Binder v. Michael Kors, Inc.

Background

The plaintiffs alleged that Michael Kors (USA), Inc. used false reference prices—listed as an "our price" or manufacturer’s suggested retail price—to make outlet merchandise appear more heavily discounted than it was. They asserted claims under consumer-protection laws in New York, New Jersey, California, and Oregon. The complaint was filed as a proposed class action.

The named plaintiffs purchased merchandise at Michael Kors outlet stores in four states. Demetra Binder bought two items in New Jersey; Angela Waldner bought one item in New York; Jennifer McCall bought one purse in California; and JoEllen Barraclough bought two items in Oregon. The complaint alleged that the plaintiffs would not have bought the merchandise without the alleged misrepresentations, did not receive the represented value, and paid an inflated price.

Michael Kors moved to dismiss under Federal Rules of Civil Procedure 12(b)(6) and 9(b). Rule 12(b)(6) tests whether a complaint states a legally sufficient claim. Rule 9(b) requires fraud allegations to identify the circumstances of the alleged fraud in detail, including what was said, who made the statements, and when and where they were made.

New York and New Jersey claims

The court dismissed Waldner’s New York claims under New York General Business Law §§ 349 and 350. The court held that the alleged theories of injury did not establish the required economic injury under New York law. Waldner did not allege that the product was defective or inferior in quality. The court concluded that buying merchandise because of a supposed bargain, and later discovering that the reference price did not represent a real former price, was not enough. The court also held that merely calling the payment a price premium did not establish that Waldner paid extra for a unique quality or value that the merchandise lacked.

The court also dismissed Binder’s New Jersey Consumer Fraud Act claim. New Jersey law requires an ascertainable loss, meaning a measurable or quantifiable injury caused by the alleged unlawful conduct. Binder did not allege repair costs, that the merchandise was essentially worthless, or that the merchandise was worth less than what was promised. The court therefore held that she had not adequately alleged an ascertainable loss.

California and Oregon claims

The court allowed McCall’s California claims under the Unfair Competition Law, False Advertising Law, and Consumer Legal Remedies Act to proceed. It held that her allegations were sufficient under both a benefit-of-the-bargain theory and an overpayment theory. The court concluded that California law can recognize economic injury where a consumer buys merchandise marked down from a fictitious original price or pays more than she otherwise would have because of false representations.

The court also allowed Barraclough’s Oregon claim under the Oregon Unlawful Trade Practices Act to proceed. Oregon law recognizes a purchase-price theory of loss when a consumer alleges that she bought something she would not otherwise have purchased because of the alleged misrepresentation. The court found Barraclough’s allegations sufficient at the motion-to-dismiss stage.

Reasonable consumer standard

The court rejected Michael Kors’s argument that the claims should be dismissed because no reasonable consumer would have been misled. Whether a reasonable consumer would interpret the reference prices as former prices is generally a factual question. The court held that the plaintiffs’ allegations—that the price tags and signs suggested recent former prices and significant bargains—were sufficient to allow the claims to continue. The court did not decide whether the plaintiffs would ultimately prove that a reasonable consumer was misled.

Fraud pleading requirements

The court held that the remaining California and Oregon claims were subject to Rule 9(b) because they were based on alleged fraudulent price advertising. The court found the allegations sufficiently specific. They identified purchases, dates, outlet locations, products, reference prices, purchase prices, and the alleged reason the reference prices were misleading. The plaintiffs’ pre-suit investigation also allegedly showed a broader pattern in which products remained continuously discounted from substantially higher reference prices.

The court therefore denied Michael Kors’s motion to dismiss based on Rule 9(b). The court also declined to grant leave to amend the New York and New Jersey claims, reasoning that the plaintiffs had already amended their complaint, had not explained how another amendment would cure the deficiencies, and appeared unable to correct the legal problems with their injury theories.

Disposition

The court granted Michael Kors’s motion to dismiss in part as to Binder and Waldner and denied it in part as to McCall and Barraclough. The New York and New Jersey claims were dismissed; the California and Oregon claims remained pending. Judge Ho directed the parties to confer and file a joint status letter and proposed case-management and scheduling materials by July 19, 2024.