StayADvised: What's New This Week
- Wave of Deceptive Pricing Lawsuits Target Retailers
- Combo Meal Subject of New McDonalds’s False Ad Case
- NAD Announces New Revised Evidence Procedures, Rejects LG’S Request
- Free E-Book TCPA Fax Lawsuit to be Heard by Supreme Court
Wave of Deceptive Pricing Lawsuits Target Retailers
Consumers are becoming increasingly leery about comparison prices by retailers. Since 2014, consumers have filed more than 100 lawsuits against 80 retailers over claims of deceptive pricing involving “compare to” prices. Discount pricing is an effective tool to help consumers make purchasing decisions, but increasingly consumers are finding, and alleging in court, that comparison prices are being used deceptively simply to drive sales.
Very few of these cases get to trial as most settle before any of the parties see the inside of a courtroom. One exception was plaintiff Linda Rubenstein’s deceptive pricing class action against Neiman Marcus in 2014, alleging that the high-end retailer used fictitious comparison pricing to boost sales at its outlet stores. Rubenstein’s complaint alleged that products at the company’s Last Call outlet stores bore price tags with the term “compared at,” which suggested a comparison with like goods at its flagship stores, and thus violated California’s False Advertising Law, Consumer Legal Remedies Act and Unfair Competition Law. The complaint alleged that she and other consumers were misled to believe that the outlet price compared identical products when, in fact, products of lower grade and quality were specifically manufactured for the outlet stores.
A federal district court initially dismissed Rubenstein’s claims, finding that reasonable consumers would interpret the “compared to” language as “a comparable value” comparison and noting that the plaintiff failed to identify examples of similar products not offered at the higher prices. But the 9th Circuit Court of Appeals reversed, finding that Rubenstein had adequately pled that the “compare to” price tags were unclear and appropriate for trial, prompting Neiman Marcus to settle for $2.9 million.
Other retailers facing similar allegations have also faced seven-figure settlements, such as Kohl’s ($6.15 million) and Michael Kors ($4.9 million). Settlements involving retailers Burberry, Ross Dress for Less, Ann Taylor, and Gap are also pending in courts across the country.
These class action claims typically hinge on the argument that the company never intended to (or would be able to) sell the item in question at the inflated price. These consumers argue that a higher price is used to persuade buyers into making a purchase because they believe they are getting a good deal.
To prevent these types of suits, many retailers are now developing comprehensive pricing compliance policies, training personnel responsible for setting prices, monitoring sales practices, and keeping thorough records of sales tags and advertisements. Many retailers that have been sued for deceptive pricing have updated their price tags to either remove unclear references to a “store price” or “store discount” or posting notices in their stores explaining their pricing policies.
As retailers continue to quench consumers’ thirst for bargains at outlet and factory stores, they need to be mindful of possible misperceptions that comparison pricing claims can convey. Even unintended implied claims can give rise to consumer confusion, dissatisfaction, and desire to seek remedies in court.
Combo Meal Subject of New McDonalds’s False Ad Case
McDonald’s is defending the pricing of one of its breakfast combo meals in a new false advertising lawsuit claiming that the fast food giant adds an unexpected charge for breakfast combo meals that is not disclosed in its advertising.
According to plaintiff Paul Bledsoe’s lawsuit, McDonalds promotes a price of $5.10 for breakfast combo meal consisting of hash browns, an Egg McMuffin, and a coffee, but regularly uses an upcharge for the drink, adding $.29 to the total price.
Bledsoe says he was the victim of this upcharge three times throughout 2017. He is seeking restitution for himself and other California residents who have purchased more than 450 million combo meals sold in the state in the last four years, which at approximately $5.39 (the cost of the combo meal plus the upcharge), would expose McDonald’s to over $2 billion if the class action succeeds.
A previous class action lawsuit involving McDonald’s combo meals ended earlier this year with a judge in the Northern District for Illinois siding with the company, finding that the chain did not deceive customers into purchasing the value meal for more money than the a la carte cost of the components. The judge in that case determined that while the use of the word “value” does imply savings, the pricing information was readily available to buyers and therefore was not misleading.
