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Date: May 9, 2024

NJSC Holds That Use of Fictitious Former Price May Violate the Consumer Fraud Act But Is Not Sufficient to Establish Loss

by Foley Mansfield
Date: May 9, 2024
by Foley Mansfield

NJSC Holds That Use of Fictitious Former Price May Violate the Consumer Fraud Act But Is Not Sufficient to Establish Loss

The New Jersey Supreme Court (4-3 split decision) held on March 25, 2024, that while a retailer may violate the Consumer Fraud Act, if there is no ascertainable loss, there are no real consequences (except potentially being court ordered to cease such practices).

In Robey v. SPARC Grp. LLC, (2024 N.J. LEXIS 255) the use of a fictitious former price in violation of N.J.A.C. 13:45A-9.6 (deemed to be a violation of the Consumer Fraud Act), was not sufficient, in and of itself, to establish a compensable loss for plaintiffs.

The main issue before the Court was whether or not plaintiffs suffered an “ascertainable loss” when they were induced to purchase products offered at a discount, when the discount was merely “illusory”.

The facts of the case are simple. Plaintiffs purchased a sweatshirt marked 60% off the original price; purchased three t-shirts advertised as “Buy 1 Get 2 Free”; and purchased a pair of pants advertised as 50% off the original price. Plaintiffs contend the items they purchased “on sale” are never offered for the “original” price. As such, the “discounts” were illusory with the reference prices being fictitious.

Plaintiffs brought claims under the Consumer Fraud Act (CFA), N.J.S.A. 56:8-1 to -227; the Truth in Consumer-Contract, Warranty and Notice Act (TCCWNA), N.J.S.A. 56:12-14 to -18; as well as various common law contract rights.

While the Appellate Division, with no disagreement from Defendant, found Defendant’s conduct violates the CFA, the Supreme Court found plaintiffs did not suffer an “ascertainable loss…as a result of the use or employment by another person of any…practice declared unlawful under” the CFA. Robey v. SPARC Grp. LLC, 2024 N.J. LEXIS 255, at 8-9

In order to establish an ascertainable loss, a plaintiff must demonstrate either an “out-of-pocket loss or a deprivation of the benefit of one’s bargain. “Out-of-pocket damages represent the difference between the price paid and the actual value received,” while “benefit-of-the-bargain principles allow ‘recovery for the difference between the price paid and the value of the property had the representations been true.’”

Plaintiffs claim they have suffered an ascertainable loss as “(1) the average consumer reasonably interprets prices to represent the quality and value of goods sold; (2) the goods they purchased were never sold at the reference prices indicated; (3) they purchased the goods in reliance on misrepresentations; and (4) the true objective quality, value, and worth of the goods purchased is less than what the reference prices represented.” They further claim they have demonstrated loss of benefit-of-the-bargain as the clothing they purchased “lacked the objective value and quality the reference price represented.”

Plaintiffs pled damages based on 1) the difference between their purchase price and the reference price; and 2) out-of-pocket expenses based on the fact that defendants misrepresentations included them to make purchases.

To state a claim under the CFA, a plaintiff must plead an unlawful practice, an ascertainable loss, and a causal relationship between the two. The ascertainable loss must be “quantifiable or measurable” and not “hypothetical or illusory.”

An out-of-pocket loss occurs when an item is either unusable for its intended purpose or causes a buyer to incur additional costs. A benefit-of-the-bargain loss occurs when the value of what is received is less than as advertised.

In upholding the trial court’s decision to dismiss plaintiffs’ complaint, the Supreme Court found plaintiffs did not sufficiently plead facts to establish an ascertainable loss under either theory. Plaintiffs did not allege 1) the clothing was worthless or unsuitable for their intended use; 2) they spent or will spend money to make the clothes usable for their intended purpose; 3) they attempted to return the clothing; 4) the clothing was “materially different” from what was advertised; or 5) any dissatisfaction with or defects in the clothing.

Since the Court determined plaintiffs did not incur an ascertainable loss, they were also not “monetarily aggrieved” for purposes of the TCCWNA. Furthermore, the Court found plaintiffs’ common law claims also failed: 1) with no alleged ascertainable loss, their claim for breach of contract failed; 2) as plaintiffs received the benefit of the bargain with no ascertainable loss, their claim for breach of implied covenant of good faith and fair dealing failed; and 3) as the clothing was not defective, their claims for breach of express warranty also failed.

Last, the Supreme Court held plaintiffs could not seek injunctive relief as they did not plead an ascertainable loss. However, under the CFA, the Attorney General who supported plaintiffs as amicus can seek a court order prohibiting businesses from advertising illusory discounts or fictitious former prices.

Note, the dissent focused on the fact the Court has repeatedly stressed the “CFA’s broad remedial purposes and the legislature’s manifest intent in enacting the CFA to protect consumers from fraudulent commercial practices in the marketplace.” In juxtaposition to the majority, the dissent found plaintiffs successfully alleged they suffered an “ascertainable loss.” The dissent argued plaintiffs alleged with specificity they “failed to receive the full benefit of the purported discounts, did not receive the claimed value of their purchase, rather receiving items worth far less that the value claimed” by defendant. Further, an ascertainable loss was suffered as plaintiffs “would not have made any purchases but for Defendant’s false promises they were receiving merchandise at a significant discount”.  Additionally, policy considerations included that the CFA authorizes a private right of action incentivized by treble damages, and award of attorneys’ fees; the Attorney General advocated at oral argument there are “simply too many fictitious pricing violations in the marketplace…to be able to prosecute them all;” and various news outlets have reported on the widespread fictitious pricing schemes of major companies.

 

Contact:

Michael Posavetz

Related Practice Areas:
Business & Corporate
Commercial Litigation

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