Morrow et al v. Ascena Retail Group, Inc. et al

Filing 34

OPINION AND ORDER: re: 29 MOTION to Dismiss the First Amended Class Action Complaint filed by Ann Inc., 18 MOTION to Dismiss filed by Ann Inc., Ascena Retail Group, Inc. For the foregoing reasons, the motion to dismis s is DENIED. Ann is directed to answer Plaintiff's claims within 21 days of the date of this Opinion and Order. Plaintiff are directed to file a letter with the Court confirming that jurisdiction is proper under 28 U.S.C. 1332(d)(3) and (d)(4) within 21 days of the date of this Opinion and Order. The Clerk of Court is directed to close the motions at Docket Number 18 and Docket Number 29. SO ORDERED. (Signed by Judge J. Paul Oetken on 1/24/2017) (ama)

Morrow purchased a pair of pants from an Ann Taylor Factory store in San Diego,
California; Gennock purchased a pair of pants from an Ann Taylor Factory store in Grove City,
Pennsylvania, and two knit tops from a LOFT Outlet store, also in Grove City. (Id. ¶¶ 15-16.)
Plaintiffs allege that they would not have purchased these garments, or would have paid less for
them, were it not for Ann’s false and misleading advertising. (Id.)
Plaintiffs allege that Ann, whose principal place of business is in New York, engaged in a
nationwide campaign of falsely claiming—on its sales tags, in-store signage, and website—that
products sold in the Outlet Stores were originally or regularly sold at much higher prices. (Id.
¶¶ 2, 17.) Plaintiffs claim that Ann generated “phantom markdowns,” by advertising discounted
prices, based on a false full price (at which the clothing had never been marked for sale). (Id.
¶ 3.) The products sold at a supposed discount in the Outlet Stores, Plaintiffs allege, are
manufactured specifically for the Outlet Stores and were not previously sold in Ann’s retail
stores, rendering “illusory” any advertised “discount” on original prices. (Id. ¶¶ 3, 7.) Ann’s
pattern of false markdowns was “likely to mislead reasonable consumers” into purchasing
particular products on the mistaken belief that they were getting a good deal. (Id. ¶¶ 8-9.)
Plaintiffs claim that Ann’s conduct violates state and federal law. In particular, Plaintiffs
allege violations of California’s Business & Professions Code §17200, et seq. (the “UCL”),
California’s Business & Professions Code §17500, et seq. (the “FAL”), the California
Consumers’ Legal Remedies Act, California Civil Code §1750, et seq. (the “CLRA”),
Pennsylvania’s Unfair Trade Practices & Consumer Protection Law, 73 Pa. Stat. § 201-1, et seq.
(the “UTPCPL”), as well as the laws of numerous other states, and the Federal Trade
Commission Act, 15 U.S.C. § 45, et seq. (“FTCA”), which prohibits “unfair or deceptive acts or

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Plaintiffs fail to state a claim for unjust enrichment. The Court addresses each of these
arguments in turn.
A.

Standing

“‘Federal courts are courts of limited jurisdiction,’ possessing ‘only that power
authorized by Constitution and statute.’” Gunn v. Minton, 133 S. Ct. 1059, 1064 (2013) (quoting
Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994)). Ann argues that
Plaintiffs lack constitutional standing for all claims and statutory standing for the California and
Pennsylvania law claims, as well as the other state consumer-protection law claims.
1. Constitutional Standing
The “irreducible constitutional minimum” of standing in federal court requires: (1)
“injury in fact;” (2) that is “fairly traceable” to a defendant’s challenged conduct; and (3) that is
“likely to be redressed” by a favorable decision. Lujan v. Defenders of Wildlife, 504 U.S. 555,
560-61, 589-90 (1992). The Supreme Court recently clarified the injury in fact requirement in
Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016), requiring that an injury must be both “concrete
and particularized,” id. at 1545 (quoting Friends of the Earth, Inc. v. Laidlaw Envt’l Servs.
(TOC), Inc., 528 U.S. 167, 180-181 (2000)), and holding that a “bare” statutory violation is
insufficient to confer constitutional standing absent some “concrete” harm, id. at 1549.
Ann argues that Plaintiffs fail to plead a concrete injury resulting from Ann’s allegedly
deceptive pricing scheme. In their complaint, Plaintiffs allege that they “would not have
purchased the products” had they known that the products were, in fact, “being sold at their
regular price, rather than at a substantial discount” and were available only at the Outlet Stores
and, not originally at Ann’s full-price retail stores. (Compl. ¶¶ 15-16.) Plaintiffs do not allege,
however, that the merchandise was worth less than the price they actually paid for it.

