California continues to serve as a hotbed for reference-pricing and false discount litigation.  In a recent decision, Loza v. Hobby Lobby Stores, Inc., Judge Araceli Martínez-Olguín largely denied defendant Hobby Lobby’s motion to dismiss a putative class action lawsuit challenging the retailer’s use of purported “market value” prices and perpetual discount advertising.  This decision highlights the litigation risks facing retailers that rely on reference pricing, particularly for exclusive or private-label products. 

The Allegations

The plaintiffs are multiple individuals who alleged that they had purchased various goods from Hobby Lobby, and that Hobby Lobby had engaged in a deceptive pricing scheme by advertising these products as being discounted from higher “marked” or “market value” prices that allegedly did not reflect genuine market conditions.  Hobby Lobby had displayed the advertising both online and in stores near the products.  According to the Second Amended Complaint (the “SAC”), the challenged products fell into two categories:

• Always Discounted Products: products allegedly advertised as discounted every day, such that the purported reference price was never meaningfully charged; and
• Habitually Discounted Products: products advertised as subject to temporary sales, but allegedly offered at discounted prices so frequently that the sale price effectively became the regular selling price.

The plaintiffs asserted claims under California’s False Advertising Law (“FAL”) (Cal. Bus. & Prof. Code § 17501), Unfair Competition Law (“UCL”), and Consumer Legal Remedies Act (“CLRA”), and claims of fraud, negligent misrepresentation, and unjust enrichment.  A significant part of the plaintiffs’ theory was that many of the at-issue products were allegedly sold exclusively by Hobby Lobby, so despite Hobby Lobby claiming a higher “market price,” there was no genuine external market from which a valid “market value” price could be derived.

The Decision

Judge Martínez-Olguín largely permitted the action to proceed, dismissing only portions of the plaintiffs’ California Business & Professions Code § 17501 claim and the unjust enrichment claim.

Plaintiffs Plausibly Alleged Deceptive Reference Pricing.  The centerpiece of the opinion is the court’s treatment of Hobby Lobby’s “market value” pricing representations.  The retailer argued that its advertisements were not misleading because they disclosed that: “Discounts [were] provided every day” and that “marked prices reflect general U.S. market value for similar products.”  Importantly, the court focused on the allegation that Hobby Lobby sold certain products exclusively, and reasoned that if a retailer is the sole seller of a product, plaintiffs may plausibly allege that there is no independent market price supporting a claimed comparison or “market value” benchmark.  The court determined that the plaintiffs’ had thus adequately alleged that for products exclusive to Hobby Lobby, the store deceptively advertises a reference price where none exists.

Disclaimers Did Not Necessarily Defeat Claims.  The court rejected Hobby Lobby’s argument that its disclaimer language resolved any potential deception, distinguishing between (a) claims that Hobby Lobby's explanation of what the reference price purported to represent was misleading, and (b) claims that the reference price itself was false, inflated, or unsupported.  Even assuming consumers understood that the comparison price represented a purported “market value” rather than a former selling price, the court found that plaintiffs could still pursue claims based on allegations that the benchmark itself lacked a factual basis.  This is particularly important, given that many retailers rely on disclaimer language as a first line of defense in pricing litigation.

Court Applied Practical 9(b) Standard.  The court rejected Hobby Lobby’s argument that plaintiffs failed to plead fraud with sufficient particularity, as required by Federal Rule of Civil Procedure 9(b).  The defendant retailer argued that the plaintiffs failed to satisfy Rule 9(b) requirements for three reasons: (1) they did not identify specific advertisements they saw; (2) they did not allege with specificity when they purchased an item; and (3) in many instances, they failed to allege what specific item they purchased. However, the court found that the plaintiffs had identified the stores where they purchased products, the approximate purchase dates, the categories of purchased products, and the advertisements and discount percentages they allegedly observed, and found that these allegations were sufficient.

Hobby Lobby’s Partial Victory.  The court, did, however, agree with Hobby Lobby on two important issues.  First, California Business & Professions Code § 17501 regulates advertising based on former prices.  Where Hobby Lobby’s advertisements expressly disclosed through an asterisk that the challenged figure represented “general U.S. market value” rather than a former selling price, the court concluded that plaintiffs could not proceed on a theory that the retailer was advertising a fictitious former price.  The court dismissed that claim without leave to amend.  In addition, the court dismissed the plaintiffs’ unjust enrichment claim (with leave to amend), finding that plaintiffs had not adequately alleged that the products they received were worth less than what they paid.

Why This Decision Matters

The Loza decision is part of a growing body of reference-pricing cases scrutinizing common advertising practices, and provides important takeaways for retailers. 

First, the court was receptive to the theory that comparison prices for exclusive or private-label products may be inherently suspect because no independent market exists to validate the claimed benchmark.  Retailers selling private-label or exclusive products should be prepared to substantiate any claimed “market value,” “compare at,” or similar reference price. 

Second, the decision suggests that disclaimers may not provide complete protection where plaintiffs challenge the accuracy of the underlying reference price itself rather than the manner in which the retailer's explained the reference price. Retailers should think carefully before adding a disclaimer that helps clarify what a reference price represents when the benchmark itself does not exist (or is not totally accurate).

Third, the ruling demonstrates that courts—at least in the Northern District of California—continue to allow well-pleaded reference-pricing claims to survive the motion-to-dismiss stage, even where the challenged advertising includes explanatory disclosures.  Companies should periodically evaluate whether advertised sale prices have effectively become regular prices and whether reference-pricing claims remain substantiated.