Kate Spade Must Face Deceptive Outlet Store Pricing Class Action

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Kate Spade and Company must face a putative class action lawsuit filed by shoppers who say the popular high-end purse maker’s outlet store price representations are false since the merchandise was never sold at its regular stores.

U.S. District Judge Vince Chhabria denied Kate Spade’s motion to dismiss the plaintiff’s second amended complaint in its entirety for failure to state a claim last week.

Judge Chhabria stated that the plaintiffs plausibly alleged that Kate Spade uses unique 4-letter product codes to identify merchandise that it manufacturers exclusively for sale at its outlet stores, and that this merchandise is similar to items sold at flagship stores, but is of inferior quality.

“These allegations are more than specific enough to give Kate Spade notice of the alleged misconduct against which it must defend, and to show that the plaintiffs have a factual basis for their fraud claims,” he wrote in a five-page opinion.

Plaintiffs Laura Marks, Gaylia Pickles, and Donna Vandiver filed the lawsuit against Kate Spade and Company, alleging the luxury handbag retailer manufactures inferior quality goods for sale at its outlet stores, while giving shoppers the false impression that those items were made for and previously sold at a regular Kate Spade boutique at much higher prices.

Kate Spade has been selling merchandise that was “made exclusively for sale at the outlets and never intended to be sold at non-outlet stores,” the lawsuit states.

That differs from traditional outlet stores, according to the clas action lawsuit, which sell “merchandise that was intended for sale at their boutique store counterparts, but were not purchased.”

The shoppers contend they were misled in purchasing boutique-quality goods for a bargain, arguing that the made-for-outlet merchandise prices were artificially inflated and the purportedly “discounted” sales prices were still higher than that the items’ true value.

Judge Chhabria ruled that these allegations support the inference that the plaintiffs received items that were worth less than the price shoppers paid for them.

“The plaintiffs plausibly allege that Kate Spade’s representations as to the false ‘our price’ and the corresponding percentage discount deceive reasonable consumers into thinking they are purchasing boutique-quality merchandise at a significant savings, when in fact they are receiving inferior quality made-for-outlet merchandise at an inflated price,” he wrote.

The shoppers are bringing claims that Kate Spade violated California’s Unfair Competition Law, California’s False Advertising Laws along with other state consumer protection laws as well as Texas’ Deceptive Trade Practices Act.

They seek to represent a Class of California consumers and a Class of Texas consumers.

This is not the first time a company has been accused of having deceptive outlet store prices. In 2015, Michael Kors settled a lawsuit accusing it of creating an “illusion” with its deeply discounted outlet stores. Michael Kors reportedly paid nearly $4.9 million to settle the class action.

The plaintiffs are represented by David S. Markun, Edward S. Zusman, Kevin K. Eng, Mark A. Ozzello and Ari Y. Basser of Markun Zusman Freniere & Compton LLP, and Che’ D. Williamson and Michelle Eddington of Williamson Law Firm LLC.

The Kate Spade Outlet Store Pricing Class Action Lawsuit is Gaylia Pickles and Donna Vandiver v. Kate Spade & Co., Case No. 3:15-cv-05329, in the U.S. District Court for the Northern District of California.