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Plaintiffs adequately allege an injury in fact to satisfy Article III standing. “[W]hen, as
here, ‘Plaintiffs contend that class members paid more for [a product] than they otherwise would
have paid, or bought it when they otherwise would not have done so’ they have suffered an
Article III injury in fact.” Hinojos v. Kohl’s Corp., 718 F.3d 1098, 1104 n.3 (9th Cir. 2014)
(second alteration in original) (quoting Mazza v. Am. Honda Motor Co., 666 F.3d 581, 595 (9th
Cir. 2012)). 4 Plaintiffs allege that they would not have bought the products absent Ann’s
advertising, which caused them to spend money they would otherwise not have spent. This
injury is concrete, and while it may ultimately prove insufficient to justify relief under the
statutes at issue, it is sufficient to confer constitutional standing.
The cases cited by Ann do not lead to a different conclusion. The majority of cases Ann
relies upon address whether a plaintiff had adequately stated a claim under a particular state
consumer protection law, not constitutional standing. See Camasta v. Jos. A. Bank Clothiers,
Inc., 761 F.3d 732, 739-40 (7th Cir. 2014) (addressing “actual damage” under the Illinois
consumer protection law); Mulder v. Kohl’s Dep’t Stores, Inc., No. 15-11377, 2016 WL 393215,
at *5-6 (D. Mass. Feb. 1, 2016) (addressing “economic injury” under Massachusetts consumer
protection law); Shaulis v. Nordstrom, Inc., 120 F. Supp. 3d 40, 50-53 (D. Mass. 2015) (same). 5
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The Court is unmoved by Ann’s argument that the Supreme Court’s decision in
Spokeo undermines the Ninth Circuit’s holdings in Hinojos or Mazza that where “class members
were relieved of their money by . . . deceptive conduct . . . they have suffered an ‘injury in fact.’”
Mazza, 666 F.3d at 595. (Dkt. No. 30 at 10 n.4.) Spokeo focused on whether bare statutory
violations—absent concrete injury—suffice to confer standing, in the context of a procedural
violation of the Fair Credit Reporting Act. Spokeo, 136 S. Ct. at 1544. It therefore does not
touch cases like Hinojos, Mazza, or the instant case, where plaintiffs allege concrete, monetary
harm. (Compl. ¶¶ 67-68, 78-79.)
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Moreover, Plaintiffs here allege that their injury resulted from the purchase of
products they would not have otherwise purchased, not the bare allegation that “outlet products
are by definition inferior.” Rael v. Dooney & Bourke, Inc., No. 16 Civ. 0371, 2016 WL
3952219, at *4 (S.D. Cal. July 22, 2016).

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2. Statutory Standing for California Claims
Ann also argues that Plaintiffs lack standing under the California UCL, FAL, and CLRA,
which require economic injury.
Standing under the California UCL and FAL is limited to plaintiffs “who ha[ve] suffered
injury in fact and ha[ve] lost money or property” as a result of a statutory violation. Cal. Bus. &
Prof. Code §§ 17204, 17535. “The ‘lost money or property’ requirement . . . requires a plaintiff
to demonstrate ‘some form of economic injury’ as a result of his transactions with the defendant
. . . .” Hinojos, 718 F.3d at 1104 (quoting Kwikset Corp. v. Superior Court, 246 P.3d 877, 885
(Calif. 2011)). Economic injury from unfair competition may be shown in “innumerable ways.”
Kwikset, 246 P.3d at 885. Moreover, finding standing under the UCL and FAL necessarily leads
to a finding of standing under the CLRA. Hinojos, 718 F.3d at 1108.
In Kwikset, for example, the California Supreme Court found the following facts
sufficient to establish standing under the UCL and FAL (and, by extension, the CLRA): “(1)
Kwikset labeled certain locksets with ‘Made in U.S.A.’ or a similar designation, (2) these
representations were false, (3) plaintiffs saw and relied on the labels for their truth in purchasing
Kwikset's locksets, and (4) plaintiffs would not have bought the locksets otherwise.” Kwikset,
246 P.3d at 889.
The allegations here are similar to those that were deemed sufficient to confer statutory
standing in Kwikset: Ann labeled certain products with discounted prices that Morrow (the
California Plaintiff) alleges were based on phantom retail prices, which induced her to buy a
product she would not have otherwise bought. (Compl. ¶¶ 67-68, 78-80.)
Though the alleged misrepresentation in Kwikset involved the nature of the product (that
they were “Made in U.S.A.”), Ann’s argument that only misrepresentations about the nature of

