Kate Spade fails to toss outlet lawsuit alleging inferior quality compared to boutiques

Irvine v. Kate Spade & Co., 2017 WL 4326538, No. 16-CV-7300
(S.D.N.Y. Sept. 28, 2017)
Plaintiffs alleged that Kate Spade marks merchandise sold at
outlets with an illusory and arbitrarily higher price from which a substantial
“discount” is then offered, in violation of New York’s GBL § 349 and Florida’s
Deceptive and Unfair Trade Practices Act (FDUTPA). Plaintiffs bought
merchandise at outlet stores; the products were marked with unique four-letter
identifiers and advertised with two prices: Tags on the goods themselves listed
a figure referred to as “Our Price,” while signs advertised steep discounts
ranging from twenty to seventy percent off; the two prices appeared again on
sales receipts along with a number reflecting the relevant percentage “off” the
product, and a final total amount of “savings.”
However, the goods at Kate Spade outlets were allegedly
fundamentally different than the goods at Kate Spade boutiques, and had never
been offered for sale at the “Our Price” figure either at Kate Spade boutiques
or at third-party retailers. These products were allegedly “of inferior
craftsmanship and utilized different hardware, materials, logos and product
demarcations.” Plaintiffs alleged that they wouldn’t have made their purchases,
or would’ve paid less than they did, but for their “mistaken belief” that they
were purchasing “boutique-quality merchandise at substantially reduced outlet
prices.”
The parties disputed whether Rule 9(b) applied, requiring
the claims to be pled with particularity. 
Courts have divided both for §349 and FDUTPA.  The court here reasoned that plaintiffs’
claims weren’t “premised on allegations of fraud,” as they didn’t claim actual
reliance or knowing intent to induce reliance. 
Thus, the court concluded that only Rule 8(a) applied.
The parties treated the statutes the same in other ways, and
the court analyzed the claims under both states’ laws together. The court
accepted one theory of deceptiveness and rejected another.  First, plaintiffs alleged that Kate Spade
“misrepresented the existence, nature and amount of price discounts” in their
outlet stores by “tout[ing] steep discounts” from former retail prices that
“did not constitute the prevailing market retail prices or values.”  Although this conduct is generally unlawful,
that didn’t mean that the plaintiffs had standing—both NY and Florida required
actual injury.  Allegations that a
plaintiff paid a price premium or didn’t receive the product for which she paid
would suffice, but under this theory neither occurred.  Deception itself is not injury.  Neither is pleading that one wouldn’t have
bought a product but for a deceptive practice. 
It wasn’t enough to allege conclusorily that the deception induced them
to pay more than they were subjectively willing to pay otherwise—that
disappointment isn’t cognizable.  In the
absence of allegations that, for example, Kate Spade sells the same products
for a lower price when they don’t have the allegedly deceptive “Our Price”
anchoring them, there was no connection between the alleged deception and the
injury.  (Query how the research about
anchoring and perceptions of value should play into this; the court accepts a
similar theory below when connected to quality, but it seems to me that the
same manipulation of perceptions of value could also lead people to pay more
than they’d otherwise pay under the pure “deceptively marketed” theory.)

Second, plaintiffs alleged that Kate Spade “touted its
artificially inflated former ‘our price’ price as a value anchor to create the
illusion of greater” quality, even though “the Outlet Merchandise was of
inferior quality.”  It was plausible that
the “Our Price” labels conveyed an implicit message of quality and that that
message is false or misleading.  By
alleging that the goods they purchased at the Kate Spade outlets were worth less
than than the “discounted” prices they paid, plaintiffs alleged a plausible,
and cognizable, injury. 

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