Finding No Injury, First Circuit Tosses Deceptive Pricing Suits

Advertising Law

In affirming the dismissal of a pair of deceptive-pricing class actions, the U.S. Court of Appeals, First Circuit, said the plaintiffs failed to demonstrate that they suffered any injury.

In separate cases—one against Nordstrom Inc. and a second against Kohl’s Department Stores Inc.—both plaintiffs claimed that the retailers tricked consumers with false markdowns. For example, one of the plaintiffs, Judith Shaulis, alleged that she purchased a sweater at a Nordstrom Rack outlet in Boston with a price tag listing a purchase price of $49.97 and a “Compare At” price of $218. Since, as Shaulis claimed, the sweater was never sold by Nordstrom Rack, or any other retailer, for $218, the “Compare At” price was deceptive in violation of Massachusetts law.

A district court granted the defendants’ motion to dismiss in both cases, and the plaintiffs appealed. The federal appellate panel affirmed, holding that the plaintiffs failed to plead a legally cognizable injury because they did not suffer an actual injury as required by state law.

The law in question—Chapter 93A—is a broad consumer-protection statute, the court acknowledged. But the Massachusetts Supreme Judicial Court (SJC) has made clear that an injury under the law means an economic injury in the traditional sense, not a “per se” theory where a claim that an unfair or deceptive act alone constitutes injury.

“To state a viable claim, the plaintiff must allege that she has suffered an ‘identifiable harm’ caused by the unfair or deceptive act that is separate from the violation itself,” the First Circuit wrote. “Put another way, a plaintiff must ‘show “real” economic damages,’ as opposed to some speculative harm.”

Applying this standard to Shaulis, the panel said it was not enough to claim that she lost $49.97 because she would rather have her money than the sweater.

“The flaw in Shaulis’ theory of injury—that the mere purchase of an item may constitute cognizable injury, regardless of the item’s specific qualities—is that it merges the alleged deception with the injury,” the court said. “She identifies no injury traceable to the purchased item itself—for example, that the sweater was poorly made or that its materials were misrepresented. Such a purchase-as-injury claim collapses the SJC’s required distinction between deception and injury by attempting to plead an assertion about a consumer’s disappointed expectations of value in place of an allegation of real economic loss.”

Shaulis’ contention that the sweater is “worth nothing to her” actually “proves too much,” the panel added, “as it demonstrates that the only injury she has alleged is based solely on her subjective belief that she got a bad deal.” The plaintiff’s further attempt to analogize to cases involving the sale of counterfeit products such as a fake Rolex watch failed, as “falsely advertising a watch as a ‘Rolex’ is a material misstatement about the watch’s quality,” while at best, Shaulis made an inference from price to value.

The First Circuit affirmed the dismissal of the lawsuit and said its reasoning also “applies fully” to the case against Kohl’s, which the court addressed in a separate opinion regarding the plaintiff’s motion for leave to amend and address a new “travel expenses” theory of injury.

Ellen Mulder argued that she could base her 93A claim on losses incurred by driving ten miles from her home to the Kohl’s store, but the panel was not persuaded. “Mulder’s ‘travel expenses’ theory of injury suffers from a causation problem, as she ‘does not explain how a deceptive price tag could have caused her to travel to [Kohl’s] in the first place,’” the court wrote.

Her assertion that she was deceived by Kohl’s advertising generally did not sway the panel. “Here, Mulder’s claim that she was ‘induced’ to travel to Kohl’s by its ‘advertising in general’ and its ‘reputation’ of ‘amazing prices’ is too vague to satisfy [the pleading requirements], which require plaintiffs to specifically plead ‘the time, place, and content of an alleged false representation,’” the court said.

To read the opinion in Shaulis v. Nordstrom, Inc., click here.

To read the opinion in Mulder v. Kohl’s Department Stores, Inc., click here.

Why it matters: In a victory for retailers, the First Circuit held that Massachusetts law requires a plaintiff to demonstrate some “identifiable harm” that was caused by the alleged unfair or deceptive act. Given the wave of lawsuits across the country alleging deceptive pricing, perhaps the federal appellate panel’s rulings will stem the tide, at least in Massachusetts.



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