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the product are sufficient to confer standing is unavailing. (Dkt. No. 30 at 12.) Kwikset requires
only that the misrepresentation affect consumers’ “beliefs about quality,” Kwikset, 246 P.3d at
890, and subsequent cases interpreting Kwikset have suggested that its requirements should be
interpreted broadly, see Hinojos, 718 F.3d at 1105, 1107. Prices, like other attributes, can impact
consumers’ perception of merchandise. Plaintiffs therefore adequately allege economic injury
sufficient to confer standing under the UCL and FAL, and, a fortiori, the CLRA.
3. Statutory Standing for Pennsylvania Claims
Ann also argues that Plaintiffs lack standing under the Pennsylvania UTPCPL, which
requires allegation of ascertainable loss.
The UTPCPL provides a private right of action for anyone who “suffers any ascertainable
loss of money or property” as a result of an unlawful practice. 73 Pa. Stat. § 201-9.2(a); see,
e.g., Jarzyna v. Home Props., L.P., 763 F. Supp. 2d 742, 749 (E.D. Pa. 2011). Though “the
Pennsylvania Supreme Court has not definitively addressed what constitutes ascertainable loss
under the statute,” lower state courts have confirmed that such loss must be “established from the
factual circumstances of each case.” Kaymark v. Bank of Am., N.A., 783 F.3d 168, 180 (3d Cir.
2015) (quoting Agliori v. Metro. Life Ins. Co., 879 A.2d 315, 321 (Pa. Super. 2005)), cert. denied
sub nom. Udren Law Offices, P.C. v. Kaymark, 136 S. Ct. 794 (2016).
As above regarding the California claims, Gennock (the Pennsylvania Plaintiff) also
alleges that the product she purchased was worth less than the amount she paid and that she
would not have purchased it but for Ann’s alleged misrepresentation that it had been marked
down from a higher price. (Compl. ¶¶ 67-68, 78-80.) These allegations are sufficiently specific
for standing under the UTPCPL. Compare Allen v. Holiday Univ., 249 F.R.D. 166, 193 (E.D.
Pa. 2008) (finding ascertainable loss where consumers were charged “excessive” health club

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initiation fees), and Cohen v. Chicago Title Ins. Co., 242 F.R.D. 295, 298 n.4 (E.D. Pa. 2007)
(finding ascertainable loss where consumers were charged fees by an insurer in excess of the
filed rate), with Steinberg v. CVS Caremark Corp., 899 F. Supp. 2d 331, 340 (E.D. Pa. 2012)
(dismissing a UTPCPL claim because it lacked “specific factual allegations as to the injury . . .
sustained” on the basis of a pharmacy’s de-identifying purchaser information without any
specifically identified resulting loss).
4. Statutory Standing for Other State-Law Claims
Plaintiffs also allege violations of the consumer protection statutes of dozens of other
states and the District of Columbia. (Compl. ¶¶ 84-97.) Ann argues that these claims should be
dismissed because Plaintiffs lack standing to assert claims under state law from states other than
those in which they reside and have purchased the products that are the subject of their claims.
(Dkt. No. 30 at 15.) Plaintiffs argue in response that they are not asserting individual claims
under these other state laws, but rather that they seek to represent individuals in those states who
are similarly harmed. (Dkt. No. 32 at 14.) The parties do not dispute that the named Plaintiffs
reside and purchased products in California and Pennsylvania only. (See Dkt. No. 30 at 16.)
Standing and class certification are related but discrete inquiries, and courts are divided
as to whether the class-standing issue is more appropriately addressed at the motion to dismiss
stage as a matter of standing or the class certification stage. See generally Newberg on Class
Actions § 2:6 (5th ed.) (describing the two approaches and concluding that “the class
certification approach . . . is preferable to the standing approach”). Indeed, courts in this Circuit
are divided on the precise question at issue here: whether a named plaintiff in a putative class
action can assert claims under state laws other than those of the states where they themselves
suffered injury. Compare In re Bayer Corp. Combination Aspirin Prod. Mktg. & Sales Practices

