US outlet pricing class action update: another dismissal but no death knell

2 May 2017 , 6:00pm

In the last few years, luxury fashion brands have faced a spate of class actions in the U.S. alleging that the brands engage in misleading pricing practices in their outlet stores. While there have been several signs that this outlet pricing litigation is on the decline—including a recent decision in Belcastro v Burberry Ltd—its death knell has yet to sound. Luxury brands should therefore remain vigilant in managing their outlet pricing policies.

Belcastro v. Burberry 

Burberry has been entangled in an outlet pricing lawsuit before Judge Valerie Caproni in the District Court for the Southern District of New York since February 11, 2016.[1]  In the suit, plaintiff Thomas Belcastro alleged that Burberry violated consumer protection laws by including a “deceptive reference price” on outlet article price tags—consisting either of a “Manufacturer’s Suggested Retail Price” (“MSRP”) or a “Was” price—in addition to a significantly lower “Now” price.[2]  These reference prices were allegedly “fictional creations designed by Burberry to portray false price reductions” since the articles were made-for-outlet and never actually sold at the reference prices. 

In late February, Judge Caproni dismissed the complaint with leave to amend on the grounds that it failed to state a claim on which relief can be granted.  Specifically, Judge Caproni found that the complaint failed to allege that Belcastro suffered an actual injury, as subjective “But-I-Thought-I-Was-Getting-A-Bargain” disappointment is not cognizable under New York or Florida law.  As Judge Caproni explained, a plaintiff like Belcastro must instead establish injury in the form of either having overpaid for articles sold at the Burberry outlet or having been misled about the intrinsic quality of those articles.  In other words, “‘[a]ctual damages’ requires a connection between the misrepresentation and the price that is charged by the defendant or the quality of the good.”  Since Belcastro received the benefit of his bargain—the article in exchange for a fair price—he suffered no actual injury. 

No death knell yet

Burberry, like several other outlet pricing cases that have been dismissed in recent years,[3] may come as welcome news to fashion brands operating outlet stores.  However, Burberry may not be over yet. On 15 March 2017, Belcastro filed an amended complaint that alleges in far more depth how and why deceptive reference prices mislead consumers into overvaluing and thus overpaying for made-for-outlet goods. It is therefore conceivable that Judge Caproni will find that Belcastro has sufficiently plead "actual damages" so as to warrant reviving the case. 

Additionally, even if Judge Caproni dismisses the case a second time, these dismissals must be viewed in light of a small, but impactful, number of other cases where plaintiffs have had more success.[4]  In one such case before the District Court for the Southern District of New York, Gattinella v. Kors, Michael Kors paid a $4.88 million dollar settlement and agreed to replace the MSRP term—similar to the one Burberry has used—on its outlet price tags with the term “Value” in order to avoid misleading customers.[5]  Kors demonstrates that similar outlet pricing policies can result in very different outcomes. 

Even more striking are the disparate outcomes of Rubenstein v. Neiman Marcus Group LLC[6] and Braca v. Nordstrom, [7] as the claims in both were brought under California law.  In Neiman Marcus, the plaintiff’s claim arose out of the brand’s practice of including a higher “Compared to” price on outlet price tags at their “Neiman Marcus Last Call” stores.  This practice, plaintiff alleged, violated the law by misleading a reasonable consumer into believing the articles had previously been sold at a higher price when they had not been.  The District Court for the Central District of California dismissed the complaint without leave.  In the Court’s eyes, the “Compared to” price was not a misleading “former price comparison” but instead a permissible “comparable value comparison” that merely indicates “that merchandise of ‘like grade and quality’ are sold by the advertiser or others in the area . . . .”[8] 

Assessing a similar pricing policy of including a higher “Compare At” and “% Savings” tag on many but not all Nordstrom Rack outlet goods, the District Court for the Southern District of California found in Nordstrom that the plaintiff had sufficiently alleged the policy would mislead a reasonable consumer.  While slight factual discrepancies between Neiman Marcus’ and Nordstrom’s pricing policies contributed to the different outcomes in the two cases, the Nordstrom plaintiff supported his allegations rigorously by, among other things, surveying Nordstrom customers to demonstrate that 90% interpreted a “Compare At” tag as being a former price comparison, not a comparable value comparison.  He also cited to Nordstrom’s compliance manual to show the purposeful nature of the pricing policy.

Seller beware

Given the rather unpredictable nature of outlet pricing litigation, fashion brands should review their pricing policies and consider making clear which articles are made-for-outlet and which have actually been previously sold retail.  Additionally, brands should ensure that reference prices included on tags convey the comparable value of the articles on the market and not the price at which the articles were formerly sold.  Compliance is particularly important for brands operating stores in Los Angeles, as misleading pricing practices have been a recent target of the City Attorney.[9]      

[1] See Belcastro v. Burberry Ltd., No. 16-CV-1080 (VEC), 2017 WL 744596 (S.D.N.Y. Feb. 23, 2017).

[2] See id., at *1.

[3] See, e.g., Dennis v. Ralph Lauren Corp., No. 16CV1056-WQH-BGS, 2016 WL 7387356 (S.D. Cal. Dec. 20, 2016); Rael v. Dooney & Bourke, Inc., No. 16CV0371 JM(DHB), 2016 WL 3952219, at *4 (S.D. Cal. July 22, 2016).

[4] See, e.g., Morrow v. Ann Inc., No. 16-CV-3340 (JPO), 2017 WL 363001 (S.D.N.Y. Jan. 24, 2017).

[5] See Kors, 2016 WL 690877, at *1.

[6] No. CV 14-07155 SJO JPRX, 2015 WL 1841254 (C.D. Cal. Mar. 2, 2015).

[7] 2015 WL 10436858.

[8] Neiman Marcus, 2015 WL 1841254, at *4.

[9] See, e.g., Complaint, People v. Macy’s, Inc., No. BC643040 (Cal. Super. Ct., L.A. Cnty. Dec. 8, 2016), 2016 WL 7369815; Complaint, People v. Sears, Roebuck and Co., No. BC643039 (Cal. Super. Ct., L.A. Cnty. Dec. 8, 2016), 2016 WL 7178866.