Fast food chains are popular subjects of false advertising class actions involving “combo pricing,” but plaintiffs have struggled to succeed where pricing information is readily disclosed and available to consumers.
NAD Announces New Revised Evidence Procedures, Rejects LG’S Request
The National Advertising Division of the Council of Better Business Bureaus has rejected the first application to reopen a case after the self-regulatory body announced its new procedures just a few months ago. The updated process allows for advertisers to request that a case be reopened for the purpose of hearing new evidence in previously closed proceedings.
The NAD announced at its annual conference in September that if new substantiation for existing claims emerge, a company whose advertising has been challenged and found to be lacking, can either (1) ask NAD to review the new evidence prior to using those claims again, or (2) begin using the claims and ask the NAD to consider that evidence during a compliance hearing.
This story began when Samsung accused competitor LG of disseminating confusing and false advertising in connection with the marketing of its QLED TVs, arguing that the “Q” in QLED was baseless marketing. LG, for its part, maintained its “opinion” that QLED used superior technology, compared to its Super UHD and OLED TVs, and NAD agreed. But LG’s advertisements for its TVs also promised “infinite contrast” and “perfect black,” claims that NAD held were unsubstantiated and thus should be discontinued or modified.
LG appealed that decision with the National Advertising Review Board, but later withdrew its appeal to ask NAD to re-open the matter to consider new evidence that was not available at the time of the original NAD recommendation. After reviewing the new evidence, NAD denied the company’s request to open the case again, and when LG refused to comply with NAD’s recommendation to discontinue using the “infinite contrast” and “perfect black” claims, NAD referred the case to the FTC.
When agreeing to consider re-opening cases where new evidence becomes available, the NAD appeared to bow to industry pressure. But the circumstances under which the self-regulatory body will honor these requests remains in its sole discretion, with very little information being made public as to its thought process. As these requests increase, hopefully decisions to re-open will become more transparent so that companies have greater guidance when deciding whether to pursue this option.
Free E-Book TCPA Fax Lawsuit to be Heard by Supreme Court
The Supreme Court has agreed to review an appeal involving an unsolicited fax advertisement under the Telephone Consumer Protection Act that will have significant and wide-ranging implications for both plaintiffs and defendants. While on its face the appeal involves specific questions related to Article III standing for plaintiffs in these cases, the court will need to address whether and to what extent district courts are required to defer to agency rulings and interpretations, such as those issued by the Federal Communications Commission.
A junk fax lawsuit filed in 2015 against health information service PDR Network LLC, claimed that a “free offering” of e-books amounted to an unsolicited advertisement under the TCPA, a view supported by the FCC. Yet the federal district court that heard the case dismissed the suit, with U.S. District Court Judge Robert C. Chambers finding that the court was not bound by agency interpretations.
On appeal, the 4th Circuit determined that the case should not have been dismissed since, following FCC guidance, the fax was an ad, and that the district court exceeded its authority when rejecting that interpretation. Writing for the panel majority, U.S. Circuit Judge Albert Diaz determined that the FCC interpretation was clear and, as such, the district court should not have questioned the agency’s rationale under the Hobbs Act.
On upcoming review, the Supreme Court will determine whether the district court erred by not adopting the FCC’s position.
The outcome of this case will have important implications for the Chevron doctrine, which refers to a district judge’s obligation to rely on guidance from federal regulators. Many cases have fallen under the Chevron doctrine, but since the 1984 case that lent its name to this requirement, the degree of deference that must be given to agency guidance and the level of discretion the judge retains have been unclear.
The case is PDR Network LLC et al v. Carlton & Harris Chiropractic, case number 17-1705, in the U.S. Supreme Court.
The FCC views the offer of free items communicated through unsolicited telephonic means (including facsimiles) as an advertisement under the TCPA, a position followed by most courts but not all. By agreeing to hear this appeal, the Supreme Court has determined that the time is ripe to opine on the extent to which district courts must defer to agency rules and interpretations.