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Litig., 701 F. Supp. 2d 356, 377 (E.D.N.Y. 2010) (“Whether the named plaintiffs have standing
to bring suit under each of the state laws alleged is ‘immaterial’ because they are not bringing
those claims on their own behalf, but are only seeking to represent other, similarly situated
consumers in those states.” (quoting Ramirez v. STi Prepaid LLC, 644 F.Supp.2d 496, 505
(D.N.J. 2009)), and Blessing v. Sirius XM Radio Inc., 756 F.Supp.2d 445, 452 (S.D.N.Y. 2010)
(“The class certification process will address whether named plaintiffs’ injuries are sufficiently
similar to those of the proposed class to justify a nationwide class action, and the answer to that
question will determine whether there are plaintiffs with standing to bring claims under the laws
of states in which no currently-named plaintiff resides.”), with In re HSBC Bank, USA, N.A.,
Debit Card Overdraft Fee Litig., 1 F. Supp. 3d 34, 50 (E.D.N.Y. 2014) (“[T]his Court ‘finds
more persuasive the numerous cases holding that named plaintiffs lack standing to bring claims
on behalf of a class under the laws of states where the named plaintiffs have never lived or
resided.’” (quoting Smith v. Pizza Hut, Inc., No. 09 Civ. 01632, 2011 WL 2791331, at *9 (D.
Colo. July 14, 2011))), and Simington v. Lease Fin. Grp., LLC, No. 10 Civ. 6052, 2012 WL
651130, at *7 (S.D.N.Y. Feb. 28, 2012) (same).
The Court concludes that the prudent path here is to defer consideration of this issue to
the class certification stage. At this point, it appears that Plaintiffs have adequately pleaded that
the conduct by Ann that resulted in their alleged injuries implicates the same set of concerns as
the conduct alleged to have injured other class members. See NECA-IBEW Health & Welfare
Fund v. Goldman Sachs & Co., 693 F.3d 145, 162 (2d Cir. 2012). At the class certification
stage, the Court will be better positioned to determine whether class members have standing to
pursue claims under the relevant state laws, and whether the claims adequately satisfy the
commonality and typicality requirements of Rule 23 of the Federal Rules of Civil Procedure.

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While the Court is mindful that this concern must be balanced against the additional cost of
multi-state discovery that this delay may impose, deferring consideration of this issue seems
more expedient than dismissing it now (which, assuming class members have standing, could
result in the refiling of multiple additional class actions). See Newberg on Class Actions § 2:8
(5th ed.) (“In the case involving one class representative who lacks standing, where a court must
dismiss for lack of jurisdiction, the dismissal may be little more than formal, for if class counsel
has other available class representatives, then they can simply refile the case in those
representatives’ names.”)
Accordingly, the Court declines to dismiss Plaintiffs’ multistate claims at this stage.
B.

California and Pennsylvania Claims

Ann next argues that Plaintiffs’ California and Pennsylvania claims should be dismissed
because they fail to satisfy the heightened pleading requirements of Rule 9(b). (Dkt. No. 30 at
24.) Plaintiffs do not dispute that Rule 9(b) applies to their claims; rather, they argue that their
complaint satisfies this heightened pleading requirement. (Dkt. No. 32 at 17.) See, e.g., Kearns
v. Ford Motor Co., 567 F.3d 1120, 1124 (9th Cir. 2009) (holding that Rule 9(b) applies to false
advertising claims under California law); Taggart v. Wells Fargo Home Mortg., Inc., 563 F.
App’x 889, 892 (3d Cir. 2014) (Pennsylvania law).
Federal Rule of Civil Procedure 9(b) requires that, “[i]n alleging fraud or mistake, a party
must state with particularity the circumstances constituting fraud or mistake.” The Second
Circuit has held that Rule 9(b) requires a plaintiff to “(1) specify the statements that the plaintiff
contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were
made, and (4) explain why the statements were fraudulent.” DiMuro, 572 F. App’x at 30
(quoting Mills, 12 F.3d at 1175).

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Plaintiffs here have adequately specified the allegedly fraudulent statements. Plaintiffs
describe their purchases with specificity—naming the items they purchased, the dates on which
they made those purchases, and the relevant store locations, and further explaining that they
relied on Ann’s price representations in making these purchases. (Compl. ¶¶ 47-63.) Plaintiffs
also include, in the text of the complaint, receipts from their purchases, which show the allegedly
misrepresentative “original” price and the apparently marked down discount price. (Id. ¶¶ 52,
58, 63.) Plaintiffs also describe price information shown on price tags, which they allege
depicted an original price and a discount price, together with in-store signage describing the
products as discounted. (Id. ¶¶ 48, 54, 60.) The complaint also includes a photograph
describing pants as “40% off.” (Id. ¶ 41.) Plaintiffs further allege that these prices are fraudulent
because the products were originally produced for outlet stores (rather than Ann’s full-price
retail stores) and were never sold—at either the Outlet Stores or the retail stores—at the
advertised “original price.” (Id. ¶¶ 3, 7.) Plaintiffs confirmed this allegation through
investigations—the date and location of at least one of which was specified—that revealed that
the products were always sold at the advertised discounted price. (Id. ¶¶ 70-71.) At this stage,
the Court need not determine whether Ann’s alleged misstatements were actually false, only that
Plaintiffs have identified them with sufficient particularity. These numerous, specific allegations
are sufficient to satisfy the heightened pleading requirement of Rule 9(b).
Ann also argues that Plaintiffs’ UCL, FAL, and CLRA claims should be dismissed
because they fail the “reasonable consumer” test, which requires plaintiffs to show that a
reasonable consumer would be deceived by the alleged representations. See Williams v. Gerber
Prods. Co., 552 F.3d 934, 938 (9th Cir. 2008). However, the “reasonable consumer” question is
“usually . . . a question of fact” best left to a jury and not decided by the Court at the motion to

