she believed she was getting a bargain does not necessarily mean she suffered economic harm.”  Mulder paid $40.78 for items that were, in the court’s opinion, worth $40.78, and she therefore suffered no legally cognizable injury.  In dismissing the case with prejudice, the court also denied Mulder’s motion to amend and motion to certify questions to the Massachusetts Supreme Judicial Court.

Mulder v. Kohl’s is the latest in a slew of lawsuits accusing retailers of deceptive comparison pricing, with the plaintiffs’ bar focusing in particular on outlet and discount retailers.  Perhaps this loss will help stem the tide, at least in states that have an ascertainable loss requirement. 

TAKEAWAY: Given the myriad and sometimes-inconsistent laws and regulations governing this area, retailers must be especially careful when advertising comparative prices, making sure to consult applicable state law and to explain the basis for comparison clearly and conspicuously.  

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