Shimono v. Harbor Freight: Lawsuit Alleging False Advertising in “Sale” Prices Moves Forward

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In May of 2016, Plaintiff Ted Shimono filed suit against Harbor Freight, a discount tool and equipment retailer, in the Central District of California. The complaint alleged that Harbor Freight, by listing a “sale” price next to a “regular” price that reflects neither customary store prices nor the prevailing market price, violated California’s unfair competition, false advertising, and consumer protection laws. On July 15, 2016, Harbor Freight filed a motion to dismiss the proposed class action, arguing that the plaintiff had failed to state a claim because he had received the “benefit of the bargain,” since the plaintiff had not alleged that the items were worth less than the price he paid. In October, Judge Christina A. Snyder denied Harbor Freight’s motion to dismiss, finding that the plaintiff offered sufficient factual allegations that he purchased products pursuant to the misleading advertising scheme and in reliance upon the misleading pricing scheme. Ted Shimono, et al. v. Harbor Freight Tools USA, Inc., No. EDCV16-1052-CAS (C.D. Cal. Oct. 24, 2016) (slip op. available here), at 15.

Plaintiff Shimono’s claims address several common, yet deceptive, advertising schemes used by retailers to convince purchasers that they are buying discounted goods, when, in fact, the goods are priced at customary store prices. Slip op. at 2. In addition to listing sales prices next to misleading regular prices, the plaintiff alleged Harbor Freight used deceptive coupons that advertised “20% off your purchase” with small text below stating “of any one item,” and Harbor Freight would only apply the 20% discount to the lowest priced item in customers’ orders. Id. at 3-4. Moreover, the plaintiff alleged Harbor Freight advertised different prices simultaneously and charged the highest advertised price, falsely labelled substandard products as of the “highest” quality, and used a limited warranty that was “substantially shorter and more limited that those typical of its competitors.” Id. at 4.

The court relied on the Ninth Circuit’s ruling in Hinojos v. Kohl’s Corp., 718 F.3d 1098, 1104 n.3 (9th Cir. 2013), which found that class members had suffered an injury-in-fact when they purchased a product or paid more for a product than they otherwise would have, due to misleading advertising, and that the plaintiff had thus alleged a concrete and particularized injury. Slip op. at 6. In Shimono, Harbor Freight unsuccessfully argued that this is an abstract injury, and that the plaintiff has no statutory standing, because the plaintiff did not allege he bought a product that was worth less than he paid. Id. at 7. Furthermore, the Shimono court found the plaintiff had standing to seek injunctive relief even though he is now aware of Harbor Freight’s pricing practices and, as Harbor Freight argued, there is therefore no plausible risk of future injury, as such an argument could broadly preclude prospective relief in consumer protection contexts. Id. at 13.

While this is a favorable ruling for California consumers, Judge Snyder cautioned that the plaintiff would still have to prove Harbor Freight made misleading representations and absent class members encountered the same types of misrepresentations. Slip op. at 14-15. However, the court’s ruling on this motion, which re-affirms Hinojos, represents a continuing victory for California consumers. Listing of sales prices adjacent to regular prices that match neither customary store prices nor market prices has been a longstanding practice of the retail industry. Such practices create a false sense of a discount coupled with the time pressure of a sale that often induces customers into purchases that they would not ordinarily make. The prospect of injunctive relief barring retailers from using such deceptive sales tactics marks a significant potential change that could go a long way in protecting consumers.

Authored by: 
Ishan Dave, Associate