No Deal: Federal Judge Dismisses Consumer Fraud Class Action Against Nike

Last month, a federal judge in Oregon dismissed a putative class action against Nike, Inc. brought by customers who claim they had been misled by the allegedly deceptive suggested prices on Nike items, leading them to believe they were getting a discount when shopping at its outlet stores. See Taylor v. Nike Inc., No. 3:16-cv-00661-MO (D. Or. Feb. 17, 2017).

The Named Plaintiff, Monika Taylor, claimed that when she visited the Nike Outlet Store, she observed several items that were marked with tags containing two prices: a “Sugg. Retail Price” and a lower “Our Price.” Id. at *1. Ms. Taylor alleged that she purchased several items at the store because she was “[e]nticed by the prospect of ‘receiving a bargain.’” Id. In other words, Ms. Taylor claimed Nike led her to believe that she was paying less for items that were previously sold for a higher price, when, in fact, Nike never sold those items at the Sugg. Retail Price.

Thus, Ms. Taylor, on behalf of a putative class of similarly situated consumers, alleged that Nike’s use of the dual price tags was misleading to reasonable consumers and asserted the following causes of action under California law: (1) False Advertising Law (“FAL”); (2) the Consumers’ Legal Remedies Act (“CLRA”); (3) the Unfair Competition Law (“UCL”); and (4) unjust enrichment. Id. at *2.   Nike moved to dismiss all claims against it, arguing that Plaintiff lacked standing to bring suit and that the Complaint failed to satisfy the heightened pleading requirements for claims sounding in fraud. Id.

With respect to standing, Nike argued that Plaintiff lacked standing to bring the state law claims against Nike because she failed to satisfy Article III’s “injury in fact” requirement. Id. at *3.  U.S. District Judge Michael Mosman disagreed, finding instead that Plaintiff did have standing to bring the action. Id. As the Court explained, a party has standing under the UCL, FAL, and/or CLRA when that person has suffered an economic injury as a result of unfair competition. Id. (citing Hinojos v. Kohl’s Corp., 718 F.3d 1098, 1103- 04, 1108 (9th Cir. 2013) as amended on denial of reh’g and reh’g en banc (July 8, 2013)). Here, Plaintiff had sufficiently pled that she sustained an injury in fact, alleging that she “observed merchandise with the dual price tags and understood the tags to mean that she was ‘receiving a bargain’” and that she was “‘induced’ to purchase the items on the prospect of that bargain and would not have purchased them, or paid the prices she did, had she ‘known she was not truly receiving a bargain.’” Id. Thus, the Court found  Plaintiff’s allegations were sufficient to meet the “economic injury” requirement under the UCL, FAL, and CLRA; therefore satisfying the injury in fact requirement of Article III. Id.

The Court, however, found that Plaintiff lacked standing to seek injunctive relief. Id. at *6. The Court explained that “[b]y virtue of her past injury…[Plaintiff] is now aware of any false pricing scheme in which Nike might be engaged” and therefore Plaintiff cannot demonstrate the “imminent prospect of future jury” requirement for injunctive relief since she can no longer be deceived. Id. (explaining that “[t]he fact that California’s consumer protection laws explicitly provide for injunctive relief does not change this conclusion”).

Despite a finding that Plaintiff had Article III standing to bring suit against Nike for economic losses, the Court dismissed the Complaint upon a finding that Plaintiff failed to meet the heightened pleading standard of Federal Rules of Civil Procedure Rule 9(b). Under that standard, a plaintiff must “state the time, place, and specific content of the false representations as well as the identities of the parties to the misrepresentation.” Id. at *7-8. (quoting Schreiber Distrib. Co. v. Serrv-Well Furniture Co., 806 F.2d 1393, 1401 (9th Cir. 1986)). Accordingly, when a plaintiff’s claims are grounded in fraud, as Plaintiff’s are here, the entire pleading “must satisfy the particularity requirement of Rule 9(b).” Id. at *8 (quoting Kearns v. Ford Motor Co., 567 F.3d 1120, 1125 (9th Cir. 2009)).

According to the Court, Plaintiff failed to adequately allege the “falsity” of Nike’s representation. Id. at *11. For example, the Plaintiff did not allege with particularity “how Nike’s price tag is likely to deceive reasonable consumers into believing that the Sugg. Retail Price is a former price.” Id. at *12. Because Plaintiff used the terms “former”, “original” and “regular” interchangeably, the Court found that it was impossible to determine the exact theory upon which Plaintiff claimed she and other consumers were deceived by Nike’s dual price tags. Id. In other words, the Court explained, it was not clear whether Plaintiff was claiming that she had believed that the Sugg. Retail Price was that which the item was offered at a previous time or at non-outlet retailers; whether she believed the Sugg. Retail Price was that which the same items were currently offered at other stores; or whether the Sugg. Retial Price was that which an independent manufacturer determined that item to be worth. Id.

The Court dismissed the Complaint with leave to amend, giving Plaintiff another opportunity to cure her pleading deficiencies. Id. at *19.

This case provides an insightful illustration of Rule 9(b)’s heightened pleading standard that applies to all claims grounded in fraud, including California’s consumer protection laws. It is also a helpful reminder of the requirements for a plaintiff to have standing under Article III.  We will continue to monitor and report on consumer protection and false advertising cases, like this and others, as they arise.