Hinojos v. Kohl's Corp.

• Decision Date: 08 July 2013
• Docket Number: No. 11–55793.,11–55793.
• Citation: 718 F.3d 1098
• Court: U.S. Court of Appeals — Ninth Circuit
• Parties: Antonio S. HINOJOS, individually and on behalf of all others similarly situated, Plaintiff–Appellant, v. KOHL'S CORPORATION, a Wisconsin corporation; Kohl's Department Stores, Inc., a Delaware corporation, Defendants–Appellees.

718 F.3d 1098

Antonio S. HINOJOS, individually and on behalf of all others similarly situated, Plaintiff–Appellant,

v.KOHL'S CORPORATION, a Wisconsin corporation; Kohl's Department Stores, Inc., a Delaware corporation, Defendants–Appellees.

No. 11–55793.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Jan. 10, 2013.

Filed May 21, 2013.

As Amended on Denial of Rehearing and Suggestion of Rehearing En Banc July 8, 2013.

Matthew J. Zevin (argued), Stanley • Iola, LLP, and Derek J. Emge, Emge & Assoc., San Diego, CA, for Plaintiffs–Appellants.

James F. Speyer (argued), Arnold & Porter LLP, Los Angeles, CA, for Defendants–Appellees.

Appeal from the United States District Court for the Central District of California, Otis D. Wright, II, District Judge, Presiding. D.C. No. 2:10–cv–07590–ODW–AGR.

Before: STEPHEN REINHARDT, KIM McLANE WARDLAW, and RICHARD A. PAEZ, Circuit Judges.

Opinion by Judge REINHARDT; Concurrence by Judge WARDLAW.

OPINION

REINHARDT, Circuit Judge:

Most consumers have, at some point, purchased merchandise that was marketed as being “on sale” because the proffered discount seemed too good to pass up. Retailers, well aware of consumers' susceptibility to a bargain, therefore have an incentive to lie to their customers by falsely claiming that their products have previously sold at a far higher “original” price in order to induce customers to purchase merchandise at a purportedly marked-down “sale” price. Because such practices are misleading—and effective—the California legislature has prohibited them.

The Plaintiff here, Antonio Hinojos, alleges that he was a victim of such a practice and bought merchandise from a Kohl's Department Store that he would not have purchased had he not been misled by advertisements stating that the merchandise was marked down from a fictitious “original” or “regular” price. The only question before us on this appeal is whether Hinojos alleges that he “lost money or property” and, therefore, has statutory standing under California law to sue Kohl's to enforce California's prohibition on this deceptive marketing practice. Kohl's argues, and the district court agreed, that Hinojos lost neither money nor property because he acquired the merchandise he wanted at the price that was advertised, even if the advertised price was falsely represented as a “sale.” Because the California Supreme Court has previously rejected a similar argument, holding that a consumer has “lost money or property” so long as false advertisements induced him to buy a product he would not have purchased or to spend more than he otherwise would have spent, we reverse. For similar reasons, we also reverse the district court's dismissal of Hinojos's nearly identical claims under California's Consumer Legal Remedies Act.

Factual Background

Kohl's Corporation and its wholly owned subsidiary Kohl's Department Stores, Inc. (collectively, “Kohl's” or “the Defendants”), are retailers that operate a chain of general department stores selling clothing, footwear, home products and accessories. Hinojos purchased several items of apparel and luggage at a Kohl's department store. Hinojos alleges that he relied upon deceptive advertisements in deciding to purchase these items from Kohl's. Specifically, he alleges that he purchased several items ¹ that were advertised as being substantially reduced from their “original” or “regular” prices but that were, in reality, routinely sold by Kohl's at the advertised “sale” prices rather than the purported “original” or “regular” prices. Hinojos further alleges that the advertised “original” or “regular” prices did not reflect prevailing retail market prices during the three months immediately preceding the publication of the advertisements in question. Finally, Hinojos alleges that he “would not have purchased [these] products at Kohl's in the absence of Kohl's misrepresentations.”

Procedural Background

Hinojos filed a putative class action complaint in California Superior Court asserting causes of action under California's Unfair Competition Law (UCL), Cal. Bus. & Prof.Code § 17200, et seq.; Fair Advertising Law (FAL), Cal. Bus. & Prof.Code § 17500, et seq.; and Consumer Legal Remedies Act (CLRA), Cal. Civ.Code § 1750, et seq. Kohl's removed the action to the federal district court pursuant to the Class Action Fairness Act, 28 U.S.C. § 1332(d)(2). On December 1, 2010, the district court dismissed Hinojos's UCL and FAL claims, determining that Hinojos did not have standing under the UCL or the FAL, which require a plaintiff to have “lost money or property” as a result of the defendant's false advertising in order bring a claim, because Hinojos had acquired the merchandise he wanted at the price advertised.

