When you get what you pay for: the First Circuit examines the injury requirement under Massachusetts chapter 93A.

Industries:

On July 26th, the First Circuit issued rulings in putative consumer class actions brought by the same attorney against two national department store chains, challenging their allegedly deceptive use of comparative pricing on their in-store price tags.  In the first case, brought against Nordstrom, the court engaged in a careful review of a series of Massachusetts decisions interpreting the state’s consumer protection act, Massachusetts General Laws chapter 93A.  In the second case, against Kohl’s, the court continued the analysis to fill a procedural gap left open in the first case.  In the end, the court reinforced the Massachusetts cases holding that proof of an unfair or deceptive act or practice, without more, is not sufficient to support a claim under the Massachusetts statute.  Rather, plaintiffs must also prove that the violation caused them harm.  Because plaintiffs in these cases did not allege that products themselves were other than represented, but only that they subjectively believed that they were getting a good bargain, the court held that they failed to show harm, and affirmed the district court’s dismissal of the two lawsuits.

The facts alleged are straightforward.  Plaintiff Judith Shaulis bought a sweater at a Nordstrom Rack outlet store for $49.97.  The price tag attached to the sweater included a “Compare At” price of $218.  Shaulis alleged that the sweater was never sold at the higher price, and that the “Compare At” device was used to mislead consumers about the sweater’s quality.  Similarly, Plaintiff Mulder purchased several items from a Kohl’s store.  The price tags on these items also listed higher comparison prices.  Mulder alleged that these prices were fictional, and designed to mislead consumers about the quality of the products.  Both plaintiffs asserted claims under chapter 93A and under theories of fraud, breach of contract and unjust enrichment.

In Shaulis v. Nordstrom, Inc., Judge Lipez, writing for a unanimous panel, examined the First Ciruit’s own 93A jurisprudence as well as a series of decisions from the Massachusetts Supreme Judicial Court which, the court explained, “had ‘moved away’ from the ‘per se’ theory of injury supported by earlier cases.”  Although earlier cases had suggested that an unfair or deceptive act alone could constitute injury, more recent decisions have required a showing of “economic injury in the traditional sense.”  (Some of the decisions the court reviewed have been the subject of earlier posts to this blog, here and here.)

Shaulis alleged that she was harmed because she would not have bought the sweater had the price tag not included the comparison price.  The court held that, even assuming the comparison pricing ran afoul of Massachusetts pricing regulations, the mere allegation that plaintiff purchased an item that she would not otherwise have purchased is not enough to support a finding of injury.  Rather, to show injury, she would have had to show that she was deceived into buying a product that was of lesser quality than represented:

She identifies no objective injury traceable to the purchased item itself — for example, that the sweater was poorly made or that its materials were misrepresented.  Such a purchase-as-injury claim collapses the SJC’s required distinction between deception and injury by attempting to plead an assertion about a consumer’s disappointed expectations of value in place of an allegation of real economic loss.

Shaulis tried to distinguish some of the later SJC decisions finding no injury, but the court explained that “a primary rationale for those decisions” was “that the plaintiffs had received everything they had bargained for.”  The court concluded:

At bottom then, Shaulis’s alleged “injury” is only that Nordstrom tricked her into believing that she was getting a bargain, and not . . . that the product itself was deficient in some objectively identifiable way.  That perceived adverse impact — as the district court put it, “the subjective belief as to the nature of the value [Shaulis] received” — does not state a legally cognizable economic injury under Chapter 93A because it fails to identify anything objective that Shaulis bargained for that she did not, in fact, receive.

Shaulis raised additional arguments in a futile struggle to save her claim.  First, she invoked Chapter 93A’s provision for awards of statutory damages, but the court explained that even statutory damages are unavailable where there is no proof of injury.  Second, she contended that, even if her damages claims was dismissed, she was entitled to injunctive relief, but here too the court held that a showing of injury was a prerequisite to obtaining relief.  Shaulis warned that failure to allow a claim for injunctive relief would leave Massachusetts consumers vulnerable to dishonest pricing schemes, but the court pointed out that the Massachusetts Attorney General is authorized to enforce the state’s pricing regulations even without a showing of injury.  Moving past the statutory claim, the court had little trouble rejecting Shaulis’s claims for fraud and breach of contract because she had not adequately alleged injury or breach, and her claim for unjust enrichment because she had an adequate remedy at law (noting that what is relevant is the availability of an adequate remedy of law, not its viability.)

What distinguished Mulder v. Kohl’s Department Stores, Inc. from Shaulis v. Nordstrom, Inc. was that Mulder, unlike Shaulis, had moved to amend her complaint to add a new claim of injury, in the form of travel expenses incurred in going to the defendant’s store.   In both decisions, the court pointed out the fatal absence of a viable theory of causation – after all, how could a consumer be fraudulently induced to travel to a store by an allegedly deceptive price tag that she didn’t see until after she arrived there?  Nor could Mulder rely generally on Kohl’s reputation or its advertising of “amazing prices,” because Fed. R. Civ. P. 9(b) requires plaintiffs to plead fraud with particularity (including “the time, place, and content of an alleged false representation.”)  Finally, the court rejected the “induced purchase” theory of injury, finding no authority for it in Massachusetts jurisprudence.

The First Circuit’s decisions in these two deceptive-pricing cases reaffirm the trend in chapter 93A case law away from early “per se” injury decisions towards the requirement that a plaintiff allege and prove concrete, objective harm.  Because many Massachusetts class actions include claims under Chapter 93A, practitioners should become familiar with these decisions, and especially with the court’s illuminating review of the relevant SJC decisions set forth in Shaulis v. Nordstrom, Inc.