Class Actions Clothed in Righteousness: Appeals Court Rejects Bargain-Hunters’ Suits for Lack of Injury

nordstrom rackBy Abbey Coufal, a 2017 Judge K.K. Legett Fellow at Washington Legal Foundation who will be entering her third year at Texas Tech University School of Law in the fall.

Bargain shopping is not for the weary, but there is something thrilling about combing through items on tightly-packed circular racks, with the hope of hunting down the desired piece of clothing at a good price. Landing the perfect deal usually brings a feeling of satisfaction, and does not give rise to conflict with the retailer. But in America, even a bargain-finder who bought an unblemished sweater can turn around and sue the business on behalf of herself and countless other shoppers, claiming they were all fooled into making their purchases.

Inspired perhaps by the recent explosion in state-law fraud claims against packaged-food producers and other makers of consumer goods, in 2014 a Massachusetts plaintiffs’ law firm filed nearly identical consumer-protection class actions against Nordstrom Rack and Kohl’s on behalf of two different bargain-shoppers. The US Court of Appeals for the First Circuit just affirmed dismissal of both suits, providing enterprising lawyers and prospective plaintiffs with a reminder that even in litigation-friendly jurisdictions like the Bay State, actual injury is a prerequisite to a viable claim.

Historically, courts have struggled to adequately determine the types of injuries sufficient to satisfy Article III standing.  The US Supreme Court helped to clarify the issue in the 2016 decision Spokeo, Inc. v. Robins.  The Court held plaintiffs alleging harm under consumer-protection statutes cannot claim Article III standing grounded on bare violations of those laws. Only federal government entities, suing on behalf of the public, can maintain standing in such instances. Plaintiffs suing on their own behalf must also allege the statutory violation caused a particularized and concrete injury.

The First Circuit’s July 26 decisions in Shaulis v. Nordstrom, Inc. and Mulder v. Kohl’s Department Stores, Inc. reflect Massachusetts state courts’ similar understanding that private plaintiffs must provide more proof of injury than a statutory violation to maintain standing in state consumer-protection actions. The federal district court and the First Circuit both applied state-law standing principles in dismissing the suits, appropriately avoiding the creation of an injury where there was none.

In Shaulis v. Nordstrom, Inc., Judith Shaulis filed suit on behalf of herself and a putative class of shoppers against Nordstrom Rack for allegedly misleading retail price-advertising practices. Ms. Shaulis purchased a sweater at the defendant’s store for $49.97. The tag included a “Compare At” price of $219 (i.e., the price consumers pay for the same product elsewhere).  She claimed that the “Compare At” price was deceptive under the Massachusetts Consumer Protection Act because the product was never sold nor intended to be sold for $219 at Nordstrom Rack or any other store.  The district court granted Nordstrom’s motion to dismiss in August 2015, finding that the plaintiff did not suffer actual damages from simply purchasing the sweater.

On appeal, Shaulis once again argued that Nordstrom Rack used the “Compare At” price to mislead consumers about the actual quality of the sweater. Had the price tag omitted the comparison price she claimed, she would not have bought it. The First Circuit agreed with the lower court’s holding that Nordstrom Rack had violated state law by printing a deceptive statement on its price tag. The appeals court, however, also upheld the district court’s decision that such a state-law violation does not per se constitute an actual injury to a private plaintiff.

The court pointed to several Massachusetts Supreme Judicial Court decisions supporting its ruling on injury, including Tyler v. Michaels Stores, Inc., 984 N.E. 2d 737, 745 (Mass. 2013) and Bellerman v. Fitchburg Gas & Electric Light Co., 54 N.E. 3d 1106 (Mass. 2016). Under those decisions, a state-law plaintiff must allege an “‘identifiable harm’ caused by the unfair or deceptive act that is separate from the violation itself.” In cases involving retail products purchased allegedly due to a business’s deception, Massachusetts state courts have required that plaintiffs show that the product or merchandise was “worth less than the selling price,” by reference to standards other than “the plaintiff’s subjective belief as to the nature of the value she received.”

Shaulis did not allege that the sweater was worth less than what she paid, and Nordstrom did not experience any unjust enrichment. The court held that Shaulis’s claim fell short of the injury requirement because she failed to allege an actual monetary loss. Shaulis got, as the district court put it, “exactly what she paid for, no more, and no less.”

In the second case, Mulder v. Kohl’s Department Stores, Inc., the First Circuit affirmed the district court’s dismissal of the plaintiff’s deceptive comparison-pricing claims. Ms. Mulder’s claims were identical to those advanced by Ms. Shaulis, except that Ms. Mulder filed leave to amend her complaint to claim injury from lost travel expenses. The First Circuit agreed with the lower court that such an amendment was futile because Ms. Mulder did not explain how a price tag that she had not seen prior to her travel had caused her to visit Kohl’s.

Targets of deceptive-pricing and other state consumer-protection claims should be encouraged by the First Circuit’s Shaulis and Mulder decisions. They reached conclusions consistent with ideals the US Supreme Court encouraged in Spokeo without once citing the ruling. The decisions in Shaulis and Mulder will likely force plaintiffs’ lawyers in Massachusetts to be more selective when shopping for clients and crafting class-action claims. More broadly, the decisions together offer a positive precedent for courts in states that have consumer-protection statutes similar to the Massachusetts Consumer Protection Act. Standing to sue, and the injury-in-fact required to maintain it, are crucial elements in preserving the judiciary’s limited role in a tripartite system of government.

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