Shortly thereafter, the California Supreme Court published its opinion in Kwikset Corp. v. Superior Court, 51 Cal.4th 310, 120 Cal.Rptr.3d 741, 246 P.3d 877 (2011), which held that the purchasers of goods falsely labeled “made in U.S.A.” had standing under the UCL and FAL when the purchasers alleged that the false labeling induced them to purchase the goods and they would not have purchased them otherwise. Hinojos filed a motion for reconsideration based on Kwikset, which the district court denied after concluding that Kwikset applied only to false advertisements regarding a product's “composition, effects, origin, and substance.”

On April 25, 2010, the district court granted the Defendants' FRCP 12(c) motion for judgment on the pleadings and dismissed Hinojos's only remaining claim, i.e., his CLRA claim. The district court concluded that Hinojos did not have standing under the CLRA because he was unable to show he suffered “any damage” as a result of Kohl's false advertising. Hinojos timely appealed the dismissal of his UCL, FAL, and CLRA claims.

Jurisdiction and Standard of Review

The district court had jurisdiction over this putative class action under 28 U.S.C. § 1332(d)(2) because Hinojos is a citizen of California, the Defendants are citizens of another state and the amount in controversy exceeds $5,000,000. We have jurisdiction under 28 U.S.C. § 1291.

We review de novo the district court's dismissal of Hinojos's claims. See Berg v. Popham, 412 F.3d 1122, 1125 (9th Cir.2005) (holding that a district court's grant of both FRCP 12(b) and 12(c) motions are reviewed de novo ). As a federal court sitting in diversity, we “must apply the substantive law of California, as interpreted by the California Supreme Court,” Karen Kane Inc. v. Reliance Ins. Co., 202 F.3d 1180, 1183 (9th Cir.2000), even if that law changes after judgment is entered below. See Nelson v. Brunswick Corp., 503 F.2d 376, 381 (9th Cir.1974).

Analysis

I

The UCL is a broad California statute that prohibits business practices that constitute “unfair competition,” which is defined as

any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising and any act prohibited by Chapter 1 (commencing with Section 17500) of Part 3 of Division 7 of the Business and Professions Code.

Cal. Bus. & Prof.Code § 17200. The UCL expressly incorporates the FAL's prohibition on unfair advertising as one form of unfair competition. The FAL, in turn, provides in relevant part:

No price shall be advertised as a former price of any advertised thing, unless the alleged former price was the prevailing market price ... within three months next immediately preceding the publication of the advertisement or unless the date when the alleged former price did prevail is clearly, exactly and conspicuously stated in the advertisement.

Cal. Bus. & Prof.Code § 17501. Thus, the FAL expressly prohibits the type of false advertising that Kohl's allegedly engaged in and the UCL provides individual consumers with a cause of action to enforce that prohibition. ²

In 2004, however, the voters of California passed Proposition 64, which restricts standing for individuals alleging UCL and FAL claims to persons who “ha[ve] suffered injury in fact and ha[ve] lost money or property as a result of the unfair competition.” Cal. Bus. & Prof.Code §§ 17204 (UCL), 17535 (materially identical standard under the FAL); see Kwikset, 120 Cal.Rptr.3d 741, 246 P.3d at 884 (holding that the UCL and FAL standing requirements are identical). The California SupremeCourt has held that the purpose of Proposition 64 was to “curtail the prior practice of filing suits on behalf of clients who have not used the defendant's product or service, viewed the defendant's advertising, or had any other business dealings with the defendant.” Clayworth v. Pfizer, Inc., 49 Cal.4th 758, 111 Cal.Rptr.3d 666, 233 P.3d 1066, 1086–87 (2010) (internal quotation marks omitted). However, Proposition 64 “just as plainly preserved standing for those who had had business dealings with a defendant and had lost money or property as a result of the defendant's unfair business practices.” Id., 111 Cal.Rptr.3d 666, 233 P.3d at 1087.

The “lost money or property” requirement therefore requires a plaintiff to demonstrate “some form of economic injury” as a result of his transactions with the defendant, Kwikset, 120 Cal.Rptr.3d 741, 246 P.3d at 885, although “the quantum of lost money or property necessary to show standing is only so much as would suffice to establish [Article III] injury in fact,” id., 120 Cal.Rptr.3d 741, 246 P.3d at 886.³ There are “innumerable ways” that a consumer can show economic injury from unfair competition.⁴Id., 120 Cal.Rptr.3d 741, 246 P.3d at 885.

The Kwikset Court explained precisely what a plaintiff must allege when he wishes to satisfy the economic injury requirement in a case involving false advertising: “[a] consumer who relies on a product label and challenges a misrepresentation contained therein can satisfy the standing requirement of section 17204 by alleging ... that he or she would not have bought the product but for the misrepresentation.” Id., 120 Cal.Rptr.3d 741, 246 P.3d at 890.Kwikset...