Jenner & Block

Ninth Circuit Reaffirms Narrow Scope of Restitution Under California Consumer Protection Statutes

By Alexander M. Smith

RetailIn the last three years, the Ninth Circuit and the California Court of Appeal have issued a pair of decisions clarifying that restitution under California’s consumer protection statutes is limited to the difference between the price a consumer paid for the product and the value the consumer received from that product—i.e., the “price premium” attributable to the defendant’s conduct.  See In re Tobacco Cases II, 240 Cal. App. 4th 779, 791-802 (2015); Brazil v. Dole Packaged Foods, LLC, 660 F. App’x 531, 534-35 (9th Cir. 2016).  Earlier this week, the Ninth Circuit continued this line of cases in Chowning v. Kohl’s Department Stores, Inc., which reaffirmed that “[t]he proper calculation of restitution . . . is price paid versus value received” and rejected a variety of alternative restitution models suggested by the plaintiff.  No. 16-56272, 2018 WL 3016908, at *1 (9th Cir. June 18, 2016). 

In Chowning, the plaintiff alleged that Kohl’s misled consumers by displaying alongside the sale price for its products an inflated “Actual Retail Price,” which was not the prevailing market retail price and which caused consumers to believe that they were receiving a larger discount than they were.  As a result, the plaintiff alleged that she and other putative class members were deceived into buying products that they would not have purchased but for Kohl’s misleading price comparisons.  In March 2016, Judge Klausner of the Central District of California granted Kohl’s motion for summary judgment.  He identified “three limiting principles” that defined the appropriate scope of restitution under California law: (1) that “restitution cannot be ordered exclusively for the purpose of deterrence”; (2) that any proposed method of restitution “must account for the benefits or value that a plaintiff received at the time of purchase”; and (3) that “the amount of restitution ordered must represent a measurable loss supported by the evidence.”  No. 15-8673, 2016 WL 1072129, at *6 (C.D. Cal. Mar. 15, 2016). 

Applying those principles, Judge Klausner found that the plaintiff’s proposed “actual discount” model—which determined the percentage of the discount between the sale price and the “Actual Retail Price,” applied that percentage discount to the prevailing retail price of the item, and then awarded plaintiffs the difference between what they paid and the price that the item would have sold for if the same discount was applied to the prevailing retail price—was deficient because it was “not actually a measure of restitution.”  Id. at *10.  Instead, he reasoned, it “seeks to award Plaintiff the full benefit of the transaction she thought she was entering into—a measure more akin to expectation damages than restitution.”  Id.  Judge Klausner likewise rejected the plaintiff’s argument that a full refund of the purchase price was an appropriate measure of restitution, as it failed to account for the value the plaintiff derived from the products she purchased.  Id. at *7-8.  And Judge Klausner rejected the plaintiff’s argument that disgorgement of Kohl’s profits was a proper remedy, as it focused on Kohl’s gains rather than the losses the plaintiff may have suffered as a result of Kohl’s conduct.  Id. at *9.  And because the value of the items exceeded the amount she paid, Judge Klausner concluded that the plaintiff was not entitled to restitution—even if Kohl’s had deceptively inflated the size of the discounts it had offered.  Id. at *11-13.  

The Ninth Circuit affirmed.  Beginning from the premise that “the appropriate calculation for restitution is the price [the plaintiff] paid for the articles versus the value of the articles she received,” the Ninth Circuit held that the plaintiff had not established an entitlement to restitution because she had provided no evidence that the clothes she purchased were worth less than she paid for them.  2018 WL 3016908, at *1.  Like Judge Klausner, the Ninth Circuit held that the plaintiff was not entitled to a full refund (because she “received some value from the articles of clothing”) or disgorgement (as “[n]onrestitutionary disgorgement is unavailable in UCL actions”).  Id. at *2.  Similarly, the Ninth Circuit held that the “actual discount” model of calculating restitution was improper because it “would effectively seek damages sounding in contract,” rather than the equitable remedy of restitution.  Id.

In issuing its opinion, the Ninth Circuit distinguished its earlier opinion in Pulaski & Middleman, LLC v. Google, Inc., which held that “restitution is based on what a purchaser would have paid at the time of purchase had the purchaser received all the information” and which approved a creative restitution model based on an internal algorithm Google used to discount per-click advertising prices “to the levels a rational advertiser would have bid if it had access to all of Google’s data about how ads perform on different websites.”  802 F.3d 979, 989 (9th Cir. 2015).  The Ninth Circuit reasoned that its holding here was broadly consistent with its holding in Pulaski, as both cases held that restitution was limited to the difference between what the plaintiff paid and what the plaintiff received.  Chowning, 2018 WL 3016908, at *1 n.3.  And to the extent Pulaski supported the plaintiff’s alternative models of restitution, the Ninth Circuit explained, it was inconsistent with the California Court of Appeal’s In re Tobacco Cases II opinion and was no longer good law.  Id. 

The decision is available here.

PEOPLE: Alexander M. Smith