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dismiss stage. Strumlauf v. Starbucks Corp., No. 16 Civ. 01306, 2016 WL 3361842, at *6 (N.D.
Cal. June 17, 2016) (quoting Williams, 552 F.3d at 938) (noting that “courts will grant a motion
to dismiss on the basis of the reasonable consumer test” only in “rare situations”); Asis Internet
Servs. v. Subscriberbase Inc., No. 09 Civ. 3503, 2010 WL 1267763, at *2 (N.D. Cal. Apr. 1,
2010) (describing the reasonable consumer test as “clearly a question of fact, which is best left
for a jury”). Moreover, the very fact that Ann represented its prices as discounted suggests that
such representations might impact reasonable consumer purchasing decisions.
Construing all inferences in their favor, the Court concludes that Plaintiffs have
adequately carried their burden at this juncture, suggesting that a reasonable consumer would
believe that the advertised “original” prices were the prices at which items were originally sold
in Ann’s retail outlets. A final decision on this question is best left to the finder of fact at a later
date.
C.

FTCA Claims

Ann also argues that Plaintiffs’ claims for violation of the UCL should be dismissed
because they are based on violations of the FTCA, 15 U.S.C. § 41 et seq., which does not allow
for a private right of action. (Dkt. No. 30 at 23.)
It’s true that if Plaintiffs’ claims actually arose under the FTCA, they should be
dismissed. See Rotblut v. Ben Hur Moving & Storage, Inc., 585 F.Supp.2d 557, 560 (S.D.N.Y.
2008) (“[T]he Federal Trade Commission Act, which prohibits unfair or deceptive practices,
does not provide for a private cause of action.”). But none of Plaintiffs’ individual claims arise
under the FTCA. (Compl. ¶¶ 99-152.) Rather, Ann argues that Plaintiffs’ UCL claim is actually
“based” on the FTCA and should be dismissed for that reason. (Dkt. No. 30 at 23.) This
argument fails for two reasons. First, the UCL claim is based not only on the FTCA, but also

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upon independent violations of California state law. (See Compl. ¶ 108.) Second, though the
FTCA does not include a private right of action, courts have held that FTCA violations can be
relied upon in asserting violation of other statutes that do confer such a private right of action.
See Spann v. J.C. Penney Corp., 307 F.R.D. 508, 521 n.5 (C.D. Cal. 2015) (“Although the FTCA
does not provide an individual cause of action, the California Supreme Court has made clear that
[the UCL] ‘borrows violations of other laws and treats these violations, when committed
pursuant to business activity, as unlawful practices independently actionable.’” (internal citation
omitted) (quoting Farmers Ins. Exch. v. Superior Court, 826 P.2d 730 (Calif. 1992)); cf. Casper
Sleep, Inc. v. Mitcham, No. 16 CIV. 3224, 2016 WL 4574388, at *4 (S.D.N.Y. Sept. 1, 2016)
(holding that plaintiffs can rely on FTCA violations in alleging false advertising under the
Lanham Act).
D.

Unjust Enrichment

Last, Ann argues that Plaintiffs fail to state a claim for unjust enrichment. (Dkt. No. 30 at
24.)
“To prevail on a claim for unjust enrichment in New York, a plaintiff must establish 1)
that the defendant benefitted; 2) at the plaintiff's expense; and 3) that equity and good conscience
require restitution.” Kaye v. Grossman, 202 F.3d 611, 616 (2d Cir. 2000) (internal quotation
marks omitted). “Under New York law, it is ‘contrary to equity and good conscience’ to enable
a party to benefit from misleading representations.” Waldman v. New Chapter, Inc., 714 F.
Supp. 2d 398, 404 (E.D.N.Y. 2010) (citing Firestone v. Miroth Const. Co., 215 A.D. 564, 565
(N.Y. App. Div. 1st Dep’t 1926)).

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