Business of Fashion, Fashion Law

Fake Sales to Make Sales

In March 2015, a federal judge refused to nix a proposed class action* accusing J.C. Penney** of tricking customers into believing they were getting deeper discounts through fake sales.

Dress sale memeDo you consider stated MSRP or final price in your shopping decisions?

U.S. District Judge Fernando Olguin denied J.C. Penney’s motion for summary judgment over whether lead plaintiff Cynthia Spann*** and other potential class members would be entitled to refunds if they could prove the company is liable for deceptively marketing the prices of its clothing.

J.C. Penney argued that Spann had not presented evidence showing that the items she purchased were worth less than the amount that she paid. Adding that even if Spann showed the company was liable for deceptively marketing the prices of its clothing, her suit would still fail because she would not be entitled to restitution because her own economic expert stated that the goods had “an economic value equal to or in excess of the amount she paid.”

The motion turned on the restitution question; J.C. Penney’s potential liability was not considered.

Spann and other potential class members are potentially entitled to restitution because they contend that, had they known that the price comparisons at J.C. Penney were inaccurate, they would not have shopped at the retailer.

Spann originally accused J.C. Penney in 2012 of fabricating false original and sale prices to trick customers into paying full price. And last year one J.C. Penney worker was fired for discussing fake prices.

The outcome of this case will be important to fashion retailers.

For example, outlet stores have long been selling cheaper inferior quality pieces, showing them as marked down from the original price, when those pieces actually never retailed for the higher stated prices.

Outlet stores were originally used to sell items that were not sold at the outlet store’s regular retail stores. Once retailers discovered how profitable outlet stores are, retailers started making products to specifically sell at outlets.

Making inferior products for outlet stores is legal.

What is not legal is the practice of labeling outlet items with an original MSRP and new sale price, when the product was never even intended to be sold at the stated original MSRP.

The FTC regulates this type of retail designations to eliminate fraud. States may add more stringent requirements. For example, while the FTC may state that a product must have at some point been placed for sale at the original MSRP, California designates a three month period as necessary before the sale pricing is considered a true drop from MSRP.

So be sure the reason you are buying something is not because you think it is a good deal.

 


*The case is Cynthia E. Spann v. J.C. Penney Corp. Inc. et al., case number 8:12-cv-00215, in the U.S. District Court for the Central District of California.

**J.C. Penney is short for J.C. Penney Corp. In. The company is represented by Moe Keshavarzi, John Landry and Paul L. Seeley of Sheppard Mullin Richter & Hampton LLP.

***Spann is the a class member and lead plaintiff, represented by Matthew J. Zevin of Stanley Law Group, Derek J. Emge of Emge & Associates and David A. Huch of Law Offices of David Huch.

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