Ninth Circuit Weighs In on Damages for Deceptive Pricing

Advertising Law

Offering some hope to retailers facing litigation over allegedly false markdowns on price tags, the U.S. Court of Appeals, Ninth Circuit released an unpublished opinion upholding a California federal court decision that Kohl’s Department Stores did not have to pay restitution to the plaintiff.

Wendy Chowning claimed that she paid more than she would have for items of clothing she purchased at Kohl’s because the national department store tricked her with phony sale prices for the products. She filed a putative class action challenging the alleged advertising misrepresentations under California’s Unfair Competition Law (UCL).

A district court granted summary judgment in favor of the retailer, and the federal appellate panel affirmed in an unpublished memorandum.

As an equitable statute, UCL remedies are limited to injunctive relief and restitution, and damages cannot be recovered, the court explained. Another class action against Kohl’s has already been certified regarding injunctive relief, leaving Chowning with only the option of restitution. But what was the appropriate standard?

“The proper calculation of restitution in this case is price paid versus value received,” the panel wrote. “Under California law, where a plaintiff obtains value from the product, the proper measure of restitution is ‘[t]he difference between what the plaintiff paid and the value of what the plaintiff received.’”

Chowning admitted that she received value for the items she purchased, so the appropriate calculation for restitution “is the price Chowning paid for the articles versus the value of the articles she received.”

Under this standard, Chowning failed to meet her burden to prove that she was entitled to restitution, the Ninth Circuit said. “First, Chowning’s expert testified that he was not expressing an opinion on retail value. Second, Chowning introduced no competent evidence regarding the value of articles of clothing of similar style, quality, etc. Restitution requires that the ‘value of what the plaintiff received’ was more than what the ‘plaintiff paid.’ Without evidence of ‘value … received,’ that calculation is impossible.”

The panel rejected Chowning’s attempt at three alternative forms of recovery.

Rescission, or a full refund, may be available in a UCL case only when the plaintiff proves the product had no value to her, the court noted. “If the product is truly valueless, then the ‘price paid minus the value actually received equals the price paid,’” according to the panel’s math. “Chowning admits that she received some value from the articles of clothing and, thus, rescission is not available.”

As for disgorgement, California law provides for two forms: restitutionary disgorgement, which focuses on the plaintiff’s loss, and nonrestitutionary disgorgement, which focuses on the defendant’s unjust enrichment and is unavailable in UCL cases. As the focus remains on Chowning’s loss, “the appropriate calculation for restitution is the traditional restitution formula,” the court said.

The panel found no merit in Chowning’s attempt to recover transaction percentage or “actual discount.” This method takes the percentage discount implied on the tag (original price versus discount prices), applies that percentage discount to the prevailing market price for the item, and then awards the difference between that amount and the amount the plaintiff paid.

This form of recovery would “effectively seek damages sounding in contract, not equity,” as required by the UCL, the court said, in affirming summary judgment for the defendant.

To read the memorandum in Chowning v. Kohl’s Department Stores, Inc., click here.

Why it matters: Although the unpublished memorandum lacks precedential value, the decision offers a beacon of hope for retailers battling the flood of deceptive pricing lawsuits. Courts have split over the appropriate damages calculation for plaintiffs in such suits, and the Ninth Circuit opinion offers strong arguments for defendants that restitution should be calculated as price paid versus value received, while damages based on rescission, disgorgement or “actual discount” are unavailable.

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