United States District Court, N.D. California
ORDER DENYING MOTION TO DISMISS RE: DKT. NO.
48
VINCE
CHHABRIA United States District Judge.
Laura
Marks, Gaylia Pickles, and Donna Vandiver have sued Kate
Spade and Company, alleging Kate Spade has violated
California's Unfair Competition Law, Cal. Bus. &
Prof. Code § 17200 et seq., California's
False Advertising Law, Cal. Bus. & Prof. Code §
17500 et seq., California's Consumer Legal
Remedies Act, Cal. Civ. Code § 1750 et seq.,
and Texas' Deceptive Trade Practices Act, Tex. Bus. &
Com. Code § 17.46 et seq. This case in a
putative class action, in which the plaintiffs seek to
represent a class of California consumers and a class of
Texas consumers. The plaintiffs allege that Kate Spade
manufactures inferior quality goods for sale at its outlet
stores, while giving shoppers the false impression that those
items were manufactured for and previously sold at regular
Kate Spade boutiques at much higher prices, such that
shoppers wrongly believe they are getting boutique-quality
goods for a bargain. Kate Spade has moved to dismiss the
plaintiffs' second amended complaint in its entirety for
failure to state a claim. The motion is denied.
I.
Kate
Spade argues that the plaintiffs' claims under the UCL,
FAL, CLRA, and DTPA must be dismissed under Fed.R.Civ.P. 8,
9(b), and 12(b)(6) because the plaintiffs have not pleaded
with the requisite particularity and plausibility that Kate
Spade made a false or misleading statement that is likely to
deceive a reasonable consumer.
It's
true that the plaintiffs' UCL, FAL, CLRA, and DTPA claims
are subject to Rule 9(b) because the plaintiffs' theory
of the violations sounds in fraud. See Fed. R. Civ.
P. 9(b); Cal. Bus. & Prof. Code § 17200; Cal. Bus.
& Prof. Code §§ 17500, 17501; Cal. Civ. Code
§ 1770(a)(13); Tex. Bus. & Com. Code Ann.
§§ 17.46, 17.45(13); Reid v. Johnson &
Johnson, 780 F.3d 952, 958 (9th Cir. 2015); Williams
v. Gerber Products Co., 552 F.3d 934, 938 (9th Cir.
2008); see also Kearns v. Ford Motor Co., 567 F.3d
1120, 1125-27 (9th Cir. 2009); Vess v. Ciba-Geigy Corp.
USA, 317 F.3d 1097, 1105 (9th Cir. 2003); Berry v.
Indianapolis Life Ins. Co., 608 F.Supp.2d 785, 800 (N.D.
Tex. 2009) (quoting Patel v. Holiday Hospitality
Franchising, Inc., 172 F.Supp.2d 821, 824-25 (N.D. Tex.
2001)). "Rule 9(b) demands that the circumstances
constituting the alleged fraud 'be specific enough to
give defendants notice of the particular misconduct . . . so
that they can defend against the charge and not just deny
that they have done anything wrong." Kearns,
567 F.3d at 1124 (quoting Bly-Magee v. Cal., 236
F.3d 1014, 1019 (9th Cir. 2001)).
The
plaintiffs have satisfied Rule 9(b) in the second amended
complaint. The plaintiffs plausibly allege that Kate Spade
uses unique 4-letter product codes to identify merchandise
that it manufactures exclusively for sale at its outlet
stores, and that this merchandise is similar in appearance to
items sold at Kate Spade's flagship boutiques, but of
inferior quality. The plaintiffs also plausibly allege that
Kate Spade advertises former prices for items sold at its
outlet stores using the phrase "our price, " and
tells outlet store customers that the current sale price for
a particular item is a percentage discount from the purported
former "our price." The plaintiffs further allege,
in detail, that their investigation - consisting of internet
comparative and archival research, Kate Spade corporate
documents, and interviews with current and former Kate Spade
employees - has uncovered that Kate Spade's "our
price" representations are false, because goods marked
with the outlet-only 4-letter codes were in fact never sold
at Kate Spade flagship stores or anywhere else at the
advertised "our price" prices, much less within the
relevant time period. See Cal. Bus. & Prof. Code
§ 17501. The plaintiffs plausibly allege that Kate
Spade's representations as to the false "our
price" and the corresponding percentage discount deceive
reasonable consumers into thinking they are purchasing
boutique-quality merchandise at a significant savings, when
in fact they are receiving inferior quality made-for-outlet
merchandise at an inflated price. And the plaintiffs allege
that they themselves were so deceived: that they purchased
particular goods marked with an "our price" former
price and advertised at a particular discount, at identified
Kate Spade outlet stores, on identified dates. The plaintiffs
attach exhibits showing that the items they purchased were
tagged with the unique 4-letter product codes that the
plaintiffs allege Kate Spade uses to differentiate its
inferior, made-for-outlet goods. Finally, the plaintiffs
allege they would not have purchased the items but for Kate
Spade's misrepresentations that they were receiving
boutique-quality merchandise at a significant discount. These
allegations are more than specific enough to give Kate Spade
notice of the alleged misconduct against which it must
defend, and to show that the plaintiffs have a factual basis
for their fraud claims. See Kearns, 567 F.3d at
1125; cf. Sperling v. DSW Inc., No. 15-1366-JGB,
2016 WL 354319, at *7 (C.D. Cal. Jan. 28,
2016).[1]
II.
