Court Revives Kohl’s Fake Price Discount Class Action Lawsuit

A federal appeals court Tuesday revived a class action lawsuit accusing Kohl’s Corp. of falsely advertising the “regular price” on sale items, saying “price advertisements matter” to customers who make purchasing decisions based on this information.

The Ninth Circuit decision reverses an early court’s ruling that dismissed the Kohl’s price discount class action lawsuit in 2011 based on the argument that customers did not suffer economic injury from the deceptive pricing. Attorneys for Kohl’s had argued that even if the “regular” price being advertised was bogus, customers could not sue the company under California consumer protection laws because they didn’t pay more for the products than they otherwise would have.

On May 21, 2013, the Ninth Circuit rejected the argument.

“Most consumers have, at some point, purchased merchandise that was marketed as being ‘on sale’ because the proffered discount seemed too good to pass up,” Circuit Judge Stephen Reinhardt said in his opinion. “Retailers, well aware of consumers’ susceptibility to a bargain, therefore have an incentive to lie to their customers by falsely claiming that their products have previously sold at a far higher ‘original’ price in order to induce customers to purchase merchandise at a purportedly marked-down “sale” price. Because such practices are misleading — and effective — the California legislature has prohibited them.”

Reinhardt is referring to a California Supreme Court decision in another case, Kwikset Corp. v. Superior Court, that rejected the very same argument Kohl’s was trying to make.

The Supreme Court ruled that all a consumer needs to allege to establish standing under California’s Unfair Competition Law or False Advertising Law is that the defendant made a false representation about a product, the consumer purchased the product based on this misrepresentation, and that the consumer would not have purchased the product otherwise.

In his class action lawsuit, plaintiff Antonio S. Hinojos alleges he purchased several items that were advertised as being substantially reduced from their “original” or “regular” prices but were, in reality, routinely sold by Kohl’s at the advertised “sale” prices rather than the purported “original” prices. Hinojos also alleges that the prevailing market prices for the items during the three months immediately preceding his purchase were “materially lower” than what was advertised as “regular.”

As a result, Hinojos “never received the actual value in price discounts” he was promised and never would have purchased the items if the real price was reflected, according to the class action lawsuit.

“In sum, price advertisements matter,” Judge Reinhardt continued. “[W]e hold that when a consumer purchases merchandise on the basis of false price information, and when the consumer alleges that he would not have made the purchase but for the misrepresentation, he has standing to sue under the UCL and FAL because he has suffered an economic injury.”

The Kohl’s False Advertising Class Action Lawsuit case is Antonio S. Hinojos v. Kohl’s Corp., Case No. 11-55793, in the U.S. Court of Appeals for the Ninth Circuit.

Hinojos is represented by Matthew J. Zevin of Stanley Iola LLP and Derek J. Emge of Emge & Associates.