Questionable Price Premium Claims May Pay Off for Defendants | Faegre Drinker Biddle & Reath LLP

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Motions to dismiss in consumer fraud cases often focus on the element of deception, namely whether a reasonable consumer would be deceived by the statement or practice in question. But there is another element of legal consumer fraud claims that merits further consideration at the plea stage: harm. When plaintiffs claim they were injured because they paid a “premium price” but do not allege facts to support that claim, defendants should consider seeking a dismissal for failure to plead. adequately the harm.

State consumer protection laws generally include personal injury as a required element for a private cause of action. New York State General Business Law Sections 349 and 350, for example, require a claimant to establish that he purchased a product as a result of allegedly deceptive marketing practices and that he did not receive the full value of the purchase. Likewise, plaintiffs bringing an action under the California Unfair Competition Act, Deceptive Advertising Act or Consumer Legal Remedies Act must establish that they have suffered “economic harm” caused by the. practice or advertising involved.

Complainants generally rely on a “price premium” theory to meet the injury requirement under these laws. A price premium is simply an alleged overpayment. For example, in a lawsuit challenging the use of the term “natural” on a granola bar label, the plaintiff alleges that the price of the granola bar is higher than it would be if it were not labeled. “Natural”. And an allegation in this sense, perhaps specifying the price the complainant actually paid, is often all a complaint says about harm.

Such conclusive price premium claims should not be enough. Under the Twombly / Iqbal pleading standard, legal conclusions, even if formulated as facts, are insufficient; claimants must allege facts which establish the requisite elements of their claims. To allege injury on the basis of a premium theory, a complainant must rely on facts demonstrating the existence of a premium, such as the prices of comparable products without the special feature presented.

A handful of decisions have recognized that complainants must do more than invoke the concept of a “price premium” to allege injury. A good example is Babaian v. Dunkin ‘Brands Grp. Inc., No. 17-4890, 2018 US Dist. LEXIS 98673, at * 15-20 (CD Cal. June 12, 2018). The applicant alleged that it was misleading to refer to the donuts as “blueberry” or “maple” because the donuts did not actually contain blueberries or maple syrup. He alleges that he suffered economic harm when he bought the donuts because they were worth less than he paid for, and that he would not have bought them at all if he had known that they did not contain blueberries or maple syrup. The court concluded that these allegations were insufficient. The court concluded that neither the plaintiff’s “subjective willingness to pay” nor the allegedly higher cost and greater “health value” of the real blueberry and maple ingredients supported a plausible inference that Dunkin ‘was extracting a premium price for its donuts. And although the plaintiff proposed a list of competitors who sold similar products with real ingredients made from blueberries and maple, the court found that this fact did not support the over-price claim in the absence of information on the prices of the products of these competitors. Therefore, the court allowed Dunkin’s motion to dismiss.

Other decisions in California and New York have applied a similar analysis and granted motions to dismiss consumer fraud claims for products such as restaurant food, candy and clothing because the plaintiffs do not have not alleged facts to support their theory of harm. See Harris v. McDonald’s Corp., No. 20-CV-06533-RS, 2021 WL 2172833, at * 2 (ND Cal. March 24, 2021); Colella c. Atkins Nutritionals, Inc., 348 F. Supp. 3d 120, 143 (EDNY 2018); DaCorta v. AM Retail Grp., Inc., # 16-CV-01748, 2018 WL 557909, at * 7-8 (SDNY January 23, 2018); Borenkoff v. Buffalo Wild Wings, Inc., # 16-cv-8532, 2018 WL 502680, at * 4 (SDNY January 19, 2018); Izquierdo v. Mondelez Int’l, Inc., # 16-cv-04697, 2016 WL 6459832, at * 7 (SDNY October 26, 2016).

Challenging over-price claims may be particularly effective in cases involving inexpensive products, where the idea that there is a price premium may be prima facie implausible, and where the claimant would have hard to cite an example of a comparable product with a lower price. See Harris, 2021 WL 2172833, at * 2 (the allegation that soft serve ice cream sold in quick service restaurants was priced higher was “counterintuitive” “given the price stated in the complaint and the context of the market “) .

These decisions show that challenging the adequacy of a claimant’s premium claims can be a winning argument at the oral stage. The argument pairs well with the more common reasonable consumer argument; both provide independent grounds for rejection, and the combination may reassure a judge who would be reluctant to dismiss a case based solely on the reasonable consumer test.

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