Kate
Spade also argues that Vandiver's DTPA claim must be
dismissed because Vandiver has not alleged she suffered
actual economic damages, as the statute requires.
See Tex. Bus. & Com. Code § 17.50(a);
Brown v. Bank of Galveston, Nat. Ass'n, 963
S.W.2d 511, 513 (Tex. 1998), abrogated on other grounds
by Ford Motor Co. v. Ledesma, 242 S.W.3d 32 (Tex. 2007).
But the plaintiffs allege that Kate Spade's
made-for-outlet merchandise, which Vandiver purchased, is of
"inferior quality, " and that Kate Spade has
induced consumers to purchase made-for-outlet merchandise
"at artificially inflated prices, " i.e., that the
purportedly "discounted" sale prices were still
higher than the items' true value. Those allegations
support the inference that Vandiver received items that were
worth less than the price she paid for them, such that she
suffered actual economic harm. See W.O. Bankston Nissan,
Inc. v. Walters, 754 S.W.2d 127, 128 (Tex. 1988) (a DTPA
plaintiff can recover actual damages measured either by
"out of pocket" damages, i.e. the difference
between the amount paid and the value received, or
"benefit of the bargain" damages, i.e. the
difference between the value as represented and the value
actually received); cf. Kim v. Carter’s Inc.,
598 F.3d 362, 365 (7th Cir. 2010) ("The plaintiffs
agreed to pay a certain price for Carter's clothing,
which they do not allege was defective or worth less than
what they actually paid."); Shaulis v. Nordstrom
Inc., 120 F.Supp.3d 40, 51 (D. Mass. 2015) ("[I]t
appears [the plaintiff] paid $49.97 for a sweater that is, in
fact, worth $49.97. . . . She does not allege that it is
worth less than the selling price, that it was manufactured
with shoddy materials or inferior workmanship, that it is of
an inferior design, or that it is otherwise
defective.").
III.
In a
similar vein, Kate Spade argues that the plaintiffs'
prayers for monetary damages and monetary restitution must be
dismissed under Rule 12(b)(6) because they have failed to
allege that they overpaid for the items they purchased. But
as previously explained, the plaintiffs allege that Kate
Spade's made-for-outlet merchandise was of inferior
quality and that its sale prices for these items were still
artificially inflated. The plaintiffs' prayers for
monetary damages and restitution therefore survive as well.
IT
IS SO ORDERED.
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Notes:
[1] Kate Spade also argues that the
plaintiffs must allege that neither the items they purchased
nor products "similar to those items" were sold
either by Kate Spade or other retailers at the advertised
"our price" former prices within the relevant time
period under the FAL. See Cal. Bus. & Prof. Code
§ 17501. Kate Spade cites for this proposition a
California Attorney General opinion from 1957. But even if
that stale opinion reflected the Attorney General's
current view of the law, which is doubtful, a state attorney
general opinion is persuasive authority, and is not binding
on this Court. See, e.g., Cent. Delta Water
Agency v. U.S. Fish & Wildlife Serv., 653 F.Supp.2d
1066, 1079 (E.D. Cal. 2009) (citing Louis v. McCormick
& Schmick Restaurant Corp., 460 F.Supp.2d 1153, 1156
n.4 (C.D. Cal. 2006)). Nor does the opinion, in the unlikely
event it remained relevant in some other context, seem
applicable to this case, because it did not seem to
contemplate a situation where a retailer advertised a former
price as "our" price. In that scenario, it makes
little sense to compare "similar" products sold in
other stores. Furthermore, in today's brand-obsessed,
seasonally dependent fashion market, where the finest details
and distinctions make a world of difference to many
consumers, the universe of items that could be considered
truly "similar" to the ones the plaintiffs
purchased would be quite small. Indeed, a product
manufactured by Kate Spade for sale at its boutique stores,
using higher quality materials and better workmanship, of
...