Posted: February 11, 2021

Judge Azrack Denies Motion To Dismiss Deceptive Practices Claims Against Retail Chain Selling Merchandise Exclusively In Its Outlet Store With “Suggested Retail” Price Tag

Posted by Solomon N. Klein, Litigation Partner

As part of a line of cases involving consumer lawsuits against retail chains with “outlet” stores, Judge Joan M. Azrack denied defendant’s motion to dismiss plaintiffs’ deceptive practices claims, while granting in part the motion to dismiss other claims. Casio v. Vineyard Vines LLC, 19-cv-5135 (E.D.N.Y. Feb. 9, 2021) (JMA)(AYS).

Some background: It turns out that “outlet” stores are not necessarily outlets for brands to sell marked down or off-season items previously on sale in its regular stores. Outlets can sell items that are initially manufactured for and sold at the outlet store. The courts have apparently not been offended by this so long as the labeling is not misleading, which has now been the subject of a growing number of cases.

In the case before Judge Azrack, plaintiffs are a putative class alleging that defendant was selling items solely in its outlet store with a label showing a “Suggested Retail” price and then a lower “Our Price.” Plaintiffs claim that defendant’s “outlet” stores shared similar product and style lines with its “retail” store counterparts, and that the “Suggested Retail” label implied that the item was sold at defendant’s non-outlet stores. Plaintiffs then claim that the outlet items were of “distinctly lower quality” than similar items sold in defendant’s regular stores – a fact disputed by defendant.

Defendant moved to dismiss the action. As to the deceptive practices claim, defendant argued that the reasonable consumer understands how outlets work and that “an outlet is a kind of ‘retail’ store and not excluded from the reference to ‘retail’ used in the pricing description on the tag.”

The Court recognized that the terminology used to describe the non-outlet stores (“retail” versus “boutique”) is a critical part of plaintiffs’ allegations but not something that can be resolved at the motion to dismiss stage. The Court denied the motion to dismiss as to the deceptive practices claims, while noting that “Defendant can likely prevail later in the case”:

At this early juncture in the case, the Court is unable to determine how a reasonable consumer would perceive the challenged price tags. “Courts have generally held that since this second factor [under the New York GBL, i.e., whether the act is misleading in a material way] requires a reasonableness analysis, it cannot be resolved on a motion to dismiss.” Buonasera v. Honest Co., Inc., 208 F. Supp. 3d 555, 566 (S.D.N.Y. 2016) (collecting cases). Indeed, other courts in this circuit have been unable to perform a reasonableness analysis in the specific context of analyzing outlet store practices. For example, in Irvine v. Kate Spade & Co., a similar case involving contested pricing labels at Kate Spade outlet stores, Judge Furman denied a motion to dismiss in part on this basis. The court recognized, however, that “[d]iscovery may well reveal that the proverbial ‘reasonable consumer acting reasonably’ would not perceive that [allegedly false] message, let alone be misled by it.” No. 16-CV-7300, 2017 WL 4326538, at *4 (S.D.N.Y. Sept. 28, 2017). Nevertheless, on a motion to dismiss, “those are issues of fact that cannot be resolved at this stage of the litigation.” Id. Accordingly, the Court is not yet positioned to determine that reasonable consumers would understand outlet pricing and therefore not be misled by the specific practices Plaintiffs challenge in the amended complaint.

The case law Defendant cites analyzing California consumer protection laws does not counsel otherwise. In Rubenstein v. The Gap, Inc., a California appellate court found as a matter of law with respect to Gap outlet stores that “Gap’s use of its own brand names in factory store names and on factory store clothing labels is not likely to deceive a reasonable consumer for the simple reason that a purchaser is still getting a Gap or Banana Republic item.” 222 Cal. Rptr. 3d 397, 404 (Cal. Ct. App. 2017). According to Defendant, the case stands for the proposition that the Court can find that “a reasonable consumer would not reasonably expect to see only items that are sold in retail stores, or were once sold at retail stores, as Plaintiffs allege.” (ECF No. 17-1 at 14.) Rubenstein differs from the instant situation, however. In Rubenstein, the second amended complaint “allege[d] no advertising or promotional materials or any other statements disseminated by Gap to consumers that its factory store clothing items were previously for sale in traditional Gap stores or were of a certain quality.” 222 Cal. Rptr. 3d at 404. Here, though, the entire basis of Plaintiffs’ allegations is that Defendant’s price tags imply that the outlet store products are of a certain quality.

Park v. Cole Haan, LLC also presents a challenge to outlet practices that is distinguishable from Plaintiffs’ claims. No. 17-CV-1422, 2019 WL 1200337 (S.D. Cal. Mar. 13, 2019). In Park, the plaintiff did “not identify any representation that items sold in Cole Haan’s outlet stores were previously sold in its traditional stores, or where [sic] the same quality.” Id. While recognizing that “the quality of goods is material to reasonable consumers, and price can be a reflection of that,” the district court noted, however, “the retail history of clothing (e.g., whether it was offered for sale in a traditional store before being sold in an outlet store) is generally not.” Id. at *2. A customer to whom it was material could simply ask a sales associate. Id. At issue in this case, though, is not the retail history of the challenged products, but rather the quality of those goods and the extent to which the price at which they are advertised and sold reflects that quality—i.e., the very issue the Park court stated was material to a reasonable consumer. Accordingly, the Court cannot, as a matter of law, credit Defendant’s proposed understanding of reasonable consumer behavior.

The Court then held that the definition of “retail” to the reasonable consumer is not something determinable at the motion to dismiss stage.

The Court cannot determine as a matter of law that the term “retail” as used on the price tags is as clear and unambiguous as Defendant suggests. Plaintiffs have plausibly pled that the terminology used on the price tags may be deceptive or misleading in that some consumers may interpret it to mean that the product is of similar quality to products offered in the “retail” or “boutique” stores. Indeed, Defendant itself recognizes the level of imprecision with which it uses the term “retail” by conceding at least one instance on its own website where it makes a distinction between gift card use in its “retail” versus “outlet” stores. (ECF No. 17-1 at 17.)

 

Casio v. Vineyard Vines LLC, 19-cv-5135 (E.D.N.Y. Feb. 9, 2021) (JMA)(AYS).

Posted by Solomon N. Klein, Litigation Partner

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